Internal Revenue Bulletin 1997-5 by pmi81191

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									                                                                                            Bulletin No. 1997–5
                                                                                              February 3, 1997




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                                                       agreement does not result in private business use under
                                                                 section 141(b) of the Code. This procedure also applies
Rev. Rul. 97–7, page 14.                                         to determinations of whether a research agreement
Federal rates; adjusted federal rates; adjusted fed-             causes the test in section 145(a)(2)(B) of the Code to
eral long-term rate, and the long-term exempt rate.              be met for qualified 501(c)(3) bonds.
For purposes of sections 1274, 1288, 382, and other
sections of the Code, tables set forth the rates for             Rev. Proc. 97–15, page 21.
February 1997.                                                   Tax-exempt bonds; private activity bonds. This proce-
                                                                 dure provides a program under which an issuer of state
T.D. 8690, page 5.
                                                                 or local bonds may request a closing agreement regard-
Final regulations under section 170 of the Code provide
guidance regarding the allowance of certain charitable           ing outstanding bonds to fail to meet certain require-
contribution deductions, the substantiation requirements         ments of sections 141 through 150 of the Code relating
for charitable contributions of $250 or more, and the            to use of proceeds as a result of an action subsequent
disclosure requirements for quid pro quo contributions in        to the issue date.
excess of $75.
                                                                 EXEMPT ORGANIZATIONS
T.D. 8691, page 16.
Final regulations under section 6335 of the Code relate          Announcement 97–9, page 27.
to the sale of seized property.                                  A list is given of organizations now classified as private
                                                                 foundations.
Rev. Proc. 97–13, page 18.
Tax-exempt bonds; private activity bonds. This proce-            ADMINISTRATIVE
dure sets forth conditions under which a management
contract does not result in private business use under           Rev. Proc. 97–16, page 25.
section 141(b) of the Code. This procedure also applies          Domestic asset/liability and investment yield percent-
to determinations of whether a management contract               ages. This procedure provides the domestic asset/
causes the test in section 145(a)(2)(B) to be met for            liability percentages and domestic investment yield per-
qualified 501(c)(3) bonds.                                       centages necessary for foreign companies conducting
                                                                 insurance business in the United States to compute the
Rev. Proc. 97–14, page 20.                                       minimum effectively connected net investment income
Tax-exempt bonds; private activity bonds. This proce-            under section 842(b) for taxable years after December
dure sets forth conditions under which a research                31, 1995.




Finding Lists begin on page 31.
Announcement of Disbarments and Suspensions begins on page 29.
Monthly Index for January begins on page 33.
Mission of the Service

The purpose of the Internal Revenue Service is to              quality of our products and services; and perform in a
collect the proper amount of tax revenue at the least          manner warranting the highest degree of public
cost; serve the public by continually improving the            confidence in our integrity, efficiency and fairness.




Statement of Principles
of Internal Revenue
Tax Administration
The function of the Internal Revenue Service is to             The Service also has the responsibility of applying
administer the Internal Revenue Code. Tax policy               and administering the law in a reasonable,
for raising revenue is determined by Congress.                 practical manner. Issues should only be raised by
                                                               examining of ficers when they have merit, never
With this in mind, it is the duty of the Service to            arbitrarily or for trading purposes. At the same
carry out that policy by correctly applying the laws           time, the examining officer should never hesitate
enacted by Congress; to determine the reasonable               to raise a meritorious issue. It is also important
meaning of various Code provisions in light of the             that care be exercised not to raise an issue or to
Congressional purpose in enacting them; and to                 ask a court to adopt a position inconsistent with
perform this work in a fair and impartial manner,              an established Service position.
with neither a government nor a taxpayer point of view.
                                                               Administration should be both reasonable and
At the heart of administration is interpretation of the        vigorous. It should be conducted with as little
Code. It is the responsibility of each person in the           delay as possible and with great cour tesy and
Service, charged with the duty of interpreting the             considerateness. It should never try to overreach,
law, to try to find the true meaning of the statutory          and should be reasonable within the bounds of law
provision and not to adopt a strained construction in          and sound administration. It should, however, be
the belief that he or she is ‘‘protecting the revenue.’’       vigorous in requiring compliance with law and it
The revenue is properly protected only when we as-             should be relentless in its attack on unreal tax
certain and apply the true meaning of the statute.             devices and fraud.




                                                           2
Introduction

The Internal Revenue Bulletin is the authoritative instru-                                             court decisions, rulings, and procedures must be consid-
ment of the Commissioner of Internal Revenue for                                                       ered, and Service personnel and others concerned are
announcing official rulings and procedures of the Inter-                                               cautioned against reaching the same conclusions in
nal Revenue Service and for publishing Treasury Deci-                                                  other cases unless the facts and circumstances are
sions, Executive Orders, Tax Conventions, legislation,                                                 substantially the same.
court decisions, and other items of general interest. It is
published weekly and may be obtained from the Superin-                                                 The Bulletin is divided into four parts as follows:
tendent of Documents on a subscription basis. Bulletin
contents of a permanent nature are consolidated semi-
annually into Cumulative Bulletins, which are sold on a                                                Part I.—1986 Code.
single-copy basis.                                                                                     This part includes rulings and decisions based on
                                                                                                       provisions of the Internal Revenue Code of 1986.
It is the policy of the Service to publish in the Bulletin all
substantive rulings necessary to promote a uniform                                                     Part II.—Treaties and Tax Legislation.
application of the tax laws, including all rulings that                                                This part is divided into two subparts as follows:
supersede, revoke, modify, or amend any of those                                                       Subpart A, Tax Conventions, and Subpart B, Legislation
previously published in the Bulletin. All published rulings                                            and Related Committee Reports.
apply retroactively unless otherwise indicated. Proce-
dures relating solely to matters of internal management                                                Part III.—Administrative, Procedural, and Miscellaneous.
are not published; however, statements of internal                                                     To the extent practicable, pertinent cross references to
practices and procedures that affect the rights and                                                    these subjects are contained in the other Parts and
duties of taxpayers are published.                                                                     Subparts. Also included in this part are Bank Secrecy
                                                                                                       Act Administrative Rulings. Bank Secrecy Act Administra-
Revenue rulings represent the conclusions of the Ser-                                                  tive Rulings are issued by the Department of the
vice on the application of the law to the pivotal facts                                                Treasury’s Office of the Assistant Secretary (Enforce-
stated in the revenue ruling. In those based on positions                                              ment).
taken in rulings to taxpayers or technical advice to
Service field offices, identifying details and information                                             Part IV.—Items of General Interest.
of a confidential nature are deleted to prevent unwar-                                                 With the exception of the Notice of Proposed Rulemak-
ranted invasions of privacy and to comply with statutory                                               ing and the disbarment and suspension list included in
requirements.                                                                                          this part, none of these announcements are consoli-
                                                                                                       dated in the Cumulative Bulletins.
Rulings and procedures reported in the Bulletin do not
have the force and effect of Treasury Department                                                       The first Bulletin for each month includes an index for
Regulations, but they may be used as precedents.                                                       the matters published during the preceding month.
Unpublished rulings will not be relied on, used, or cited                                              These monthly indexes are cumulated on a quarterly and
as precedents by Service personnel in the disposition of                                               semiannual basis, and are published in the first Bulletin
other cases. In applying published rulings and proce-                                                  of the succeeding quarterly and semi-annual period,
dures, the effect of subsequent legislation, regulations,                                              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, D.C. 20402.




                                                                                                  3
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 42.—Low-Income Housing                        includible in gross income of bondholders or (2)     Section 144.—Qualified Small Issue
                                                      to prevent the interest on those bonds from being
Credit                                                treated as an item of tax preference for purposes
                                                                                                           Bond; Qualified Student Loan Bond;
   The adjusted applicable federal short-term, mid-   of the alternative minimum tax for bondholders, in   Qualified Redevelopment Bond
term, and long-term rates are set forth for the       each case as a result of an action subsequent to        What are the procedures under which an issuer
month of February 1997. See Rev. Rul. 97–7,           the issue date that causes those bonds to fail to    of state or local bonds may request a closing
page 14.                                              meet certain requirements of §§ 141 through 150      agreement with respect to outstanding bonds (1) to
                                                      of the Internal Revenue Code relating to use of      prevent the interest on those bonds from being
                                                      proceeds? See Rev. Proc. 97–15, page 21.             includible in gross income of bondholders or (2)
Section 57.—Items of Tax                                                                                   to prevent the interest on those bonds from being
Preference                                            26 CFR 1.141–3: Definition of private business       treated as an item of tax preference for purposes
                                                      use.                                                 of the alternative minimum tax for bondholders, in
   What are the procedures under which an issuer                                                           each case as a result of an action subsequent to
of state or local bonds may request a closing            What are the conditions under which a manage-     the issue date that causes those bonds to fail to
agreement with respect to outstanding bonds (1) to    ment contract does not result in private business    meet certain requirements of §§ 141 through 150
prevent the interest on those bonds from being        use under § 141(b) or § 145(a)(2)(B) of the          of the Internal Revenue Code relating to use of
includible in gross income of bondholders or (2)      Internal Revenue Code? See Rev. Proc. 97–13,         proceeds? See Rev. Proc. 97–15, page 21.
to prevent the interest on those bonds from being     page 18.
treated as an item of tax preference for purposes
of the alternative minimum tax for bondholders, in                                                         26 CFR 1.144–2: Remedial actions.
                                                        What are the conditions under which a research
each case as a result of an action subsequent to
                                                      agreement does not result in private business use       What are the procedures under which an issuer
the issue date that causes those bonds to fail to
                                                      under § 141(b) or § 145(a)(2)(B) of the Internal     of state or local bonds may request a closing
meet certain requirements of §§ 141 through 150
                                                      Revenue Code? See Rev. Proc. 97–14, page 20.         agreement with respect to outstanding bonds (1) to
of the Internal Revenue Code relating to use of
                                                                                                           prevent the interest on those bonds from being
proceeds? See Rev. Proc. 97–15, page 21.
                                                                                                           includible in gross income of bondholders or (2)
                                                      26 CFR 1.141–12: Remedial actions.
                                                                                                           to prevent the interest on those bonds from being
                                                         What are the procedures under which an issuer     treated as an item of tax preference for purposes
Section 103.—Interest on State and                                                                         of the alternative minimum tax for bondholders, in
                                                      of state or local bonds may request a closing
Local Bonds                                           agreement with respect to outstanding bonds (1) to   each case as a result of an action subsequent to
                                                      prevent the interest on those bonds from being       the issue date that causes those bonds to fail to
   What are the conditions under which a manage-
                                                      includible in gross income of bondholders or (2)     meet certain requirements of §§ 141 through 150
ment contract does not result in private business
                                                      to prevent the interest on those bonds from being    of the Internal Revenue Code relating to use of
use under § 141(b) or § 145(a)(2)(B) of the
                                                      treated as an item of tax preference for purposes    proceeds? See Rev. Proc. 97–15, page 21.
Internal Revenue Code? See Rev. Proc. 97–13,
page 18.                                              of the alternative minimum tax for bondholders, in
                                                      each case as a result of an action subsequent to
                                                      the issue date that causes those bonds to fail to    Section 145.—Qualified 501(c)(3)
  What are the conditions under which a research      meet certain requirements of §§ 141 through 150
agreement does not result in private business use     of the Internal Revenue Code relating to use of      Bonds
under § 141(b) or § 145(a)(2)(B) of the Internal      proceeds? See Rev. Proc. 97–15, page 21.
Revenue Code? See Rev. Proc. 97–14, page 20.                                                                  What are the conditions under which a manage-
                                                                                                           ment contract does not result in private business
                                                                                                           use under § 141(b) or § 145(a)(2)(B) of the
   What are the procedures under which an issuer
of state or local bonds may request a closing
                                                      Section 142.—Exempt Facility                         Internal Revenue Code? See Rev. Proc. 97–13,
                                                      Bond                                                 page 18.
agreement with respect to outstanding bonds (1) to
prevent the interest on those bonds from being           What are the procedures under which an issuer
includible in gross income of bondholders or (2)      of state or local bonds may request a closing          What are the conditions under which a research
to prevent the interest on those bonds from being     agreement with respect to outstanding bonds (1) to   agreement does not result in private business use
treated as an item of tax preference for purposes     prevent the interest on those bonds from being       under § 141(b) or § 145(a)(2)(B) of the Internal
of the alternative minimum tax for bondholders, in    includible in gross income of bondholders or (2)     Revenue Code? See Rev. Proc. 97–14, page 20.
each case as a result of an action subsequent to      to prevent the interest on those bonds from being
the issue date that causes those bonds to fail to     treated as an item of tax preference for purposes
meet certain requirements of §§ 141 through 150                                                               What are the procedures under which an issuer
                                                      of the alternative minimum tax for bondholders, in
of the Internal Revenue Code relating to use of                                                            of state or local bonds may request a closing
                                                      each case as a result of an action subsequent to
proceeds? See Rev. Proc. 97–15, page 21.                                                                   agreement with respect to outstanding bonds (1) to
                                                      the issue date that causes those bonds to fail to
                                                                                                           prevent the interest on those bonds from being
                                                      meet certain requirements of §§ 141 through 150
                                                                                                           includible in gross income of bondholders or (2)
                                                      of the Internal Revenue Code relating to use of
Section 141.—Private Activity                                                                              to prevent the interest on those bonds from being
                                                      proceeds? See Rev. Proc. 97–15, page 21.
                                                                                                           treated as an item of tax preference for purposes
Bond; Qualified Bond                                                                                       of the alternative minimum tax for bondholders, in
   What are the conditions under which a manage-      26 CFR 1.142–2: Remedial actions.                    each case as a result of an action subsequent to
ment contract does not result in private business                                                          the issue date that causes those bonds to fail to
                                                         What are the procedures under which an issuer     meet certain requirements of §§ 141 through 150
use under § 141(b) or § 145(a)(2)(B) of the
                                                      of state or local bonds may request a closing        of the Internal Revenue Code relating to use of
Internal Revenue Code? See Rev. Proc. 97–13,
                                                      agreement with respect to outstanding bonds (1) to   proceeds? See Rev. Proc. 97–15, page 21.
page 18.
                                                      prevent the interest on those bonds from being
                                                      includible in gross income of bondholders or (2)
  What are the conditions under which a research      to prevent the interest on those bonds from being    26 CFR 1.145–2: Application of private activity
agreement does not result in private business use     treated as an item of tax preference for purposes    bond regulations.
under § 141(b) or § 145(a)(2)(B) of the Internal      of the alternative minimum tax for bondholders, in
Revenue Code? See Rev. Proc. 97–14, page 20.          each case as a result of an action subsequent to        What are the conditions under which a manage-
                                                      the issue date that causes those bonds to fail to    ment contract does not result in private business
                                                      meet certain requirements of §§ 141 through 150      use under § 141(b) or § 145(a)(2)(B) of the
  What are the procedures under which an issuer
                                                      of the Internal Revenue Code relating to use of      Internal Revenue Code? See Rev. Proc. 97–13,
of state or local bonds may request a closing
                                                      proceeds? See Rev. Proc. 97–15, page 21.             page 18.
agreement with respect to outstanding bonds (1) to
prevent the interest on those bonds from being

