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Bulletin No. 1996–20May 13, 1996

HIGHLIGHTSOF THIS ISSUE

These synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

T.D. 8664, page 7.Final regulations under section 6049 of the Codeprovide rules regarding the reporting on Form 1042–Sof certain bank deposit interest paid to a U.S. bankaccount for an individual who is a nonresident alien ofthe U.S. and a Canadian resident.

T.D. 8667, page 4.Final regulations under section 168 of the Code relateto the lease term of tax-exempt use property. Theseregulations also provide guidance regarding certain like-kind exchanges among related parties involving tax-exempt use property.

EXEMPT ORGANIZATIONS

Notice 96–30, page 11.This notice provides relief from filing Form 3115,Application for Change in Accounting Method, for501(c) organizations that are changing their federal taxaccounting methods to comply with the provisions ofStatement of Financial Accounting Standards, No. 116,Accounting for Contributions Received and Contribu-tions Made (SFAS 116). This notice also discusses howa not-for-profit organization that changes its federal taxaccounting methods to conform to SFAS 116 shouldreport any adjustment required by section 481(a).

Rev. Proc. 96–32, page 14.Low-income housing guidelines. Guidance on qualifica-

tion for tax-exemption under section 501(c)(3) isprovided for organizations that provide low-incomehousing. The guidance includes a safe-harbor procedureto determine qualification.

Announcement 96–43, page 18.A list is given of organizations now classified as privatefoundations.

ADMINISTRATIVE

Rev. Proc. 96–31, page 11.Changes in computing depreciation or amortization. Anautomatic consent procedure is provided for taxpayerschanging their method of accounting for depreciation oramortization for property for which less than theallowable depreciation or amortization is claimed. Rev.Proc. 92–20 modified.

Announcement 96–41, page 18.The 1996 Form W–4, Employee’s Withholding Al-lowance Certificate, is now available.

Announcement 96–42, page 18.Form 8807, Certain Manufacturers and Retailers ExciseTaxes, and Form 8645, Soil and Water ConservationPlan Certificate, are obsolete. The IRS has determinedthat taxpayers may meet the reporting and certificationrequirements of these forms by reporting the requiredinformation on other forms.

Finding Lists begin on page 22.

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Mission of the ServiceThe purpose of the Internal Revenue Service is tocollect the proper amount of tax revenue at the leastcost; serve the public by continually improving the

quality of our products and services; and perform in amanner warranting the highest degree of publicconfidence in our integrity, efficiency and fairness.

Statement of Principlesof Internal RevenueTax AdministrationThe function of the Internal Revenue Service is toadminister the Internal Revenue Code. Tax policyfor raising revenue is determined by Congress.

With this in mind, it is the duty of the Service tocarry out that policy by correctly applying the lawsenacted by Congress; to determine the reasonablemeaning of various Code provisions in light of theCongressional purpose in enacting them; and toperform this work in a fair and impartial manner,with neither a government nor a taxpayer point ofview.

At the heart of administration is interpretation of theCode. It is the responsibility of each person in theService, charged with the duty of interpreting thelaw, to try to find the true meaning of the statutoryprovision and not to adopt a strained construction inthe belief that he or she is ‘‘protecting the revenue.’’The revenue is properly protected only when we as-certain and apply the true meaning of the statute.

The Service also has the responsibility of applyingand administering the law in a reasonable,practical manner. Issues should only be raised byexamining officers when they have merit, neverarbitrarily or for trading purposes. At the sametime, the examining officer should never hesitateto raise a meritorious issue. It is also importantthat care be exercised not to raise an issue or toask a court to adopt a position inconsistent withan established Service position.

Administration should be both reasonable andvigorous. It should be conducted with as littledelay as possible and with great courtesy andconsiderateness. It should never try to overreach,and should be reasonable within the bounds of lawand sound administration. It should, however, bevigorous in requiring compliance with law and itshould be relentless in its attack on unreal taxdevices and fraud.

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IntroductionThe Internal Revenue Bulletin is the authoritativeinstrument of the Commissioner of Internal Revenue forannouncing official rulings and procedures of theInternal Revenue Service and for publishing TreasuryDecisions, Executive Orders, Tax Conventions, legisla-tion, court decisions, and other items of generalinterest. It is published weekly and may be obtainedfrom the Superintendent of Documents on a subscrip-tion basis. Bulletin contents of a permanent nature areconsolidated semiannually into Cumulative Bulletins,which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletinall substantive rulings necessary to promote a uniformapplication of the tax laws, including all rulings thatsupersede, revoke, modify, or amend any of thosepreviously published in the Bulletin. All publishedrulings apply retroactively unless otherwise indicated.Procedures relating solely to matters of internalmanagement are not published; however, statements ofinternal practices and procedures that affect the rightsand duties of taxpayers are published.

Revenue rulings represent the conclusions of theService on the application of the law to the pivotal factsstated in the revenue ruling. In those based onpositions taken in rulings to taxpayers or technicaladvice to Service field offices, identifying details andinformation of a confidential nature are deleted toprevent unwarranted invasions of privacy and to complywith statutory requirements.

Rulings and procedures reported in the Bulletin do nothave the force and effect of Treasury DepartmentRegulations, but they may be used as precedents.Unpublished rulings will not be relied on, used, or citedas precedents by Service personnel in the disposition ofother cases. In applying published rulings and proce-dures, the effect of subsequent legislation, regulations,court decisions, rulings, and procedures must beconsidered, and Service personnel and others con-cerned are cautioned against reaching the sameconclusions in other cases unless the facts andcircumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based onprovisions of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows:Subpart A, Tax Conventions, and Subpart B, Legislationand Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references tothese subjects are contained in the other Parts andSubparts. Also included in this part are Bank SecrecyAct Administrative Rulings. Bank Secrecy Act Admin-istrative Rulings are issued by the Department of theTreasury’s Office of the Assistant Secretary(Enforcement).

Part IV.—Items of General Interest.With the exception of the Notice of Proposed Rulemak-ing and the disbarment and suspension list included inthis part, none of these announcements are consoli-dated in the Cumulative Bulletins.

The first Bulletin for each month includes an index forthe matters published during the preceding month.These monthly indexes are cumulated on a quarterlyand semiannual basis, and are published in the firstBulletin of the succeeding quarterly and semi-annualperiod, respectively.

The Bulletin Index-Digest System, a research andreference service supplementing the Bulletin, may beobtained from the Superintendent of Documents on asubscription basis. It consists of four Services: ServiceNo. 1, Income Tax; Service No. 2, Estate and GiftTaxes; Service No. 3, Employment Taxes; Service No.4, Excise Taxes. Each Service consists of a basicvolume and a cumulative supplement that provides (1)finding lists of items published in the Bulletin, (2)digests of revenue rulings, revenue procedures, andother published items, and (3) indexes of Public Laws,Treasury Decisions, and Tax Conventions.

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.

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

Section 167.—Depreciation

If a taxpayer changes from claiming less thanthe allowable depreciation to claiming the al-lowable depreciation for property subject tosection 167, is this change a change in method ofaccounting. See Rev. Proc. 96–31, page 11.

26 CFR 1.167(e)–1: Change in method.

If a taxpayer changes from claiming less thanthe allowable depreciation to claiming the al-lowable depreciation, is this change a change inmethod of accounting. See Rev. Proc. 96–31,page 11.

Section 168.—Accelerated CostRecovery System

26 CFR 1.168(h)(1): Like-kind exchangesinvolving tax-exempt use property.

T.D. 8667

DEPARTMENT OF THE TREASURYInternal Revenue Service26 CFR Part 1

Lease Term; Exchanges of Tax-Exempt Use Property

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document containsfinal regulations relating to the leaseterm of tax-exempt use property. Thefinal regulations also provide guidanceregarding certain like-kind exchangesamong related parties involving tax-exempt use property.

DATES: These regulations are effectiveApril 29, 1996.

For dates of applicability see ‘‘Effec-tive dates’’ section under the ‘‘SUP-PLEMENTARY INFORMATION’’por t ion of the preamble and§§1.168(h)–1(e) and 1.168(i)–2(g).

FOR FURTHER INFORMATIONCONTACT: John M. Aramburu of theOffice of Assistant Chief Counsel(Income Tax and Accounting) at (202)622-4960 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains final regula-tions under section 168 of the InternalRevenue Code of 1986 (Code). Theregulations provide guidance relating tocertain exchanges of tax-exempt useproperty among related parties and thedetermination of lease term undercertain circumstances. Proposed regula-tions (IA–18–95 [1995–1 C.B. 955])were published in the Federal Registeron April 21, 1995 (60 FR 19868). TheIRS received a number of comments onthe proposed regulations. A scheduledpublic hearing was cancelled becausethere were no requests to testify. Afterconsideration of all the comments, theregulations proposed by IA–18–95 areadopted as revised by this Treasurydecision. The revisions are discussedbelow.

Overview

Under section 168, property used ina trade or business, or held for theproduction of income, generally may bedepreciated under the general deprecia-tion system (GDS) using acceleratedmethods over relatively short recoveryperiods. However, certain property,including ‘‘tax-exempt use property,’’must be depreciated under the alterna-tive depreciation system (ADS) de-scribed in section 168(g). Section168(h)(1)(A) generally defines tax-exempt use property to include tangibleproperty (other than nonresidential realproperty) leased to a tax-exempt entity.For this purpose, certain foreign en-tities and persons are considered tax-exempt entities.

Congress subjected tax-exempt useproperty to a slower depreciation sys-tem than GDS to prevent tax-exemptentities from indirectly claiming taxbenefits (in the form of reducedrentals) ‘‘from investment incentivesfor which they [would] not qualifydirectly, and effectively gain[ing] theadvantage of taking income tax deduc-tions and credits while having nocorresponding liability to pay any taxon income from the property.’’ S. Rep.No. 169 (Vol. 1), 98th Cong., 2d Sess.123 (1984).

In particular, section 168(g)(3)(A)provides that tax-exempt use property

subject to a lease must be depreciatedusing the straight-line method over aperiod equal to the greater of theproperty’s class life or 125 percent ofthe lease term. Under section 168(i)(3),options to renew generally must betaken into account in determining thelease term and the periods of certainsuccessive leases must be aggregatedwith the period of an original lease.

Lease term

The proposed regulations generallyinclude an additional period of timeduring which a lessee may not continueto be the lessee in the lease term if thelessee (or a related person) has agreedthat one or both of them will or couldbe obligated to make a payment ofrent, or a payment in the nature of rent,with respect to such period. The ar-rangements described in the proposedregulations are frequently referred to as‘‘replacement leases.’’ One commenta-tor requested that the portion of theproposed regulations dealing with re-placement leases be withdrawn. Thecommentator argued that Congresswould not have intended that the termof the replacement lease be taken intoaccount in determining lease term. TheIRS and Treasury believe that theproposed regulations are consistentwith Congressional intent, and thus thefinal regulations retain this portion ofthe proposed regulations.

Another commentator indicated thatapplication of the proposed regulationswas unclear where property is subjectto multiple leases, possibly involvingmultiple parties. The final regulationsclarify that if property is subject tomore than one lease (including anysublease) entered into as part of asingle transaction (or a series of relatedtransactions), the lease term shall in-clude all periods described in one ormore of such leases. Thus, for example,if one taxable corporation leases prop-erty to another taxable corporation fora 20-year term and, as part of the sametransaction, the lessee subleases theproperty to a tax-exempt entity for a10-year term, then the lease term of theproperty is 20 years, and during theperiod of tax-exempt use it must bedepreciated using the straight linemethod over the greater of its class lifeor 25 years.

Finally, the final regulations providethat lease term also includes any period


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during which the lessee (or a relatedparty) has assumed or retained any riskof loss with respect to the property(including, for example, by holding anote secured by the property). The IRSand Treasury believe that such anarrangement is generally similar to thereplacement leases described in theproposed regulations. As in the case ofa replacement lease, the lessee isassuming risk with respect to the valueof the property at the termination of theinitial lease term. In addition, the termof the debt provides an objectiveindication that the useful life of theproperty exceeds the original term ofthe lease, in which case failure toinclude the term of the debt in thelease term could allow a tax-exemptlessee to benefit from depreciationdeductions that exceed economic de-preciation, which would be contrary toCongressional intent.

Like-kind exchanges

The proposed regulations also ad-dress certain transactions between re-lated persons that are designed tocircumvent the tax-exempt use propertyrules through the use of a like-kindexchange described in section 1031.The proposed regulations provide thatproperty (tainted property) transferreddirectly or indirectly to the taxpayer bya related person (the related party) aspart of, or in connection with, atransaction described in section 1031where the related party receives tax-exempt use property (related tax-exempt use property) will, if the taintedproperty is subject to an allowance fordepreciation, be treated in the samemanner as the related tax-exempt useproperty for purposes of determiningthe allowable depreciation deductionunder section 167(a). Under this rule,the tainted property is depreciated bythe taxpayer over the remaining recov-ery period of, and using the samedepreciation method and convention asthat of, the related tax-exempt useproperty.

The rule applies only with respect todirect or indirect transfers of propertyinvolving related persons where (1)section 1031 applies to any party, and(2) a principal purpose of the transferis to avoid or limit the application ofADS. For purposes of this rule, aperson is related to another person ifthey bear a relationship specified insection 267(b) or section 707(b)(1). Anexchange between members of a con-

solidated group in a taxable yearbeginning on or after July 12, 1995,will not be subject to this provisionbecause section 1031 does not apply tointercompany t ransact ions. See§1.1502–80(f).

No comments were received withrespect to the treatment of like-kindexchanges under the proposed regula-tions. Accordingly, these provisions ofthe proposed regulations are adoptedwithout modification by this Treasurydecision.

Effective dates

The definition of lease term isgenerally applicable to leases enteredinto on or after April 20, 1995. Thechanges made by the final regulationsapply to leases entered into after April26, 1996. The treatment of like-kindexchanges is applicable to transfersmade on or after April 20, 1995. Noinference is intended by these effectivedates as to the treatment of any trans-action under prior law. The regulationsdo not preclude the application ofcommon law doctrines (such as thesubstance over form or step transactiondoctrines) and other authorities totransactions described in the regulations(e.g., as to whether a particular transac-tion should be characterized as a leaseor a conditional sale for federal incometax purposes).

