INCOME TAX

Rev. Rul. 2000–43, page 333.Charitable contributions; S corporations; section 170-(a)(2). An accrual-basis S corporation may not elect undersection 170(a)(2) of the Code to treat a charitable contribu-tion as paid in the year authorized by the S corporation’sboard of directors if the contribution is paid by the S corpo-ration after the close of the tax year.

Rev. Rul. 2000–44, page 336.Transactions between partner and partnership. A corpo-ration that acquires assets of another corporation in a trans-action described in section 381(a) of the Code succeeds to thestatus of the other corporation for purposes of applying theexception for reimbursements of preformation expendituresand determining whether a liability is a qualified liability underthe regulations regarding the disguised sale provisions of sec-tion 707(a)(2)(B).

Rev. Rul. 2000–45, page 337.Federal rates; adjusted federal rates; adjusted federallong-term rate, and the long-term exempt rate. For pur-poses of sections 1274, 1288, 382, and other sections of theCode, tables set forth the rates for October 2000.

Rev. Rul. 2000–46, page 334.LIFO; price indexes; department stores. The August 2000Bureau of Labor Statistics price indexes are accepted for useby department stores employing the retail inventory and last-in,first-out inventory methods for valuing inventories for tax yearsended on, or with reference to, August 31, 2000.

T.D. 8902, page 323.Final regulations interpret the look-through provisions of sec-tion 1(h) of the Code (relating to collectibles and section1250 capital gain) when an interest in a pass-thru entity issold or exchanged and provide rules for dividing the holdingperiod of an interest in a partnership.

ADMINISTRATIVE

Rev. Proc. 2000–39, page 340.Per diem allowances. This procedure provides optional rulesfor deeming substantiated the amount of certain reimbursedtraveling expenses of an employee as well as for determiningthe amount of deductible meals while traveling away fromhome. Rev. Proc. 2000–9 superseded. Notice 2000–48superseded.

Announcement 2000–81, page 348.This document contains corrections to final regulations (T.D.8892, 2000–32 I.R.B. 158) relating to the removal of tem-porary regulations concerning the Telefile Voice Signaturetest.

Announcement 2000–83, page 348.New Form 8869, Qualified Subchapter S Subsidiary Election,is now available. This form is used by a parent S corporationto elect to treat one or more of its eligible subsidiaries as aqualified subchapter S subsidiary (QSub).

Internal Revenue

bbuulllleettiinnBulletin No. 2000–41

October 10, 2000

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

Department of the TreasuryInternal Revenue Service

Finding Lists begin on page ii.Actions Relating to Court Decisions is on the page following the introduction.

October 10, 2000 2000–41 I.R.B.

The Internal Revenue Bulletin is the authoritative instrumentof the Commissioner of Internal Revenue for announcing offi-cial rulings and procedures of the Internal Revenue Serviceand for publishing Treasury Decisions, Executive Orders, TaxConventions, legislation, court decisions, and other items ofgeneral interest. It is published weekly and may be obtainedfrom the Superintendent of Documents on a subscriptionbasis. Bulletin contents are consolidated semiannually intoCumulative Bulletins, which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform applicationof the tax laws, including all rulings that supersede, revoke,modify, or amend any of those previously published in theBulletin. All published rulings apply retroactively unless other-wise indicated. Procedures relating solely to matters of in-ternal management are not published; however, statementsof internal practices and procedures that affect the rightsand duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service onthe application of the law to the pivotal facts stated in therevenue ruling. In those based on positions taken in rulingsto taxpayers or technical advice to Service field offices,identifying details and information of a confidential natureare deleted to prevent unwarranted invasions of privacy andto comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not havethe force and effect of Treasury Department Regulations,but they may be used as precedents. Unpublished rulingswill not be relied on, used, or cited as precedents by Servicepersonnel in the disposition of other cases. In applying pub-lished rulings and procedures, the effect of subsequent leg-islation, regulations, court decisions, rulings, and proce-

dures must be considered, and Service personnel and oth-ers concerned are cautioned against reaching the same con-clusions in other cases unless the facts and circumstancesare substantially the same.

The Bulletin is divided into four parts as follows:

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

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

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

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

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

The IRS Mission

Provide America’s taxpayers top quality service by help-ing them understand and meet their tax responsibilities

and by applying the tax law with integrity and fairness toall.

Introduction

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

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

2000–41 I.R.B. October 10, 2000

It is the policy of the Internal RevenueService to announce at an early datewhether it will follow the holdings in cer-tain cases. An Action on Decision is thedocument making such an announcement.An Action on Decision will be issued atthe discretion of the Service only on un-appealed issues decided adverse to thegovernment. Generally, an Action on De-cision is issued where its guidance wouldbe helpful to Service personnel workingwith the same or similar issues. Unlike aTreasury Regulation or a Revenue Ruling,an Action on Decision is not an affirma-tive statement of Service position. It is notintended to serve as public guidance andmay not be cited as precedent.