                                                                             4
  What are the conditions under which a research     SUMMARY: This document contains fi-          Background
agreement does not result in private business use    nal regulations that provide guidance
under § 141(b) or § 145(a)(2)(B) of the Internal                                                     This document contains amendments
Revenue Code? See Rev. Proc. 97–14, page 20.         regarding the allowance of certain chari-
                                                     table contribution deductions, the sub-      to the Income Tax Regulations (26 CFR
                                                     stantiation requirements for charitable      part 1) that provide guidance relating to
   What are the procedures under which an issuer                                                  (1) the substantiation rules for charitable
of state or local bonds may request a closing        contributions of $250 or more, and the
agreement with respect to outstanding bonds (1) to   disclosure requirements for quid pro quo     contributions under section 170(f)(8) of
prevent the interest on those bonds from being       contributions in excess of $75. The          the Internal Revenue Code of 1986
includible in gross income of bondholders or (2)
                                                     regulations will affect organizations de-    (Code), and (2) the disclosure require-
to prevent the interest on those bonds from being                                                 ments for quid pro quo contributions
treated as an item of tax preference for purposes    scribed in section 170(c) and individuals
of the alternative minimum tax for bondholders, in   and entities that make payments to these     under section 6115. Sections 170(f)(8)
each case as a result of an action subsequent to     organizations.                               and 6115 were added to the Code by
the issue date that causes those bonds to fail to                                                 sections 13172 and 13173 of the Omni-
meet certain requirements of §§ 141 through 150      EFFECTIVE DATE: These regulations            bus Budget Reconciliation Act of 1993,
of the Internal Revenue Code relating to use of                                                   Pub. L. No. 103–66, 107 Stat. 455,
proceeds? See Rev. Proc. 97–15, page 21.             are effective December 16, 1996.
                                                                                                  1993–3 C.B. 43.
                                                     FOR FURTHER INFORMATION                         Temporary regulations (TD 8544) and
Section 147.—Other Requirements                      CONTACT: Jefferson K. Fox of the             a notice of proposed rulemaking cross-
Applicable to Certain Private                        Office of Assistant Chief Counsel (In-       referencing the temporary regulations
Activity Bonds                                       come Tax and Accounting) at 202–             were published in the Federal Register
                                                     622–4930 (not a toll-free call).             for May 27, 1994 (59 FR 27458,
   What are the procedures which an issuer of
state or local bonds may request a closing agree-                                                 27515). Those regulations primarily ad-
ment with respect to outstanding bonds (1) to        SUPPLEMENTARY INFORMATION:                   dressed substantiation of charitable con-
prevent the interest on those bonds from being                                                    tributions made by payroll deduction
includible in gross income of bondholders or (2)     Paperwork Reduction Act                      and substantiation of payments to a
to prevent the interest on those bonds from being
treated as an item of tax preference for purposes
                                                                                                  charitable organization in exchange for
                                                        The collection of information con-
of the alternative minimum tax for bondholders, in                                                goods or services of insubstantial value.
                                                     tained in these final regulations has been
each case as a result of an action subsequent to                                                  The notice of proposed rulemaking indi-
the issue date that causes those bonds to fail to    reviewed and approved by the Office of
                                                                                                  cated that comments would be consid-
meet certain requirements of §§ 141 through 150      Management and Budget in accordance
                                                                                                  ered both on the issues addressed in the
of the Internal Revenue Code relating to use of      with the requirements of the Paperwork
proceeds? See Rev. Proc. 97–15, page 21.                                                          temporary regulations, and on other is-
                                                     Reduction Act (44 U.S.C. 3507) under
                                                                                                  sues arising under section 170(f)(8).
                                                     control number 1545–1464. Responses
26 CFR 1.147–2: Remedial actions.                    to this collection of information are           A notice of proposed rulemaking (IA–
                                                     required for charitable contribution de-     44–94) addressing substantiation issues
   What are the procedures under which an issuer
of state or local bonds may request a closing        ductions under section 170.                  under section 170(f)(8) other than con-
agreement with respect to outstanding bonds (1) to                                                tributions made by payroll deduction
                                                        An agency may not conduct or spon-        was published in the Federal Register
prevent the interest on those bonds from being
includible in gross income of bondholders or (2)     sor, and a person is not required to         for August 4, 1995 (60 FR 39896).
to prevent the interest on those bonds from being    respond to, a collection of information      Included in these proposed regulations
treated as an item of tax preference for purposes    unless the collection of information dis-    were the provisions that had originally
of the alternative minimum tax for bondholders, in   plays a valid control number.
each case as a result of an action subsequent to                                                  appeared in the temporary regulations
the issue date that causes those bonds to fail to       The estimated annual burden per           published on May 27, 1994, relating to
meet certain requirements of §§ 141 through 150      recordkeeper varies from three minutes       the substantiation of payments to chari-
of the Internal Revenue Code relating to use of      to one hour, depending on individual
proceeds? See Rev. Proc. 97–15, page 21.
                                                                                                  table organizations in exchange for
                                                     circumstances, with an estimated aver-       goods or services of insubstantial value.
                                                     age of six minutes.                          In drafting these proposed regulations,
Section 170.—Charitable, Etc.,                          Comments concerning the accuracy of       the IRS had the benefit of the comments
Contributions and Gifts                              this burden estimate and suggestions for     received in response to the notice of
                                                     reducing this burden should be sent to       proposed rulemaking published in the
26 CFR 1.170A–1: Charitable, etc., contributions     the Internal Revenue Service, Attn:          Federal Register for May 27, 1994.
and gifts; allowance of deduction.
                                                     IRS Reports Clearance Officer, PC:FP,        Many of the suggestions offered in the
T.D. 8690                                            Washington, DC 20224, and to the Of-         comments were incorporated into the
                                                     fice of Management and Budget, Attn:         proposed regulations.
DEPARTMENT OF THE TREASURY                           Desk Officer for the Department of the          Final regulations (TD 8623) relating
Internal Revenue Service                             Treasury, Office of Information and          to the substantiation of charitable contri-
26 CFR Parts 1 and 602                               Regulatory Affairs, Washington, DC           butions made by payroll deduction were
                                                     20503.                                       published in the Federal Register for
Deductibility, Substantiation, and                      Books or records relating to this col-    October 12, 1995 (60 FR 53126). These
Disclosure of Certain Charitable                     lection of information must be retained      final regulations did not include the
Contributions                                        as long as their contents may be mate-       provisions relating to the substantiation
AGENCY: Internal Revenue Service                     rial in the administration of any internal   of payments to charitable organizations
(IRS), Treasury.                                     revenue law. Generally, tax returns and      in exchange for goods or services with
                                                     tax return information are confidential,     insubstantial value that had appeared in
ACTION: Final regulations.                           as required by 26 U.S.C. 6103.               the temporary regulations published on
                                                                         5
May 27, 1994 and were also included in        menter questioned whether donor appre-        contribution by a donor who refuses
the proposed regulations published on         ciation events, such as banquets honor-       benefits offered by a charitable organi-
August 4, 1995. The temporary regula-         ing contributors, are held ‘‘in               zation. One commenter suggested that
tions published in the Federal Register       consideration for’’ charitable contribu-      the regulations indicate that when a
for May 27, 1994, were removed. For           tions. The commenter also asked               taxpayer receives a right to quid pro quo
the convenience of taxpayers, the final       whether invitations to occasional events      benefits but does not use them, the
regulations relating to the substantiation    not disclosed to prospective donors until     taxpayer is not necessarily allowed a
of charitable contributions made by pay-      after they make their contributions are       charitable contribution deduction in the
roll deduction (§ 1.170A–13(f)(11) and        ‘‘in exchange for’’ the contributions.        full amount of the quid pro quo pay-
(12)) that were published in the Federal         The regulations follow American Bar        ment. Another suggested that a taxpayer
Register for May 27, 1994, have been          Endowment by incorporating a standard         wishing to deduct the full amount of a
reprinted with the final regulations          that is based on the facts and circum-        quid pro quo payment could check a
adopted by this Treasury Decision.            stances of each charitable contribution.      box on a document to be sent to the
   Comments were received in response         When a donor’s contribution is made in        charity at the time of contribution to
to the notice of proposed rulemaking          response to an express promise of a           show refusal of the benefit.
published on August 4, 1995, and a            benefit, the donor generally will have an        These comments are consistent with
public hearing was held on November 1,        expectation of a quid pro quo. A donor        IRS views. Rev. Rul. 67– 246, 1967–2
1995. After consideration of those com-       may also have an expectation of a quid        C.B. 104, provides guidance relating to
ments, together with the relevant com-        pro quo when the donor makes a contri-        the refusal of benefits offered by a
ments received in response to the notice      bution with knowledge that the charitable     charitable organization. The revenue rul-
of proposed rulemaking published on           donee has conferred a benefit on other        ing holds that a taxpayer choosing not
May 27, 1994, the proposed regulations        donors making comparable contributions.       to use tickets that were made available
under sections 170(f)(8) and 6115 are         For example, if a charity has a history of    to him is not entitled to a greater
adopted as revised by this Treasury           sponsoring a dinner-dance for donors          contribution than would otherwise be
Decision.                                     making substantial contributions, a donor     allowed; i.e., the deduction is limited to
                                              making a substantial contribution may         the amount paid in excess of the value
Public Comments                               have an expectation of receiving an invi-     of the tickets received in exchange.
Intent to Make a Charitable Contribu-         tation to such an event. The expectation      1967–2 C.B. 106. A deduction in the
tion                                          of a quid pro quo may exist even though       full amount of a taxpayer’s payment
                                              the donor is not aware of the exact nature    may be allowed, however, if the tax-
   Section 1.170A–1(h) of the final regu-     of the quid pro quo (e.g., a donation to a    payer properly rejects the right to the
lations incorporates the two-part test        charity that sponsors a donor appreciation    tickets. Rev. Rul. 67–246 contains two
adopted by the Supreme Court in United        event of a different type every year). This   examples (Examples 3 and 7) illustrat-
States v. American Bar Endowment, 477         standard for determining a donor’s expec-     ing ways that donors can effectively
U.S. 105 (1986), for determining de-          tation of a quid pro quo disallows deduc-     reject benefits offered by charitable or-
ductibility under section 170(a) of a         tions in situations where facts and cir-      ganizations. Example 7 illustrates that a
payment that is partly in consideration       cumstances indicate that the donor            check-off box on a form provided by
for goods or services. A deduction is not     expected, at the time of his or her           the charity can be used to reject a ticket
allowed for a payment to charity in           payment to charity, that there would be a     at the time of contribution. A taxpayer
consideration for goods or services ex-       quid pro quo, even though there was no        who has properly rejected a benefit
cept to the extent the amount of the          explicit promise of one.                      offered by a charitable organization may
payment exceeds the fair market value            A commenter requested guidance on          claim a deduction in the full amount of
of the goods or services. In addition, a      the proper treatment of a payment in          the payment to the charitable organiza-
deduction is not allowed unless the           consideration for a quid pro quo received     tion, and the contemporaneous written
taxpayer intends to make a payment in         in a year after the year of payment.          acknowledgment need not reflect the
excess of the fair market value of the        Under section 1.170A–13(f)(6), goods or       value of the rejected benefit.
goods or services.                            services provided by donee organizations
   Section 1.170A–13(f)(6) provides that      in consideration for a donor’s payment        Certain Goods or Services Disregarded
a charitable organization provides goods      include goods or services provided in a
or services ‘‘in consideration for’’ a                                                         Goods or services with insubstantial
                                              year other than the year of payment.
taxpayer’s payment if, at the time of                                                       value
                                              Accordingly, if a donor makes a payment
payment, the taxpayer receives or ‘‘ex-       to a charitable organization in exchange         Under guidelines set forth in Rev.
pects to receive’’ goods or services in       for goods or services, the donor’s deduct-    Proc. 90–12, 1990–1 C.B. 471, and Rev.
exchange. One commenter stated that a         ible charitable contribution for the year     Proc. 92–49, 1992–1 C.B. 987, certain
charitable organization has no way of         of payment is limited to the amount, if       goods or services received in exchange
knowing what a taxpayer expects to            any, by which the payment exceeds the         for a payment to a charity are treated as
receive, and that the regulation requires     value of those goods or services, even if     having insubstantial value and can there-
the charity to determine its donors’ states   they are not available to the donor until a   fore be disregarded for the purpose of
of mind. The commenter suggested that         subsequent year.                              determining the amount of a taxpayer’s
a payment be treated as made in consid-                                                     payment that is deductible as a chari-
eration for goods or services ‘‘if the        Refusal of Benefits                           table contribution. Under these guide-
donee organization expects to provide                                                       lines, if a taxpayer makes a payment to
and does provide services of which the           Commenters asked for guidance on           a charitable organization in the context
donor has been informed.’’ Another com-       the proper manner of substantiating a         of a fundraising campaign, and receives
                                                                    6
benefits with a fair market value of not     guidelines of Rev. Procs. 90–12 and              A commenter asked whether the rule
more than two percent of the amount of       92–49. The IRS and Treasury believe           that allows taxpayers to disregard cer-
the payment (up to a maximum of $67,         that application of the guidelines of Rev.    tain membership benefits applies to dis-
for 1996), the benefits received are         Procs. 90–12 and 92–49, together with         counts offered by a donee organization
considered to have insubstantial value       the membership benefit provisions in the      for purchases from retailers working
for purposes of determining the amount       final regulations, strikes an appropriate     with the charity to provide discounts to
of the taxpayer’s contribution. (The $67     balance between administrative and            members. These discounts are to be
benefit limitation is adjusted annually      compliance concerns under sections            treated like any other rights or privileges
for inflation.)                              170(f)(8) and 6115. Accordingly, the          and, therefore, may be disregarded for
   Further, if a taxpayer makes a pay-       guidelines of Rev. Procs. 90–12 and           purposes of section 170(f)(8) if they can
ment of $33.50 or more to a charity and                                                    be exercised frequently during the mem-
                                             92–49 have not been modified.
receives only token items in return, the                                                   bership period.
items are considered to have insubstan-                                                       Goods or services provided to a do-
                                             Membership Benefits
tial value if they (1) bear the charity’s                                                  nor’s employees
name or logo, and (2) have an aggregate         The regulations provide limited relief        Prior to publication of the proposed
cost to the charity of $6.70 or less. (The   with respect to certain types of benefits     regulations, several commenters asked
$33.50 and $6.70 amounts apply to            customarily provided to donors in ex-         for guidance on the proper method of
payments made in 1996; these amounts         change for membership payments. Two           valuation of goods or services provided
are adjusted annually for inflation.) In                                                   by charitable organizations to employees
                                             types of membership benefits offered in
addition, newsletters not of commercial                                                    of donors. The final regulations follow
                                             exchange for a payment of $75 or less
quality and low-cost items provided for                                                    the proposed regulations and provide
free without an advance order are con-       may be disregarded: (1) free admission
                                                                                           that goods or services provided to a
sidered to have insubstantial value.         to members-only events with a per-            donor’s employees can be disregarded if
   Under section 1.170A–13(f)(8)(i)(A)       person cost to the charity that is no         they consist of the types of benefits that
of the regulations, the same types of        higher than the standard for low-cost         could be disregarded when provided
goods and services disregarded under         articles under section 513(h)(2)(C)           directly to a donor (i.e., goods or ser-
the guidelines of Rev. Procs. 90–12 and      ($6.70 for 1996); and (2) rights or           vices with insubstantial value and cer-
92–49 can be disregarded for purposes        privileges that can be exercised fre-         tain annual membership benefits). For
of substantiation under section 170(f)(8).   quently during the membership period          any other types of goods or services
One commenter asked whether the con-         (other than rights or privileges described    provided to employees of a donor mak-
temporaneous written acknowledgment          in section 170(l), governing rights to        ing a contribution of $250 or more, the
provided to a donor receiving goods or       purchase tickets for college athletic         contemporaneous written acknowledg-
services of insubstantial value should       events).                                      ment must describe the goods or ser-
indicate that no goods or services were         Some commenters said that the term         vices, but need not include the donee
received. When a donee organization          frequently, when read in conjunction          organization’s good faith estimate of
provides a donor only with goods or          with the examples, provided sufficient        their fair market value.
services having insubstantial value under    clarity and appropriate flexibility. Other       A commenter stated that the special
Rev. Procs. 90–12 and 92–49, the con-        commenters expressed concern about            rule for goods or services provided to
temporaneous written acknowledgment          use of the term frequently, stating that it   employees of a donor should also be
may indicate that no goods or services       was vague and imprecise. For smaller          available for partners in a partnership. In
were provided in exchange for the do-        organizations, they argued, in determin-      the final regulations, the exception for
nor’s payment. See Example 2,                ing whether a right of free admission to      goods or services provided to a donor’s
§ 1.170A–13(f)(8)(ii).                       a series of events can be frequently          employees has been modified to include
   Another commenter stated that the         exercised, consideration should be given      partners in a donor-partnership.
rules in Rev. Procs. 90–12 and 92–49         to the number of events held by the              A commenter was concerned about
for goods or services of insubstantial       organization each year. The IRS and           charities that receive funds from a pri-
value are unduly restrictive and prevent     Treasury believe that a charity can make      vate foundation established by a busi-
charitable organizations from recogniz-      a determination that a right or privilege     ness entity. The commenter suggested
ing longstanding, generous contributors      is frequently exercisable by reference to     that such charities should be permitted
with suitable gifts of appreciation. An-     the examples that were in the proposed        to provide benefits to employees of the
other argued that the costs of token         regulations and are adopted in the final      business entity without any tax conse-
items received by a taxpayer during the      regulations.                                  quences. Because this suggestion raises
year from a charity should not be aggre-        A commenter suggested that the $75         issues beyond the scope of this regula-
gated. Sections 1.170A–13(f)(8)(B) and       payment amount in the special rules for       tion (including issues relating to the
1.170A– 13(f)(9)(i) provide that certain     membership benefits should be indexed         self-dealing rules under section 4941),
membership benefits provided in ex-          for inflation. The IRS and Treasury           this suggestion was not adopted.
change for a payment of $75 or less          believe that it is important for the             A commenter stated that when em-
may be disregarded for purposes of           membership payment amount to be a             ployees receive benefits as a result of an
determining whether any quids pro quo        number that can be easily remembered          employer’s charitable contribution, it
were provided to the donor. For pur-         by charities and donors. For this reason,     would be easier for the charity (rather
poses of sections 170(f)(8) and 6115,        annual inflation adjustments are not ad-      than the employer) to estimate the fair
these provisions supplement the catego-      visable. However, the IRS and Treasury        market value of the benefits. Another
ries of goods or services treated as         will consider increases to this $75 figure    commenter stated that when employees
having insubstantial value under the         in the future.                                receive benefits that cannot be disre-
                                                                 7
garded under section 170, the employer/       sity athletic events is treated as a good     more made to a single charity during a
donor is likely to deduct the value of        faith estimate of the fair market value of    single year, when each contribution is
those benefits as a business expense          this right.                                   less than $250. The conference report
under section 162. Because employers                                                        accompanying the Omnibus Budget
may claim the full amount of their            Rules Applicable to Corporations              Reconciliation Act of 1993 indicates that
payments to charity—including the                Several commenters suggested that          separate payments will be treated as
value of the benefits—as a deduction,         subchapter C corporations (C corpora-         separate contributions and will not be
the commenter suggested that employers        tions) should be relieved of the substan-     aggregated for purposes of applying the
should be relieved of the burden of           tiation requirements. Some indicated that     $250 threshold. H.R. Conf. Rep. No.
valuing such benefits, and that the full      C corporations should be exempt; others       213, 103d Cong., 1st Sess. 565, n. 29
amount of such payments should be             argued for a de minimis exception for C       (1993). If there is no separate payment
deductible under section 170.                 corporations making substantial contri-       of $250 or more, substantiation under
   The IRS and Treasury recognize that        butions. Under a de minimis exception,        section 170(f)(8) is not required, even if
in cases where employee benefits cannot       deductions for all of a C corporation’s       the sum of the separate payments is
be disregarded for purposes of section        charitable contributions would be al-         $250 or more. Section 1.170A–13(f)(1)
170, employers may nevertheless seek to       lowed if the corporation had contempo-        has been modified to clarify this. A
deduct their costs pursuant to section        raneous written acknowledgments sub-          commenter asked whether there must be
162. For deductions under section 170,        stantiating most, or substantially all, of    a separate contemporaneous written ac-
however, United States v. American Bar        its contributions. These commenters           knowledgment for each contribution of
Endowment, supra, limits the allowable        stated that the substantiation require-       $250 or more. Section 1.170A–13(f)(1)
deduction to the amount of the employ-        ments were enacted to deter individu-         has been modified to clarify that for
er’s payment in excess of the value of        als—not businesses—that had claimed           multiple contributions of $250 or more
employee benefits. Accordingly, if the        charitable contribution deductions for        to one charity, one acknowledgment that
employee benefits cannot be disre-            the full amounts of their payments to         reflects the total amount of the taxpay-
garded, their value must be subtracted        charitable organizations, even though         er’s contributions to the charity for the
from the amount of the employer’s             they had received quids pro quo in            year is sufficient.
payment to determine the correct              exchange. They suggested that the IRS
amount of the charitable contribution         exercise the authority provided in sec-       Form of Substantiation
deduction. Although valuation may be          tion 170(f)(8)(E) and make the substan-
difficult, the IRS and Treasury continue                                                       Commenters asked whether a contem-
                                              tiation requirements inapplicable to C
to believe that the employer is in a                                                        poraneous written acknowledgment must
                                              corporations. The final regulations do
better position than the charity to be                                                      be in any particular format. As long as it
                                              not adopt these suggestions. The IRS
responsible for valuation of benefits pro-                                                  is in writing and contains the informa-
                                              and Treasury believe that exempting C
vided to employees.                                                                         tion required by law, a contemporaneous
                                              corporations from the substantiation re-
   Payments for the right to purchase                                                       written acknowledgment may be in any
                                              quirements could, in fact, encourage
tickets to college athletic events                                                          format. One commenter suggested that
                                              abuses and would therefore conflict with
   A commenter asked for clarification                                                      the regulations should allow charities to
                                              the purpose of section 170(f)(8).
regarding the applicability of the sub-                                                     report charitable contributions directly to
stantiation requirements to payments for      Meaning of Contemporaneous                    the IRS on Form 990 or 990–PF. Sec-
the right to purchase tickets to college                                                    tion 170(f)(8) authorizes the Secretary to
athletic events. Section 170(l) provides         A commenter asked whether a tax-           prescribe regulations allowing donee or-
that payments to colleges or universities     payer may file an amended income tax          ganizations to satisfy the requirements
for the right to purchase tickets to          return to claim a charitable contribution     of section 170(f)(8) by filing a return
athletic events are partially (eighty per-    deduction if the taxpayer obtained the        that includes the information described
cent) deductible as charitable contribu-      contemporaneous written acknowledg-           in section 170(f)(8)(B). The IRS and
tions. The final regulations have been        ment for the contribution after timely        Treasury have decided not to implement
modified to clarify how sections              filing the original return. Section           this suggestion at this time. However, in
170(f)(8) and 6115 apply to payments          170(f)(8)(C) provides that a written ac-      an effort to reduce paperwork and tax-
described in section 170(l).                  knowledgment is contemporaneous if            payer burdens, the IRS will examine
   For purposes of section 170(f)(8),         obtained on or before the earlier of (1)      whether any existing IRS forms can be
twenty percent of the amount paid for         the date that the taxpayer files the return   modified to assist in their use in sub-
the right to purchase tickets for seating     for the year in which the contribution        stantiating charitable contributions.
at college or university athletic events is   was made, or (2) the due date (including         A commenter asked for guidance on
treated as the fair market value of such      extensions) for filing the return for that    the proper method of substantiating pay-
right. When the total payment for the         taxable year. A written acknowledgment        ments by corporations that agree to
right to purchase tickets to college ath-     obtained after a taxpayer files the origi-    match employee contributions to charity.
letic events is $312.50 or more, the          nal return for the year of the contribu-      When an employee makes a charitable
portion of the payment treated as a           tion is not contemporaneous within the        contribution that is eligible for a corpo-
charitable contribution will be $250 or       meaning of the statute.                       rate matching payment, some charities
more, and substantiation will be required                                                   routinely send the participating corpora-
                                              Substantiation of Multiple Contributions
under section 170(f)(8). For purposes of                                                    tion a letter, notifying the corporation of
section 6115, twenty percent of the              Several commenters asked whether           the employee’s gift and thanking it in
amount paid for the right to purchase         the substantiation requirements apply to      advance for the matching payment the
tickets for seating at college or univer-     multiple contributions totaling $250 or       charity expects to receive. Commenters
                                                                  8
suggested that this letter be treated as     estimate of the fair market value of the     property to a charitable remainder
meeting the corporation’s requirements       goods or services. A taxpayer can gener-     unitrust (as defined in section
under section 170(f)(8). This suggestion     ally rely on the good faith estimate         664(d)(2)). A commenter observed that
has not been adopted, because letters        provided by a charity.                       there are two other types of unitrusts in
sent in advance of a contribution do not        A commenter stated that the regula-       addition to the type described in section
substantiate the contribution. The ac-       tions should contain an example illus-       664(d)(2), and that these unitrusts
knowledgment under section 170(f)(8)         trating how charities can compute the        should be treated similarly. The final
must include information about what has      fair market value of goods or services.      regulations have been modified to pro-
been ‘‘contributed.’’ The acknowledg-        We have not adopted this suggestion.         vide that the substantiation requirements
ment cannot be completed until after the     There is no single correct way to deter-     of section 170(f)(8) do not apply to
charitable contribution has been made.       mine fair market value; a charitable         transfers to unitrusts described in section
(See section 1.170A–1(b), which states       organization may use any reasonable          664(d)(3) or section 1.664–3(a)(1)(i)(b),
that ordinarily a contribution is made at    methodology (e.g., comparison with           as well as to unitrusts described in
the time delivery is effected.)              comparable retail prices, mark-up from       section 664(d)(2).
                                             wholesale cost) to determine the fair           Section 1.170A–13(f)(13) of the pro-
Out-of-Pocket Expenses                       market value. Examples 1 and 2 of            posed regulations provides that section
   The proposed regulations allowed vol-     section 1.6115–1(a)(3) illustrate this       170(f)(8) applies to a transfer to a
unteers who incurred unreimbursed out-       rule.                                        pooled income fund. Commenters re-
of-pocket expenses while performing             A commenter recommended that the          quested further guidance on the proper
services for a charity to substantiate       regulations state that a donor does not      way to substantiate contributions to
their contributions with a statement that    have to use the good faith estimate          pooled income funds. The final regula-
described the services and the date they     provided by a charitable organization if     tions have been modified to require, in
were performed. The acknowledgment           the donor believes another estimate is       the case of a transfer of cash or other
was not required to list the amount of       more accurate. The regulations do not        property to a pooled income fund, that
the unreimbursed expense. Several com-       mandate that a donor use the estimate        the written acknowledgment of the
menters suggested an exemption from          provided by a donee organization in          charitable organization maintaining the
the substantiation requirements for          calculating the deductible amount. In-       fund include a statement that the cash or
unreimbursed out-of-pocket expenses in-      deed, when a taxpayer knows or has           other property was transferred to the
curred incident to the rendition of ser-     reason to know that an estimate is           organization’s pooled income fund and
vices to a donee organization. Exemp-        inaccurate, the taxpayer may not treat       state whether any goods or services, in
tion is appropriate, they argued, because    the donee organization’s estimate as the     addition to the income interest in the
the requirements are burdensome, par-        fair market value.                           fund, were provided to the transferor.
ticularly since a donee organization is         A commenter suggested that the regu-      The contemporaneous written acknowl-
often unaware of the amount and nature       lations indicate that recognition items,     edgment need not include an estimate of
of expenses incurred by volunteers per-      such as plaques or trophies with an          the value of the income interest in the
forming services on behalf of the char-      honoree’s name inscribed, should be          pooled income fund. The final regula-
ity, or the exact dates on which the         considered to have little, if any, fair      tions also provide guidance on the
volunteer services were performed. The       market value. This suggestion has not        proper method of substantiating a de-
final regulations eliminate the require-     been adopted. Inscribed plaques and          duction claimed by a taxpayer who has
ment that the contemporaneous written        trophies may have some value, even           purchased an annuity from a charitable
acknowledgment include the date on           though the value may be less than cost.      organization.
which services were performed for the        In addition, see § 1.170A–13(f)(8)(i)(A)
charity. However, to carry out the pur-      regarding goods or services with insub-      Special Analyses
poses of the statute, volunteers claiming    stantial value.
a charitable contribution deduction for         Another commenter asked whether              It has been determined that this Trea-
an unreimbursed expense of $250 or           the listing of a donor’s name in a           sury decision is not a significant regula-
more are still required to obtain substan-   program at a charity-sponsored event         tory action as defined in Executive
tiation confirming the type of services      has a substantial value. An acknowledg-      Order 12866. Therefore, a cost-benefit
they performed for the charity.              ment in such a program, which identi-        analysis is not required. It also has been
                                             fies— rather than promotes—a donor, is       determined that section 553(b) of the
Good Faith Estimate                          an inconsequential benefit with no sig-      Administrative Procedure Act (5 U.S.C.
                                             nificant value. See Rev. Rul. 68–432,        chapter 5) does not apply to these
   Section 170(f)(8) requires a written      1968–2 C.B. 104, 105, holding that           regulations, and because the notice of
acknowledgment furnished by a charity        ‘‘[s]uch privileges as being associated      proposed rulemaking preceding the
to a donor to include a good faith           with or being known as a benefactor of       regulations was issued prior to March
estimate of the value of any goods or        the [charitable] organization are not sig-   29, 1996, the Regulatory Flexibility Act
services provided to the donor. Section      nificant return benefits that have mon-      (5 U.S.C. chapter 6) does not apply. See
6115(a)(2) similarly requires a written      etary value.’’                               5 U.S.C. section 601, Pub. L. No.
disclosure statement provided to a donor                                                  104–121 section 245. Pursuant to sec-
making a quid pro quo contribution of        Contributions to a Split-Interest Trust      tion 7805(f) of the Internal Revenue
more than $75 to include a good faith                                                     Code, the notice of proposed rulemaking
estimate of the value of goods or ser-         Section 1.170A–13(f)(13) of the pro-       preceding these regulations was submit-
vices provided to the donor. The regula-     posed regulations provides that section      ted to the Chief Counsel for Advocacy
tions define a good faith estimate as an     170(f)(8) does not apply to a transfer of    of the Small Business Administration for
                                                                 9
comment on the impact of the proposed           (i) Intends to make a payment in an          (5) Examples. The following ex-
regulations on small businesses.             amount that exceeds the fair market           amples illustrate the rules of this para-
                                             value of the goods or services; and           graph (h).
Drafting Information                            (ii) Makes a payment in an amount             Example 1. Certain goods or services disre-
                                             that exceeds the fair market value of the     garded. Taxpayer makes a $50 payment to Charity
   The principal author of these regula-                                                   B, an organization described in section 170(c), in
                                             goods or services.                            exchange for a family membership. The family
tions is Jefferson K. Fox, Office of the
                                                (2) Limitation on amount deduct-           membership entitles Taxpayer and members of
Assistant Chief Counsel (Income Tax
                                             ible—(i) In general. The charitable con-      Taxpayer’s family to certain benefits. These ben-
and Accounting), Internal Revenue Ser-                                                     efits include free admission to weekly poetry
                                             tribution deduction under section 170(a)
vice. However, other personnel from the                                                    readings, discounts on merchandise sold by B in
                                             for a payment a taxpayer makes partly
IRS and the Treasury Department par-                                                       its gift shop or by mail order, and invitations to
                                             in consideration for goods or services        special events for members only, such as lectures
ticipated in their development.
                                             may not exceed the excess of—                 or informal receptions. When B first offers its
          *    *    *    *    *                 (A) The amount of any cash paid and        membership package for the year, B reasonably
                                             the fair market value of any property         projects that each special event for members will
26 CFR Part 602                                                                            have a cost to B, excluding any allocable over-
                                             (other than cash) transferred by the          head, of $5 or less per person attending the event.
                                             taxpayer to an organization described in      Because the family membership benefits are disre-
  Reporting and recordkeeping require-
                                             section 170(c); over                          garded pursuant to § 1.170A–13(f)(8)(i), Taxpayer
ments.                                                                                     may treat the $50 payment as a contribution or
                                                (B) The fair market value of the
                                                                                           gift within the meaning of section 170(c), regard-
Adoption of Amendments to the Regula-        goods or services the organization pro-       less of Taxpayer’s intent and whether or not the
tions                                        vides in return.                              payment exceeds the fair market value of the
                                                (ii) Special rules. For special limits     goods or services. Furthermore, any charitable
   Accordingly, 26 CFR parts 1 and 602       on the deduction for charitable contribu-     contribution deduction available to Taxpayer may
are amended as follows:                      tions of ordinary income and capital          be calculated without regard to the membership
                                                                                           benefits.
                                             gain property, see section 170(e) and            Example 2. Treatment of good faith estimate at
PART 1—INCOME TAXES                          §§ 1.170A–4 and 1.170A–4A.                    auction as the fair market value. Taxpayer attends
                                                (3) Certain goods or services disre-       an auction held by Charity C, an organization
   Paragraph 1. The authority citation for   garded. For purposes of section 170(a)        described in section 170(c). Prior to the auction, C
part 1 is amended by adding a new            and paragraphs (h)(1) and (h)(2) of this      publishes a catalog that meets the requirements for
entry in numerical order for Section                                                       a written disclosure statement under section
                                             section, goods or services described in       6115(a) (including C’s good faith estimate of the
1.170A–1 and revising the entry for          § 1.170A–13(f)(8)(i) or § 1.170A–             value of items that will be available for bidding).
Section 1.170A–13 to read as follows:        13(f)(9)(i) are disregarded.                  A representative of C gives a copy of the catalog
   Authority: 26 U.S.C. 7805                    (4) Donee estimates of the value of        to each individual (including Taxpayer) who at-
Section 1.170A–1 also issued under 26                                                      tends the auction. Taxpayer notes that in the
                                             goods or services may be treated as fair      catalog C’s estimate of the value of a vase is
U.S.C. 170(a).                               market value—(i) In general. For pur-         $100. Taxpayer has no reason to doubt the accu-
Section 1.170A–13 also issued under 26       poses of section 170(a), a taxpayer may       racy of this estimate. Taxpayer successfully bids
U.S.C. 170(f)(8). * * *                      rely on either a contemporaneous writ-        and pays $500 for the vase. Because Taxpayer
                                                                                           knew, prior to making her payment, that the
   Par. 2. Section 1.170A–1 is amended       ten acknowledgment provided under             estimate in the catalog was less than the amount
as follows:                                  section 170(f)(8) and § 1.170A–13(f) or       of her payment, Taxpayer satisfies the requirement
   1. Paragraph (h) is redesignated as       a written disclosure statement provided       of paragraph (h)(1)(i) of this section. Because
paragraph (j).                               under section 6115 for the fair market        Taxpayer makes a payment in an amount that
                                             value of any goods or services provided       exceeds that estimate, Taxpayer satisfies the re-
   2. Paragraph (i) is redesignated as                                                     quirements of paragraph (h)(1)(ii) of this section.
paragraph (k) and is revised.                to the taxpayer by the donee organiza-        Taxpayer may treat C’s estimate of the value of
   3. Paragraph (h) is added.                tion.                                         the vase as its fair market value in determining the
   4. Paragraph (i) is added and re-            (ii) Exception. A taxpayer may not         amount of her charitable contribution deduction.
                                             treat an estimate of the value of goods          Example 3. Good faith estimate not in error.
served.                                                                                    Taxpayer makes a $200 payment to Charity D, an
                                             or services as their fair market value if
   The additions and revisions read as                                                     organization described in section 170(c). In return
                                             the taxpayer knows, or has reason to          for Taxpayer’s payment, D gives Taxpayer a book
follows:
                                             know, that such treatment is unreason-        that Taxpayer could buy at retail prices typically
§ 1.170A–1 Charitable, etc., contribu-       able. For example, if a taxpayer knows,       ranging from $18 to $25. D provides Taxpayer
                                             or has reason to know, that there is an       with a good faith estimate, in a written disclosure
tions and gifts; allowance of deduction.                                                   statement under section 6115(a), of $20 for the
                                             error in an estimate provided by an           value of the book. Because the estimate is within
          *    *    *    *    *              organization described in section 170(c)      the range of typical retail prices for the book, the
   (h) Payment in exchange for consid-       pertaining to goods or services that have     estimate contained in the written disclosure state-
eration—(1) Burden on taxpayer to            a readily ascertainable value, it is unrea-   ment is not in error. Although Taxpayer knows
show that all or part of payment is a        sonable for the taxpayer to treat the         that the book is sold for as much as $25, Taxpayer
                                                                                           may treat the estimate of $20 as the fair market
charitable contribution or gift. No part     estimate as the fair market value of the      value of the book in determining the amount of
of a payment that a taxpayer makes to        goods or services. Similarly, if a tax-       his charitable contribution deduction.
or for the use of an organization de-        payer is a dealer in the type of goods or
scribed in section 170(c) that is in         services provided in consideration for           (i) [Reserved]
consideration for (as defined in             the taxpayer’s payment and knows, or                      *      *     *     *     *
§ 1.170A–13(f)(6)) goods or services         has reason to know, that the estimate is         (k) Effective date. In general this sec-
(as defined in § 1.170A–13(f)(5)) is a       in error, it is unreasonable for the          tion applies to contributions made in
contribution or gift within the meaning      taxpayer to treat the estimate as the fair    taxable years beginning after December
of section 170(c) unless the taxpayer—       market value of the goods or services.        31, 1969. Paragraph (j)(11) of this sec-
                                                                10
tion, however, applies only to out-of-          (iv) If the donee organization pro-       during the membership period. Ex-
pocket expenditures made in taxable          vides any intangible religious benefits, a   amples of such rights and privileges
years beginning after December 31,           statement to that effect.                    may include, but are not limited to, free
1976. In addition, paragraph (h) of this        (3) Contemporaneous. A written ac-        or discounted admission to the organiza-
section applies only to payments made        knowledgment is contemporaneous if it        tion’s facilities or events, free or dis-
on or after December 16, 1996. How-          is obtained by the taxpayer on or before     counted parking, preferred access to
ever, taxpayers may rely on the rules of     the earlier of—                              goods or services, and discounts on the
paragraph (h) of this section for pay-          (i) The date the taxpayer files the       purchase of goods or services; and
ments made on or after January 1, 1994.      original return for the taxable year in         (2) Admission to events during the
   Par. 3. Section 1.170A–13 is              which the contribution was made; or          membership period that are open only to
amended by revising paragraph (f) to            (ii) The due date (including exten-       members of a donee organization and
read as follows:                             sions) for filing the taxpayer’s original    for which the donee organization rea-
                                             return for that year.                        sonably projects that the cost per person
§ 1.170A–13 Recordkeeping and return            (4) Donee organization. For purposes      (excluding any allocable overhead) at-
requirements for deductions for chari-       of this paragraph (f), a donee organiza-     tending each such event is within the
table contributions.                         tion is an organization described in         limits established for ‘‘low cost articles’’
          *    *    *    *    *              section 170(c).                              under section 513(h)(2). The projected
   (f) Substantiation of charitable con-        (5) Goods or services. Goods or ser-      cost to the donee organization is deter-
tributions of $250 or more—(1) In gen-       vices means cash, property, services,        mined at the time the organization first
eral. No deduction is allowed under          benefits, and privileges.                    offers its membership package for the
section 170(a) for all or part of any           (6) In consideration for. A donee or-     year (using section 3.07 of Revenue
contribution of $250 or more unless the      ganization provides goods or services in     Procedure 90–12, or any successor
taxpayer substantiates the contribution      consideration for a taxpayer’s payment       documents, to determine the cost of any
with a contemporaneous written ac-           if, at the time the taxpayer makes the       items or services that are donated).
knowledgment from the donee organiza-        payment to the donee organization, the          (ii) Examples. The following ex-
tion. A taxpayer who makes more than         taxpayer receives or expects to receive      amples illustrate the rules of this para-
one contribution of $250 or more to a        goods or services in exchange for that       graph (f)(8).
donee organization in a taxable year         payment. Goods or services a donee              Example 1. Membership benefits disregarded.
may substantiate the contributions with      organization provides in consideration       Performing Arts Center E is an organization
                                                                                          described in section 170(c). In return for a pay-
one or more contemporaneous written          for a payment by a taxpayer include          ment of $75, E offers a package of basic member-
acknowledgments. Section 170(f)(8)           goods or services provided in a year         ship benefits that includes the right to purchase
does not apply to a payment of $250 or       other than the year in which the tax-        tickets to performances one week before they go
more if the amount contributed (as de-       payer makes the payment to the donee         on sale to the general public, free parking in E’s
termined under § 1.170A–1(h)) is less                                                     garage during evening and weekend performances,
                                             organization.                                and a 10% discount on merchandise sold in E’s
than $250. Separate contributions of less       (7) Good faith estimate. For purposes     gift shop. In return for a payment of $150, E
than $250 are not subject to the require-    of this section, good faith estimate         offers a package of preferred membership benefits
ments of section 170(f)(8), regardless of    means a donee organization’s estimate        that includes all of the benefits in the $75 package
whether the sum of the contributions         of the fair market value of any goods or     as well as a poster that is sold in E’s gift shop for
                                                                                          $20. The basic membership and the preferred
made by a taxpayer to a donee organiza-      services, without regard to the manner       membership are each valid for twelve months, and
tion during a taxable year equals $250       in which the organization in fact made       there are approximately 50 performances of vari-
or more.                                     that estimate. See § 1.170A–1(h)(4) for      ous productions at E during a twelve-month
   (2) Written acknowledgment. Except        rules regarding when a taxpayer may          period. E’s gift shop is open for several hours
as otherwise provided in paragraphs                                                       each week and at performance times. F, a patron
                                             treat a donee organization’s estimate of     of the arts, is solicited by E to make a contribu-
(f)(8) through (f)(11) and (f)(13) of this   the value of goods or services as the fair   tion. E offers F the preferred membership benefits
section, a written acknowledgment from       market value.                                in return for a payment of $150 or more. F makes
a donee organization must provide the           (8) Certain goods or services disre-      a payment of $300 to E. F can satisfy the
following information—                       garded—(i) In general. For purposes of       substantiation requirement of section 170(f)(8) by
                                                                                          obtaining a contemporaneous written acknowledg-
   (i) The amount of any cash the tax-       section 170(f)(8), the following goods or    ment from E that includes a description of the
payer paid and a description (but not        services are disregarded—                    poster and a good faith estimate of its fair market
necessarily the value) of any property          (A) Goods or services that have in-       value ($20) and disregards the remaining member-
other than cash the taxpayer transferred     substantial value under the guidelines       ship benefits.
to the donee organization;                   provided in Revenue Procedures 90–12,           Example 2. Contemporaneous written acknowl-
                                                                                          edgment need not mention rights or privileges that
   (ii) A statement of whether or not the    1990–1 C.B. 471, 92–49, 1992–1 C.B.          can be disregarded. The facts are the same as in
donee organization provides any goods        987, and any successor documents. (See       Example 1, except that F made a payment of $300
or services in consideration, in whole or    § 601.601(d)(2)(ii) of the Statement of      and received only a basic membership. F can
in part, for any of the cash or other        Procedural Rules, 26 CFR part 601.);         satisfy the section 170(f)(8) substantiation require-
                                                                                          ment with a contemporaneous written acknowledg-
property transferred to the donee organi-    and                                          ment stating that no goods or services were
zation;                                         (B) Annual membership benefits of-        provided.
   (iii) If the donee organization pro-      fered to a taxpayer in exchange for a           Example 3. Rights or privileges that cannot be
vides any goods or services other than       payment of $75 or less per year that         exercised frequently. Community Theater Group G
intangible religious benefits (as de-        consist of—                                  is an organization described in section 170(c).
                                                                                          Every summer, G performs four different plays.
scribed in section 170(f)(8)), a descrip-       (1) Any rights or privileges, other       Each play is performed two times. In return for a
tion and good faith estimate of the value    than those described in section 170(l),      membership fee of $60, G offers its members free
of those goods or services; and              that the taxpayer can exercise frequently    admission to any of its performances. Non-