Special analyses

It has been determined that thisTreasury decision is not a significantregulatory action as defined in EO12866. Therefore, a regulatory assess-ment is not required. It has also beendetermined that section 553(b) of theAdministrative Procedure Act (5 U.S.C.chapter 5) and the Regulatory Flex-ibility Act (5 U.S.C. chapter 6) do notapply to these regulations, and there-fore, a Regulatory Flexibility Analysisis not required. Pursuant to section7805(f) of the Internal Revenue Code,the notice of proposed rulemakingpreceding these regulations was submit-ted to the Small Business Administra-tion for comment on its impact onsmall business.

Drafting Information

The principal author of these regula-tions is John M. Aramburu of theOffice of Assistant Chief Counsel

(Income Tax and Accounting). How-ever, other personnel from the IRS andTreasury Department participated intheir development.

* * * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 isamended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citationfor part 1 is amended by adding entriesin numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * *Section 1.168(h)–1 also issued under

26 U.S.C. 168. * * *Section 1.168(i)–2 also issued under

26 U.S.C. 168. * * * Par. 2. Sections 1.168(h)–1 and

1.168(i)–2 are added to read as follows:

§1.168(h)–1 Like-kind exchangesinvolving tax-exempt use property.

(a) Scope. (1) This section applieswith respect to a direct or indirecttransfer of property among relatedpersons, including transfers madethrough a qualified intermediary (asdefined in §1.1031(k)–1(g)(4)) or otherunrelated person, (a transfer) if—

(i) Section 1031 applies to any partyto the transfer or to any relatedtransaction; and

(ii) A principal purpose of the trans-fer or any related transaction is toavoid or limit the application of thealternative depreciation system (withinthe meaning of section 168(g)).

(2) For purposes of this section, aperson is related to another person ifthey bear a relationship specified insection 267(b) or section 707(b)(1).

(b) Allowable depreciation deductionfor property subject to this section—(1)In general. Property (tainted property)transferred directly or indirectly to ataxpayer by a related person (relatedparty) as part of, or in connection with,a transaction in which the related partyreceives tax-exempt use property (re-lated tax-exempt use property) will, ifthe tainted property is subject to anallowance for depreciation, be treatedin the same manner as the related tax-exempt use property for purposes ofdetermining the allowable depreciation


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deduction under section 167(a). Underthis paragraph (b), the tainted propertyis depreciated by the taxpayer over theremaining recovery period of, andusing the same depreciation methodand convention as that of, the relatedtax-exempt use property.

(2) Limitations—(i) Taxpayer’s basisin related tax-exempt use property. Therules of this paragraph (b) apply onlywith respect to so much of the tax-payer’s basis in the tainted property asdoes not exceed the taxpayer’s adjustedbasis in the related tax-exempt useproperty prior to the transfer. Anyexcess of the taxpayer’s basis in thetainted property over its adjusted basisin the related tax-exempt use propertyprior to the transfer is treated asproperty to which this section does notapply. This paragraph (b)(2)(i) does notapply if the related tax-exempt useproperty is not acquired from the tax-payer (e.g., if the taxpayer acquires thetainted property for cash but section1031 nevertheless applies to the relatedparty because the transfer involves aqualified intermediary).

(ii) Application of section 168(i)(7).This section does not apply to so muchof the taxpayer’s basis in the taintedproperty as is subject to section168(i)(7).

(c) Related tax-exempt use property.(1) For purposes of paragraph (b) ofthis section, related tax-exempt useproperty includes—

(i) Property that is tax-exempt useproperty (as defined in section 168(h))at the time of the transfer; and

(ii) Property that does not becometax-exempt use property until after thetransfer if, at the time of the transfer, itwas intended that the property becometax-exempt use property.

(2) For purposes of determining theremaining recovery period of the re-lated tax-exempt use property in thecircumstances described in paragraph(c)(1)(ii) of this section, the related tax-exempt use property will be treated ashaving, prior to the transfer, a leaseterm equal to the term of any lease thatcauses such property to become tax-exempt use property.

(d) Examples. The following exam-ples illustrate the application of thissection. The examples do not addresscommon law doctrines or other au-thorities that may apply to recharacter-ize or alter the effects of the trans-actions described therein. Unlessotherwise indicated, parties to the

transactions are not related to oneanother.

Example 1. (i) X owns all of the stock of twosubsidiaries, B and Z. X, B and Z do not file aconsolidated federal income tax return. On May5, 1995, B purchases an aircraft (FA) for $1million and leases it to a foreign airline whoseincome is not subject to United States taxationand which is a tax-exempt entity as defined insection 168(h)(2). On the same date, Z owns anaircraft (DA) with a fair market value of $1million, which has been, and continues to be,leased to an airline that is a United Statestaxpayer. Z’s adjusted basis in DA is $0. Thenext day, at a time when each aircraft is stillworth $1 million, B transfers FA to Z (subject tothe lease to the foreign airline) in exchange forDA (subject to the lease to the airline that is aUnited States taxpayer). Z realizes gain of $1million on the exchange, but that gain is notrecognized pursuant to section 1031(a) becausethe exchange is of like-kind properties. Assumethat a principal purpose of the transfer of DA toB or of FA to Z is to avoid the application of thealternative depreciation system. Following theexchange, Z has a $0 basis in FA pursuant tosection 1031(d). B has a $1 million basis in DA.

(ii) B has acquired property from Z, a relatedperson; Z’s gain is not recognized pursuant tosection 1031(a); Z has received tax-exempt useproperty as part of the transaction; and aprincipal purpose of the transfer of DA to B orof FA to Z is to avoid the application of thealternative depreciation system. Accordingly, thetransaction is within the scope of this section.Pursuant to paragraph (b) of this section, B mustrecover its $1 million basis in DA over theremaining recovery period of, and using the samedepreciation method and convention as that of,FA, the related tax-exempt use property.

(iii) If FA did not become tax-exempt useproperty until after the exchange, it would stillbe related tax-exempt use property and paragraph(b) of this section would apply if, at the time ofthe exchange, it was intended that FA becometax-exempt use property.

Example 2. (i) X owns all of the stock of twosubsidiaries, B and Z. X, B and Z do not file aconsolidated federal income tax return. B and Zeach own identical aircraft. B’s aircraft (FA) isleased to a tax-exempt entity as defined insection 168(h)(2) and has a fair market value of$1 million and an adjusted basis of $500,000.Z’s aircraft (DA) is leased to a United Statestaxpayer and has a fair market value of $1million and an adjusted basis of $10,000. OnMay 1, 1995, B and Z exchange aircraft, subjectto their respective leases. B realizes gain of$500,000 and Z realizes gain of $990,000, butneither person recognizes gain because of theoperation of section 1031(a). Moreover, assumethat a principal purpose of the transfer of DA toB or of FA to Z is to avoid the application of thealternative depreciation system.

(ii) As in Example 1, B has acquired propertyfrom Z, a related person; Z’s gain is notrecognized pursuant to section 1031(a); Z hasreceived tax-exempt use property as part of thetransaction; and a principal purpose of thetransfer of DA to B or of FA to Z is to avoid theapplication of the alternative depreciation system.Thus, the transaction is within the scope of thissection even though B has held tax-exempt useproperty for a period of time and, during thattime, has used the alternative depreciation systemwith respect to such property. Pursuant to

paragraph (b) of this section, B, which has asubstituted basis determined pursuant to section1031(d) of $500,000 in DA, must depreciate theaircraft over the remaining recovery period ofFA, using the same depreciation method andconvention. Z holds tax-exempt use propertywith a basis of $10,000, which must bedepreciated under the alternative depreciationsystem.

(iii) Assume the same facts as in paragraph (i)of this Example 2, except that B and Z aremembers of an affiliated group that files aconsolidated federal income tax return. Of B’s$500,000 basis in DA, $10,000 is subject tosection 168(i)(7) and therefore not subject to thissection. The remaining $490,000 of basis issubject to this section. But see §1.1502–80(f)making section 1031 inapplicable to intercom-pany transactions occurring in consolidated re-turn years beginning on or after July 12, 1995.

(e) Effective date. This section ap-plies to transfers made on or after April20, 1995.

§1.168(i)–2 Lease term.

(a) In general. For purposes ofsection 168, a lease term is determinedunder all the facts and circumstances.Paragraph (b) of this section and§1.168(j)–1T, Q&A 17, describe certaincircumstances that will result in aperiod of time not included in thestated duration of an original lease(additional period) nevertheless beingincluded in the lease term. These rulesdo not prevent the inclusion of anadditional period in the lease term inother circumstances.

(b) Lessee retains financial obliga-tion—(1) In general. An additionalperiod of time during which a lesseemay not continue to be the lessee willnevertheless be included in the leaseterm if the lessee (or a relatedperson)—

(i) Has agreed that one or both ofthem will or could be obligated tomake a payment of rent or a paymentin the nature of rent with respect tosuch period; or

(ii) Has assumed or retained any riskof loss with respect to the property forsuch period (including, for example, byholding a note secured by theproperty).

(2) Payments in the nature of rent.For purposes of paragraph (b)(1)(i) ofthis section, a payment in the nature ofrent includes a payment intended tosubstitute for rent or to fund or sup-plement the rental payments of another.For example, a payment in the natureof rent includes a payment of any kind(whether denominated as supplemental


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rent, as liquidated damages, or other-wise) that is required to be made in theevent that—

(i) The leased property is not leasedfor the additional period;

(ii) The leased property is leased forthe additional period under terms thatdo not satisfy specified terms andconditions;

(iii) There is a failure to make apayment of rent with respect to suchadditional period; or

(iv) Circumstances similar to thosedescribed in paragraph (b)(2)(i), (ii), or(iii) of this section occur.

(3) De minimis rule. For the pur-poses of this paragraph (b), obligationsto make de minimis payments will bedisregarded.

(c) Multiple leases or subleases. Ifproperty is subject to more than onelease (including any sublease) enteredinto as part of a single transaction (or aseries of related transactions), the leaseterm includes all periods described inone or more of such leases. Forexample, if one taxable corporationleases property to another taxable cor-poration for a 20-year term and, as partof the same transaction, the lesseesubleases the property to a tax-exemptentity for a 10-year term, then the leaseterm of the property for purposes ofsection 168 is 20 years. During theperiod of tax-exempt use, the propertymust be depreciated under the alterna-tive depreciation system using thestraight line method over the greater ofits class life or 25 years (125 percentof the 20-year lease term).

(d) Related person. For purposes ofparagraph (b) of this section, a personis related to the lessee if such person isdescribed in section 168(h)(4).

(e) Changes in status. Section168(i)(5) (changes in status) applies ifan additional period is included in alease term under this section and theleased property ceases to be tax-exemptuse property for such additional period.

(f) Example. The following exampleillustrates the principles of this section.The example does not address commonlaw doctrines or other authorities thatmay apply to cause an additionalperiod to be included in the lease termor to recharacterize a lease as aconditional sale or otherwise for federalincome tax purposes. Unless otherwiseindicated, parties to the transactions arenot related to one another.

Example. Financial obligation with respect toan additional period—(i) Facts. X, a taxable

corporation, and Y, a foreign airline whoseincome is not subject to United States taxation,enter into a lease agreement under which Xagrees to lease an aircraft to Y for a period of 10years. The lease agreement provides that, at theend of the lease period, Y is obligated to find asubsequent lessee (replacement lessee) to enterinto a subsequent lease (replacement lease) of theaircraft from X for an additional 10-year period.The provisions of the lease agreement requirethat any replacement lessee be unrelated to Yand that it not be a tax-exempt entity as definedin section 168(h)(2). The provisions of the leaseagreement also set forth the basic terms andconditions of the replacement lease, including itsduration and the required rental payments. In theevent Y fails to secure a replacement lease, thelease agreement requires Y to make a payment toX in an amount determined under the leaseagreement.

(ii) Application of this section. The leaseagreement between X and Y obligates Y to makea payment in the event the aircraft is not leasedfor the period commencing after the initial 10-year lease period and ending on the date thereplacement lease is scheduled to end. Accord-ingly, pursuant to paragraph (b) of this section,the term of the lease between X and Y includessuch additional period, and the lease term is 20years for purposes of section 168.

(iii) Facts modified. Assume the same facts asin paragraph (i) of this Example, except that Y isrequired to guarantee the payment of rentalsunder the 10-year replacement lease and to makea payment to X equal to the present value of anyexcess of the replacement lease rental paymentsspecified in the lease agreement between X andY, over the rental payments actually agreed to bepaid by the replacement lessee. Pursuant toparagraph (b) of this section, the term of thelease between X and Y includes the additionalperiod, and the lease term is 20 years forpurposes of section 168.

(iv) Changes in status. If, upon the conclusionof the stated duration of the lease between X andY, the aircraft either is returned to X or leased toa replacement lessee that is not a tax-exemptentity as defined in section 168(h)(2), thesubsequent method of depreciation will bedetermined pursuant to section 168(i)(5).

(g) Effective date—(1) In general.Except as provided in paragraph (g)(2)of this section, this section applies toleases entered into on or after April 20,1995.

(2) Special rules. Paragraphs (b)(1)-(ii) and (c) of this section apply toleases entered into after April 26, 1996.

Margaret Milner Richardson,Commissioner of Internal Revenue

Approved March 26, 1996.

Leslie Samuels,Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register onApril 26, 1996, 8:45 a.m., and published in theissue of the Federal Register for April 29,1996, 61 F.R. 18675)

Section 168.—Accelerated CostRecovery System

If a taxpayer changes from claiming less thanthe allowable depreciation to claiming theallowable depreciation for property subject tosection 168, is this change a change in method ofaccounting. See Rev. Proc. 96–31, page 11.

Section 197.—Amortization ofGoodwill and Certain OtherIntangibles

If a taxpayer changes from claiming less thanthe allowable amortization to claiming theallowable amortization for an amortizable section197 intangible, is this change a change in methodof accounting. See Rev. Proc. 96–31, page 11.