Actions on Decisions shall be reliedupon within the Service only as conclu-sions applying the law to the facts in theparticular case at the time the Action onDecision was issued. Caution should beexercised in extending the recommenda-tion of the Action on Decision to similarcases where the facts are different. More-over, the recommendation in the Actionon Decision may be superseded by newlegislation, regulations, rulings, cases, orActions on Decisions.

Prior to 1991, the Service published ac-quiescence or nonacquiescence only incertain regular Tax Court opinions. TheService has expanded its acquiescenceprogram to include other civil tax caseswhere guidance is determined to be help-ful. Accordingly, the Service now may ac-quiesce or nonacquiesce in the holdingsof memorandum Tax Court opinions, aswell as those of the United States DistrictCourts, Claims Court, and Circuit Courtsof Appeal. Regardless of the court decid-ing the case, the recommendation of anyAction on Decision will be published inthe Internal Revenue Bulletin.

The recommendation in every Actionon Decision will be summarized as ac-quiescence, acquiescence in result only,or nonacquiescence. Both “acquies-cence” and “acquiescence in result only”mean that the Service accepts the holdingof the court in a case and that the Servicewill follow it in disposing of cases withthe same controlling facts. However, “ac-quiescence” indicates neither approvalnor disapproval of the reasons assignedby the court for its conclusions; whereas,“acquiescence in result only” indicatesdisagreement or concern with some or all

of those reasons. “Nonacquiescence” sig-nifies that, although no further reviewwas sought, the Service does not agreewith the holding of the court and, gener-ally, will not follow the decision in dis-posing of cases involving other taxpay-ers. In reference to an opinion of a circuitcourt of appeals, a “nonacquiescence” in-dicates that the Service will not followthe holding on a nationwide basis. How-ever, the Service will recognize theprecedential impact of the opinion oncases arising within the venue of the de-ciding circuit.

The Actions on Decisions published inthe weekly Internal Revenue Bulletin areconsolidated semiannually and appear inthe first Bulletin for July and the Cumu-lative Bulletin for the first half of theyear. A semiannual consolidation also ap-pears in the first Bulletin for the follow-ing January and in the Cumulative Bul-letin for the last half of the year.

The Commissioner ACQUIESCES inthe following decision:

Kathy A. King v. Commissioner,1

115 T.C. No. 8

Actions Relating to Decisions of the Tax Court

1 Acquiescence relating to whether a nonpetitioning spouse (or former spouse) is entitled to notice and an opportunity to become a party within the meaning of I.R.C.section 6015(e)(4) in a deficiency case where the petitioning spouse (or former spouse) is claiming relief from joint and several liability under section 6015.

Section 1.—Tax Imposed

26 CFR 1.1(h)–1: Capital gains look-through rulefor sales or exchanges of interests in a partnership,S corporation, or trust.

T.D. 8902

DEPARTMENT OF THE TREASURYInternal Revenue Service26 CFR Parts 1 and 602

Capital Gains, Partnership,Subchapter S, and TrustProvisions

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document containsfinal regulations relating to sales or ex-changes of interests in partnerships, Scorporations, and trusts. The regulationsinterpret the look-through provisions ofsection 1(h), added by section 311 of theTaxpayer Relief Act of 1997 and amendedby sections 5001 and 6005(d) of the Inter-nal Revenue Service Restructuring andReform Act of 1998, and explain the rulesrelating to the division of the holding pe-riod of a partnership interest. The regula-tions affect partnerships, partners, S cor-porations, S corporation shareholders,trusts, and trust beneficiaries.

DATES: Effective Date: These regula-tions are effective September 21, 2000.

FOR FURTHER INFORMATION CON-TACT: Jeanne M. Sullivan or David J.Sotos (202) 622-3050 (not a toll-freenumber).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information con-tained in these final regulations have beenreviewed and approved by the Office ofManagement and Budget in accordancewith the Paperwork Reduction Act of1995 (44 U.S.C. 3507) under controlnumber 1545-1654. Responses to thesecollections of information are required toverify compliance with section 1(h) andto determine that the tax on capital gainshas been computed correctly.

An agency may not conduct or sponsor,and a person is not required to respond to,a collection of information unless the col-lection of information displays a validcontrol number assigned by the Office ofManagement and Budget.

The estimated annual burden per re-spondent/recordkeeper is 10 minutes.

Comments concerning the accuracy ofthis burden estimate and suggestions forreducing this burden should be sent to theInternal Revenue Service, Attn: IRS Re-ports Clearance Officer, OP:FS:FP, Wash-ington, DC 20224, and to the Office ofManagement and Budget, Attn: DeskOfficer for the Department of the Trea-sury, Office of Information and Regula-tory Affairs, Washington, DC 20503.

Books or records relating to this collec-tion of information must be retained aslong as their contents may become mater-ial in the administration of any internalrevenue law. Generally, tax returns andtax return information are confidential, asrequired by 26 U.S.C. 6103.