                                                                11
members may purchase tickets on a performance          K’s employees free admission for one year, a                (ii) Application of $250 threshold.
by performance basis for $15 a ticket. H, an           tee-shirt with J’s logo that costs J $4.50, and a gift
                                                                                                                For the purpose of applying the $250
individual who is a sponsor of the theater, is         shop discount of 25% for one year. The free
solicited by G to make a contribution. G tells H       admission for K’s employees is the same as the           threshold       provided     in    section
that the membership benefit will be provided in        benefit made available to holders of the $40             170(f)(8)(A) to contributions made by
return for any payment of $60 or more. H chooses       membership and is otherwise described in para-           the means described in paragraph
to make a payment of $350 to G and receives in         graph (f)(8)(i)(B) of this section. The tee-shirt        (f)(11)(i) of this section, the amount
return the membership benefit. G’s membership          given to each of K’s employees is described in
benefit of free admission is not described in          paragraph (f)(8)(i)(A) of this section. Therefore,       withheld from each payment of wages
paragraph (f)(8)(i)(B) of this section because it is   the contemporaneous written acknowledgment of            to a taxpayer is treated as a separate
not a privilege that can be exercised frequently       K’s payment is not required to include a descrip-        contribution.
(due to the limited number of performances of-         tion or good faith estimate of the value of the free        (12) Distributing organizations as do-
fered by G). Therefore, to meet the requirements       admission or the tee-shirts. However, because the
                                                                                                                nees. An organization described in sec-
of section 170(f)(8), a contemporaneous written        gift shop discount offered to K’s employees is
acknowledgment of H’s $350 payment must in-            different than that offered to those who purchase        tion 170(c), or an organization described
clude a description of the free admission benefit      the $40 membership, the discount is not described        in 5 CFR 950.105 (a Principal Com-
and a good faith estimate of its value.                in paragraph (f)(8)(i) of this section. Therefore, the   bined Fund Organization for purposes of
   Example 4. Multiple memberships. In December        contemporaneous written acknowledgment of K’s            the Combined Federal Campaign) and
of each year, K, an individual, gives each of her      payment is required to include a description of the
                                                       25% discount offered to K’s employees.                   acting in that capacity, that receives a
six grandchildren a junior membership in Dinosaur
Museum, an organization described in section                                                                    payment made as a contribution is
                                                          (10) Substantiation of out-of-pocket
170(c). Each junior membership costs $50, and K                                                                 treated as a donee organization solely
                                                       expenses. A taxpayer who incurs
makes a single payment of $300 for all six                                                                      for purposes of section 170(f)(8), even if
memberships. A junior member is entitled to free       unreimbursed expenditures incident to
                                                                                                                the organization (pursuant to the donor’s
admission to the museum and to weekly films,           the rendition of services, within the
slide shows, and lectures about dinosaurs. In
                                                                                                                instructions or otherwise) distributes the
                                                       meaning of § 1.170A–1(g), is treated as
addition, each junior member receives a bi-                                                                     amount received to one or more organi-
                                                       having obtained a contemporaneous
monthly, non-commercial quality newsletter with                                                                 zations described in section 170(c). This
information about dinosaurs and upcoming events.       written acknowledgment of those expen-
                                                                                                                paragraph (f)(12) does not apply, how-
K’s contemporaneous written acknowledgment             ditures if the taxpayer—
                                                                                                                ever, to a case in which the distributee
from Dinosaur Museum may state that no goods              (i) Has adequate records under para-
or services were provided in exchange for K’s                                                                   organization provides goods or services
payment.
                                                       graph (a) of this section to substantiate                as part of a transaction structured with a
   (9) Goods or services provided to                   the amount of the expenditures; and                      view to avoid taking the goods or
employees or partners of donors—(i)                       (ii) Obtains by the date prescribed in                services into account in determining the
Certain goods or services disregarded.                 paragraph (f)(3) of this section a state-                amount of the deduction to which the
For purposes of section 170(f)(8), goods               ment prepared by the donee organization                  donor is entitled under section 170.
or services provided by a donee organi-                containing—                                                 (13) Transfers to certain trusts. Sec-
zation to employees of a donor, or to                     (A) A description of the services pro-                tion 170(f)(8) does not apply to a trans-
partners of a partnership that is a donor,             vided by the taxpayer;                                   fer of property to a trust described in
in return for a payment to the organiza-                  (B) A statement of whether or not the                 section 170(f)(2)(B), a charitable re-
tion may be disregarded to the extent                  donee organization provides any goods                    mainder annuity trust (as defined in
that the goods or services provided to                 or services in consideration, in whole or                section 664(d)(1)), or a charitable re-
each employee or partner are the same                  in part, for the unreimbursed expendi-                   mainder unitrust (as defined in section
as those described in paragraph (f)(8)(i)              tures; and                                               664(d)(2) or (d)(3) or § 1.664–
of this section.                                          (C) The information required by                       (3)(a)(1)(i)(b)). Section 170(f)(8) does
   (ii) No good faith estimate required                paragraphs (f)(2)(iii) and (iv) of this                  apply, however, to a transfer to a pooled
for other goods or services. If a tax-                 section.                                                 income fund (as defined in section
payer makes a contribution of $250 or                                                                           642(c)(5)); for such a transfer, the con-
                                                          (11) Contributions made by payroll                    temporaneous written acknowledgment
more to a donee organization and, in                   deduction— (i) Form of substantiation.
return, the donee organization offers the                                                                       must state that the contribution was
                                                       A contribution made by means of with-                    transferred to the donee organization’s
taxpayer’s employees or partners goods                 holding from a taxpayer’s wages and
or services other than those described in                                                                       pooled income fund and indicate
                                                       payment by the taxpayer’s employer to                    whether any goods or services (in addi-
paragraph (f)(9)(i) of this section, the               a donee organization may be substanti-
contemporaneous written acknowledg-                                                                             tion to an income interest in the fund)
                                                       ated, for purposes of section 170(f)(8),                 were provided in exchange for the trans-
ment of the taxpayer’s contribution is                 by both—
not required to include a good faith                                                                            fer. The contemporaneous written ac-
estimate of the value of such goods or                    (A) A pay stub, Form W–2, or other                    knowledgment is not required to include
services but must include a description                document furnished by the employer                       a good faith estimate of the income
of those goods or services.                            that sets forth the amount withheld by                   interest.
                                                       the employer for the purpose of pay-                        (14) Substantiation of payments to a
   (iii) Example. The following example
                                                       ment to a donee organization; and                        college or university for the right to
illustrates the rules of this paragraph
(f)(9).                                                   (B) A pledge card or other document                   purchase tickets to athletic events. For
   Example. Museum J is an organization de-            prepared by or at the direction of the                   purposes of paragraph (f)(2)(iii) of this
scribed in section 170(c). For a payment of $40, J     donee organization that includes a state-                section, the right to purchase tickets for
offers a package of basic membership benefits that     ment to the effect that the organization                 seating at an athletic event in exchange
includes free admission and a 10% discount on          does not provide goods or services in                    for a payment described in section
merchandise sold in J’s gift shop. J’s other
membership categories are for supporters who           whole or partial consideration for any                   170(l) is treated as having a value equal
contribute $100 or more. Corporation K makes a         contributions made to the organization                   to twenty percent of such payment. For
payment of $50,000 to J and, in return, J offers       by payroll deduction.                                    example, when a taxpayer makes a
                                                                               12
payment of $312.50 for the right to              matches Taxpayer’s $400 payment with an addi-         allows a donor to hold a private event in a room
                                                 tional payment of $400. In consideration for the      located in M. Private events other than those held
purchase tickets for seating at an athletic      combined payments of $800, L gives Taxpayer an        by such donors are not permitted to be held in M.
event, the right to purchase tickets is          item that it estimates has a fair market value of     In Community N, there are four hotels, O, P, Q,
treated as having a value of $62.50. The         $100. L does not give the employer any goods or       and R, that have ballrooms with the same capacity
remaining $250 is treated as a charitable        services in consideration for its contribution. The   as the room in M. Of these hotels, only O and P
contribution, which the taxpayer must            contemporaneous written acknowledgment pro-           have ballrooms that offer amenities and atmo-
                                                 vided to the employer must include a statement        sphere that are similar to the amenities and
substantiate in accordance with the re-          that no goods or services were provided in            atmosphere of the room in M (although O and P
quirements of this section.                      consideration for the employer’s $400 payment.        lack the unique collection of art that is displayed
   (15) Substantiation of charitable con-        The contemporaneous written acknowledgment            in the room in M). Because the capacity, ameni-
tributions made by a partnership or an           provided to Taxpayer must include a statement of      ties, and atmosphere of ballrooms in O and P are
                                                 the amount of Taxpayer’s payment, a description       comparable to the capacity, amenities, and atmo-
S corporation. If a partnership or an S          of the item received by Taxpayer, and a statement     sphere of the room in M, a good faith estimate of
corporation makes a charitable contribu-         that L’s good faith estimate of the value of the      the benefits received from M may be determined
tion of $250 or more, the partnership or         item received by Taxpayer is $100.                    by reference to the cost of renting either the
S corporation will be treated as the                (18) Effective date. This paragraph (f)            ballroom in O or the ballroom in P. The cost of
                                                                                                       renting the ballroom in O is $2500 and, therefore,
taxpayer for purposes of section                 applies to contributions made on or after             a good faith estimate of the fair market value of
170(f)(8). Therefore, the partnership or         December 16, 1996. However, taxpayers                 the right to host a private event in the room at M
S corporation must substantiate the con-         may rely on the rules of this paragraph               is $2500. In this example, the ballrooms in O and
tribution with a contemporaneous writ-           (f) for contributions made on or after                P are considered similar and comparable facilities
ten acknowledgment from the donee                January 1, 1994.                                      to the room in M for valuation purposes, notwith-
                                                                                                       standing the fact that the room in M displays a
organization before reporting the contri-           Par. 4. Section 1.6115–1 is added                  unique collection of art.
bution on its income tax return for the          under the undesignated centerheading                     Example 2. Services available on a commercial
year in which the contribution was made          Miscellaneous Provisions to read as fol-              basis. Charity S is an organization described in
and must maintain the contemporaneous            lows:                                                 section 170(c). S offers to provide a one-hour
written acknowledgment in its records.                                                                 tennis lesson with Tennis Professional T in return
                                                 § 1.6115–1 Disclosure requirements for                for the first payment of $500 or more that it
A partner of a partnership or a share-                                                                 receives. T provides one-hour tennis lessons on a
holder of an S corporation is not re-            quid pro quo contributions.                           commercial basis for $100. Taxpayer pays $500 to
quired to obtain any additional substan-                                                               S and in return receives the tennis lesson with T.
                                                    (a) Good faith estimate defined—(1)                A good faith estimate of the fair market value of
tiation for his or her share of the
                                                 In general. A good faith estimate of the              the lesson provided in exchange for Taxpayer’s
partnership’s or S corporation’s chari-
                                                 value of goods or services provided by                payment is $100.
table contribution.
                                                 an organization described in section                     Example 3. Celebrity presence. Charity U is an
   (16) Purchase of an annuity. If a             170(c) in consideration for a taxpayer’s              organization described in section 170(c). In return
taxpayer purchases an annuity from a             payment to that organization is an esti-              for the first payment of $1000 or more that it
charitable organization and claims a                                                                   receives, U will provide a dinner for two followed
                                                 mate of the fair market value, within the             by an evening tour of Museum V conducted by
charitable contribution deduction of             meaning of § 1.170A–1(c)(2), of the                   Artist W, whose most recent works are on display
$250 or more for the excess of the               goods or services. The organization may               at V. W does not provide tours of V on a
amount paid over the value of the                use any reasonable methodology in                     commercial basis. Typically, tours of V are free to
annuity, the contemporaneous written             making a good faith estimate, provided
                                                                                                       the public. Taxpayer pays $1000 to U and in
acknowledgment must state whether any                                                                  return receives a dinner valued at $100 and an
                                                 it applies the methodology in good faith.             evening tour of V conducted by W. Because tours
goods or services in addition to the             If the organization fails to apply the                of V are typically free to the public, a good faith
annuity were provided to the taxpayer.           methodology in good faith, the organiza-              estimate of the value of the evening tour con-
The contemporaneous written acknowl-             tion will be treated as not having met                ducted by W is $0. In this example, the fact that
edgment is not required to include a                                                                   Taxpayer’s tour of V is conducted by W rather
                                                 the requirements of section 6115. See                 than V’s regular tour guides does not render the
good faith estimate of the value of the          section 6714 for the penalties that apply             tours dissimilar or incomparable for valuation
annuity. See § 1.170A–1(d)(2) for guid-          for failure to meet the requirements of               purposes.
ance in determining the value of the             section 6115.                                            (b) Certain goods or services disre-
annuity.                                            (2) Good faith estimate for goods or               garded. For purposes of section 6115,
   (17) Substantiation of matched pay-           services that are not commercially avail-             an organization described in section
ments—(i) In general. For purposes of            able. A good faith estimate of the value              170(c) may disregard goods or services
section 170, if a taxpayer’s payment to a        of goods or services that are not gener-              described in § 1.170A–13(f)(8)(i).
donee organization is matched, in whole          ally available in a commercial transac-                  (c) Value of the right to purchase
or in part, by another payor, and the            tion may be determined by reference to                tickets to college or university athletic
taxpayer receives goods or services in           the fair market value of similar or                   events. For purposes of section 6115, the
consideration for its payment and some           comparable goods or services. Goods or                right to purchase tickets for seating at
or all of the matching payment, those            services may be similar or comparable                 an athletic event in exchange for a
goods or services will be treated as             even though they do not have the                      payment described in section 170(l) is
provided in consideration for the taxpay-        unique qualities of the goods or services             treated as having a value equal to
er’s payment and not in consideration            that are being valued.                                twenty percent of such payment.
for the matching payment.                           (3) Examples. The following ex-
   (ii) Example. The following example                                                                    (d) Goods or services provided to
                                                 amples illustrate the rules of this para-             employees or partners of donors—(1)
illustrates the rules of this paragraph          graph (a).
(f)(17).                                                                                               Certain goods or services disregarded.
                                                    Example 1. Facility not available on a commer-
  Example. Taxpayer makes a $400 payment to      cial basis. Museum M, an organization described       For purposes of section 6115, goods or
Charity L, a donee organization. Pursuant to a   in section 170(c), is located in Community N. In      services provided by an organization
matching payment plan, Taxpayer’s employer       return for a payment of $50,000 or more, M            described in section 170(c) to employees
                                                                        13
of a donor or to partners of a partner-                Approved November 27, 1996.                           Section 807.—Rules for Certain
ship that is a donor in return for a                                                                         Reserves
payment to the donee organization may                                           Donald C. Lubick,               The adjusted applicable federal short-term, mid-
be disregarded to the extent that the                                    Acting Assistant Secretary          term, and long-term rates are set forth for the
goods or services provided to each em-                                             of the Treasury.          month of February 1997. See Rev. Rul. 97–7, this
ployee or partner are the same as those                                                                      page.
                                                       (Filed by the Office of the Federal Register on
described in § 1.170A–13(f)(8)(i).                     December 13, 1996, 8:45 a.m., and published in
   (2) Description permitted in lieu of                the issue of the Federal Register for December 16,
good faith estimate for other goods or                 1996, 61 F.R. 65946)                                  Section 846.—Discounted Unpaid
services. The written disclosure state-                                                                      Losses Defined
ment required by section 6115 may                                                                               The adjusted applicable federal short-term, mid-
include a description of goods or ser-                 Section 280G.—Golden Parachute
                                                                                                             term, and long-term rates are set forth for the
vices, in lieu of a good faith estimate of             Payments                                              month of February 1997. See Rev. Rul. 97–7, this
their value, if the donor is—                             Federal short-term, mid-term, and long-term        page.
   (i) An employer and, in return for the              rates are set forth for the month of February 1997.
                                                       See Rev. Rul. 97–7, this page.
donor’s quid pro quo contribution, an
organization described in section 170(c)                                                                     Section 1274.—Determination of
provides the donor’s employees with                    Section 382.—Limitation on Net                        Issue Price in the Case of Certain
goods or services other than those de-                 Operating Loss Carryforwards and                      Debt Instruments Issued for
scribed in paragraph (d)(1) of this sec-               Certain Built-in Losses Following                     Property
tion; or                                               Ownership Change                                      (Also Sections 42, 280G, 382, 412, 467, 468, 482,
   (ii) A partnership and, in return for                                                                     483, 642, 807, 846, 1288, 7520, 7872.)
                                                          The adjusted federal long-term rate is set forth
its quid pro quo contribution, the organi-             for the month of February 1997. See Rev. Rul.
zation provides partners in the partner-                                                                        Federal rates; adjusted federal
                                                       97–7, this page.
ship with goods or services other than                                                                       rates; adjusted federal long-term rate,
those described in paragraph (d)(1) of                                                                       and the long-term exempt rate. For
this section.                                          Section 412.—Minimum Funding                          purposes of sections 1274, 1288, 382,
   (e) Effective date. This section ap-                Standards                                             and other sections of the Code, tables
plies to contributions made on or after                                                                      set forth the rates for February 1997.
                                                          The adjusted applicable federal short-term, mid-
December 16, 1996. However, taxpayers                  term, and long-term rates are set forth for the
may rely on the rules of this section for              month of February 1997. See Rev. Rul. 97–7, this      Rev. Rul. 97–7
contributions made on or after January                 page.
                                                                                                                This revenue ruling provides various
1, 1994.
                                                                                                             prescribed rates for federal income tax
PART 602 — OMB CONTROL                                 Section 467.—Certain Payments                         purposes for February 1997 (the current
NUMBERS UNDER THE                                      for the Use of Property or Services                   month.) Table 1 contains the short-term,
PAPERWORK REDUCTION ACT                                   The adjusted applicable federal short-term, mid-   mid-term, and long-term applicable fed-
                                                       term, and long-term rates are set forth for the       eral rates (AFR) for the current month
  Par. 5. The authority citation for part              month of February 1997. See Rev. Rul. 97–7, this      for purposes of section 1274(d) of the
602 continues to read as follows:                      page.                                                 Internal Revenue Code. Table 2 contains
  Authority: 26 U.S.C. 7805                                                                                  the short-term, mid-term, and long-term
  Par. 6. Section 602.101(c) is amended                                                                      adjusted applicable federal rates (ad-
by adding the following entries in nu-                 Section 468.—Special Rules for
                                                                                                             justed AFR) for the current month for
merical order to the table:                            Mining and Solid Waste
                                                                                                             purposes of section 1288(b). Table 3
                                                       Reclamation and Closing Costs
                                                                                                             sets forth the adjusted federal long-term
§ 602.101 OMB Control numbers.                            The adjusted applicable federal short-term, mid-   rate and the long-term tax-exempt rate
              *      *     *      *      *             term, and long-term rates are set forth for the       described in section 382(f). Table 4
                                                       month of February 1997. See Rev. Rul. 97–7, this
   (c) * * *                                           page.                                                 contains the appropriate percentages for
CFR part or section where               Current OMB
                                                                                                             determining the low-income housing
identified or described                  control No.                                                         credit described in section 42(b)(2) for
                                                       Section 483.—Interest on Certain                      buildings placed in service during the
            *     *         *         *     *
Section 1.170A–13(f) . . . . . . . . . . 1545–1464     Deferred Payments                                     current month. Finally, Table 5 contains
            *     *         *         *     *                                                                the federal rate for determining the
Section 1.6115–1 . . . . . . . . . . . . . 1545–1464      The adjusted applicable federal short-term, mid-
                                                       term, and long-term rates are set forth for the       present value of an annuity, an interest
                                                       month of February 1997. See Rev. Rul. 97–7, this      for life or for a term of years, or a
            Margaret Milner Richardson,                page.                                                 remainder or a reversionary interest for
        Commissioner of Internal Revenue.                                                                    purposes of section 7520.