Section 446.—General Rule forMethods of Accounting

If a taxpayer changes from claiming less thanthe allowable depreciation or amortization toclaiming the allowable depreciation or amortiza-tion, is this change a change in method ofaccounting. See Rev. Proc. 96–31, page 11.

26 CFR 1.446–1: General rule for methods ofaccounting.

If a taxpayer changes from claiming less thanthe allowable depreciation or amortization toclaiming the allowable depreciation or amortiza-tion, is this change a change in method ofaccounting. See Rev. Proc. 96–31, page 11.

Section 6049.—Returns RegardingPayments of Interest

26 CFR 1.6049–4: Return of information as tointerest paid and original issue discountincludible in gross income after December 31,1982.

T.D. 8664

DEPARTMENT OF THE TREASURYInternal Revenue Service26 CFR Parts 1, 31 and 602

Information Reporting and BackupWithholding

Agency: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document containsfinal regulations that provide rules


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regarding the reporting on Form 1042–S of certain bank deposit interest paidwith respect to a United States bankaccount to an individual who is anonresident alien of the United Statesand a resident of Canada. The IRS hasdetermined that information concerningthose deposits would be of significantuse in furthering its compliance efforts,which include exchange of tax informa-tion with Canada.

EFFECTIVE DATE: January 1, 1997.

FOR FURTHER INFORMATIONCONTACT: Teresa Burridge Hughes,(202) 622-3880 (not a toll-freenumber).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information con-tained in this final regulation has beenreviewed and approved by the Office ofManagement and Budget in accordancewith the requirements of the PaperworkReduction Act (44 U.S.C. 3507) undercontrol number 1545–0096. Responsesto this collection of information aremandatory.

An agency may not conduct orsponsor, and a person is not required torespond to, a collection of informationunless the collection of informationdisplays a valid control number.

The estimated annual burden perrespondent/recordkeeper is approxi-mately .10 hour, depending on individ-ual circumstances.

Comments concerning the accuracyof this burden estimate and suggestionsfor reducing this burden should bedirected to the Internal Revenue Serv-ice, Attn: IRS Reports Clearance Of-ficer, PC:FP, Washington DC 20224,and the Office of Management andBudget, Attn: Desk Officer for theDepartment of the Treasury, Office ofInformation and Regulatory Affairs,Washington, DC 20503.

Books or records relating to thiscollection of information must be re-tained as long as their contents maybecome material in the administrationof any internal revenue law. Generally,tax returns and tax return informationare confidential, as required by 26U.S.C. 6103.

Background

This document contains final regula-tions to be added to the Income TaxRegulations (26 CFR part 1) undersection 6049 of the Internal RevenueCode (Code). The final regulationsprovide rules regarding reporting onForm 1042–S of certain bank depositinterest paid with respect to a UnitedStates bank account to a nonresidentalien individual who is a resident ofCanada.

Proposed regulations on this subjectwere set forth, at §§1.6049–5(e)(2),1.6049–6(e)(6), and 31.3406(a)–3(b)(1),in a notice of proposed rulemakingpublished in the Federal Register (53FR 5991) on February 29, 1988[INTL–52–86 (1988–1 C.B. 892)]. TheIRS received comments on the pro-posed regulations and held a publichearing on June 15, 1989. Havingconsidered the comments and the state-ments made at the hearing, the IRS andthe Treasury Department adopt theproposed regulations as modified bythis Treasury decision.

Explanation of Provisions

A. Reporting of payments toCanadians

This Treasury decision requires re-porting on a Form 1042–S of certaininterest paid on deposits maintained ata bank’s office within the United Stateswhen paid to a nonresident alienindividual who is a resident of Canada.However, interest on certain bearercertificates of deposit targeted to for-eign persons is excepted from thereporting requirement if the interest ispaid outside the United States. Thisfinal regulation makes an exception tothe current rule, based on §1.6049–5(b), that certain interest amounts paidto non-U.S. persons is not subject toreporting if a statement certifying non-U.S. status is furnished to the payor ormiddleman on a Form W–8 (Certificateof Foreign Status), as described in§1.6049–5(b)(2)(iv). However, althoughbank deposit interest paid to Canadiansis made subject to reporting under thisfinal regulation, backup withholdingunder section 3406 is not required.Further, in response to suggestionsfrom commentators that segregatinginterest amounts on the basis of re-sidence would be burdensome, thisfinal regulation allows payors volun-

tarily to report on a Form 1042–Spayments to all foreign persons receiv-ing bank deposit interest without segre-gating on the basis of residency.

The payor determines whether apayee is a Canadian resident based onthe address in the country of permanentresidence required to be provided onthe Form W–8. However, if the payorhas actual knowledge that the payee isa U.S. person, Form 1099 reportingprovisions apply.

See proposed regulations publishedelsewhere in this issue of the FederalRegister regarding proposed changes tothe notice of proposed rulemakingpublished in the Federal Register onFebruary 29, 1988.

B. Comments on Canadian reportingprovisions

Commentors stated that imposinginformation reporting with respect todeposits of nonresident aliens mayundercut the competitiveness of U.S.banks. The IRS and Treasury con-sidered these comments but, in light ofour obligations under the United States-Canada income tax treaty and thereporting by Canadian banks of U.S.depositor interest to Canadian tax au-thorities, have decided to finalize theseproposed regulations.

In response to comments that thereporting requirement be delayed, or atleast that a transition period be al-lowed, because of the time required toidentify Canadian account holders andto modify processing systems for re-porting purposes, the new reportingrequirement will be phased in over athree-year period, starting with pay-ments made on or after January 1,1997. On or after that date, payors willidentify Canadian account holders asForms W–8 are received from newdepositors or renewed by existingdepositors. Upon identifying accountholders as Canadians, payors mustbegin reporting bank deposit interestpaid to those persons.

Commentors also requested that theIRS develop and permit Form 1042–Sreporting on magnetic diskette, as isallowed for Form 1099 filings; permitthe Form 1042–S to be the transmittaldocument for the Form 1042–S filing;and allow financial institutions to fileseparate tapes or diskettes for each areaof the bank, rather than bank-wide.These filing changes have previouslybeen made by the IRS and require nofurther action.


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Special Analyses

It has been determined that thisTreasury decision is not a significantregulatory action as defined in EO12866. Therefore, a regulatory assess-ment is not required. It also has beendetermined that section 553(b) of theAdministrative Procedure Act (5 U.S.C.chapter 5) and the Regulatory Flex-ibility Act (5 U.S.C. chapter 6) do notapply to these regulations, and, there-fore, a Regulatory Flexibility Analysisis not required.

Drafting Information

The principal author of these regula-tions is Teresa Burridge Hughes, Officeof Associate Chief Counsel (Interna-tional). However, other personnel fromthe IRS and Treasury Departmentparticipated in their development.

* * * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR parts 1, 31 and602 are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority for part 1is amended by adding entries in numer-ical order to read as follows:

Authority: 26 U.S.C. 7805 * * *Sections 1.6049–4 also issued under

26 U.S.C. 6049(a), (b), (c), and (d).Section 1.6049–5 also issued under

26 U.S.C. 6049(a), (b), (c), and (d).* * *

Par. 2. Section 1.6049–4 is amendedby:

1. Removing the reference ‘‘(b)(3)’’and adding ‘‘(b)(3) and (b)(5)’’ in itsplace in the first sentence of paragraphs(b)(1) and (b)(2) introductory text.

2. Revising the first sentence ofparagraphs (b)(3) and (b)(4).

3. Adding paragraph (b)(5).4. Removing the authority citation at

the end of the section.The revisions and addition read as

follows:

§1.6049–4 Return of information asto interest paid and original issuediscount includible in gross incomeafter December 31, 1982.

* * * * * *

(b) * * *(3) * * * Except as provided in

paragraph (b)(5) of this section, everyperson acting as a middleman (asdefined in paragraph (f)(4) of thissection) shall make an informationreturn on Forms 1096 and 1099 for thecalendar year. * * *

(4) * * * Except as provided inparagraph (b)(5) of this section, everyperson carrying on the banking busi-ness who makes payments of interest toanother person (whether or not ag-gregating $10 or more) during acalendar year with respect to a certifi-cate of deposit issued in bearer formshall make an information return onForms 1096 and 1099. * * *

(5) Interest payments to Canadiannonresident alien individuals—(i) Gen-eral rule. In the case of interest paid toa Canadian nonresident alien individual(as described in §1.6049–8(a)), thepayor or middleman shall make aninformation return on Form 1042–S forthe calendar year in which the interestis paid. The payor or middleman shallprepare and transmit Form 1042–S atthe time and in the manner prescribedby section 1461 and the regulationsunder that section and by the form andits accompanying instructions. See§1.6049–6(e)(4) for furnishing a copyof the Form 1042–S to the payee. Todetermine whether an information re-turn is required for original issuediscount, see §§1.6049–5(c) and1.6049–8(a).

( i i ) Effect ive date . Paragraph(b)(5)(i) of this section shall be effec-tive for payments made after December31, 1996 with respect to a Form W–8(Certificate of Foreign Status) furnishedto the payor or middleman after thatdate.

* * * * * *


1. Revising the introductory text ofparagraph (b)(1).

2. Revising the last sentence inparagraph (c).

3. Removing authority citation at theend of the section.

The revisions read as follows:

§1.6049–5 Interest and original issuediscount subject to reporting afterDecember 31, 1982.

* * * * * *

(b) * * * (1) * * * Subject to theprovisions of §1.6049–8, the terminterest does not include:

* * * * * *

(c) * * * Original issue discount onan obligation (including an obligationwith a maturity of not more than 6months from the date of original issue)held by a nonresident alien individualor foreign corporation is interest de-scribed in paragraph (b)(1)(vi)(A) or(B) of this section and, therefore is notinterest subject to reporting undersection 6049 unless it is described in§1.6049–8(a) (relating to bank depositinterest paid to a Canadian nonresidentalien individual).


1. Redesignating paragraph (e)(4) asparagraph (e)(5).

2. Adding new paragraph (e)(4).The addition reads as follows:

§1.6049–6 Statements to recipients ofinterest payments and holders ofobligations for attributed originalissue discount.

* * * * * *

(e) * * *(4) Special rule for amounts de-

scribed in §1.6049–8(a) paid afterDecember 31, 1996. In the case ofamounts described in §1.6049–8(a) (re-lating to payments of interest to Cana-dian nonresident alien individuals) paidafter December 31, 1996, any personwho makes a Form 1042–S undersection 6049(a) and §1.6049–4(b)(5)shall furnish a statement to the recip-ient. The statement shall include a copyof the Form 1042–S required to beprepared pursuant to §1.6049–4(b)(5)and a statement to the effect that theinformation on the Form is beingfurnished to the United States InternalRevenue Service and may be furnishedto Canada.

* * * * * *

Par. 5. Section 1.6049–8 is added toread as follows:

§1.6049–8 Interest and original issuediscount paid to residents of Canada.

(a) Interest subject to reporting re-quirement. For purposes of §§1.6049–4,1.6049–6 and this section and except asprovided in paragraph (b) of this


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section, the term interest means interestpaid to a Canadian nonresident alienindividual after December 31, 1996,where the interest is described insection 871(i)(2)(A) with respect to adeposit maintained at an office withinthe United States. For purposes of theregulations under section 6049, a Cana-dian nonresident alien individual is anindividual who resides in Canada andis not a United States citizen. Thepayor or middleman may rely upon thepermanent residence address (as de-fined in section 1441 and the regula-tions under that section) as stated onthe Form W–8 (described in section6049 and the regulations under thatsection) in order to determine whetherthe payment is made to a Canadiannonresident alien individual. Amountsdescribed in this paragraph (a) are notsubject to backup withholding undersection 3406. See §31.3406(g)–1(d) ofthis chapter.

(b) Interest excluded from reportingrequirement. The term interest does notinclude an amount that is paid by theissuer or its agent outside the UnitedStates with respect to an obligation thatis described in paragraph (b)(1) or (2)of this section.

(1)(i) The obligation is not in regis-tered form (within the meaning ofsection 163(f) and the regulationsthereunder); is part of a larger singlepublic offering of securities; and isdescribed in section 163(f)(2)(B).

(ii) Unless it has actual knowledgeto the contrary, a middleman may treatan obligation as if it is described insection 163(f)(2)(B) if the obligation orcoupon therefrom, whichever is pre-sented for payment, contains the state-ment described in section 163(f)(2)(B)-(ii)(II) and the regulations thereunder.

(2)(i) The obligation has a face orprincipal amount of not less than$500,000, and satisfies the require-ments described in paragraphs(b)(2)(i)(A), (B), and (C) of thissection.

(A) The obligation satisfies the re-quirements of sections 163(f)(2)(B)(i)and (ii)(I) and the regulations there-under (as if it were a registration-required obligation within the meaningof section 163(f)(2)(A)) and is issuedin accordance with the procedures of§1.163–5(c)(2)(i)(D)).

(B) If the obligation is in registeredform, it is registered in the name of anexempt recipient described in §1.6049–4(c)(1)(ii).

(C) The obligation has on its faceand on any detachable coupons the fol-lowing statement (or a similar state-ment having the same effect): ‘‘Byaccepting this obligation or coupon, theholder represents and warrants that it isnot a United States person (other thanan exempt recipient described in theregulations under section 6049(b)(4) ofthe Internal Revenue Code and theregulations thereunder) and that it isnot acting for or on behalf of a UnitedStates person (other than an exemptrecipient described in the regulationsunder section 6049(b)(4) of the InternalRevenue Code and the regulationsthereunder).’’

(ii) Unless the middleman has actualknowledge to the contrary, it may treatan obligation as satisfying the require-ments of sections 163(f)(2)(B)(i) and(ii)(I) and the regulations thereunder ifthe obligation or a coupon therefrom,whichever is presented for payment,contains the statement in paragraph(b)(2)(i)(C) of this section.

PART 31—EMPLOYMENT TAXESAND COLLECTION OF INCOMETAX AT SOURCE

Par. 6. The authority for part 31continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 7. Section 31.3406(g)–1 is

amended by adding paragraph (d) toread as follows:

§31.3406(g)–1 Exception for paymentsto certain payees and certain otherpayments.