                                                                              14
                                               REV. RUL. 97–7 TABLE 1
                                  Applicable Federal Rates (AFR) for February 1997
                                                Period for Compounding
                               Annual                   Semiannual             Quarterly       Monthly
Short-Term
     AFR                        5.81%                     5.73%                     5.69%       5.66%
110% AFR                        6.40%                     6.30%                     6.25%       6.22%
120% AFR                        7.00%                     6.88%                     6.82%       6.78%
130% AFR                        7.59%                     7.45%                     7.38%       7.34%
Mid-Term
     AFR                        6.38%                     6.28%                  6.23%          6.20%
110% AFR                        7.03%                     6.91%                  6.85%          6.81%
120% AFR                        7.68%                     7.54%                  7.47%          7.42%
130% AFR                        8.33%                     8.16%                  8.08%          8.02%
150% AFR                        9.64%                     9.42%                  9.31%          9.24%
175% AFR                       11.29%                    10.99%                 10.84%         10.75%
Long-Term
     AFR                        6.78%                     6.67%                     6.62%       6.58%
110% AFR                        7.47%                     7.34%                     7.27%       7.23%
120% AFR                        8.16%                     8.00%                     7.92%       7.87%
130% AFR                        8.86%                     8.67%                     8.58%       8.52%



                                               REV. RUL. 97–7 TABLE 2
                                             Adjusted AFR for February 1997
                                                Period for Compounding
                               Annual                   Semiannual             Quarterly       Monthly
Short-term
adjusted AFR                   3.68%                      3.65%                     3.63%      3.62%
Mid-term
adjusted AFR                   4.60%                      4.55%                     4.52%      4.51%
Long-term
adjusted AFR                   5.47%                      5.40%                     5.36%      5.34%



                                               REV. RUL. 97–7 TABLE 3
                                        Rates Under Section 382 for February 1997
Adjusted federal long-term rate for the current month                                          5.47%
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.)              5.48%



                                               REV. RUL. 97–7 TABLE 4
                          Appropriate Percentages Under Section 42(b)(2) for February 1997
Appropriate percentage for the 70% present value low-income housing credit                     8.55%
Appropriate percentage for the 30% present value low-income housing credit                     3.66%




                                                           15
                                                             REV. RUL. 97–7 TABLE 5
                                                      Rate Under Section 7520 for February 1997
   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 interest                                                                         7.6%