* * * * * *

(d) Reportable payments made toCanadian nonresident alien individuals.A payment of interest made to aCanadian nonresident alien individualunder §1.6049–8(a) of this chapter isnot subject to withholding under sec-tion 3406.

PART 602—OMB CONTROLNUMBERS UNDER THEPAPERWORK REDUCTION ACT

Par. 8. The authority for part 602continues to read as follows:

Authority: 26 U.S.C. 7805.Par. 9. Section 602.101, paragraph

(c) is amended by removing the entry‘‘§31.3406(a)–1 – §31.3406(i)–1’’ andadding entries to the table in numericalorder to read as follows:

§602.101 OMB Control numbers.

* * * * * *

(c) * * *

CFR part or section Current OMBwhere identified control numberand described

* * * * * *

1.6049–6 . . . . . . . . . . . . . . . 1545–0096

* * * * * *

31.3406(a)–1 . . . . . . . . . . . . 1545–011231.3406(a)–2 . . . . . . . . . . . . 1545–011231.3406(a)–3 . . . . . . . . . . . . 1545–011231.3406(a)–4 . . . . . . . . . . . . 1545–011231.3406(b)(2)–1 . . . . . . . . . . 1545–011231.3406(b)(2)–2 . . . . . . . . . . 1545–011231.3406(b)(2)–3 . . . . . . . . . . 1545–011231.3406(b)(2)–4 . . . . . . . . . . 1545–011231.3406(b)(2)–5 . . . . . . . . . . 1545–011231.3406(b)(3)–1 . . . . . . . . . . 1545–011231.3406(b)(3)–2 . . . . . . . . . . 1545–011231.3406(b)(3)–3 . . . . . . . . . . 1545–011231.3406(b)(3)–4 . . . . . . . . . . 1545–011231.3406(b)(4)–1 . . . . . . . . . . 1545–011231.3406(c)–1 . . . . . . . . . . . . 1545–011231.3406(d)–1 . . . . . . . . . . . . 1545–011231.3406(d)–2 . . . . . . . . . . . . 1545–011231.3406(d)–3 . . . . . . . . . . . . 1545–011231.3406(d)–4 . . . . . . . . . . . . 1545–011231.3406(e)–1 . . . . . . . . . . . . 1545–011231.3406(f)–1 . . . . . . . . . . . . 1545–011231.3406(g)–1 . . . . . . . . . . . . 1545–0096

1545–011231.3406(g)–2 . . . . . . . . . . . . 1545–011231.3406(g)–3 . . . . . . . . . . . . 1545–011231.3406(h)–1 . . . . . . . . . . . . 1545–011231.3406(h)–2 . . . . . . . . . . . . 1545–011231.3406(h)–3 . . . . . . . . . . . . 1545–011231.3406(i)–1 . . . . . . . . . . . . 1545–0112

* * * * * *

Margaret Milner Richardson,Commissioner of Internal Revenue.

Approved March 27, 1996.

Leslie Samuels,Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register onApril 15, 1996, 10:24 a.m., and published inthe issue of the Federal Register for April 22,1996, 61 F.R. 17572)


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Part III. Administrative, Procedural, and Miscellaneous

Relief from Filing Form 3115 for aChange in Methods of AccountingRequired by Statement of FinancialAccounting Standards No. 116

Notice 96–30

The purpose of this Notice is toprovide relief from filing Form 3115,Application for Change in AccountingMethod, to organizations described insection 501(c) of the Internal RevenueCode that are changing their methodsof accounting for federal income taxpurposes to comply with the provisionsof Statement of Financial AccountingStandards No. 116, Accounting forContributions Received and Contribu-tions Made (SFAS 116).

In SFAS 116 the Financial Account-ing Standards Board revised certaingenerally accepted accounting princi-ples relating to contributions receivedand contributions awarded by not-for-profit organizations. Not-for-profit or-ganizations described in section 501(c)of the Code that change to the methodsof accounting provided in SFAS 116for federal income tax purposes, willnot be required, in this situation, to fileForm 3115, Application for Change inAccounting Method.

Not-for-profit organizations de-scribed in section 501(c) may changeto the methods provided in SFAS 116for federal income tax purposes for anytax year beginning after December 15,1994, by properly reflecting the effectof the change, in the manner describedbelow, on a timely filed (includingextensions) Form 990-series return forthe tax year of the change. Any not-for-profit organization described in sec-tion 501(c) that is not required to file aForm 990-series information return forthe tax year of the change may changeto the methods provided in SFAS 116for federal income tax purposes withoutnotifying the Service of the change.

A not-for-profit organization thatchanges its methods of accounting forfederal income tax purposes to conformto the methods provided in SFAS 116should report any adjustment requiredby section 481(a) on line 20 of Form990 or 990–EZ or in Part III of Form990–PF as a net asset adjustment madeduring the year the change is made.The adjustment should be identified asthe effect of changing to the methods

provided in SFAS 116. The beginningof year statement of financial position(balance sheet) should not be restatedto reflect any prior period adjustments.If the adjustment reflects contributionsnot reported under the old methods foryear(s) preceding the year of changeand not reported under the newmethods in the year of change or anysubsequent year, any contributor of anamount included in the adjustment whomeets the criteria described in theinstructions to line 1 of Form 990 or990–EZ or line 1 of Part 1 of Form990–PF should be included in the listof contributors required to be attachedto Form 990, 990–EZ or 990–PF forthe year of the change.

For further information regardingthis notice, contact John Roman Faronat (202) 622-7645 (not a toll free call).

26 CFR 601.204: Changes in accountingperiods and in methods of accounting.(Also Part I, §§ 167, 168, 197, 446; 1.167(e)–1, 1.446–1)

Rev. Proc. 96–31

SECTION 1. PURPOSE

This revenue procedure provides anautomatic consent procedure that per-mits a taxpayer who has claimed lessthan the depreciation or amortizationallowable to change the taxpayer’smethod of accounting to claim allow-able depreciation or amortization. Theomitted depreciation or amortizationfrom years prior to the year of changewill be taken into account through a§ 481(a) adjustment. The taxpayer hasthe option of either making the methodchange under this revenue procedure orrequesting permission to make themethod change under Rev. Proc. 92–20, 1992–1 C.B. 685 (or any suc-cessor).

SECTION 2. BACKGROUND

.01 A change from not claiming thedepreciation or amortization allowable(hereafter, depreciation means deprecia-tion or amortization) to claiming thedepreciation allowable is a change inmethod of accounting for which theconsent of the Commissioner of Inter-nal Revenue is required. Sections

1.167(e)–1(a) and 1.446–1(e)(2)(ii)(b)of the Income Tax Regulations.

.02 To obtain this consent, a Form3115, Application for Change in Ac-counting Method, generally must befiled within 180 days after the begin-ning of the taxable year in which theproposed change is to be made. Section1.446–1(e)(3)(i).

.03 The Commissioner is authorizedto prescribe administrative proceduressetting forth the limitations, terms, andconditions as the Commissioner deemsnecessary to obtain consent for effect-ing a change in method of accountingand to prevent amounts from beingduplicated or omitted, including thetaxable year or years in which the§ 481(a) adjustment is to be taken intoaccount. Section 1.446–1(e)(3)(ii).

.04 In computing taxable income,§ 481(a) of the Internal Revenue Coderequires a taxpayer to take into accountthose adjustments necessary to preventamounts from being duplicated oromitted when the taxpayer’s taxableincome is computed under a method ofaccounting different from the methodused to compute taxable income for thepreceding taxable year.

.05 The basis of depreciable prop-erty is reduced by the amount of thedepreciation allowed or allowable,whichever i s g rea te r . Sec t ion1016(a)(2).

.06 Unless otherwise provided inthis revenue procedure, the terms ‘‘tax-payer’’, ‘‘year of change’’, and ‘‘filed’’have the meaning given to them bysections 3.01, 3.03, and 3.04 of Rev.Proc. 92–20 (or any successor),respectively.

SECTION 3. SCOPE

.01 Application of this revenue pro-cedure. Except as provided in sections3.02 and 3.03 of this revenue proce-dure, this revenue procedure applies toany taxpayer changing to a permissiblemethod of accounting for depreciationfor any item of property that: (1) underthe taxpayer’s present method of ac-counting, the taxpayer has not takeninto account any depreciation al-lowance or has taken into account somedepreciation but less than the deprecia-tion allowable (hereafter, referred to asclaimed less than the depreciationallowable); (2) is subject to § 167,


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§ 168, § 197, or § 168 prior to itsamendment in 1986 (former § 168);and (3) is held by the taxpayer as ofthe beginning of the year of change.

.02 Non-application of this revenueprocedure. This revenue proceduredoes not apply to:

(1) Any property to which § 1016-(a)(3) (generally relating to propertyheld by a tax-exempt organization)applies;

(2) Any intangible property subjectto § 167, except for property subject to§ 167(f) (pertaining to certain propertyexcluded from § 197);

(3) Any property for which a tax-payer is seeking either to revoke atimely election, or to make a lateelection, under § 167, § 168, former§ 168, or § 13261(g)(2) or (3) of theRevenue Reconciliation Act of 1993(the ‘‘1993 Act’’), 1993–3 C.B. 1, 128(relating to amortizable § 197 intang-ibles). A taxpayer may request consentto revoke or make the election by sub-mitting a request for a letter rulingunder Rev. Proc. 96–1, 1996–1 I.R.B. 8(or any successor);

(4) Except for property subject to§ 167(f), any property subject to § 167for which a taxpayer is changing onlythe estimated useful life of the prop-erty. A change in the estimated usefullife of property subject to § 167 mustbe made prospectively. See, e.g.,§ 1.167(b)–2(c);

(5) Any depreciable property thatchanges use but continues to be ownedby the same taxpayer. See, e.g.,§ 168(i)(5);

(6) Any property for which a tax-payer has claimed depreciation in ex-cess of the depreciation allowable;

(7) Any change in method of ac-counting involving a change fromdeducting the cost or other basis of anyproperty as an expense to capitalizingand depreciating the cost or other basis;

(8) Any change in method of ac-counting involving a change from onepermissible method of accounting forthe property to another permissiblemethod of accounting for the property.For example, a:

(a) Change from the straight-linemethod of depreciation to the incomeforecast method of depreciation forvideocassettes. See Rev. Rul. 89–62,1989–1 C.B. 78; or

(b) Change from charging the de-preciation reserve with costs of re-moval and crediting the depreciation

reserve with salvage proceeds to de-ducting costs of removal as an expenseand including salvage proceeds intaxable income. See Rev. Rul. 74–455,1974–2 C.B. 63; or

(9) Any change in method of ac-counting for an item of income ordeduction other than depreciation evenif a taxpayer’s present method ofaccounting may have resulted in thetaxpayer claiming less than the de-preciation allowable. For example, achange in accounting method involvinga:

(a) Change in inventory costs (forexample, when property is reclassifiedfrom inventory property to depreciableproperty); or

(b) Change in the character of atransaction from sale to lease.

.03 Taxpayer under criminal inves-tigation or proceeding. If a criminalinvestigation or proceeding is pendingconcerning (1) any issue directly orindirectly related to a taxpayer’s federaltax liability for any taxable year, or (2)the possibility of false or fraudulentstatements made by the taxpayer re-garding any issue related to the tax-payer’s federal tax liability for anytaxable year, this revenue proceduredoes not apply to the taxpayer.

.04 Procedures available when amethod change may not be made underthis revenue procedure. If a change inaccounting method is not permittedunder this revenue procedure solely byreason of section 3.02(1), 3.02(2),3.02(6), 3.02(7), 3.02(8), or 3.02(9) ofthis revenue procedure, a taxpayer mustfile a Form 3115 in accordance withthe requirements of either Rev. Proc.92–20 (or any successor) or any otherapplicable revenue procedure pertainingto the method change. Thus, for exam-ple, if a taxpayer wants to change fromclaiming more than the depreciationallowable on some items of propertybut also opts to use this revenueprocedure to change from claiming lessthan the depreciation allowable onother items of property, the taxpayermust file two Forms 3115—one Form3115 under Rev. Proc. 92–20 (or anysuccessor) for the over-depreciatedproperty and one Form 3115 under thisrevenue procedure for the under-depreciated property. The taxpayer,however, files one Form 3115 if thetaxpayer uses Rev. Proc. 92–20 (or anysuccessor) to change the method ofaccounting for both the under- andover-depreciated properties.

SECTION 4. CONSENT TOCHANGE

.01 Consent granted. The consent ofthe Commissioner under § 1.446–1(e)-(2)(i) is granted to any taxpayer withinthe scope of this revenue procedure tomake a method change to a permissiblemethod of accounting for depreciationfor any item of property within thescope of this revenue procedure. Thisconsent is granted, however, only if thetaxpayer complies with section 5 ofthis revenue procedure. If the taxpayerdoes not comply with section 5 of thisrevenue procedure, the taxpayer will bedeemed to have initiated a change inmethod of accounting without obtainingthe consent of the Commissioner re-quired under § 446(e).

.02 Effect of consent. The consentthat is granted under this revenueprocedure does not constitute an opin-ion of the Commissioner regarding thepropriety of a taxpayer’s proposedmethod of accounting. Consequently, ifthe proposed method of accounting isan impermissible method of accounting,the Service may change the taxpayer’sproposed method of accounting to apermissible method of accounting inany open year.

SECTION 5. MANNER OFEFFECTING AUTOMATICCHANGE

.01 General procedure.(1) Complete and file a current

Form 3115. A taxpayer makes achange in method of accounting underthis revenue procedure by completingand filing a current Form 3115 induplicate. The original of the Form3115 must be filed with the Office ofAssociate Chief Counsel (Domestic)(national office) on or before 180 daysafter the beginning of the year ofchange and addressed to the Commis-sioner of Internal Revenue, Attn:CC:DOM:P&SI:6, Room 5112, P.O.Box 7604, Ben Franklin Station, Wash-ington, DC 20044. In addition, a copyof the Form 3115 must be attached tothe taxpayer’s timely filed (includingextensions) federal income tax returnfor the year of change.

The 180-day filing period begins onthe first day of any taxable year. If thetaxable year is a short taxable year(less than 12 full months), the originalof the Form 3115 must be filed withthe national office no later than 180


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days after the beginning of the shorttaxable year or, if earlier, no later thanthe last day of the short taxable year.

In completing the current Form 3115(Rev. February 1996), the taxpayer mustcomplete Schedule D, Part II, Change inDepreciation or Amortization (page 7 ofthe Form 3115), and any other applica-ble schedule. With respect to Parts Ithrough III on pages 1 and 2 of thecurrent Form 3115, the taxpayer mustprovide only the information requestedon the following lines:

(a) Part I, Eligibility To Re-quest Change (page 1)-lines 1, 2a andb, and 6;

(b) Part II, Description ofChange (page 2)-line 8 and to theextent not provided elsewhere on theForm 3115, lines 10, 11, 12, 13, 17,18a and b, and 19; and

(c) Part III, Section 481(a) Ad-justment (page 2)-lines 20, 22, 23, and25.

(2) Label. The taxpayer shouldtype or legibly print at the top of theForm 3115: ‘‘AUTOMATIC METHODCHANGE UNDER REV. PROC. 96–31.’’

(3) No user fee and acknowledg-ment. No user fee is required for aForm 3115 filed under this revenueprocedure and a Form 3115 filedpursuant to this revenue procedure willnot be acknowledged.

.02 Permissible method of account-ing for depreciation must be used. Ataxpayer must change to a permissiblemethod of accounting for depreciationfor the item of property. This method isthe same method that determines thedepreciation allowable for the item ofproperty (as determined under section 7of this revenue procedure).

.03 Year of change. The year ofchange is the taxable year for whichthe original of the Form 3115 isconsidered timely filed with the na-tional office under section 5.01(1) ofthis revenue procedure.

.04 Section 481(a) adjustment.(1) In general. A change in

method of accounting under this reve-nue procedure is treated as a voluntarychange in method of accounting that isinitiated by the taxpayer and, therefore,the § 481(a) adjustment is not restrictedto post-1953 items.

(2) Amount of § 481(a) adjust-ment. The § 481(a) adjustment is anegative § 481(a) adjustment (decreasein taxable income) to prevent the

omission of the allowable but un-claimed depreciation for open andclosed years prior to the year ofchange. This negative § 481(a) adjust-ment equals the difference between thetotal amount of depreciation taken intoaccount in computing taxable incomefor the property under the taxpayer’spresent method of accounting, and thetotal amount of depreciation allowablefor the property under the taxpayer’sproposed method of accounting (asdetermined under section 7 of thisrevenue procedure), for any taxableyear prior to the year of change. Theamount of the negative § 481(a) adjust-ment, however, must be offset by anyallowable but unclaimed depreciationthat is required to be capitalized underany provision of the Code (for exam-ple, § 263A) as of the beginning of theyear of change.

(3) Section 481(a) adjustmentperiod. A taxpayer must take the entirenegative § 481(a) adjustment into ac-count in computing the taxable incomein the year of change.

.05 Basis adjustment. The basis ofdepreciable property to which thisrevenue procedure applies must reflectthe reductions required by § 1016(a)(2)for the depreciation allowable for theproperty (as determined under section 7of this revenue procedure).

SECTION 6. REVIEW OF FORM3115

The Form 3115 will be subject toreview by the national office. Inaddition, the facts underlying themethod change, including the amountof any § 481(a) adjustment and any§ 1016(a)(2) adjustment to the basis ofthe property, will be subject to verifica-tion by the district director. If the Form3115 is reviewed and the taxpayer’sproposed method of accounting appearsto be an impermissible method ofaccounting for depreciation or thetaxpayer or property appears to beoutside the scope of this revenueprocedure, the national office or thedistrict director will notify the tax-payer, in writing, that consent is notgranted under this revenue procedure.The taxpayer then may complete andfile a new Form 3115 under thisrevenue procedure or Rev. Proc. 92–20(or any successor), as applicable. Theyear of change for this new Form 3115will be determined in accordance withthe requirements of such revenueprocedure.

SECTION 7. MEANING OFDEPRECIATION ALLOWABLE

.01 In general. This section 7 dis-cusses the amount of the depreciationallowable determined under § 167,§ 168, § 197, or former § 168. Thisamount, however, may be limited underother provisions of the Code (forexample, § 280F).

.02 Section 167 property. Generally,for any taxable year, the depreciationallowable for property subject to § 167is determined either: (1) under thedepreciation method adopted by a tax-payer for the property; or (2) if thisdepreciation method does not result ina reasonable allowance for depreciationor a taxpayer has not adopted a de-preciation method for the property,under the straight-line depreciationmethod. For determining the estimateduseful life and salvage value of theproperty, see § 1.167(a)–1(b) and (c),respectively. The depreciation allow-able for any taxable year for propertysubject to § 167(f) (pertaining to cer-tain property excluded from § 197) isdetermined by using the depreciationmethod and useful life prescribed in§ 167(f).

.03 Section 168 property. The de-preciation allowable for any taxableyear for property subject to § 168 isdetermined by using either: (1) thegeneral depreciation system in§ 168(a); or (2) the alternative de-preciation system in § 168(g) if theproperty is required to be depreciatedunder the alternative depreciation sys-tem pursuant to § 168(g)(1) or otherprovisions of the Code (for example,property described in § 263A(e)(2)(A)or § 280F(b)(1)). Property required tobe depreciated under the alternativedepreciation system pursuant to§ 168(g)(1) includes property in a classfor which the taxpayer made a timelyelection under § 168(g)(7).

.04 Section 197 property. The de-preciation allowable for any taxableyear for an amortizable § 197 intang-ible (including any property for whicha timely election under § 13261(g)(2)of the 1993 Act was made) is deter-mined by using the straight-line methodover a 15-year period.

.05 Former § 168 property. The de-preciation allowable for any taxableyear for property subject to former§ 168 is determined by using either: (1)the accelerated method of cost recoveryapplicable to the property (for example,


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for 5-year property, the recoverymethod under former § 168(b)(1)); or(2) the straight-line method applicableto the property if the property isrequired to be depreciated under thestraight-line method (for example,property described in former § 168(f)-(12) or former § 280F(b)(2)) or if thetaxpayer elected to determine the de-preciation allowance under the optionalstraight-line percentage (for example,the straight-line method in former§ 168(b)(3)).

SECTION 8. EFFECTIVE DATE

.01 In general. This revenue proce-dure is effective May 13, 1996.

.02 Form 3115 already pending withthe Service.

(1) In general. The provisions ofthis revenue procedure apply to ataxpayer with a Form 3115 (including aForm 3115 filed under the early ap-plication provision of section 5.01(3) ofRev. Proc. 92–20) timely filed with theService as of May 13, 1996, for amethod change for depreciation towhich this revenue procedure applies.Therefore, the taxpayer has the optionto make the method change under thisrevenue procedure or to request permis-sion to make the method change underRev. Proc. 92–20 (or any successor). Inthis regard, the taxpayer must notifythe national office, in writing, on orbefore August 15, 1996, as to thetaxpayer’s decision. If the nationaloffice is not notified by August 15,1996, the Form 3115 will be treated asfiled under Rev. Proc. 92–20.

(2) Manner of effecting automaticchange. If the taxpayer makes themethod change under this revenueprocedure, the taxpayer’s Form 3115timely filed as of May 13, 1996, willbe treated as being timely filed withthe national office under this revenueprocedure. The original of the Form3115 will be retained by the nationaloffice. The national office will return acopy of the Form 3115 to the taxpayerso that, as required, the taxpayer canattach the copy to the taxpayer’s timelyfiled (including extensions) originalfederal income tax return, or to anamended return, for the year of change.The receipt of this copy is not anopinion of the Commissioner regardingthe propriety of the taxpayer’s pro-posed method of accounting. See sec-tion 4.02 of this revenue procedure.

If all of the property subject to theForm 3115 appears to be within the

scope of this revenue procedure and thetaxpayer notifies the national office ina timely manner that the taxpayer ismaking the method change under thisrevenue procedure, any user fee sub-mitted with the Form 3115 will bereturned to the taxpayer.

(3) Year of change. For a taxpayerwith a Form 3115 timely filed as ofMay 13, 1996, the taxpayer may makethe method change under this revenueprocedure either for the year of changeoriginally requested on the Form 3115(or if this year is a closed year, for thefirst subsequent open year) or for thetaxpayer’s taxable year beginning in1995 or 1996. If the taxpayer modifiesthe year of change, the taxpayer mustsubmit a letter to the national office,stating the new year of change and anyrevised information on the taxpayer’sForm 3115 to reflect the new year ofchange (for example, the revised§ 481(a) adjustment for the year ofchange). This letter must be submittedon or before August 15, 1996, to thenational office. If the national office isnot notified by August 15, 1996, theyear of change is the one originallyrequested on the taxpayer’s Form 3115(or if this year is a closed year, thefirst subsequent open year).

If the taxpayer makes the methodchange under this revenue procedurefor under-depreciated property but theForm 3115 also includes items ofproperty for which the taxpayer, underthe taxpayer’s present method of ac-counting, claimed more than the de-preciation allowable, the year ofchange for the over-depreciated prop-erty will be the same as the year ofchange for the under-depreciatedproperty.

(4) Submission of additional infor-mation. The additional information re-quested in section 8.02(1) and (3) ofthis revenue procedure must be accom-panied by the following penalties ofperjury statement: ‘‘Under penalties ofperjury, I declare that I have examinedthis request, including accompanyingdocuments, and to the best of myknowledge and belief, the facts pre-sented in support of the requested Form3115 are true, correct, and complete.’’This penalties of perjury statementmust be signed and dated by the tax-payer, not the taxpayer’s representative.Also, a stamped signature is notpermitted.

The additional information (includingthe penalties of perjury statement) must

be addressed to the Commissioner ofInternal Revenue, Attn: CC:DOM:P&SI:6, Room 5112, P.O. Box 7604,Ben Franklin Station, Washington, DC20044.

SECTION 9. EFFECT ON OTHERDOCUMENTS

Rev. Proc. 92–20 is modified.

DRAFTING INFORMATION

The principal author of this revenueprocedure is Kathleen Reed of theOffice of Assistant Chief Counsel(Passthroughs and Special Industries).For further information regarding thisrevenue procedure, contact Ms. Reed at(202) 622-3110 (not a toll-freenumber).

26 CFR 601.201: Rulings and determinationletters.(Also Part I, §§ 501(c)(3); 1.501(c)(3)–1.)

Rev. Proc. 96–32

SECTION 1. PURPOSE

.01 This revenue procedure setsforth a safe harbor under which organi-zations that provide low-income hous-ing will be considered charitable asdescribed in § 501(c)(3) of the InternalRevenue Code because they relieve thepoor and distressed as described in§ 1.501(c)(3)–l(d)(2) of the Income TaxRegulations. This revenue procedurealso describes the facts and circum-stances test that will apply to determinewhether organizations that fall outsidethe safe harbor relieve the poor anddistressed such that they will beconsidered charitable organizations de-scribed in § 501(c)(3). It also clarifiesthat housing organizations may rely onother charitable purposes to qualify forrecognition of exemption from federalincome tax as organizations describedin § 501(c)(3). These other charitablepurposes are described in § 1.501(c)-(3)–l(d)(2). This revenue proceduresupersedes the application referral de-scribed in Notice 93–1, 1993–1 C.B.290.

.02 This revenue procedure does notalter the standards that have long beenapplied to determine whether low-income housing organizations qualifyfor tax-exempt status under § 501(c)-(3). Rather, it is intended to expedite


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the consideration of applications fortax-exempt status filed by such organi-zations by providing a safe harbor andby accumulating relevant informationon the existing standards for exemptionin a single document. Low-incomehousing organizations that have rulingor determination letters and have notmaterially changed their organizationsor operations from how they weredescribed in their applications cancontinue to rely on those letters.

SEC. 2. BACKGROUND OF SAFEHARBOR

.01 Rev. Rul. 67–138, 1967–1 C.B.129, Rev. Rul. 70–585, 1970–2 C.B.115, and Rev. Rul. 76–408, 1976–2C.B. 145, hold that the provision ofhousing for low-income persons ac-complishes charitable purposes by re-lieving the poor and distressed. TheService has long held that poor anddistressed beneficiaries must be needyin the sense that they cannot afford thenecessities of life. Rev. Ruls. 67–138,70–585, and 76–408 refer to the needsof housing recipients and to theirinability to secure adequate housingunder all the facts and circumstances todetermine whether they are poor anddistressed.

.02 The existence of a nationalhousing policy to maintain a commit-ment to provide decent, safe, andsanitary housing for every Americanfamily is reflected in several federalhousing acts. See, for example, § 2 ofthe United States Housing Act of 1937,42 U.S.C. § 1437; § 2 of the HousingAct of 1949, 42 U.S.C. § 1441; § 2 ofthe Housing and Urban DevelopmentAct of 1968, 12 U.S.C. § 1701t; and§§ 101, 102, and 202 of the Cranston-Gonzalez National Affordable HousingAct, 42 U.S.C. §§ 12701, 12702, and12721. Not all beneficiaries of thesehousing acts, however, are necessarilypoor and distressed within the meaningof § 1.501(c)(3)–l(d)(2).

.03 In order to support nationalhousing policy, the safe harbor con-tained in this revenue procedure identi-fies those low-income housing organi-zations that will, with certainty, beconsidered to relieve the poor anddistressed. The safe harbor permits alimited number of units occupied byresidents with incomes above the low-income limits in order to assist in thesocial and economic integration of thepoorer residents and, thereby, further

the organization’s charitable purposes.To avoid giving undue assistance tothose who can otherwise afford safe,decent, and sanitary housing, the safeharbor requires occupancy by signifi-cant levels of both very low-incomeand low-income families.

.04 Low-income housing organiza-tions that fall outside the safe harbormay still be considered organizationsthat offer relief to the poor anddistressed based on all the surroundingfacts and circumstances. Some of thefacts and circumstances that will betaken into consideration in determiningwhether a low-income housing organi-zation will be so considered are setforth in section 4.