Section 1288.—Treatment of                             property at the minimum price set by          the district director may consider when
Original Issue Discount on                             the Secretary. On June 13, 1996, a            determining the best interest of the
Tax-Exempt Obligations                                 notice of proposed rulemaking reflecting      United States. The district director may
   The adjusted applicable federal short-term, mid-    this change was published in the Fed-         consider all relevant facts and circum-
term, and long-term rates are set forth for the        eral Register (61 FR 30012). No com-          stances including for example: (1) mar-
month of February 1997. See Rev. Rul. 97–7, page       ments responding to the notice of pro-        ketability of the property; (2) cost of
14.                                                                                                  maintaining the property; (3) cost of
                                                       posed rulemaking were received, and no
                                                       public hearing was requested or held.         repairing or restoring the property; (4)
                                                       The final regulations are adopted as          cost of transporting the property; (5)
Section 6335.—Sale of Seized                           proposed.                                     cost of safeguarding the property; (6)
Property                                                                                             cost of potential toxic waste cleanup;
26 CFR 301.6335–1: Sale of seized property             Explanation of provisions                     and (7) other factors pertinent to the
                                                                                                     type of property. Special Analyses
T.D. 8691                                                  Section 1570 of the Tax Reform Act           It has been determined that this Trea-
                                                       of 1986 amended section 6335(e) of the        sury decision is not a significant regula-
DEPARTMENT OF THE TREASURY                             Code to require the Secretary to deter-       tory action as defined in EO 12866.
Internal Revenue Service                               mine before the sale of seized property       Therefore, a regulatory assessment is not
26 CFR Part 301                                        whether it would be in the best interest      required. It also has been determined
                                                       of the United States to purchase such         that section 553(b) of the Administrative
Sale of Seized Property                                                                              Procedure Act (5 U.S.C. chapter 5) and
                                                       property at the minimum price set by
AGENCY: Internal Revenue Service                       the Secretary. The best interest determi-     the Regulatory Flexibility Act (5 U.S.C.
(IRS), Treasury.                                       nation is to be based on criteria pre-        chapter 6) do not apply to these regula-
                                                       scribed by the Secretary. If, at the sale,    tions, and, therefore, a Regulatory Flex-
ACTION: Final regulations.                             one or more persons offer at least the        ibility Analysis is not required. Pursuant
                                                       minimum price, the property shall be          to section 7805(f) of the Internal Rev-
SUMMARY: This document contains                                                                      enue Code, the notice of proposed
                                                       sold to the highest bidder. If no one
final regulations relating to the sale of                                                            rulemaking was submitted to the Chief
                                                       offers at least the minimum price and
seized property. The final regulations                                                               Counsel for Advocacy of the Small
                                                       the Secretary has determined that it
reflect changes concerning the setting of                                                            Business Administration for comment on
                                                       would be in the best interest of the
a minimum price for seized property by                                                               its impact on small business.
                                                       United States to purchase the property
the Tax Reform Act of 1986. The regu-
                                                       for the minimum price, the property will
lations affect all sales of seized property.                                                         Drafting Information
                                                       be declared sold to the United States for
EFFECTIVE DATE: December 17,                           the minimum price. If no one offers the          The principal author of these regula-
1996.                                                  minimum price and the Secretary has           tions is Kevin B. Connelly, Office of
                                                       not determined that it would be in the        Assistant Chief Counsel (General Litiga-
FOR FURTHER INFORMATION CON-                           best interest of the United States to         tion) CC:EL:GL, IRS. However, other
TACT: Concerning the regulations,                      purchase the property for the minimum         personnel from the IRS and Treasury
Kevin B. Connelly, (202) 622–3640 (not                 price, the property shall be released to      Department participated in their devel-
a toll-free number).                                   the owner of the property and the             opment.
                                                       expense of the levy and sale shall be
SUPPLEMENTARY INFORMATION:                             added to the amount of tax for the                      *    *    *    *      *
                                                       collection of which the United States
Background                                                                                           Adoption of Amendments to the Regula-
                                                       made the levy. Any property released
   This document contains amendments                   shall remain subject to any lien imposed      tions
to the Procedure and Administration                    by subchapter C of chapter 64 of sub-
                                                                                                       Accordingly, 26 CFR part 301 is
Regulations (26 CFR part 301) relating                 title F of the Code.
                                                                                                     amended as follows:
to the sale of seized property under                       The regulations reflect the changes
section 6335 of the Internal Revenue                   made by the Tax Reform Act of 1986.           PART 301—PROCEDURE AND AD-
Code (Code). The Tax Reform Act of                     The regulations authorize district direc-     MINISTRATION
1986 amended section 6335(e), relating                 tors to make the required determination
to the manner and conditions of sale, to               whether it would be in the best interest         Paragraph 1. The authority citation for
require the Secretary to determine                     of the United States to purchase seized       part 301 continues to read in part as
whether it would be in the best interest               property for the minimum price. In            follows:
of the United States to buy seized                     addition, the regulations set forth factors      Authority: 26 U.S.C. 7805 * * *
                                                                          16
   Par. 2. Section 301.6335–1 is                 (c) Cost of repairing or restoring the         (iv) Effective date. This paragraph
amended as follows:                           property;                                      (c)(4) applies to dispositions of property
   1. Paragraph (c)(3) is revised.               (d) Cost of transporting the property;      at sale made on or after December 17,
   2. Paragraphs (c)(4) through (c)(9)                                                       1996.
                                                 (e) Cost of safeguarding the property;
are redesignated as paragraphs (c)(5)                                                                    *     *     *     *      *
through (c)(10), respectively.                   (f) Cost of potential toxic waste
   3. New paragraph (c)(4) is added.          cleanup; and                                              Margaret Milner Richardson,
   The addition and revision read as             (g) Other factors pertinent to the type            Commissioner of Internal Revenue.
follows:                                      of property.                                   Approved November 19, 1996.
                                                 (iii) Effective date. This paragraph
§ 301.6335–1 Sale of seized property.         (c)(3) applies to determinations relating                            Donald C. Lubick,
          *    *    *     *    *
                                              to minimum price made on or after                Acting Assistant Secretary of Treasury.
   (c) * * *                                  December 17, 1996.                             (Filed by the Office of the Federal Register on
   (3) Determinations relating to mini-          (4) Disposition of property at sale—        December 16, 1996, 8:45 a.m., and published in
                                              (i) ale to highest bidder at or above          the issue of the Federal Register for December
mum price—(i) Minimum price. Before                                                          127, 1996, F.R. 66216)
the sale of property seized by levy, the      minimum price. If one or more persons
district director shall determine a mini-     offer to buy the property for at least the
mum price, taking into account the            amount of the minimum price, the prop-         Section 7121.—Closing Agreements
expenses of levy and sale, for which the      erty shall be sold to the highest bidder.         What are the procedures under which an issuer
property shall be sold. The internal             (ii) Property deemed sold to United         of state or local bonds may request a closing
revenue officer conducting the sale may       States at minimum price. If no one             agreement with respect to outstanding bonds (1) to
                                                                                             prevent the interest on those bonds from being
either announce the minimum price be-         offers at least the amount of the mini-        includible in gross income of bondholders or (2)
fore the sale begins, or defer announce-      mum price for the property and the             to prevent the interest on those bonds from being
ment of the minimum price until after         Secretary has determined that it would         treated as an item of tax preference for purposes
the receipt of the highest bid, in which      be in the best interest of the United          of the alternative minimum tax for bondholders, in
                                                                                             each case as a result of an action subsequent to
case, if the highest bid is greater than      States to purchase the property for the        the issue date that causes those bonds to fail to
the minimum price, no announcement of         minimum price, the property shall be           meet certain requirements of §§ 141 through 150
the minimum price shall be made.              declared to be sold to the United States       of the Internal Revenue Code relating to use of
   (ii) Purchase by the United States.        for the minimum price.                         proceeds? See Rev. Proc. 97–15, page 21.
Before the sale of property seized by            (iii) Release to owner. If the property
levy, the district director shall determine   is not declared to be sold under para-         Section 7520.—Valuation Tables
whether the purchase of property by the       graph (c)(4)(i) or (ii) of this section, the      The adjusted applicable federal short-term, mid-
United States at the minimum price            property shall be released to the owner        term, and long-term rates are set forth for the
would be in the best interest of the          of the property and the expense of the         month of February 1997. See Rev. Rul. 97–7, page
United States. In determining whether         levy and sale shall be added to the            14.
the purchase of property would be in the      amount of tax for the collection of
best interest of the United States, the       which the United States made the levy.         Section 7872.—Treatment of Loans
district director may consider all rel-       Any property released under this para-         With Below-Market Interest Rates
evant facts and circumstances including       graph (c)(4)(iii) shall remain subject to
for example—                                                                                    The adjusted applicable federal short-term, mid-
                                              any lien imposed by subchapter C of            term, and long-term rates are set forth for the
   (a) Marketability of the property;         chapter 64 of subtitle F of the Internal       month of February 1997. See Rev. Rul. 97–7, page
   (b) Cost of maintaining the property;      Revenue Code.                                  14.




                                                                  17
Part III. Administrative, Procedural, and Miscellaneous
26 CFR 601.601: Rules and regulations.                         The conference agreement           qualified physicians in the area, consis-
(Also Part I, §§ 103, 141, 145; 1.141–3, 1.145–2.)
                                                         generally retains the present-law        tent with the size and nature of its
Rev. Proc. 97–13                                         rules under which use by persons         facilities;
                                                         other than governmental units is                  (c) A contract to provide for the
                                                         determined for purposes of the           operation of a facility or system of
SECTION 1. PURPOSE
                                                         trade or business use test. Thus, as     facilities that consists predominantly of
   The purpose of this revenue proce-                    under present law, the use of bond-      public utility property (as defined in
dure is to set forth conditions under                    financed property is treated as a        § 168(i)(10) of the 1986 Code), if the
which a management contract does not                     use of bond proceeds. As under           only compensation is the reimbursement
result in private business use under                     present law, a person may be a           of actual and direct expenses of the
§ 141(b) of the Internal Revenue Code                    user of bond proceeds and bond-          service provider and reasonable adminis-
of 1986. This revenue procedure also                     financed property as a result of (1)     trative overhead expenses of the service
applies to determinations of whether a                   ownership or (2) actual or benefi-       provider; and
management contract causes the test in                   cial use of property pursuant to a                (d) A contract to provide for
§ 145(a)(2)(B) of the 1986 Code to be                    lease, a management or incentive         services, if the only compensation is the
met for qualified 501(c)(3) bonds.                       payment contract, or (3) any other       reimbursement of the service provider
                                                         arrangement such as a take-or-pay        for actual and direct expenses paid by
SECTION 2. BACKGROUND                                    or other output-type contract.           the service provider to unrelated parties.
                                                     2 H.R. Conf. Rep. No. 841, 99th Cong.,             (8) Section 1.145–2(a) provides
   .01 Private Business Use.                         2d Sess. II–687–688, (1986) 1986–3           generally that §§ 1.141–0 through
      (1) Under § 103(a) of the 1986                 (Vol. 4) C.B. 687–688 (footnote omit-        1.141–15 apply to § 145(a) of the 1986
Code, gross income does not include                  ted).                                        Code.
interest on any state or local bond.                       (4) A management contract that
Under § 103(b)(1) of the 1986 Code,                                                                     (9) Section 1.145–2(b)(1) provides
                                                     gives a nongovernmental service pro-         that in applying §§ 1.141–0 through
however, § 103(a) of the 1986 Code                   vider an ownership or leasehold interest
does not apply to a private activity                                                              1.141–15 to § 145(a) of the 1986 Code,
                                                     in financed property is not the only         references to governmental persons in-
bond, unless it is a qualified bond under            situation in which a contract may result
§ 141(e) of the 1986 Code. Section                                                                clude section 501(c)(3) organizations
                                                     in private business use.                     with respect to their activities that do
141(a)(1) of the 1986 Code defines
                                                           (5) Section 1.141–3(b)(4)(i) of the    not constitute unrelated trades or busi-
‘‘private activity bond’’ as any bond
                                                     Income Tax Regulations provides, in          nesses under § 513(a) of the 1986
issued as part of an issue that meets
                                                     general, that a management contract          Code.
both the private business use and the
                                                     (within the meaning of § 1.141–                 .02 Existing Advance Ruling Guide-
private security or payment tests. Under
                                                     3(b)(4)(ii)) with respect to financed        lines. Rev. Proc. 93–19, 1993–1 C.B.
§ 141(b)(1) of the 1986 Code, an issue
                                                     property may result in private business      526, contains advance ruling guidelines
generally meets the private business use
                                                     use of that property, based on all the       for determining whether a management
test if more than 10 percent of the
                                                     facts and circumstances.                     contract results in private business use
proceeds of the issue are to be used for
any private business use. Under                            (6) Section 1.141–3(b)(4)(i) pro-      under § 141(b) of the 1986 Code.
§ 141(b)(6)(A) of the 1986 Code, pri-                vides that a management contract with
vate business use means direct or indi-              respect to financed property generally
                                                                                                  SECTION 3. DEFINITIONS
rect use in a trade or business carried on           results in private business use of that
by any person other than a governmen-                property if the contract provides for           .01 Adjusted gross revenues means
tal unit. Section 145(a) of the 1986                 compensation for services rendered with      gross revenues of all or a portion of a
Code also applies the private business               compensation based, in whole or in part,     facility, less allowances for bad debts
use test of § 141(b)(1) of the 1986                  on a share of net profits from the           and contractual and similar allowances.
Code, with certain modifications.                    operation of the facility.                      .02 Capitation fee means a fixed peri-
      (2) Corresponding provisions of                      (7) Section 1.141–3(b)(4)(iii), in     odic amount for each person for whom
the Internal Revenue Code of 1954 set                general, provides that certain arrange-      the service provider or the qualified user
forth the requirements for the exclusion             ments generally are not treated as man-      assumes the responsibility to provide all
from gross income of the interest on                 agement contracts that may give rise to      needed services for a specified period so
state or local bonds. For purposes of this           private business use. These are—             long as the quantity and type of services
revenue procedure, any reference to a                         (a) Contracts for services that     actually provided to covered persons
1986 Code provision includes a refer-                are solely incidental to the primary         varies substantially. For example, a capi-
ence to the corresponding provision, if              governmental function or functions of a      tation fee includes a fixed dollar amount
any, under the 1954 Code.                            financed facility (for example, contracts    payable per month to a medical service
      (3) Private business use can arise             for janitorial, office equipment repair,     provider for each member of a health
by ownership, actual or beneficial use of            hospital billing or similar services);       maintenance organization plan for whom
property pursuant to a lease, a manage-                       (b) The mere granting of admit-     the provider agrees to provide all
ment or incentive payment contract, or               ting privileges by a hospital to a doctor,   needed medical services for a specified
certain other arrangements. The Confer-              even if those privileges are conditioned     period. A capitation fee may include a
ence Report for the Tax Reform Act of                on the provision of de minimis services,     variable component of up to 20 percent
1986, provides as follows:                           if those privileges are available to all     of the total capitation fee designed to
                                                                        18
protect the service provider against risks       .06 Per-unit fee means a fee based on     for example, exclusive use of storage
such as catastrophic loss.                    a unit of service provided specified in      areas by the manager for equipment that
   .03 Management contract means a            the contract or otherwise specifically       is necessary for it to perform activities
management, service, or incentive pay-        determined by an independent third           required under a management contract
ment contract between a qualified user        party, such as the administrator of the      that meets the requirements of section 5
and a service provider under which the        Medicare program, or the qualified user.     of this revenue procedure, is not private
service provider provides services in-        For example, a stated dollar amount for      business use.
                                              each specified medical procedure per-           .02 General compensation require-
volving all, a portion of, or any function
                                              formed, car parked, or passenger mile is     ments.
of, a facility. For example, a contract for
                                              a per-unit fee. Separate billing arrange-          (1) In general. The contract must
the provision of management services          ments between physicians and hospitals       provide for reasonable compensation for
for an entire hospital, a contract for        generally are treated as per-unit fee        services rendered with no compensation
management services for a specific de-        arrangements.                                based, in whole or in part, on a share of
partment of a hospital, and an incentive         .07 Qualified user means any state or     net profits from the operation of the
payment contract for physician services       local governmental unit as defined in        facility. Reimbursement of the service
to patients of a hospital are each treated    § 1.103–1 or any instrumentality             provider for actual and direct expenses
as a management contract. See                 thereof. The term also includes a section    paid by the service provider to unrelated
§§ 1.141–3(b)(4)(ii) and 1.145–2. .           501(c)(3) organization if the financed       parties is not by itself treated as com-
   04 Penalties for terminating a con-        property is not used in an unrelated         pensation.
tract include a limitation on the quali-      trade or business under § 513(a) of the            (2) Arrangements that generally
fied user’s right to compete with the         1986 Code. The term does not include         are not treated as net profits arrange-
service provider; a requirement that the      the United States or any agency or           ments. For purposes of § 1.141–
qualified user purchase equipment,            instrumentality thereof.                     3(b)(4)(i) and this revenue procedure,
goods, or services from the service              .08 Renewal option means a provi-         compensation based on—
provider; and a requirement that the          sion under which the service provider                 (a) A percentage of gross rev-
qualified user pay liquidated damages         has a legally enforceable right to renew     enues (or adjusted gross revenues) of a
for cancellation of the contract. In con-     the contract. Thus, for example, a provi-    facility or a percentage of expenses
trast, a requirement effective on cancel-     sion under which a contract is automati-     from a facility, but not both;
lation that the qualified user reimburse      cally renewed for one-year periods ab-                (b) A capitation fee; or
the service provider for ordinary and         sent cancellation by either party is not a            (c) A per-unit fee is generally
necessary expenses or a restriction on        renewal option (even if it is expected to    not considered to be based on a share of
the qualified user against hiring key         be renewed).                                 net profits.
personnel of the service provider is             .09 Service provider means any per-             (3) Productivity reward. For pur-
generally not a contract termination pen-     son other than a qualified user that         poses of § 1.141–3(b)(4)(i) and this rev-
alty. Another contract between the ser-       provides services under a contract to, or    enue procedure, a productivity reward
vice provider and the qualified user,         for the benefit of, a qualified user.        equal to a stated dollar amount based on
such as a loan or guarantee by the                                                         increases or decreases in gross revenues
service provider, is treated as creating a    SECTION 4. SCOPE                             (or adjusted gross revenues), or reduc-
contract termination penalty if that con-                                                  tions in total expenses (but not both
tract contains terms that are not custom-       This revenue procedure applies when,
                                                                                           increases in gross revenues (or adjusted
ary or arm’s- length that could operate       under a management contract, a service
                                                                                           gross revenues) and reductions in total
to prevent the qualified user from termi-     provider provides management or other
                                                                                           expenses) in any annual period during
nating the contract (for example, provi-      services involving property financed
                                                                                           the term of the contract, generally does
sions under which the contract termi-         with proceeds of an issue of state or
                                                                                           not cause the compensation to be based
nates if the management contract is           local bonds subject to § 141 or
                                                                                           on a share of net profits.
terminated or that place substantial re-      § 145(a)(2)(B) of the 1986 Code.
                                                                                                 (4) Revision of compensation ar-
strictions on the selection of a substitute                                                rangements. In general, if the compensa-
service provider).                            SECTION 5. OPERATING
                                                                                           tion arrangements of a management con-
                                              GUIDELINES FOR MANAGEMENT
   .05 Periodic fixed fee means a stated                                                   tract are materially revised, the
                                              CONTRACTS
dollar amount for services rendered for                                                    requirements for compensation arrange-
a specified period of time. For example,         .01 In general. If the requirements of    ments under section 5 of this revenue
a stated dollar amount per month is a         section 5 of this revenue procedure are      procedure are retested as of the date of
periodic fixed fee. The stated dollar         satisfied, the management contract does      the material revision, and the manage-
amount may automatically increase ac-         not itself result in private business use.   ment contract is treated as one that was
cording to a specified, objective, exter-     In addition, the use of financed property,   newly entered into as of the date of the
nal standard that is not linked to the        pursuant to a management contract            material revision.
output or efficiency of a facility. For       meeting the requirements of section 5 of        .03 Permissible Arrangements. The
example, the Consumer Price Index and         this revenue procedure, is not private       management contract must be described
similar external indices that track in-       business use if that use is functionally     in section 5.03(1), (2), (3), (4), (5), or
creases in prices in an area or increases     related and subordinate to that manage-      (6) of this revenue procedure.
in revenues or costs in an industry are       ment contract and that use is not, in              (1) 95 percent periodic fixed fee
objective external standards. Capitation      substance, a separate contractual agree-     arrangements. At least 95 percent of the
fees and per-unit fees are not periodic       ment (for example, a separate lease of a     compensation for services for each an-
fixed fees.                                   portion of the financed property). Thus,     nual period during the term of the
                                                                 19
contract is based on a periodic fixed fee.   compensation for services is based on a             (c) The qualified user and the
The term of the contract, including all      per-unit fee or a combination of a           service provider under the contract are
renewal options, must not exceed the         per-unit fee and a periodic fixed fee.       not related parties, as defined in
lesser of 80 percent of the reasonably       The term of the contract, including all      § 1.150–1(b).
expected useful life of the financed         renewal options, must not exceed 3
property and 15 years. For purposes of       years. The contract must be terminable       SECTION 6. EFFECT ON OTHER
this section 5.03(1), a fee does not fail    by the qualified user on reasonable          DOCUMENTS
to qualify as a periodic fixed fee as a      notice, without penalty or cause, at the
result of a one-time incentive award         end of the second year of the contract          Rev. Proc. 93–19, 1993–1 C.B. 526,
during the term of the contract under        term.                                        is made obsolete on the effective date of
which compensation automatically in-               (6) Percentage of revenue or ex-       this revenue procedure.
creases when a gross revenue or ex-          pense fee arrangements in certain
pense target (but not both) is reached if    2-year contracts. All the compensation       SECTION 7. EFFECTIVE DATE
that award is equal to a single, stated      for services is based on a percentage of        This revenue procedure is effective
dollar amount.                               fees charged or a combination of a           for any management contract entered
     (2) 80 percent periodic fixed fee       per-unit fee and a percentage of revenue     into, materially modified, or extended
arrangements. At least 80 percent of the     or expense fee. During the start-up pe-      (other than pursuant to a renewal op-
compensation for services for each an-       riod, however, compensation may be           tion) on or after May 16, 1997. In
nual period during the term of the           based on a percentage of either gross        addition, an issuer may apply this rev-
contract is based on a periodic fixed fee.   revenues, adjusted gross revenues, or        enue procedure to any management con-
The term of the contract, including all      expenses of a facility. The term of the      tract entered into prior to May 16, 1997.
renewal options, must not exceed the         contract, including renewal options,
lesser of 80 percent of the reasonably       must not exceed 2 years. The contract        DRAFTING INFORMATION
expected useful life of the financed         must be terminable by the qualified user
                                                                                             The principal author of this revenue
property and 10 years. For purposes of       on reasonable notice, without penalty or
                                                                                          procedure is Loretta J. Finger of the
this section 5.03(2), a fee does not fail    cause, at the end of the first year of the
                                                                                          Office of Assistant Chief Counsel (Fi-
to qualify as a periodic fixed fee as a      contract term. This section 5.03(6) ap-
                                                                                          nancial Institutions and Products). For
result of a one-time incentive award         plies only to—
                                                                                          further information regarding this rev-
during the term of the contract under                 (a) Contracts under which the
                                                                                          enue procedure contact Loretta J. Finger
which compensation automatically in-         service provider primarily provides ser-
                                                                                          on (202) 622–3980 (not a toll-free call).
creases when a gross revenue or ex-          vices to third parties (for example, radi-
pense target (but not both) is reached if    ology services to patients); and             26 CFR 601.601: Rules and regulations.
that award is equal to a single, stated               (b) Management contracts in-        (Also Part I, §§ 103, 141, 145; 1.141–3, 1.145–2.)
dollar amount.                               volving a facility during an initial
     (3) Special rule for public utility     start-up period for which there have         Rev. Proc. 97–14
property. If all of the financed property    been insufficient operations to establish
subject to the contract is a facility or     a reasonable estimate of the amount of       SECTION 1. PURPOSE
system of facilities consisting of pre-      the annual gross revenues and expenses
                                                                                             The purpose of this revenue proce-
dominantly public utility property (as       (for example, a contract for general
                                                                                          dure is to set forth conditions under
defined in § 168(i)(10) of the 1986          management services for the first year
                                                                                          which a research agreement does not
Code), then ‘‘20 years’’ is substituted—     of operations).
                                                                                          result in private business use under
        (a) For ‘‘15 years’’ in applying        .04 No Circumstances Substantially
                                                                                          § 141(b) of the Internal Revenue Code
section 5.03(1) of this revenue proce-       Limiting Exercise of Rights.
                                                                                          of 1986. This revenue procedure also
dure; and                                          (1) In general. The service pro-
                                                                                          applies to determinations of whether a
        (b) For ‘‘10 years’’ in applying     vider must not have any role or relation-
                                                                                          research agreement causes the test in
section 5.03(2) of this revenue proce-       ship with the qualified user that, in
                                                                                          § 145(a)(2)(B) of the 1986 Code to be
dure.                                        effect, substantially limits the qualified
                                                                                          met for qualified 501(c)(3) bonds.
     (4) 50 percent periodic fixed fee       user’s ability to exercise its rights, in-
arrangements. Either at least 50 percent     cluding cancellation rights, under the
                                                                                          SECTION 2. BACKGROUND
of the compensation for services for         contract, based on all the facts and
each annual period during the term of        circumstances.                                  .01 Private Business Use.
the contract is based on a periodic fixed          (2) Safe harbor. This requirement            (1) Under § 103(a) of the 1986
fee or all of the compensation for           is satisfied if—                             Code, gross income does not include
services is based on a capitation fee or a            (a) Not more than 20 percent of     interest on any state or local bond.
combination of a capitation fee and a        the voting power of the governing body       Under § 103(b)(1) of the 1986 Code,
periodic fixed fee. The term of the          of the qualified user in the aggregate is    however, § 103(a) of the 1986 Code
contract, including all renewal options,     vested in the service provider and its       does not apply to a private activity
must not exceed 5 years. The contract        directors, officers, shareholders, and em-   bond, unless it is a qualified bond under
must be terminable by the qualified user     ployees;                                     § 141(e) of the 1986 Code. Section
on reasonable notice, without penalty or              (b) Overlapping board members       141(a)(1) of the 1986 Code defines
cause, at the end of the third year of the   do not include the chief executive offic-    ‘‘private activity bond’’ as any bond
contract term.                               ers of the service provider or its govern-   issued as part of an issue that meets
     (5) Per-unit fee arrangements in        ing body or the qualified user or its        both the private business use and the
certain 3-year contracts. All of the         governing body; and                          private security or payment tests. Under
                                                                20
§ 141(b)(1) of the 1986 Code, an issue       thereof. The term also includes a section         (3) Title to any patent or other
generally meets the private business use     501(c)(3) organization if the financed       product incidentally resulting from the
test if more than 10 percent of the          property is not used in an unrelated         basic research lies exclusively with the
proceeds of the issue are to be used for     trade or business under § 513(a) of the      qualified user; and
any private business use. Under              1986 Code. The term does not include              (4) Sponsors are entitled to no
§ 141(b)(6)(A) of the 1986 Code, pri-        the United States or any agency or           more than a nonexclusive, royalty-free
vate business use means direct or indi-      instrumentality thereof.                     license to use the product of any of that
rect use in a trade or business carried on      .03 Sponsor means any person, other       research.
by any person other than a governmen-        than a qualified user, that supports or
tal unit. Section 145(a) of the 1986         sponsors research under a contract.          SECTION 6. EFFECTIVE DATE
Code also applies the private business
use test of § 141(b)(1) of the 1986                                                          This revenue procedure is effective
Code, with certain modifications.            SECTION 4. SCOPE                             for any research agreement entered into
      (2) Corresponding provisions of                                                     on or after May 16, 1997. In addition,
                                                This revenue procedure applies when,
the Internal Revenue Code of 1954 set                                                     an issuer may apply this revenue proce-
                                             under a research agreement, a sponsor
forth the requirements for the exclusion                                                  dure to any research agreement entered
                                             uses property financed with proceeds of
from gross income of the interest on                                                      into prior to May 16, 1997.
                                             an issue of state or local bonds subject
state or local bonds. For purposes of this   to § 141 or § 145(a)(2)(B) of the 1986
revenue procedure, any reference to a                                                     DRAFTING INFORMATION
                                             Code.
1986 Code provision includes a refer-                                                        The principal author of this revenue
ence to the corresponding provision, if                                                   procedure is Loretta J. Finger of the
                                             SECTION 5. OPERATING
any, under the 1954 Code.                                                                 Office of Assistant Chief Counsel (Fi-
                                             GUIDELINES FOR RESEARCH
   .02 Section 1.141–3(b)(6)(i) of the                                                    nancial Institutions and Products). For
                                             AGREEMENTS
Income Tax Regulations provides, in                                                       further information regarding this rev-
general, that an agreement by a nongov-         .01 In general. If a research agree-      enue procedure contact Loretta J. Finger
ernmental person to sponsor research         ment is described in either section 5.02     on (202) 622–3980 (not a toll-free call).
performed by a governmental person           or 5.03 of this revenue procedure, the
may result in private business use of the    research agreement itself does not result    26 CFR 601.202: Closing agreements.
property used for the research, based on     in private business use.                     (Also Part I, §§ 57, 103, 141, 142, 144, 145, 147,
all of the facts and circumstances.                                                       7121; 1.141–12, 1.142–2, 1.144–2, 1.145–2,
                                                .02 Corporate-sponsored research. A       1.147–2.)
   .03 Section 1.141–3(b)(6)(ii) provides    research agreement relating to property
in general that a research agreement         used for basic research supported or         Rev. Proc. 97–15
with respect to financed property results    sponsored by a sponsor is described in
in private business use of that property     this section 5.02 if any license or other    SECTION 1. PURPOSE
if the sponsor is treated as the lessee or   use of resulting technology by the spon-
owner of financed property for federal       sor is permitted only on the same terms         This revenue procedure provides a
income tax purposes.                         as the recipient would permit that use       program under which an issuer of state
   .04 Section 1.145–2(a) provides gen-      by any unrelated, non-sponsoring party       or local bonds may request a closing
erally that §§ 1.141–0 through 1.141–15      (that is, the sponsor must pay a competi-    agreement with respect to outstanding
apply to § 145(a) of the 1986 Code.          tive price for its use), with the price      bonds (1) to prevent the interest on
   .05 Section 1.145–2(b)(1) provides        paid for that use determined at the time     those bonds from being includible in
that, in applying §§ 1.141–0 through         the license or other resulting technology    gross income of bondholders or (2) to
1.141–15 to § 145(a) of the 1986 Code,       is available for use. Although the recipi-   prevent the interest on those bonds from
references to governmental persons in-       ent need not permit persons other than       being treated as an item of tax prefer-
clude section 501(c)(3) organizations        the sponsor to use any license or other      ence for purposes of the alternative
with respect to their activities that do     resulting technology, the price paid by      minimum tax for bondholders, in each
not constitute unrelated trades or busi-     the sponsor must be no less than the         case as a result of an action subsequent
nesses under § 513(a) of the 1986            price that would be paid by any non-         to the issue date that causes those bonds
Code.                                        sponsoring party for those same rights.      to fail to meet certain requirements of
                                                .03 Cooperative research agreements.      §§ 141 through 150 of the Internal
SECTION 3. DEFINITIONS                       A research agreement relating to prop-       Revenue Code of 1986 relating to use of
                                             erty used pursuant to a joint industry-      proceeds.
   .01 Basic research, for purposes of
§ 141 of the 1986 Code, means any            governmental cooperative research ar-
                                             rangement is described in this section       SECTION 2. BACKGROUND
original investigation for the advance-
ment of scientific knowledge not having      5.03 if—                                        .01 Under § 103(a) of the 1986
a specific commercial objective. For               (1) Multiple, unrelated sponsors       Code, gross income does not include
example, product testing supporting the      agree to fund governmentally performed       interest on any state or local bond if the
trade or business of a specific nongov-      basic research;                              applicable requirements of §§ 141
ernmental person is not treated as basic           (2) The research to be performed       through 150 of the 1986 Code are
research.                                    and the manner in which it is to be          satisfied. These requirements include re-
   .02 Qualified user means any state or     performed (for example, selection of the     quirements relating to use of bond pro-
local governmental unit as defined in        personnel to perform the research) is        ceeds that must be met after the issue
§ 1.103–1 or any instrumentality             determined by the qualified user;            date.
                                                                21
   .02 Sections 1.141–12, 1.142–2,              .02 In general, in the case of a clos-    remediated under §§ 1.141–12, 1.142–2,
1.144–2, 1.145–2, and 1.147–2 of the         ing agreement providing that the interest    1.144–2, 1.145–2, and 1.147–2 are
Income Tax Regulations provide that, in      on bonds will not be includible in gross     §§ 141(b)(1), 141(b)(3), 141(b)(4),
the event that an action taken subse-        income of bondholders, the closing           141(b)(5), 141(c), 142 (except para-
quent to the issue date causes an issue      agreement will apply only to the period      graphs (d) and (f)), 144 (except para-
of state or local bonds to fail to meet      between the issue date of the bonds and      graphs (a)(4), (a)(10), and (b)), 145(a),
certain requirements relating to use of      the next date on which the bonds may         147(c)(3), 147(d)(2) and (3), 147(e), and
proceeds, an issuer may generally take       be redeemed under their terms after the      147(f) of the 1986 Code. This revenue
certain remedial actions to prevent inter-   date of the closing agreement (the ‘‘next    procedure has no effect on the applica-
est on the bonds from becoming includ-       redemption date’’). The next redemption      tion of the provisions set forth in
ible in gross income. Application of         date will be specified in the closing        §§ 150(b) and (c) of the 1986 Code.
these remedial action provisions may         agreement.                                      .02 An issue of bonds that is under an
not be possible or practicable for issuers      .03 In general, in the case of a clos-    examination by the Service is not eli-
in some cases.                               ing agreement providing that the interest    gible for the program. An issue of bonds
   .03 The remedial action permitted in      on bonds will not be treated as an item      is under examination if the issuer of the
§ 1.141–12(f) applies to bonds that          of tax preference for purposes of the        bonds has been notified in writing by
were not treated as private activity         alternative minimum tax, the closing         the Service that the issue has been
bonds on their issue date. Under this        agreement will apply only to the period      selected for examination.
provision, if a subsequent action causes     between the date of the subsequent
bonds of an issue to meet the private        action and the date specified in the
activity bond tests of § 141 of the 1986     closing agreement.                           SECTION 5. PROCEDURE
Code, the bonds may be treated as               .04 This program is a compliance             .01 An issuer seeking relief must re-
reissued qualified private activity bonds    program but is not based upon an             quest, within 180 days from the date of
on the date of the action for certain        examination of an issue of bonds by the      the subsequent action, a closing agree-
purposes, including §§ 55 through 57 of      Service.                                     ment following the procedures in this
the 1986 Code.                                  .05 Because this program does not         revenue procedure.
   .04 Section 57(a)(5) of the 1986          arise out of an examination, consider-          .02 In its request for a closing agree-
Code provides that the interest on cer-      ation under this program does not pre-       ment under this revenue procedure, the
tain qualified private activity bonds is     clude or impede an examination of the        issuer must include the following infor-
treated as an item of tax preference for     issuer, the bondholders, or the issue of     mation relating to the issue of bonds:
purposes of the alternative minimum          bonds by the Service with respect to
tax.                                         matters not addressed in the closing               (1) A copy of the completed and
   .05 Corresponding provisions of the       agreement.                                   filed Form 8038;
Internal Revenue Code of 1954 set forth         .06 The intent underlying this pro-             (2) A copy of the final offering
requirements for the exclusion from          gram is to treat expeditiously all re-       document, if any;
gross income of the interest on an issue     quests for closing agreements which are            (3) A statement detailing the subse-
of state or local bonds. For purposes of     submitted in accordance with sections 5      quent action;
this revenue procedure, any reference to     and 6 of this revenue procedure. Ac-               (4) A statement explaining the
a provision of the 1986 Code includes a      cordingly, negotiations with issuers on      computation of the proposed closing
reference to the corresponding provision,    the basis of mitigating circumstances of     agreement amount, as described in sec-
if any, under the 1954 Code.                 individual cases will not be entertained     tion 6 of this revenue procedure; and
                                             under the terms of this revenue proce-             (5) In the case of a request for a
SECTION 3. DESCRIPTION OF THE                dure.                                        closing agreement providing that the
CLOSING AGREEMENT PROGRAM                                                                 interest on bonds will not be includible
FOR SUBSEQUENT ACTIONS                       SECTION 4. SCOPE                             in gross income of bondholders, a copy
                                                                                          of the written notice (which may ac-
   .01 Under the program established by         .01 This revenue procedure applies        knowledge that the issuer does not cur-
this revenue procedure, the Service will     only to failures to meet the requirements
                                                                                          rently have funds on hand to redeem the
enter into closing agreements with issu-     for excludability of interest from gross
                                                                                          nonqualified bonds) to the bondholders
ers of state or local bonds. These clos-     income in §§ 141 through 150 of the          of the issue that:
ing agreements will provide that (1) the     1986 Code that can be remediated under
interest on bonds will not be includible     §§ 1.141–12, 1.142–2, 1.144–2, 1.145–                 (a) The nonqualified bonds will
in gross income of bondholders or (2)        2, or 1.147–2 with respect to proceeds       be redeemed on the next redemption
the interest on bonds will not be treated    that have been spent. These remedial         date; and
as an item of tax preference for pur-        action provisions generally require that              (b) In the event the issuer fails
poses of the alternative minimum tax for     the initial use of proceeds of the issue     to redeem the nonqualified bonds in
bondholders, in each case solely as a        of bonds, including the use of any           accordance with the terms of the closing
result of an action subsequent to the        facility financed with those proceeds,       agreement on the next redemption date,
issue date that causes those bonds to fail   satisfied all the applicable requirements    the bonds of the issue will be treated as
to meet certain requirements of §§ 141       for tax-exempt bonds under §§ 103 and        private activity bonds that are not quali-
through 150 of the 1986 Code relating        141 through 150 of the 1986 Code. The        fied bonds as of that date.
to use of bond proceeds. The closing         requirements for excludability of interest      .03 The closing agreement will be
agreements will not resolve any other        from gross income in §§ 141 through          prepared by the Service and, in general,
matter.                                      150 of the 1986 Code that can be             will be in substantially the same form
                                                                22
which is shown as an exhibit at the end         .05 A request for a closing agreement     ing on the date on which the subsequent
of this revenue procedure.                   and the closing agreement under this         action occurs and ending on the next
   .04 As a condition to the Service         revenue procedure must be signed by          redemption date;
executing a closing agreement under this     the issuer. The person who signs for an            (2) Step 2. Multiply the amount
procedure, the following requirements        issuer must be an official of the issuer     determined in section 6.01(1) of this
must be met:                                 who is authorized to sign a Form 8038        revenue procedure for each calendar
      (1) The requirements of §§ 1.141–      and who has personal knowledge of the        year by 0.29;
12(a), 1.142–2, 1.144–2, 1.145–2, or         facts regarding bonds to be covered by             (3) Step 3. Determine the present
1.147–2, as applicable, relating to condi-   the closing agreement, the subsequent        value of each amount determined in
tions for remedial action must be satis-     action relating to the use of the proceeds   section 6.01(2) of this revenue proce-
fied.                                        of those bonds, and the computation of       dure for each calendar year in accor-
      (2) In the case of a closing agree-    the proposed closing agreement amount        dance with section 6.02 of this revenue
ment providing that the interest on          described in section 6 of this revenue       procedure by assuming it is paid on
bonds will not be includible in gross        procedure.                                   April 15 in the following calendar year;
income of bondholders, the issuer must                                                          (4) Step 4. Determine the sum of
                                                .06 To sign the request for a closing
agree to:                                                                                 the present value amounts determined in
                                             agreement or to appear before the Ser-
         (a) Notify the bondholders in                                                    section 6.01(3) of this revenue proce-
                                             vice in connection with the request for a
writing, within 30 days after the date the                                                dure for all calendar years.
                                             closing agreement, the issuer or the
closing agreement is executed by the                                                         .02 Computation of present value.
                                             representative must comply with the
Service, that:                                                                            Present value must be computed as of
                                             requirements of sections 9.02(11) and
            (i) The nonqualified bonds                                                    the date on which the payment is sent to
                                             (12) of Rev. Proc. 97–4, 1997–1 I.R.B.
will be redeemed on the next redemp-                                                      the Service.
                                             97 or any successor to Rev. Proc. 97–4.
tion date; and                                                                                  (1) In the case of a closing agree-
            (ii) In the event the issuer        .07 The following declaration must        ment providing that the interest on
fails to redeem the nonqualified bonds       accompany a request for a closing            bonds will not be includible in gross
in accordance with the terms of the          agreement and any factual information        income of bondholders, the discount rate
closing agreement on the next redemp-        submitted after the original request or      used to determine present value is the
tion date, the bonds of the issue will be    any change in the request at a later         taxable applicable federal rate (semian-
treated as private activity bonds that are   time: ‘‘Under penalties of perjury, I        nual compounding), determined as of
not qualified bonds as of that date; and     declare that I have examined this            the date of the subsequent action, for a
         (b) Not make any payment un-        request for a closing agreement, in-         term equal to the period between the
der the closing agreement from proceeds      cluding accompanying documents,              date of the subsequent action and the
of bonds described in § 103(a) of the        and that, to the best of my knowledge        next redemption date.
1986 Code.                                   and belief, the facts presented in sup-            (2) In the case of a closing agree-
      (3) In the case of a closing agree-    port of the requested closing agree-         ment providing that the interest on
ment providing that the interest on          ment are true, correct, and complete.’’      bonds will not be treated as an item of
bonds will not be treated as an item of      The declaration must be signed by the        tax preference for purposes of the alter-
tax preference for purposes of the alter-    issuer, not the issuer’s representative.     native minimum tax, the discount rate
native minimum tax, the issuer must             .08 A request for a closing agreement     used to determine present value is the
agree to not make any payment under          must be clearly labeled as a request for     taxable applicable federal rate (semian-
the closing agreement from proceeds of       a closing agreement under this revenue       nual compounding), determined as of
bonds described in § 103(a) of the 1986      procedure and sent to the following          the date of the subsequent action, for a
Code.                                        address:                                     term equal to the period between the
      (4) In the case of a closing agree-       Internal Revenue Service                  date of the subsequent action and the
ment providing that the interest on             1111 Constitution Avenue, N.W.            date specified in the closing agreement.
bonds will not be includible in gross           Attention: CP:E:EO:P:2, Room 6052            .03 Nonqualified bonds has the same
income of bondholders, the issuer must          Washington, D.C. 20224                    meaning as in §§ 1.141–12(j) or 1.142–
execute, simultaneously with the execu-                                                   2(e), as applicable. Nonqualified bonds
tion by the issuer of the closing agree-     SECTION 6. CLOSING AGREEMENT                 that continue to be treated as tax-exempt
ment, a § 6103(c) disclosure consent         AMOUNT                                       because of a permissible remedial action
authorizing the Service to make public                                                    under §§ 1.141–12(d), (e), or (f), 1.142–
any returns and return information (as          .01 In general. Except as provided in     2(c), 1.144–2, 1.145–2, or 1.147–2, as
those terms are defined in § 6103(b) of      section 6.04 of this revenue procedure,      applicable, will not be treated as
the 1986 Code) of the issuer relating to     the closing agreement amount is equal        nonqualified bonds for purposes of this
the closing agreement under this rev-        to an estimate of the federal income tax     closing agreement program.
enue procedure, but only in the event        liability that is not required to be paid       .04 Amount for closing agreement on
the issuer fails to redeem the nonquali-     with respect to interest accruing on the     item of tax preference. In the case of a
fied bonds in accordance with the terms      nonqualified bonds commencing on the         closing agreement providing that the
of the closing agreement.                    date of the subsequent action, as pro-       interest on bonds will not be treated as
      (5) The issuer must pay, simulta-      vided in this section. The closing agree-    an item of tax preference for purposes
neously with the execution by the issuer     ment amount is computed as follows:          of the alternative minimum tax, the
of the closing agreement, the applicable           (1) Step 1. Determine the amount       closing agreement amount is equal to an
closing agreement amount computed un-        of interest accruing on the nonqualified     estimate of the federal income tax liabil-
der section 6 of this revenue procedure.     bonds in each calendar year, commenc-        ity that is not required to be paid
                                                                23
because of this treatment commencing        is required by the Service to verify            B. This Agreement is not based upon
on the date of the subsequent action, as    compliance with §§ 57, 103, 141, 142,        an examination of the Bonds by the IRS
provided in this section. The closing       144, 145, and 147 of the 1986 Code, as       and does not preclude or impede an
agreement amount is computed as fol-        applicable. This information will be         examination of the Issuer, any holders
lows:                                       used by the Service to enter into a          of the Bonds, or the Bonds by the IRS
     (1) Step 1. Determine the principal    closing agreement with the issuer and to     with respect to matters not addressed in
amount of nonqualified bonds that will      establish the closing agreement amount.      this Agreement.
be outstanding on January 1 of each         The collections of information are re-          C. The IRS has not formally asserted
calendar year commencing the calendar       quired to obtain a benefit. The likely       any claims against the Issuer, or sought
year in which the subsequent action         respondents are state or local govern-       to tax any holders of the Bonds on
occurs and ending the first calendar year   ments.                                       interest income on the Bonds.
in which the nonqualified bonds will no        The estimated total annual reporting         D. The terms of this Agreement were
longer be outstanding;                      and/or recordkeeping burden is 75            arrived at pursuant to Rev. Proc. 97–15
     (2) Step 2. Multiply the amount        hours.                                       and may differ from the terms of settle-
determined in section 6.04(1) of this          The estimated annual burden per           ment of bond issues examined or to be
revenue procedure for each calendar         respondent/recordkeeper varies from 1        examined by the IRS.
year by .0014;                              hour to 3 hours, depending on individual        E. This Agreement is for the benefit
     (3) Step 3. Determine the present      circumstances, with an estimated aver-       of the past, present and future registered
value of each amount determined in          age of 1.5 hours. The estimated number       and beneficial owners of the Bonds
section 6.04(2) of this revenue proce-      of respondents and/or recordkeepers is       during the period covered by this Agree-
dure for each calendar year in accor-       50.                                          ment (collectively, the ‘‘Bondholders’’).
dance with section 6.02 of this revenue        The estimated annual frequency of            F. [In the case of a closing agreement
procedure by assuming it is paid on         responses (used for reporting require-       entered into under section 3.01(1) of
April 15 in the following calendar year;    ments only) is on occasion.                  Rev. Proc. 97–15, provide as follows:
     (4) Step 4. Determine the sum of                                                    The first date on which the Bonds may
                                               Books or records relating to a collec-
the present value amounts determined in                                                  be redeemed, under the terms of the
                                            tion of information must be retained as
section 6.04(3) of this revenue proce-                                                   bond documents for the Bonds after the
                                            long as their contents may become ma-
dure for all calendar years.                                                             date of this Agreement, is
                                            terial in the administration of any inter-
                                                                                         (the ‘‘Next Redemption Date’’).]
                                            nal revenue law. Generally tax returns
SECTION 7. INQUIRIES                                                                        [Insert additional premises on which
                                            and tax return information are confiden-
                                                                                         this Agreement is based, including a
  Inquiries, comments, or suggestions in    tial, as required by 26 U.S.C. 6103.
                                                                                         description of the subsequent action
regard to this revenue procedure should                                                  causing the Bonds to fail to meet a
be directed to:                             DRAFTING INFORMATION
                                                                                         requirement of the Code relating to use
  Internal Revenue Service                                                               of proceeds. Specifically identify that
                                               The principal author of this revenue
  1111 Constitution Avenue, N.W.                                                         requirement of the Code.]
                                            procedure is Loretta J. Finger of the
  Attention: CP:E:EO:P:2, Room 6052                                                         NOW IT IS HEREBY DETERMINED
                                            Office of Assistant Chief Counsel (Fi-
  Washington, D.C. 20224                                                                 AND AGREED PURSUANT TO THIS
                                            nancial Institutions and Products). For
                                            further information regarding this rev-      AGREEMENT EXECUTED BY THE
SECTION 8. EFFECTIVE DATE                   enue procedure contact Loretta J. Finger     PARTIES HERETO UNDER SECTION
   This revenue procedure is effective      on (202) 622–3980 (not a toll-free call).    7121 OF THE CODE THAT FOR FED-
for bonds issued on or after May 16,                                                     ERAL INCOME TAX PURPOSES:
1997. In addition, an issuer may apply       CLOSING AGREEMENT ON FINAL                     1. The Issuer shall pay [the amount
this revenue procedure to any bonds            DETERMINATION COVERING                    computed under section 6 of Rev. Proc.
issued before May 16, 1997.                  SPECIFIC MATTERS RELATING TO                97–15] to the IRS upon the Issuer’s
                                            A SUBSEQUENT ACTION RELATING                 execution of this Agreement. Payment of
SECTION 9. PAPERWORK                              TO USE OF PROCEEDS                     this amount shall not be made from
REDUCTION ACT                                                                            proceeds of bonds described in section
                                               Under section 7121 of the Internal        103(a) of the Code. Payments of this
   The collections of information con-      Revenue Code (the ‘‘Code’’),                 amount shall be made by certified check
tained in this revenue procedure have       (the ‘‘Issuer’’) and the Commissioner of     payable to the ‘‘Internal Revenue Ser-
been reviewed and approved by the           Internal Revenue (the ‘‘Commissioner’’       vice.’’ Payment must be sent, simulta-
Office of Management and Budget in          or ‘‘IRS’’) make this closing agreement      neously with this Agreement executed
accordance with the Paperwork Reduc-        (the ‘‘Agreement’’).                         by the Issuer, to Internal Revenue Ser-
tion Act (44 U.S.C. 3507) under control        WHEREAS, the parties have deter-          vice, Attention: CP:E:EO, 1111 Consti-
number 1545–1528.                           mined the following facts and made the       tution Avenue, N.W., Washington, D.C.
   An agency may not conduct or spon-       following legal conclusions and repre-       20224.
sor, and a person is not required to        sentations:                                     2. [In the case of a closing agreement
respond to, a collection of information        A. This Agreement is in settlement of     entered into under section 3.01(1) of
unless the collection of information dis-   issues raised in a request for a closing     Rev. Proc. 97–15, provide as follows:
plays a valid control number.               agreement under Rev. Proc. 97–15,            The Bondholders are not required to
   The collections of information in this   1997–5 I.R.B. 21, pertaining to the          include in their gross incomes any inter-
revenue procedure are in section 5 of                    (the ‘‘Bonds’’) issued on       est accrued on the Bonds from the Issue
this revenue procedure. This information                 (the ‘‘Issue Date’’).           Date to the Next Redemption Date be-
                                                               24
cause of the violations set forth herein.]   only in the event the Issuer fails to        SIGNING THE AGREEMENT] and the
[In the case of a closing agreement          redeem the Bonds in accordance with          Commissioner of Internal Revenue, con-
entered into under section 3.01(2) of        the terms of this Agreement.]                cerning [INSERT NAME OF BOND
Rev. Proc. 97–15, provide as follows:           11. [In the case of a closing agree-      ISSUE]. The above described informa-
The Bondholders are not required to          ment entered into under section 3.01(1)      tion may be disclosed by the IRS to
treat interest accrued on the Bonds from     of Rev. Proc. 97–15, provide as follows:     members of Congress, the press, or the
[the date of the subsequent action] to [a    In the event that the Bonds are retired      general public. Such disclosures may be
specified date] as an item of tax prefer-    prior to the Next Redemption Date, no        made only in the event the Issuer fails
ence for purposes of the alternative         amount paid by the Issuer under para-        to redeem the Bonds in accordance with
minimum tax, because of the violations       graph 1 of this Agreement may be             the terms of the Agreement.
set forth herein.]                           refunded.] [In the case of a closing            I [we] am [are] aware that without
   3. [In the case of a closing agreement    agreement entered into under section         this authorization the returns and return
entered into under section 3.01(1) of        3.01(2) of Rev. Proc. 97–15, provide as      information of [INSERT NAME OF
Rev. Proc. 97–15, provide as follows:        follows: In the event that the Bonds are     ISSUER] are confidential and are pro-
Within 30 days after the date this Agree-    retired prior to [the date specified in      tected by law under the Internal Rev-
ment is executed by the IRS, the Issuer      paragraph 2 of this Agreement], no           enue Code.
must notify all Bondholders in writing       amount paid by the Issuer under para-           I [we] hereby certify that I [we] have
that the Bonds will be redeemed on the       graph 1 of this Agreement may be             the authority to execute this consent to
Next Redemption Date and that, in the        refunded.]                                   disclose on behalf of the Issuer.
event that the Issuer fails to redeem the       12. This Agreement is final and con-
Bonds, the Bonds will be treated as          clusive except that—                         NAME OF ISSUER:
private activity bonds that are not quali-         a. The matter it relates to may be     EMPLOYER IDENTIFICATION
fied bonds after the Next Redemption         reopened in the event of fraud, malfea-      NUMBER:
Date.]                                       sance, or misrepresentation of a material    ISSUER’S ADDRESS:
   4. [In the case of a closing agreement    fact;                                        NAME OF INDIVIDUAL
entered into under section 3.01(1) of              b. It is subject to the sections of    EXECUTING CONSENT:
Rev. Proc. 97–15, provide as follows:        the Code that expressly provide that         TITLE:
The Issuer is required to redeem the         effect be given to their provisions (in-     SIGNATURE:
Bonds on the Next Redemption Date.           cluding any stated exception for section     DATE:
Further, the Issuer may not redeem the       7122 of the Code) notwithstanding any
Bonds from proceeds of bonds described       other law or rule of law; and                26 CFR 601.105: Examination of returns and
in section 103(a) of the Code.]                    c. It is subject to any law, enacted   claims for refund, credit, or abatement; determina-
   5. Notwithstanding anything to the        after the date of this Agreement, that       tion of correct tax liability.
contrary contained herein, the IRS may       applies to a tax period ending after the     (Also Part I, § 842.)
take any appropriate action with respect     date of this Agreement covered by this
                                                                                          Rev. Proc. 97–16
to the Bonds, including taxing the Bond-     Agreement.
holders on interest earned on the Bonds,        By signing, the above parties certify     SECTION 1. PURPOSE
for violations other than those set forth    that they have read and agreed to the
herein or for violations arising after the   terms of this Agreement.                        This revenue procedure provides the
effective date of this Agreement.                                                         domestic asset/liability percentages and
   6. This Agreement is executed with        ISSUER                                       domestic investment yields needed by
                                             TIN:
respect to a federal income tax liability                                                 foreign life insurance companies and
of the Bondholders.                          By:                     Date:                foreign property and liability insurance
   7. No income shall be recognized by              [Name]                                companies to compute their minimum
any Bondholder as a result of this           Title:                                       effectively connected net investment in-
Agreement or any payments made pur-          COMMISSIONER OF INTERNAL                     come under § 842(b) of the Internal
suant to this Agreement.                     REVENUE                                      Revenue Code for taxable years begin-
   8. No party shall endeavor by litiga-                                                  ning after December 31, 1995. Instruc-
                                             By:            Date:
tion or other means to attack the validity                                                tions are provided for computing foreign
                                                    [Name]
of this Agreement.                                                                        insurance companies’ liabilities for the
                                             Title:
   9. This Agreement may not be cited                                                     estimated tax and installment payments
or relied upon by any person or entity          CONSENT TO DISCLOSE TAX                   of estimated tax for taxable years begin-
whatsoever as precedent in the disposi-              INFORMATION                          ning after December 31, 1995. For more
tion of any other case.                                                                   specific guidance regarding the compu-
   10. [In the case of a closing agree-         I [we] hereby authorize the Internal      tation of the amount of net investment
ment entered into under section 3.01(1)      Revenue Service (‘‘IRS’’) to make pub-       income to be included by a foreign
of Rev. Proc. 97–15, provide as follows:     lic any returns and return information       insurance company on its U.S. income
The Issuer shall execute, upon the Issu-     (as those terms are defined in section       tax return, see Notice 89–96, 96, 1989–2
er’s execution of this Agreement, a          6103(b) of the Internal Revenue Code)        C.B. 417. For the domestic asset/liability
consent meeting the requirements of          of [INSERT NAME OF ISSUER] (‘‘the            percentage and domestic investment
section 6103(c) of the Code permitting       Issuer’’) relating to the Closing Agree-     yield, as well as instructions for comput-
the disclosure to the general public of      ment (‘‘Agreement’’) dated [INSERT           ing foreign insurance companies’ liabili-
information concerning this Agreement.       DATE] between the Issuer, [INSERT            ties for estimated tax and installment
The consent will permit such disclosures     NAME OF ANY OTHER PARTY                      payments of estimated tax for taxable
                                                                25
years beginning after December 31,            The domestic investment yields pro-         vestment income. However, if the due
1994, see Rev. Proc. 96–23, 1996–1          vided in this revenue procedure are           date of an installment is less than 20
C.B. 662.                                   based on tax return data rather than          days after the date this revenue proce-
                                            NAIC statement data.                          dure is published in the Internal Rev-
SEC. 2. CHANGES                                                                           enue Bulletin, the asset/liability percent-
                                            SEC. 3. APPLICATION —                         ages and domestic investment yields
   .01 DOMESTIC ASSET/LIABILITY
                                            ESTIMATED TAXES                               provided in Rev. Proc. 96–23 may be
PERCENTAGES FOR 1996. The Secre-
tary determines the domestic asset/            To compute estimated tax and the           used to compute the minimum effec-
liability percentage separately for life    installment payments of estimated tax         tively connected net investment income
insurance companies and property and        due for taxable years beginning after         for such installment. For further guid-
liability insurance companies. For the      December 31, 1995, a foreign insurance        ance in computing estimated tax, see
first taxable year beginning after De-      company must compute its estimated tax        Notice 89–96.
cember 31, 1995, the relevant domestic      payments by adding to its income other
                                                                                          SEC. 4. EFFECTIVE DATE
asset/liability percentages are:            than net investment income the greater
   114.8 percent for foreign life insur-    of (i) its net investment income as              This revenue procedure is effective
ance companies, and                         determined under § 842(b)(5), that is         for taxable years beginning after De-
   170.2 percent for foreign property and   actually effectively connected with the       cember 31, 1995.
liability insurance companies.              conduct of a trade or business within the
                                                                                          DRAFTING INFORMATION
   .02 DOMESTIC           INVESTMENT        United States for the relevant period, or
YIELDS FOR 1996. The Secretary is           (ii) the minimum effectively connected           The principal author of this revenue
required to prescribe separate domestic     net investment income under § 842(b)          procedure is Ginny Chung of the Office
investment yields for foreign life insur-   that would result from using the most         of the Associate Chief Counsel (Interna-
ance companies and for foreign property     recently available domestic asset/liability   tional). For further information regard-
and liability insurance companies. For      percentage and domestic investment            ing this revenue procedure, please con-
the first taxable year beginning after      yield. Thus, for installment payments         tact Ms. Chung at (202) 622–3870 (not
December 31, 1995, the relevant domes-      due after the release of this revenue         a toll-free call), or write to the Internal
tic investment yields are:                  procedure, the domestic asset/liability       Revenue Service, Office of the Associ-
   7.1 percent for foreign life insurance   percentages and the domestic investment       ate Chief Counsel (International), 1111
companies, and                              yields provided in this revenue proce-        Constitution Avenue, N.W., Washington,
   5.7 percent for foreign property and     dure must be used to compute the              D.C. 20224, Attention: CC:INTL:Br.5,
liability insurance companies.              minimum effectively connected net in-         Room 4562.