.05 Low-income housing organiza-tions may also qualify for tax-exemptstatus because they serve a charitablepurpose described in § 501(c)(3) otherthan relief of the poor and distressed.Exempt purposes other than relief ofthe poor and distressed are discussed insection 6.

.06 To be recognized as exemptfrom income tax under § 501(c)(3), alow-income housing organization mustnot only serve a charitable purpose butalso meet the other requirements of thatsection, including the prohibitionsagainst inurement and private benefit.Specific concerns with respect to theseprohibitions are set forth in section 7.

SEC. 3. SAFE HARBOR FORRELIEVING THE POOR ANDDISTRESSED

.01 An organization will be consid-ered charitable as described in§ 501(c)(3) if it satisfies the followingrequirements:

(1) The organization establishesfor each project that (a) at least 75percent of the units are occupied byresidents that qualify as low-income;and (b) either at least 20 percent of theunits are occupied by residents thatalso meet the very low-income limit forthe area or 40 percent of the units areoccupied by residents that also do notexceed 120 percent of the area’s verylow-income limit. Up to 25 percent ofthe units may be provided at marketrates to persons who have incomes inexcess of the low-income limit.

(2) The project is actually oc-cupied by poor and distressed residents.For projects requiring construction orrehabilitation, a reasonable transitionperiod is allowed for an organization to

place the project in service. Whether anorganization’s transition period is rea-sonable is determined by reference toall relevant facts and circumstances.For projects that do not require sub-stantial construction or substantial re-habilitation, a one-year transitionperiod to satisfy the actual occupancyrequirement will generally be consid-ered to be reasonable. If a projectoperates under a government programthat allows a longer transition period,this longer period will be used todetermine reasonableness.

(3) The housing is affordable tothe charitable beneficiaries. In the caseof rental housing, this requirement willordinarily be satisfied by the adoptionof a rental policy that complies withgovernment-imposed rental restrictionsor otherwise provides for the limitationof the tenant’s portion of the rentcharged to ensure that the housing isaffordable to low-income and very low-income residents. In the case of home-ownership programs, this requirementwill ordinarily be satisfied by theadoption of a mortgage policy thatcomplies with government-imposedmortgage limitations or otherwisemakes the initial and continuing costsof purchasing a home affordable to lowand very low-income residents.

(4) If a project consists of multi-ple buildings and each building doesnot separately meet the requirements ofsections 3.01(1), (2), and (3), then thebuildings must share the same grounds.This requirement does not apply toorganizations that provide individualhomes or individual apartment unitslocated at scattered sites in the com-munity exclusively to families withincomes at or below 80 percent of thearea’s median income.

.02 In applying this safe harbor, theService will follow the provisions listedbelow:

(1) Low-income families and verylow-income families will be identifiedin accordance with the income limitscomputed and published by the Depart-ment of Housing and Urban Develop-ment (‘‘HUD’’) in Income Limits forLow and Very Low-Income FamiliesUnder the Housing Act of 1937. Theterm ‘‘very low-income’’ is defined bythe relevant housing statute as 50percent of an area’s median income.The term ‘‘low-income’’ is defined bythe same statute as 80 percent of anarea’s median income. However, theseincome limits may be adjusted by HUD


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to reflect economic differences, such ashigh housing costs, in each area. Theincome limits are then tailored toreflect different family sizes. If HUD’sprogram terminates, the Service willuse income limits computed under suchprogram as is in effect immediatelybefore such termination. Copies of allor part of HUD’s publication may beobtained by calling HUD at (800)245-2691 (HUD charges a small fee tocover costs of reproduction).

(2) The retention of the right toevict tenants for failure to pay rent orother misconduct, or the right to fore-close on homeowners for defaulting onloans will not, in and of itself, causethe organization to fail to meet the safeharbor.

(3) An organization originallymeeting the safe harbor will continue tosatisfy the requirements of the safeharbor if a resident’s income increasesand causes the organization to fail thesafe harbor, provided that the resident’sincome does not exceed 140 percent ofthe applicable income limit under thesafe harbor. If the resident’s incomeexceeds 140 percent of the qualifyingincome limit, the organization will notfail to meet the safe harbor if it rentsthe next comparable non-qualifying unitto someone under the income limits.

(4) To be considered charitable, anorganization that provides assistance tothe aged or physically handicapped whoare not poor must satisfy the require-ments set forth in Rev. Rul. 72124,1972–1 C.B. 145, Rev. Rul. 79–18,1979–1 C.B. 194, and Rev. Rul. 79–19,1979–1 C.B. 195. If an organizationmeets the safe harbor, then it does notneed to meet the requirements of theserulings even if all of its residents areelderly or handicapped residents. How-ever, an organization may not use acombination of elderly or handicappedpersons and low-income persons toestablish the 75-percent occupancy re-quirement of the safe harbor. Anorganization with a mix of elderly orhandicapped residents and low-incomeresidents may still qualify for tax-exempt status under the facts andcircumstances test set forth in section 4.

SEC. 4. FACTS ANDCIRCUMSTANCES TEST FORRELIEVING THE POOR ANDDISTRESSED

.01 If the safe harbor contained insection 3 is not satisfied, an organiza-

tion may demonstrate that it relievesthe poor and distressed by reference toall the surrounding facts and circum-stances.

.02 Facts and circumstances thatdemonstrate relief of the poor mayinclude, but are not limited to, thefollowing:

(1) A substantially greater per-centage of residents than required bythe safe harbor with incomes up to 120percent of the area’s very low-incomelimit.

(2) Limited degree of deviationfrom the safe harbor percentages.

(3) Limitation of a resident’s por-tion of rent or mortgage payment toensure that the housing is affordable tolow-income and very low-incomeresidents.

(4) Participation in a governmenthousing program designed to provideaffordable housing.

( 5 ) O p e r a t i o n t h r o u g h acommunity-based board of directors,particularly if the selection processdemonstrates that community groupshave input into the organization’soperations.

(6) The provision of additionalsocial services affordable to the poorresidents.

(7) Relationship with an existing501(c)(3) organization active in low-income housing for at least five yearsif the existing organization demon-strates control.

(8) Acceptance of residents who,when considered individually, haveunusual burdens such as extremely highmedical costs which cause them to bein a condition similar to persons withinthe qualifying income limits in spite oftheir higher incomes.

(9) Participation in a homeowner-ship program designed to providehomeownership opportunities for fam-ilies that cannot otherwise afford topurchase safe and decent housing.

(10) Existence of affordabilitycovenants or restrictions running withthe property.

SEC. 5. EXAMPLES

.01 Application of the safe harborand the facts and circumstances test isillustrated by the following examples:

(1) Organization N operates pur-suant to a government program toprovide low and moderate incomehousing projects. Seventy percent of

N’s residents have incomes that do notexceed the area’s low-income limit.Fifty percent of N’s residents haveincomes that are at or below the area’svery low-income limit. Under the pro-gram, N restricts rents charged toresidents below the income limits to nomore than 30 percent of the applicablelow or very low-income limits for N’sarea. N is close to meeting the safeharbor. N has a substantially greaterpercentage of very low-income re-sidents than required by the safeharbor; it participates in a federalhousing program; and it restricts itsrents pursuant to an established govern-ment program. Although N does notmeet the safe harbor, the facts andcircumstances demonstrate that N re-lieves the poor and distressed.

(2) Organization O will finance ahousing project using tax-exempt bondspursuant to § 145(d). O will meet the20–50 test under § 142(d)(l)(A). An-other 45 percent of the residents willhave incomes at or below 80 percent ofthe area’s median income. The final 35percent of the residents will haveincomes above 80 percent of the area’smedian income. O will restrict rentscharged to residents below the incomelimits to no more than 30 percent ofthe residents’ incomes. O will providesocial services to project residents andto other low-income residents in theneighborhood. Also, O will purchase itsproject through a government programdesigned to retain low-income housingstock. O does not meet the safe harbor.However, the facts and circumstancesdemonstrate that O relieves the poorand distressed.

(3) Organization R provides af-fordable homeownership opportunitiesto purchasers determined to be low-income under a federal housing pro-gram. The homes are scattered through-out a section of R’s community.Beneficiaries under the program cannotafford to purchase housing withoutassistance. R’s program makes theinitial and continuing costs of mort-gages affordable to the home buyers byproviding assistance with down pay-ments and closing costs. Homeownersassisted by R will have the followingcomposition: 40 percent will not ex-ceed 140 percent of the very low-income limit for the area, 25 percentwill not exceed the low-income limit,and 35 percent will exceed the low-income limit but will not exceed 115percent of the area’s median income. Rdoes not satisfy the safe harbor. How-


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ever, the facts and circumstances dem-onstrate that R relieves the poor anddistressed.

(4) Organization U will purchaseexisting residential rental housing fi-nanced using tax-exempt bonds issuedin accordance with § 145(d). U willmeet the minimum requirements of the40–60 test of § 142(d)(1)(B). It willprovide the balance of its units toresidents with incomes at or above areamedian income levels. U has acommunity-based board of directors. Udoes not satisfy the safe harbor. More-over, the facts and circumstances donot demonstrate that U relieves thepoor and distressed.

(5) Organization V provides rentalhousing in a section of the city whereincome levels are well below the otherparts of the city. All of V’s residentsare below the very low-income limitsfor the area, yet they pay rents that areabove 50 percent of the area’s verylow-income limits. V has not otherwisedemonstrated that the housing is afford-able to its residents. Although theresidents are all considered poor anddistressed under the safe harbor, V doesnot relieve the poverty of the residents.

(6) Organization W provideshomeownership opportunities to pur-chasers with incomes up to 115 percentof the area’s median income. W doesnot meet the income levels requiredunder the safe harbor. W’s board ofdirectors is representative of com-munity interests, and W providesclasses and counseling services for itsresidents. The facts and circumstancesdo not demonstrate that W relieves thepoor and distressed.

SEC. 6. EXEMPT PURPOSESOTHER THAN RELIEVING THEPOOR AND DISTRESSED

.01 Relief of the poor and distressed,whether demonstrated by satisfaction ofthe safe harbor described in section 3of this Revenue Procedure or byreference to the facts and circumstancestest described in section 4, does not

constitute the only exempt purpose thata housing organization may have. Suchorganizations may qualify for exemp-tion without having to satisfy thestandards for relief of the poor anddistressed by providing housing in away that accomplishes any of thepurposes set forth in § 501(c)(3) or§ 1.501(c)(3)–1(d)(2). Those purposesinclude, but are not limited to, thefollowing:

(1) Combatting community deteri-oration is an exempt purpose, asillustrated by Rev. Rul. 68–17, 1968–1C.B. 247, Rev. Rul. 68–655, 1968–2C.B. 213, Rev. Rul. 70–585, 1970–2C.B. 115 (Situation 3), and Rev. Rul.76–147, 1976–1 C.B. 151. An organi-zation that combats community deterio-ration must (1) operate in an area withactual or potential deterioration, and (2)directly prevent or relieve that deterio-ration. Constructing or rehabilitatinghousing has the potential to combatcommunity deterioration.

(2) Lessening the burdens of gov-ernment is an exempt purpose, asillustrated by Rev. Ruls. 85–1 and 85–2, 1985–1 C.B. 178. An organizationlessens the burdens of government if(a) there is an objective manifestationby the governmental unit that it con-siders the activities of the organizationto be the government’s burdens, and(b) the organization actually lessens thegovernment’s burdens.

(3) Elimination of discriminationand prejudice is an exempt purpose, asillustrated by Rev. Rul. 68–655, 1968–2 C.B. 213, and Rev. Rul. 70–585,1970–2 C.B. 115 (Situation 2). Theserulings describe organizations that fur-ther charitable purposes by assistingpersons in specific racial groups toacquire housing for the purpose ofstabilizing neighborhoods or reducingracial imbalances.

(4) Lessening neighborhood ten-sions is an exempt purpose, as illus-trated by Rev. Rul. 68–655, 1968–2C.B. 213, and Rev. Rul. 70–585, 1970–2 C.B. 115 (Situation 2). It is generally

identified as an additional charitablepurpose by organizations that fightpoverty and community deteriorationassociated with overcrowding in lowerincome areas in which ethnic or racialtensions are high.

(5) Relief of the distress of theelderly or physically handicapped is anexempt purpose, as illustrated by Rev.Rul. 72–124, 1972–1 C.B. 145, Rev.Rul. 79–18, 1979–1 C.B. 194, and Rev.Rul. 79-19, 1979-1 C.B. 195. Anorganization may further a charitablepurpose by meeting the special needsof the elderly or physically handi-capped.

SEC. 7. OTHER CONSIDERATIONS

If an organization furthers a chari-table purpose such as relieving the poorand distressed, it nevertheless may failto qualify for exemption because pri-vate interests of individuals with afinancial stake in the project arefurthered. For example, the role of aprivate developer or management com-pany in the organization’s activitiesmust be carefully scrutinized to ensurethe absence of inurement or impermiss-ible private benefit resulting from realproperty sales, development fees, ormanagement contracts.

SEC. 8. EFFECT ON OTHERDOCUMENTS

Notice 93–1 is superseded.

SEC. 9. EFFECTIVE DATE

This revenue procedure is effectiveon [date of publication].

DRAFTING INFORMATION

The principal authors of this revenueprocedure are Lynn Kawecki and Mar-vin Friedlander. For further informationregarding this revenue procedure, con-tact Mr. Kawecki at (202) 622-7305(not a toll free number).


778/20051/1JUL96/D45-005

181996–26 I.R.B.

Part IV. Items of General Interest

Announcement 96–41

1996 Form W–4

The IRS has approved the 1996 FormW–4, Employee’s Withholding Al-lowance Certificate, for printing. Theform should be available for distribu-tion by May 1996. Employers mayorder Form W–4 by telephone or theymay use other IRS electronic informa-tion services to get copies.