                                                               26
Part IV. Items of General Interest
Foundations Status of Certain               Charlotte HIV AIDS Network Inc., Port     Indianapolis F I R E Rally Inc.,
Organizations                                 Charlotte, FL                              Indianapolis, IN
                                            Charlotte IOTA Chapter CHI ETA PHI        Institute for Southern Culture Inc.,
Announcement 97–9                             Inc., Charlotte, NC                        Atlanta, GA
   The following organizations have         Cher Ami Home Corporation, New            Interfaith Volunteer Caregiver of
failed to establish or have been unable       Orleans, LA                                Northeast Georgia Inc., Gainesville,
to maintain their status as public chari-   Cher Ami Homes Gretna Louisiana Inc.,        GA
ties or as operating foundations. Accord-     New Orleans, LA                         International Medical Institute Atlanta
ingly, grantors and contributors may not,   Chestnut Street Mens Club Inc.,              Inc., Atlanta, GA
after this date, rely on previous rulings     Chattanooga, TN                         Islamic Society of Triad, Winston
or designations in the Cumulative List      Christopher D. and Elka P. Norton            Salem, NC
of Organizations (Publication 78), or on      Foundation of the Arts, Inc., Hobe      Isle Piquant Sugar Foundation, Lydia,
the presumption arising from the filing       Sound, FL                                  LA
of notices under section 508(b) of the      Clayton County BPN Charitable Trust,      Joyland-Highpoint Community Coalition
Code. This listing does not indicate that     Jonesboro, GA                              Inc., Atlanta, GA
the organizations have lost their status    Cliffdale Area Sports Association,        Kenwood Place II, Inc., Indianapolis, IN
as organizations described in section         Fayetteville, NC                        Laser Documentation, New Orleans, LA
501(c)(3), eligible to receive deductible   Common Claws Inc., Plaquemine, LA         Leadership Monroe Inc., Amory, MS
contributions.                              Common Ground, Charlotte, NC              Lecanto High School Block and Tackle
   Former Public Charities. The follow-     Comp Inc., Baton Rouge, LA                   Booster Club Inc., Lecanto, FL
ing organizations (which have been          Corporate Health Research Inc.,           Le Conte Woodmanston Foundation
treated as organizations that are not         Danbury, CT                                Inc., Hinesville, GA
private foundations described in section    Counseling Clinic Inc., Miami, FL         Louisiana the Beautiful Inc., Baton
509(a) of the Code) are now classified      Coweta County Foster Parents                 Rouge, LA
as private foundations:                       Association Inc., Newnan, GA            Manatee AIDS Prevention & Support
Alabamians for Quality Education, Inc.,     Day Star Christian Ministries, Inc.,         Inc., Bradenton, FL
   Birmingham, AL                             Salisbury, NC                           Majorie Bingham Foundation Inc.,
Alpharetta Youth Football Association       D’Iberville Pee Wee Football League          Gainesville, FL
   Inc., Alpharetta, GA                       Inc., D’Iberville, MS                   Metropolitan Chorale of Miami, Miami,
American CFIDS Chronic Fatigue and          Emmaus Road Outreach Ministries Inc.,        FL
   Immune Dysfunction Syndrome                Pensacola, FL                           Miami Artistic Gymnastics Inc., Miami,
   Association Inc., Bartlett, TN           Every Kid of Palm Beach County               FL
Americus Literacy Action Inc.,                Incorporated, West Palm Beach, FL       Mission Marti: A Cuban National
   Americus, GA                             Faith Ministries Inc., Dalton, GA            Renaissance Inc., Miami, FL
Antra Incorporated, Miami, FL               Family Renewal Institute Inc., Naples,    MountainMovers, Inc., Glassboro, NJ
Ark-La-Tex Crisis Pregnancy Center            FL                                      National Association of Black Narcotics
   Inc., Shreveport, LA                     Family Resource Center Communities           Agents, Inc., Detroit, MI
                                              Inc., Baton Rouge, LA                   NBC USA Housing INC Eighteen,
Art Judaica Educational Foundation,
   Oak Park, MI                             Family Shelter Inc., Charlotte, NC           Newark, OH
                                            First Heritage, Inc., New York, NY        NBC-USA Housing INC Twenty Five,
Association for the Developmentally
   Disabled Inc., Cape Coral, FL            Flagler County Youth Soccer League           Newark, OH
                                              Inc., Palm Coast, FL                    Neighborhood Action United Tenants
Autism Foundation Inc., Vero Beach, FL
                                            Florida Keys Marine Sanctuary Inc.,          Association Inc., Fort Walton Beach,
Baton Rouge Therapeutic Riding Center         Marathon, FL                               FL
   Inc., Baton Rouge, LA
                                            Floridians for Educational Choice         New Orleans Pro Bono Project, New
Berkley County Society for Prevention         Foundation Inc., Tallahassee, FL           Orleans, LA
   of Cruelty to Animals, Moncks            Fragile X Association of Georgia Inc.,    New Orleans Symphony Chamber
   Corner, SC                                 Marietta, GA                               Orchestra Society, New Orleans, LA
Bible Themes Inc., Red Bay, AL              Friends of Fort Clinch Inc., Fernandina   North Carolina Desert Storm Memorial
Building a Dream Inc., Naples, FL             Beach, FL                                  Foundation Inc., Charlotte, NC
Bulldog Sports Network Inc.,                Friends of Murphy Harpst and Vashti       Northshore High School Band Boosters
   Birmingham, AL                             Inc., Atlanta, GA                          Incorporated, Slidell, LA
Cambridge Jets Youth Track Club             Friends of the Animal Shelter, Newport,   Northwest Viking Softball Boosters of
   Association, Inc., Cambridge, MA           TN                                         Guilford County North Carolina,
Camp Alpha Inc., Baton Rouge, LA            Georgia Branch of the Orton Dyslexia         Greensboro, NC
Chabad Lubavitch of N. Broward &              Society Inc., Atlanta, GA               Oak Grove Athletic Booster Club Inc.,
   Palm Beach Counties Inc., Margate,       Greater Golden Triangle Crime Stoppers       Hattiesburg, MS
   FL                                         Inc., Columbus, MS                      Ohio Valley Dive Team Inc., Wheeling,
Charles Willis Ministries Inc., Lake        Greenville Junior Chamber Foundation,        WV
   Charles, LA                                Greenville, SC                          Oops Inc. Our Own Place Inc., Battle
Charlotte Genesis Inc., Charlotte, NC       Incentive Project Inc., New Orleans, LA      Creek, MI
                                                             27                                          1997–5        I.R.B.
Orange Mound Development                 St. Peters Centers for Comprehensive      Washington & Madison County Casa
  Corporation, Memphis, TN                  Services Inc., Winston Salem, NC          Inc., Fayetteville, AR
Palmetto Lacross Inc., Miami, FL         Sahara Fund Inc., Miami Beach, FL         Washington County Actors Community,
Pan American Coalition of Welding        Second Chance Inc., Mena, AR                 Salem, IN
  Institutions PACWI Inc., Miami, FL     Sherman Michael Anderson Trust Inc.,
Parent Teen Resource Foundation Inc.,                                              Youth Foundation of Louisiana, Baton
                                            Hickory, NC                               Rouge, LA
  Tallahassee, FL
Past Commanders Club, Allen Park, MI     Signal Mountain Youth Basketball             If an organization listed above sub-
Potluck Inc., Little Rock, AR               League Inc., Signal Mountain, TN       mits information that warrants the re-
Pregnancy Helpline of St. Joseph,        South Atlanta Civic League II Inc.,       newal of its classification as a public
  Sturgis, MI                               Atlanta, GA                            charity or as a private operating founda-
Project M A G I C Foundation Inc.,       South Florida Affordable Housing          tion, the Internal Revenue Service will
  Atlanta, GA                               Corporation, West Palm Beach, FL       issue a ruling or determination letter
Pungo Basin Improvement Association      STBI Corp., Orlando, FL                   with the revised classification as to
  Inc., Belhaven, NC                     Submarine Officers Wives Club of          foundation status. Grantors and con-
River Region Recovery Residences Inc.,      Charleston Inc., Charleston, SC        tributors may thereafter rely upon such
  New Orleans, LA                                                                  ruling or determination letter as pro-
                                         Subsahara Relief Organization,
Road to Life Ministry, Cleveland, OH                                               vided in section 1.509(a)–7 of the
                                            N. Kingstown, RI
Rock Radio Group, Durham, NC                                                       Income Tax Regulations. It is not
Ruah, Inc., Manchester, NH               Tau Alpha Chi Inc., Atlanta, GA           the practice of the Service to announce
Rugby Public Library and Community       Tax Clinics Inc., Athens, GA              such revised classification of foundation
  Center, Rugby, TN                      Telephone History Institute, Dublin, CA   status in the Internal Revenue Bulletin.