Request by— Number orAddress

Telephone 1-800-TAX-FORM (1-800-829-3676)

Computer andmodem

703-321-8020(modem settingsare N, 8, 1)

Internet:World Wide

WebFTPTelnet

www.irs.ustreas.govftp.irs.ustreas.goviris.irs.ustreas.gov

Fax 703-487-4160

Employers should remind employeesto check their withholding to see if it issufficient. Employees may use Publica-tion 919, ‘‘Is My Withholding Cor-rect?,’’ for assistance. If an employeesubmitted a 1995 Form W–4 for 1996,he or she is not required to submit a1996 Form W–4 but should if thewithholding is not adequate.

Obsolete Federal Tax Forms


Form 8807 and Form 8645 areobsolete. The IRS has determined thattaxpayers may meet the reporting andcertification requirements of theseforms by reporting the required infor-mation on other forms, as noted below.

Form 8807, Certain Manufacturersand Retailers Excise Taxes. Beginningwith the second quarter of 1996,taxpayers must only summarize thesetaxes on Form 720, Quarterly FederalExcise Tax Return. Rates and otherinformation on these taxes are included

on Form 720 and in the Instructions forForm 720.

Form 8645, Soil and Water Conser-vation Plan Certificate. For tax yearsbeginning after 1995, taxpayers will nolonger need to file Form 8645. How-ever, the soil and water conversationexpenses reported on the followingforms must be consistent with anapproved plan: Schedule F (Form1040), Farming Expenses; Form 4835,Farm Rental Income and Expenses;Form 1040–SS, U.S. Self-EmploymentTax Return (Virgin Islands, Guam,American Samoa, and the NorthernMariana Islands); and Form 1040–PR,Planilla Para La Declaracion De LaContribusion Federal Sobre El TrabajoPor Cuenta Propia-Puerto Rico.

Foundations Status of CertainOrganizations


The following organizations havefailed to establish or have been unableto maintain their status as publiccharities or as operating foundations.Accordingly, grantors and contributorsmay not, after this date, rely onprevious rulings or designations in theCumulative List of Organizations (Pub-lication 78), or on the presumptionarising from the filing of notices undersection 508(b) of the Code. This listingdoes not indicate that the organizationshave lost their status as organizationsdescribed in section 501(c)(3), eligibleto receive deductible contributions.

Former Public Charities. The fol-lowing organizations (which have beentreated as organizations that are notprivate foundations described in section509(a) of the Code) are now classifiedas private foundations:

A G Cox Orchestra Booster ClubInc., Winterville, NC

Ahoskie Civic Association Inc.,Ahoskie, NC

Aid To Inmate Mothers, Montgomery,AL

AIDS Service Agency of OrangeCounty, Chapel Hill, NC

Alabama Rural Heritage FoundationInc., Thomaston, AL

Alabamians for Quality EducationInc., Birmingham, AL

Arcadia Wildlife Preserve Inc.,Atlanta, GA

Arkansas Housing Partnership Inc.,Little Rock, AR

Athens Peace Coalition Inc., Athens,GA

Barefoot Ballet Inc., Atlanta, GABethesda, Oneonta, ALBlack Swan Center, The, Black

Mountain, NCBokwes Cultural Group, Durham, NCBoys and Girls Club of Putnam

County, Cookeville, TNCalvin Peete Golf Foundation Inc.,

Atlanta, GACare-ag Inc., Charlotte, NCCarolina Hispanic Community Inc.,

Wilmington, NCCars for Kids-Southern Style Inc.,

Selmer, TNCatholic Education Foundation for

Northwest Arkansas Inc.,Fayetteville, AR

Central Arkansas Fund for VeteransInc., North Little Rock, AR

Central Carolinas Citizens Forum,Charlotte, NC

Chain of Hope Ministries, Clarksville,TN

Chapel Hill-Carrboro CommunityFoundation, Chapel Hill, NC

Charlotte Philharmonic Society-Orchestra, Charlotte, NC

Chatom Dixie Youth Baseball Inc.,Chatom, AL

Chelsea Farms Inc., Memphis, TNChildrens Rights of America National

Fund Inc., Atlanta, GACoastal Georgia Soccer Association

Inc., Savannah, GACommittee for Public Art Inc.,

Hickory, NCCommittee to Feed the Hungry Inc.,

Atlanta, GACommunity Apartments Corporation

of Rutherford City, Raleigh, NCCommunity Housing Development

Services Inc., Nashville, TNComprehensive Learning Laboratory

Corp., Fayetteville, NCConfederate Brass Inc., The, Athens,

GAConyers Cherry Blossom Festival

Foundation Inc., Conyers, GACornerstone Foundation, The,

Memphis, TNCreative Childrens Learning Center

Inc., Birmingham, AL


778/20051/1JUL96/D45-005

19 1996 –26 I.R.B.

Creative Educational ConsultingServices Inc., Reidsville, GA

Credit Wise Company Inc., The,Memphis, TN

Crime Stoppers of Lexington Inc.,Lexington, TN

Culturally Specific TreatmentEnhancement Programs Inc.,Atlanta, GA

David Gries Memorial FoundationInc., Montgomery, AL

Decatur County Families in Action,Parsons, TN

Doulos Fellowship Inc., Hertford, NCDrug Awarness of Newton County

Inc., Covington, GAEasley Place Inc., Millington, TNEastern Correctional Institution

Community Resource, Maury, NCEasy Riders Therapeutic

Horsemanship Inc., McCalla, ALEcho 1 Community Outreach

Services, Roanoke, ALEconomic Development Learning

Center, The, Chocowinity, NCEcumenical Consulting Associates

Inc., Atlanta, GAEd Care Inc., Brentwood, TNE H Wilbourn Scholarship Fund of

Huntsville-Madison, Gurley, ALEm-Art Inc., Kennesaw, GAEnd of the Line Inc., The, Memphis,

TNEnvistas Corporation, Blue Ridge, GAEuclid Arts Collective Inc., Decatur,

GAExeter Association of Georgia Inc.,

The, Atlanta, GAFaith & Culture Society Inc., Grand

Rapids, MIFamily Management Inc.,

Montgomery, ALFirst Amazing Grace Ministries Inc.,

Atlanta, GAFlotilla 17–08 Inc., Charlotte, NCForrce Inc., Hamlet, NCFrayser-Raleigh Community Theatre

Inc., Memphis, TNFriends of Grandfather Mountain,

Sugar Grove, NCFriends of Gravette Medical Center

Hospital Inc., The, Gravette, ARFriends of Jazz Inc., Chattanooga,

TNFrye Regional Medical Center

Auxiliary, Hickory, NCGeorgia Rails Into Trails Society

Inc., Marietta, GA

Georgia Sentencing Alternatives Inc.,Marietta, GA

Girls Traveling Softball Associationof Georgia, Douglasville, GA

Gospel Team Outreach InternationalMinistries Inc., Renoldsburg, OH

Granville Residents Opposed toWaste Inc., Oxford, NC

Great 100 Inc., The, Laurel Hill, NCGreater Hamilton County Soccer

Council Inc., Chattanooga, TNGreen Hill Church of Christ Child

Care Center Inc., Mount Juliet, TNGuardian Ad Litem Volunteer

Association Inc., Jacksonville, NCHealthcare Transportation Foundation

Inc., Birmingham, ALHelp Our Planet Earth Inc., Atlanta,

GAHendersonville Filmmakers Club Inc.,

Hendersville, TNHenry County Horsemans Assoc.,

McDonough, GAHickorys Committee for a Secure

Tomorrow Inc., Hickory, NCHigher Education Addiction

Prevention Prof of NC Inc.,Greensboro, NC

H O P E in Cobb Inc., Marietta, GAHospice of Johnston County Inc.,

Selma, NCHospice of Peach County Inc., Fort

Valley, GAHost Christian Ministries Inc., The,

Gainesville, GAHouse of Sunshine Inc., Asheville,

NCHuntsville Academy and Forum,

Huntsville, TNHunstville Folk Dancers, Huntsville,

ALIn Time Ministries Inc., Memphis,

TNInstitute for Advanced Studies in Life

Support Inc., Huntsville, ALInstitute for Urological Research Inc.,

Nashville, TNInstitute for Wholistic Education Inc.,

Raleigh, NCJack Fowler Park, Dr., Walnut Cove,

NCJackson Community Housing

Resource Board Inc. CommunityCounsel, Jackson, TN

Jobs for Stars Inc., Memphis, TNKeep Saying No Inc., Fayette, ALKentucky-Tennessee Water Pollution

Control Assoc., Nashville, TN

Knox County Task Force AgainstDomestic Violence, Knoxville, TN

Knoxville Smokies Baseball Team,Knoxville, TN

Kurt Einstein Foundation Inc., Cary,NC

L Anguille Arts Council, ForrestCity, AR

LA Sociedad Panamena De AtlantaGeorgia Inc., Stone Mountain, GA

Leadership Lowdes Inc., Valdosta,GA

Lebanon High School Blue DevilBooster Club Inc., The, Lebanon,TN

Life Way Ministries, Hayden, ALMain Street Camden Inc., Camden,

ARMasters Place Inc., The, Atlanta, GAMaury County Public Education

Foundation, Columbia, TNMental Health Association of

Columbus Georgia Inc., Columbus,GA

Mobile Area African AmericanSummit, Mobile, AL

Mobile Area Teen Resource Center,Inc., Mobile, AL

Municipal Park Youth FootballAssoc. Inc., Mobile, AL

Music City Endurance Athletes Inc.,Nashville, TN

National Committee for DrugAwareness Inc., Atlanta, GA

NC Association of Plumbing,Heating, Cooling ContractorsEducation FDN Inc., Raleigh, NC

Newborns in Need Foundation Inc.,Auburn, GA

North Carolina Arboretum Society,The, Asheville, NC

North Carolina Hunger Network,Raleigh, NC

North Carolina Partners forDemocracy Foundation, Raleigh,NC

North Fayette County Volunteer FireDepartment, Mason, TN

North Raleigh Athletic AssociationInc., Raleigh, NC

Northwest Flight AttendantsEmergency Fund, Cordova, TN

Northwestern Carolina Education &Development Association Inc.,Boone, NC

Old Fort Community Club, Old Fort,NC

Orleans Care Home, Memphis, TNOzark Therapeutic Weight Training

Center Inc., Marby, AR


778/20051/1JUL96/D45-005

201996 –26 I.R.B.

Percussionistic Corporation, Durham,NC

Persian Commuity Center Inc.,Atlanta, GA

Phoenix House of Raleigh Inc.,Raleigh, NC

Pickens Respite Inc., Fairfield, ALPiedmont Aid Corp., High Point, NCPinnacle Ministries, Gatlinburg, TNPolice Athletic League of

Chattanooga Inc., Chattanooga, TNPower Over Panic Inc., Atlanta, GAPredator Control and Conservation,

Mobile, ALProgressive Southeast Arkansas

Housing Development Corp., PineBluff, AR

PWA Inc., Ranger, GARadio Reading Services Corp.,

Kingsport, TNRalph David Abernathy Foundation

Inc., Atlanta, GARE Builders Action Council, Little

Rock, ARRed Carpet Industry FDN Inc.,

Dalton, GAReduce Infant Deaths Foundation,

Winston Salem, NC

Region 1 Football OfficialsScholarship Endowment Bowl,Johnson City, TN

Ricky Fountain EducationalFoundation Inc., Wilmington, NC

R K Enterprise Child Care FoodProgram Inc., Decatur, GA

Robeson County Dispute ResolutionCenter, Lumberton, NC

ROHI Inc., Bufford, GARolling Hills Lakes Volunteer Fire

Department, Montgomery, ALRowan Environmental Action

Partners—REAP, Salisbury, NCRoy Bolton Patton JR Scholarship

Endowment Fund, Athens, ALRoyal Pavilions of Creedmoor Inc.,

Creedmoor, NCRuth Faison Shaw Memorial

Committee, Chapel Hill, NCSavannah State College Community

Booster Club Inc., Savannah, GASerenity Thru Recovery of

Fayetteville Inc., Fayetteville, NCShambhala Institute and Foundation

Inc., Asheville, NCSociety for the Advancement of

Social Psychology Inc., Macon, GASociety of Parrot Breeders and

Exhibitors Inc., Marietta, GA

South Arkansas County Fine ArtsCouncil Inc., The, Dewitt, AR

Spavinaw Valley Boy Scout BoostersInc., Gravette, AR

Spavinaw Valley United Way,Gravette, AR

SSS Band Backers Inc., Smithfield,NC

Stiles Foundation, Statesville, NCStudent Awareness for Environment

in North Carolina, WrightsvilleBeach, NC

Sumner County Minority HistoricalCorp., The, Gallatin, TN

If an organization listed above sub-mits information that warrants therenewal of its classification as a publiccharity or as a private operating foun-dation, the Internal Revenue Servicewill issue a ruling or determinationletter with the revised classification asto foundation status. Grantors andcontributors may thereafter rely uponsuch ruling or determination letter asprovided in section 1.509(a)-7 of theIncome Tax Regulations. It is not thepractice of the Service to announcesuch revised classification of founda-tion status in the Internal RevenueBulletin.

SEQ 0022 JOB D45-051-002 PAGE-0021 TERMS REVISED 01JUL96 AT 02:57 BY LR DEPTH: 65.01 PICAS WIDTH 46 PICAS COMPOSITE COLOR

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Definition of TermsRevenue rulings and revenue proce-dures (hereinafter referred to as ‘‘rul-ings’’) that have an effect on previousrulings use the following defined termsto describe the effect:

Amplified describes a situation whereno change is being made in a priorpublished position, but the prior posi-tion is being extended to apply to avariation of the fact situation set forththerein. Thus, if an earlier ruling heldthat a principle applied to A, and thenew ruling holds that the same princi-ple also applies to B, the earlier rulingis amplified. (Compare with modified,below).

Clarified is used in those instanceswhere the language in a prior ruling isbeing made clear because the languagehas caused, or may cause, some confu-sion. It is not used where a position ina prior ruling is being changed.

Distinguished describes a situationwhere a ruling mentions a previouslypublished ruling and points out anessential difference between them.

Modified is used where the substanceof a previously published position isbeing changed. Thus, if a prior rulingheld that a principle applied to A butnot to B, and the new ruling holds thatit applies to both A and B, the prior

ruling is modified because it corrects apublished position. (Compare with am-plified and clarified, above).

Obsoleted describes a previouslypublished ruling that is not considereddeterminative with respect to futuretransactions. This term is most com-monly used in a ruling that listspreviously published rulings that areobsoleted because of changes in law orregulations. A ruling may also beobsoleted because the substance hasbeen included in regulations subse-quently adopted.

Revoked describes situations wherethe position in the previously publishedruling is not correct and the correctposition is being stated in the newruling.

Superseded describes a situationwhere the new ruling does nothingmore than restate the substance andsituation of a previously publishedruling (or rulings). Thus, the term isused to republish under the 1986 Codeand regulations the same position pub-lished under the 1939 Code and regula-tions. The term is also used when it isdesired to republish in a single ruling aseries of situations, names, etc., thatwere previously published over aperiod of time in separate rulings.

If the new ruling does more thanrestate the substance of a prior ruling, acombination of terms is used. Forexample, modified and superseded de-scribes a situation where the substanceof a previously published ruling isbeing changed in part and is continuedwithout change in part and it is desiredto restate the valid portion of thepreviously published ruling in a newruling that is self contained. In thiscase the previously published ruling isfirst modified and then, as modified, issuperseded.

Supplemented is used in situations inwhich a list, such as a list of the namesof countries, is published in a rulingand that list is expanded by addingfurther names in subsequent rulings.After the original ruling has beensupplemented several times, a newruling may be published that includesthe list in the original ruling and theadditions, and supersedes all priorrulings in the series.

Suspended is used in rare situationsto show that the previous publishedrulings will not be applied pendingsome future action such as the issuanceof new or amended regulations, theoutcome of cases in litigation, or theoutcome of a Service study.

AbbreviationsThe following abbreviations in current use andformerly used will appear in material publishedin the Bulletin.

A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C.—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.DC—Dummy Corporation.DE—Donee.Del. Order—Delegation Order.DISC—Domestic International Sales Corporation.DR—Donor.E—Estate.EE—Employee.

E.O.—Executive Order.ER—Employer.ERISA—Employee Retirement Income Security Act.EX—Executor.F—Fiduciary.FC—Foreign Country.FICA—Federal Insurance Contribution Act.FISC—Foreign International Sales Company.FPH—Foreign Personal Holding Company.F.R.—Federal Register.FUTA—Federal Unemployment Tax Act.FX—Foreign Corporation.G.C.M.—Chief Counsel’s Memorandum.GE—Grantee.GP—General Partner.GR—GrantorIC—Insurance Company.I.R.B.—Internal Revenue Bulletin.LE—Lessee.LP—Limited Partner.LR—Lessor.M—Minor.Nonacq.—Nonacquiescence.O—Organization.P—Parent Corporation.

PHC—Personal Holding Company.PO—Possession of the U.S.PR—Partner.PRS—Partnership.PTE—Prohibited Transaction Exemption.Pub. L.—Public Law.REIT—Real Estate Investment Trust.Rev. Proc.—Revenue Procedure.Rev. Rul.—Revenue Ruling.S—Subsidiary.S.P.R.—Statements of Procedural Rules.Stat.—Statutes at Large.T—Target Corporation.T.C.—Tax Court.T.D.—Treasury Decision.TFE—Transferee.TFR—Transferor.T.I.R.—Technical Information Release.TP—Taxpayer.TR—Trust.TT—Trustee.U.S.C.—United States Code.X—Corporation.Y—Corporation.Z—Corporation.

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22

Numerical Finding List1

Bulletins 1996–1 through 1996–19

Announcements:

96–1, 1996–2 I.R.B. 5796–2, 1996–2 I.R.B. 5796–3, 1996–2 I.R.B. 5796–4, 1996–3 I.R.B. 5096–5, 1996–4 I.R.B. 9996–6, 1996–5 I.R.B. 4396–7, 1996–5 I.R.B. 4496–8, 1996–7 I.R.B. 5696–9, 1996–8 I.R.B. 3096–10, 1996–8 I.R.B. 3096–11, 1996–9 I.R.B. 1196–12, 1996–11 I.R.B. 3096–13, 1996–12 I.R.B. 3396–14, 1996–12 I.R.B. 3596–15, 1996–11 I.R.B. 996–16, 1996–13 I.R.B. 2296–17, 1996–13 I.R.B. 2296–18, 1996–15 I.R.B. 1596–19, 1996–15 I.R.B. 1596–20, 1996–15 I.R.B. 1596–21, 1996–15 I.R.B. 1596–22, 1996–15 I.R.B. 1696–23, 1996–18 I.R.B. 796–24, 1996–16 I.R.B. 3596–25, 1996–17 I.R.B. 1396–26, 1996–17 I.R.B. 1396–27, 1996–17 I.R.B. 1696–28, 1996–17 I.R.B. 1696–29, 1996–17 I.R.B. 1796–30, 1996–17 I.R.B. 1796–31, 1996–17 I.R.B. 1896–32, 1996–17 I.R.B. 1896–33, 1996–18 I.R.B. 1296–34, 1996–18 I.R.B. 1396–35, 1996–18 I.R.B. 1396–36, 1996–18 I.R.B. 1396–37, 1996–18 I.R.B. 1496–38, 1996–19 I.R.B. 8496–39, 1996–19 I.R.B. 8496–40, 1996–19 I.R.B. 85

Delegations Orders:

232 (Rev. 2), 1996–7 I.R.B. 49239 (Rev. 1), 1996–7 I.R.B. 49

Notices:

96–2, 1996–2 I.R.B. 1596–1, 1996–3 I.R.B. 3096–4, 1996–4 I.R.B. 6996–5, 1996–6 I.R.B. 2296–6, 1996–5 I.R.B. 2796–7, 1996–6 I.R.B. 2296–8, 1996–6 I.R.B. 2396–9, 1996–6 I.R.B. 2696–10, 1996–7 I.R.B. 4796–11, 1996–8 I.R.B. 19

See footnote at the end of list.

Notices—Continued

96–12, 1996–10 I.R.B. 2996–13, 1996–10 I.R.B. 2996–14, 1996–12 I.R.B. 1196–15, 1996–13 I.R.B. 1996–16, 1996–13 I.R.B. 2096–17, 1996–13 I.R.B. 2096–18, 1996–14 I.R.B. 2796–19, 1996–14 I.R.B. 2896–20, 1996–14 I.R.B. 3096–21, 1996–14 I.R.B. 3096–22, 1996–14 I.R.B. 3096–23, 1996–16 I.R.B. 2396–24, 1996–16 I.R.B. 2396–25, 1996–17 I.R.B. 1196–26, 1996–18 I.R.B. 496–27, 1996–18 I.R.B. 496–28, 1996–19 I.R.B. 796–29, 1996–19 I.R.B. 7

Proposed Regulations:

DL–1–95, 1996–6 I.R.B. 28EE–20–95, 1996–5 I.R.B. 15EE–34–95, 1996–3 I.R.B. 49EE–35–95, 1996–5 I.R.B. 19EE–53–95, 1996–5 I.R.B. 23EE–55–95, 1996–12 I.R.B. 12EE–106–82, 1996–10 I.R.B. 31EE–142–87, 1996–12 I.R.B. 13EE–148–81, 1996–11 I.R.B. 29IA–3–94, 1996–17 I.R.B. 12IA–33–95, 1996–4 I.R.B. 99IA–41–93, 1996–11 I.R.B. 29INTL–3–95, 1996–6 I.R.B. 29INTL–9–95, 1996–5 I.R.B. 25INTL–54–95, 1996–14 I.R.B. 39INTL–62–90; INTL–32–93; INTL–52–86;INTL–52–94, 1996–19 I.R.B. 26PS–2–95, 1996–7 I.R.B. 50PS–4–96, 1996–18 I.R.B. 5PS–6–95, 1996–16 I.R.B. 27

Revenue Procedures:

96–1, 1996–1 I.R.B. 896–2, 1996–1 I.R.B. 6096–3, 1996–1 I.R.B. 8296–4, 1996–1 I.R.B. 9496–5, 1996–1 I.R.B. 12996–6, 1996–1 I.R.B. 15196–7, 1996–1 I.R.B. 18596–8, 1996–1 I.R.B. 18796–8A, 1996–9 I.R.B. 1096–9, 1996–2 I.R.B. 1596–10, 1996–2 I.R.B. 1796–11, 1996–2 I.R.B. 1896–12, 1996–3 I.R.B. 3096–13, 1996–3 I.R.B. 3196–14, 1996–3 I.R.B. 4196–15, 1996–3 I.R.B. 4196–16, 1996–3 I.R.B. 4596–17, 1996–4 I.R.B. 69

Revenue Procedures—Continued

96–18, 1996–4 I.R.B. 7396–19, 1996–4 I.R.B. 8096–20, 1996–4 I.R.B. 8896–21, 1996–4 I.R.B. 9696–22, 1996–5 I.R.B. 2796–23, 1996–5 I.R.B. 2796–24, 1996–5 I.R.B. 2896–24A, 1996–15 I.R.B. 1296–25, 1996–8 I.R.B. 1996–26, 1996–8 I.R.B. 2296–27, 1996–11 I.R.B. 2796–28, 1996–14 I.R.B. 3196–29, 1996–16 I.R.B. 24

Revenue Rulings:

96–1, 1996–1 I.R.B. 796–2, 1996–2 I.R.B. 596–3, 1996–2 I.R.B. 1496–6, 1996–2 I.R.B. 896–4, 1996–3 I.R.B. 1696–5, 1996–3 I.R.B. 2996–7, 1996–3 I.R.B. 1296–8, 1996–4 I.R.B. 6296–9, 1996–4 I.R.B. 596–10, 1996–4 I.R.B. 2796–11, 1996–4 I.R.B. 2896–12, 1996–9 I.R.B. 496–13, 1996–10 I.R.B. 1996–14, 1996–6 I.R.B. 2096–15, 1996–11 I.R.B. 996–16, 1996–11 I.R.B. 496–17, 1996–13 I.R.B. 596–18, 1996–13 I.R.B. 496–19, 1996–14 I.R.B. 2496–20, 1996–15 I.R.B. 596–21, 1996–15 I.R.B. 796–22, 1996–15 I.R.B. 996–23, 1996–15 I.R.B. 1196–24, 1996–19 I.R.B. 596–25, 1996–19 I.R.B. 4

Treasury Decisions:

8630, 1996–3 I.R.B. 198631, 1996–3 I.R.B. 78632, 1996–4 I.R.B. 68633, 1996–4 I.R.B. 208634, 1996–3 I.R.B. 178635, 1996–3 I.R.B. 58636, 1996–4 I.R.B. 648637, 1996–4 I.R.B. 298638, 1996–5 I.R.B. 58639, 1996–5 I.R.B. 128640, 1996–2 I.R.B. 108641, 1996–6 I.R.B. 48642, 1996–7 I.R.B. 48643, 1996–11 I.R.B. 48644, 1996–7 I.R.B. 168645, 1996–8 I.R.B. 48646, 1996–8 I.R.B. 108647, 1996–9 I.R.B. 7


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Numerical Finding List1—Continued


Treasury Decisions—Continued

8648, 1996–10 I.R.B. 238649, 1996–9 I.R.B. 58650, 1996–10 I.R.B. 58651, 1996–11 I.R.B. 248652, 1996–11 I.R.B. 118653, 1996–12 I.R.B. 48654, 1996–11 I.R.B. 148655, 1996–12 I.R.B. 98656, 1996–13 I.R.B. 98657, 1996–14 I.R.B. 48658, 1996–14 I.R.B. 138659, 1996–16 I.R.B. 48660, 1996–17 I.R.B. 48661, 1996–17 I.R.B. 7

1A cumulative list of all Revenue Rulings,Revenue Procedures, Treasury Decisions, etc.,published in Internal Revenue Bulletins 1995–27 through 1995–52 will be found in InternalRevenue Bulletin 1996–1, dated January 2,1996.


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Finding List of Current Action onPreviously Published Items1


*Denotes entry since last publication

Delegation Orders:

232 (Rev. 1)Superseded by232 (Rev. 2), 1996–7 I.R.B. 49

239Amended by239 (Rev. 1), 1996–7 I.R.B. 49

Revenue Procedures:

65–17Modified by96–14, 1996–3 I.R.B. 41

66–49Modified by96–15, 1996–3 I.R.B. 41

88–32Obsoleted by96–15, 1996–3 I.R.B. 41

88–33Obsoleted by96–15, 1996–3 I.R.B. 41

89–19Superseded by96–17, 1996–4 I.R.B. 69

89–48Superseded in part by96–17, 1996–4 I.R.B. 69

91–22Modified by96–1, 1996–1 I.R.B. 8

91–22Amplified by96–13, 1996–3 I.R.B. 31




92–20Modified by96–1, 1996–1 I.R.B. 8

1A cumulative finding list for previouslypublished items mentioned in Internal RevenueBulletins 1995–27 through 1995–52 will befound in Internal Revenue Bulletin 1996–1, datedJanuary 2, 1996.


92–85Modified by96–1, 1996–1 I.R.B. 8



Superseded by96–18, 1996–4 I.R.B. 73

94–16Modified by96–29, 1996–16 I.R.B. 24





94–62Modified by96–29, 1996–16 I.R.B. 24









95–66Modified by96–25, 1996–19 I.R.B. 4






96–3Amplified by96–12, 1996–3 I.R.B. 30

Revenue Rulings:

66–307Obsoleted by96–3, 1996–2 I.R.B. 14

72–437Modified by96–13, 1996–3 I.R.B. 31

80–80Obsoleted by96–3, 1996–2 I.R.B. 14

82–80Modified by96–14, 1996–3 I.R.B. 41

92–19Supplemented in part96–2, 1996–2 I.R.B. 5

92–75Clarified by96–13, 1996–3 I.R.B. 31

95–10Supplemented and superseded by96–4, 1996–3 I.R.B. 16

95–11Supplemented and superseded by96–5, 1996–3 I.R.B. 29

96–24Modified and amplified by96–24A, 1996–15 I.R.B. 12