1997–5      I.R.B.                                         28
Announcement of the Disbarment, Suspension, or Consent to Voluntary
Suspension of Attorneys, Certified Public Accountants, Enrolled Agents, and
Enrolled Actuaries From Practice Before the Internal Revenue Service
   Under Section 330, Title 31 of the        enue Service matter from directly or        accountant, enrolled agent, or enrolled
United States Code, the Secretary of the     indirectly employing, accepting assis-      actuary, and date of disbarment or pe-
Treasury, after due notice and opportu-      tance from, being employed by or shar-      riod of suspension. This announcement
nity for hearing, is authorized to sus-      ing fees with, any practitioner disbarred   will appear in the weekly Bulletin for
pend or disbar from practice before the      or under suspension from practice be-       five successive weeks or as long as it is
Internal Revenue Service any person          fore the Internal Revenue Service.          practicable for each attorney, certified
who has violated the rules and regula-          To enable attorneys, certified public    public accountant, enrolled agent, or
tions governing the recognition of attor-    accountants, enrolled agents, and en-       enrolled actuary so suspended or dis-
neys, certified public accountants, en-      rolled actuaries to identify such dis-      barred and will be consolidated and
rolled agents or enrolled actuaries to       barred or suspended practitioners, the      published in the Cumulative Bulletin.
practice before the Internal Revenue         Director of Practice will announce in the      After due notice and opportunity for
Service.                                     Internal Revenue Bulletin the names and     hearing before an administrative law
   Attorneys, certified public accoun-       addresses of practitioners who have         judge, the following individuals have
tants, enrolled agents, and enrolled actu-   been suspended from such practice, their    been disbarred from further practice be-
aries are prohibited in any Internal Rev-    designation as attorney, certified public   fore the Internal Revenue Service:

Name                            Address                      Designation           Effective Date

Noske, Joan Marie               Bismarck, ND                 CPA                   September 7, 1996
Dalrymple, John K.              Troy, MI                     CPA                   September 26, 1996




                                                               29
Definition of Terms
Revenue rulings and revenue procedures               is modified because it corrects a pub-           more than restate the substance of a
(hereinafter referred to as ‘‘rulings’’)             lished position. (Compare with amplified         prior ruling, a combination of terms is
that have an effect on previous rulings              and clarified, above).                           used. For example, modified and super-
use the following defined terms to de-                  Obsoleted describes a previously pub-         seded describes a situation where the
scribe the effect:                                   lished ruling that is not considered de-         substance of a previously published rul-
   Amplified describes a situation where             terminative with respect to future trans-        ing is being changed in part and is
no change is being made in a prior                   actions. This term is most commonly              continued without change in part and it
published position, but the prior position           used in a ruling that lists previously           is desired to restate the valid portion of
is being extended to apply to a variation            published rulings that are obsoleted be-         the previously published ruling in a new
of the fact situation set forth therein.             cause of changes in law or regulations.          ruling that is self contained. In this case
Thus, if an earlier ruling held that a               A ruling may also be obsoleted because
                                                                                                      the previously published ruling is first
principle applied to A, and the new                  the substance has been included in regu-
                                                                                                      modified and then, as modified, is su-
ruling holds that the same principle also            lations subsequently adopted.
applies to B, the earlier ruling is ampli-              Revoked describes situations where            perseded.
fied. (Compare with modified, below).                the position in the previously published            Supplemented is used in situations in
   Clarified is used in those instances              ruling is not correct and the correct            which a list, such as a list of the names
where the language in a prior ruling is              position is being stated in the new              of countries, is published in a ruling and
being made clear because the language                ruling.                                          that list is expanded by adding further
has caused, or may cause, some confu-                   Superseded describes a situation              names in subsequent rulings. After the
sion. It is not used where a position in a           where the new ruling does nothing more           original ruling has been supplemented
prior ruling is being changed.                       than restate the substance and situation         several times, a new ruling may be
   Distinguished describes a situation               of a previously published ruling (or             published that includes the list in the
where a ruling mentions a previously                 rulings). Thus, the term is used to              original ruling and the additions, and
published ruling and points out an es-               republish under the 1986 Code and                supersedes all prior rulings in the series.
sential difference between them.                     regulations the same position published             Suspended is used in rare situations to
   Modified is used where the substance              under the 1939 Code and regulations.             show that the previous published rulings
of a previously published position is                The term is also used when it is desired         will not be applied pending some future
being changed. Thus, if a prior ruling               to republish in a single ruling a series of      action such as the issuance of new or
held that a principle applied to A but not           situations, names, etc., that were previ-        amended regulations, the outcome of
to B, and the new ruling holds that it               ously published over a period of time in         cases in litigation, or the outcome of a
applies to both A and B, the prior ruling            separate rulings. If the new ruling does         Service study.



Abbreviations                                        E.O.—Executive Order.                            PHC—Personal Holding Company.
                                                     ER—Employer.                                     PO—Possession of the U.S.
The following abbreviations in current use and
                                                     ERISA—Employee Retirement Income Security Act.   PR—Partner.
formerly used will appear in material published in
the Bulletin.                                        EX—Executor.                                     PRS—Partnership.
A—Individual.                                        F—Fiduciary.                                     PTE—Prohibited Transaction Exemption.
Acq.—Acquiescence.                                   FC—Foreign Country.                              Pub. L.—Public Law.
B—Individual.                                        FICA—Federal Insurance Contribution Act.         REIT—Real Estate Investment Trust.
BE—Beneficiary.                                      FISC—Foreign International Sales Company.        Rev. Proc.—Revenue Procedure.
BK—Bank.                                             FPH—Foreign Personal Holding Company.            Rev. Rul.—Revenue Ruling.
B.T.A.—Board of Tax Appeals.                         F.R.—Federal Register.                           S—Subsidiary.
C.—Individual.                                       FUTA—Federal Unemployment Tax Act.               S.P.R.—Statements of Procedural Rules.
C.B.—Cumulative Bulletin.                            FX—Foreign Corporation.                          Stat.—Statutes at Large.
CFR—Code of Federal Regulations.                     G.C.M.—Chief Counsel’s Memorandum.               T—Target Corporation.
CI—City.                                             GE—Grantee.                                      T.C.—Tax Court.
COOP—Cooperative.                                    GP—General Partner.                              T.D.—Treasury Decision.
Ct.D.—Court Decision.                                GR—Grantor.                                      TFE—Transferee.
CY—County.                                           IC—Insurance Company.                            TFR—Transferor.
D—Decedent.                                          I.R.B.—Internal Revenue Bulletin.                T.I.R.—Technical Information Release.
DC—Dummy Corporation.                                LE—Lessee.                                       TP—Taxpayer.
DE—Donee.                                            LP—Limited Partner.                              TR—Trust.
Del. Order—Delegation Order.                         LR—Lessor.                                       TT—Trustee.
DISC—Domestic International Sales Corporation.       M—Minor.                                         U.S.C.—United States Code.
DR—Donor.                                            Nonacq.—Nonacquiescence.                         X—Corporation.
E—Estate.                                            O—Organization.                                  Y—Corporation.
EE—Employee.                                         P—Parent Corporation.                            Z—Corporation.



                                                                          30
Numerical Finding List1
Bulletin 1997–1 through 1997–4
Announcements:
97–1,   1997–2   I.R.B.   63
97–2,   1997–2   I.R.B.   63
97–3,   1997–2   I.R.B.   63
97–4,   1997–3   I.R.B.   14
97–5,   1997–3   I.R.B.   15
97–6,   1997–4   I.R.B.   11
97–7,   1997–4   I.R.B.   12
97–8,   1997–4   I.R.B.   12
Notices:
97–1, 1997–2 I.R.B. 22
97–2, 1997–2 I.R.B. 22
97–3, 1997–1 I.R.B. 8
97–4, 1997–2 I.R.B. 24
97–5, 1997–2 I.R.B. 25
97–6, 1997–2 I.R.B. 26
97–7, 1997–1 I.R.B. 8
97–8, 1997–4 I.R.B. 7
97–9, 1997–2 I.R.B. 35
97–10, 1997–2 I.R.B. 41
97–11, 1997–2 I.R.B. 50
97–12, 1997–3 I.R.B. 11
Proposed Regulations:
REG–209762–95, 1997–3 I.R.B. 12
REG–209834–96, 1997–4 I.R.B. 9
Revenue Procedures:
97–1, 1997–1 I.R.B. 11
97–2, 1997–1 I.R.B. 64
97–3, 1997–1 I.R.B. 84
97–4, 1997–1 I.R.B. 96
97–5, 1997–1 I.R.B. 132
97–6, 1997–1 I.R.B. 153
97–7, 1997–1 I.R.B. 185
97–8, 1997–1 I.R.B. 187
97–9, 1997–2 I.R.B. 56
97–10, 1997–2 I.R.B. 59
97–12, 1997–4 I.R.B. 7
Revenue Rulings:
97–1,   1997–2   I.R.B.   10
97–2,   1997–2   I.R.B.   7
97–3,   1997–2   I.R.B.   5
97–4,   1997–3   I.R.B.   6
97–5,   1997–4   I.R.B.   5
97–6,   1997–4   I.R.B.   4
Treasury Decisions:
8697,   1997–2   I.R.B.   11
8688,   1997–3   I.R.B.   7
8689,   1997–3   I.R.B.   9
8692,   1997–3   I.R.B.   4
8695,   1997–4   I.R.B.   5




1
 A cumulative list of all Revenue Rulings,
Revenue Procedures, Treasury Decisions, etc.,
published in Internal Revenue Bulletins 1996–27
through 1996–53 will be found in Internal
Revenue Bulletin 1997–1, dated January 6, 1997.

                                                  31
Finding List of Current Action on                     Revenue Rulings—Continued
Previously Published Items1                           96–39
                                                      Superseded by
Bulletin 1997–1 through 1997–4                        97–3, 1997–1 I.R.B. 84
*Denotes entry since last publication                 96–43
Revenue Procedures:                                   Superseded by
                                                      97–3, 1997–1 I.R.B. 84
92–20
Modified by                                           96–56
97–1, 1997–1 I.R.B. 11                                Superseded by
                                                      97–3, 1997–1 I.R.B. 84
92–20
Modified by
97–10, 1997–2 I.R.B. 59
92–90
Superseded by
97–1, 1997–1 I.R.B. 11
96–1
Superseded by
97–1, 1997–1 I.R.B. 11
96–2
Superseded by
97–2, 1997–1 I.R.B. 64
96–3
Superseded by
97–3, 1997–1 I.R.B. 84
96–4
Superseded by
97–4, 1997–1 I.R.B. 96
96–5
Superseded by
97–5, 1997–1 I.R.B. 132
96–6
Superseded by
97–6, 1997–1 I.R.B. 153
96–7
Superseded by
97–7, 1997–1 I.R.B. 185
96–8
Superseded by
97–8, 1997–1 I.R.B. 187
Revenue Rulings:
70–480
Revoked by
97–6, 1997–4 I.R.B. 4
92–19
Supplemented in part by
97–2, 1997–2 I.R.B. 7
96–12
Superseded by
97–3, 1997–1 I.R.B. 84
96–13
Modified by
97–1, 1997–1 I.R.B. 11
96–22
Superseded by
97–3, 1997–1 I.R.B. 84
96–34
Superseded by
97–3, 1997–1 I.R.B. 84

1
 A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1996–27 through 1996–53 will be found in Inter-
nal Revenue Bulletin 1997–1, dated January 6,
1997.

                                                                           32
Index
Internal Revenue Bulletins 1997–1          INCOME TAX—Continued                         INCOME TAX—Continued
Through 1997–4                             Employee plans—Continued                     Regulations—Continued
                                              SIMPLES (RP 9) 2, 55                        26 CFR 1.6695–1(b), amended;
For index of items published during
                                              SIMPLE–IRAs (Notice 6) 2, 26                   1.6695–1T, removed; 301.6061–1,
the last six months of 1996, see                                                             revised; 301.6061–1T, removed; re-
I.R.B. 1997–1, dated Januar y 6,              User fees (RP 8) 1, 187                        turns, statements, or other docu-
1997.                                      Exempt organizations:                             ments, signing methods (TD 8689)
                                              Unrelated business taxable income              3, 9
The abbreviation and number in pa-               (RP 12) 4, 7                             26 CFR 301.6103(n)–1, amended; re-
renthesis following the index entry           User fees (RP 8) 1, 187                        turn information disclosure; prop-
refer to the specific item; numbers in                                                       erty or services for tax administra-
                                           Insurance companies:
roman and italic type following the                                                          tion purposes, Justice Department
parenthesis refer to the Internal Rev-        Interest rate tables (RR 2) 2, 8               (TD 8695) 4, 5
enue Bulletin in which the item may           Premium stabilization reserves (RR 5)     Rulings:
be found and the page number on                  4, 5                                     Areas in which advance rulings will
which it appears.                          Interest:                                         not be issued:
                                              Investment:                                    Associate Chief Counsel (Domes-
Key to Abbreviations:                                                                           tic), Associate Chief Counsel
                                                 Federal short-term, mid-term, and
                                                                                                (Employee Benefits and Exempt
RR       Revenue Ruling                             long-term rates for January 1997            Organizations (RP 3) 1, 85; As-
RP       Revenue Procedure                          (RR 1) 2, 10                                sociate Chief Counsel (Interna-
TD       Treasury Decision                 Inventories:                                         tional) (RP 7) 1, 185
CD       Court Decision
PL       Public Law                           LIFO, price indexes, department             Determination letters, employee plans
EO       Executive Order                         stores, November 1996 (RR 6) 4, 4           (RP 6) 1, 153
DO       Delegation Order                  Obsolete revenue rulings and revenue           Environmental cleanup costs; letter
TDO      Treasury Department Order            procedures under TD 8697 (Notice 1)            rulings (Notice 7) 1, 8
TC       Tax Convention                       2, 22                                       Letter rulings, determination letter, in-
SPR      Statement of Procedural                                                             formation letter, Associate Chief
                                           Proposed regulations:
           Rules                                                                             Counsel (Domestic), Associate
                                              26 CFR 1.704–3, 1.1245–1, amended;             Chief Counsel (Employee Benefits
PTE      Prohibited Transaction                  depreciation allocations, recapture
           Exemption                                                                         and Exempt Organizations), Associ-
                                                 among partners in a partnership             ate Chief Counsel (Enforcement
                                                 (REG–209762–95) 3, 12
INCOME TAX                                    26 CFR 1.1396–1, added; empower-
                                                                                             Litigation), Associate Chief Coun-
                                                                                             sel (International) (RP 1) 1, 11
Adoption assistance (Notice 9) 2, 35             ment zone employment credit;             Rulings and determination letters, is-
Credits against tax:                             qualified zone employees (REG–              suance procedures (RP 4) 1, 97
  Low-income housing credit:                     209834–96) 4, 9                          Technical advice; employee plans, ex-
     Building’s credit period beginning
                                           Regulations:                                      empt organizations (RP 5) 1, 132
        after 1995 (RR 4) 3, 6
Depreciation:                                 26 CFR 1.25–3, added; 1.25–3T,              Technical advice to district directors
  Retail motor fuels outlets (RP 10) 2,          amended; mortgage credit certifi-           and chiefs, appeals offices, Associ-
     59                                          cate reissuance (TD 8692) 3, 4              ate Chief Counsel (Domestic), As-
Electing Small Business Trust (ESBT)          26 CFR 1.108(c)–1T, 1.163(d)–1T,               sociate Chief Counsel (Employee
  election (Notice 12) 3, 11                     1.1044(a)–1T, 1.6655(e)–1T, re-             Benefits and Exempt Organiza-
Employee plans:                                  moved; 1.108(c)–1, 1.163(d)–1,              tions), Associate Chief Counsel
  Cash or deferred arrangements (No-             1.1044(a)–1, 1.6655(e)–1, added;            (Enforcement Litigation), Associate
     tice 2) 2, 22                               Omnibus Budget Reconciliation               Chief Counsel (International) (RP
  Funding:                                       Act, elections (TD 8688) 3, 7               2) 1, 64
     Full funding limitations, weighted       26 CFR 1.581–1, revised; 1.581–2,         SBA guaranteed payment rights; partici-
        average interest rate, January           1.761–1(a), revised; 301.6109–1,         pating securities (RR 3) 2, 5
        1997 (Notice 8) 4, 7                     amended; 301.7701–1, –2, –3, re-       S corporation subsidiaries (Notice 4) 2,
  Qualification:                                 vised; 301.7701–4, amended; do-          24
     Qualified domestic relations orders         mestic unincorporated business         Small Business Corporations:
        (Notice 11) 2, 49                        organizations classified as partner-     Accounting periods (Notice 3) 1, 8
     Qualified joint and survivor annu-          ships or associations (TD 8697) 2,       Electing small business corporations
        ities (Notice 10) 2, 49                  11                                          and banks (Notice 5) 2, 25




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