Background

Section 311 of the Taxpayer Relief Actof 1997, Public Law 105-34 (111 Stat.788, 831) (the 1997 Act), as modified bysections 5001 and 6005(d) of the InternalRevenue Service Restructuring and Re-form Act of 1998, Public Law 105-206(112 Stat. 685, 787, 800) (the 1998 Act),reduced the maximum statutory tax ratesfor long-term capital gains of individualsin general and provided regulatory author-ity to apply the rules to sales and ex-changes of interests in pass-thru entitiesand to sales and exchanges by pass-thruentities. On August 9, 1999, the IRS pub-lished in the Federal Registera notice ofproposed rulemaking (REG–106527–98,1999–34 I.R.B. 304 [64 F.R. 43117]) relat-ing to the taxation of capital gains in thecase of sales or exchanges of interests inpartnerships, S corporations, and trusts.The regulations interpreted rules added bythe 1997 Act and amended by the 1998Act, and provided guidance relating to thedivision of the holding period of a partner-ship interest. The IRS received no re-quests to speak at a public hearing thatwas scheduled for November 18, 1999,and canceled the hearing. Written com-

ments were received in response to the no-tice of proposed rulemaking. After con-sideration of the comments, the proposedregulations under sections 1(h), 741, and1223 are adopted, as revised by this Trea-sury decision. The comments receivedand revisions made are discussed below.

Explanation of Revisions and Summaryof Comments

1. Look-Through Capital Gain

a. In General

Section 1(h) provides maximum capitalgains rates in three categories: 20-percentrate gain, 25-percent rate gain, and 28-per-cent rate gain. Twenty percent rate gain isnet capital gain from the sale or exchangeof capital assets held for more than oneyear, reduced by the sum of 25-percentrate gain and 28-percent rate gain.Twenty-five percent rate gain is limited tounrecaptured section 1250 gain. Twenty-eight percent rate gain includes capitalgains and losses from the sale or exchangeof collectibles (as defined in section408(m) without regard to section408(m)(3)) held for more than one yearand certain other types of gain.

Capital gain attributable to the sale orexchange of an interest in a pass-thru en-tity held for more than one year generallyis in the 20-percent rate gain category.However, the proposed regulations pro-vide that, when a taxpayer sells or ex-changes an interest in a partnership, S cor-poration, or trust that holds collectibles,rules similar to the rules under section751(a) apply to determine the capital gainthat is attributable to certain unrealizedgain in the collectibles. Furthermore,under the proposed regulations, rules simi-lar to the rules under section 751(a) alsoapply to determine the capital gain attrib-utable to certain unrealized gain in section1250 property held by a partnership whena taxpayer sells or exchanges an interest ina partnership that holds such property.

b. Net Collectibles Loss

Twenty-eight percent rate gain is theexcess (if any) of (i) the sum of col-lectibles gain and section 1202 gain, over

2000–41 I.R.B. 323 October 10, 2000

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

October 10, 2000 324 2000–41 I.R.B.

(ii) the sum of collectibles loss, the netshort-term loss, and the amount of long-term capital loss carried under section1212(b)(1)(B) to the taxable year. Onecommentator suggested that, when an in-terest in a partnership, S corporation, ortrust is transferred, net collectibles loss aswell as net collectibles gain in propertyheld by such an entity should be takeninto account in determining a taxpayer’soverall collectibles gain or collectiblesloss. The Treasury Department (Trea-sury) and the IRS believe that the pro-posed regulations are consistent with therule in section 1(h)(6)(B), which, in pro-viding look-through treatment with re-spect to collectibles, refers only to “gainfrom the sale of an interest in a partner-ship, S corporation, or trust which is at-tributable to unrealized appreciation inthe value of collectibles . . .” Accord-ingly, the comment is not adopted in thefinal regulations.

c. Limitations with Respect to Section1231 Property

Section 1(h)(7)(B) limits the amountof unrecaptured section 1250 gain recog-nized as a consequence of sales, ex-changes, and conversions described insection 1231(a)(3)(A) to the taxpayer’snet section 1231 gain (as defined in sec-tion 1231(c)(3)) for the taxable year. Theproposed regulations provide that, upon apartner’s transfer of a partnership inter-est, the partner’s allocable share of sec-tion 1250 capital gain (as defined in§1.1(h)-1(b)(3)) is not treated as section1231 gain for purposes of applying thelimitation in section 1(h)(7)(B). Therehas been some confusion regardingwhether the section 1(h)(7)(B) limitationapplies to all unrecaptured section 1250gain, including section 1250 capital gainrecognized on the transfer of a partner-ship interest.

Because the transfer of an interest in apartnership is not described in section1231(a)(3)(A), the limitation provided insection 1(h)(7)(B) is not applicable withrespect to such transfers. Accordingly,under the final regulations (and consis-tent with the proposed regulations),where a partner sells an interest in a part-nership, the partner must take into ac-count the entire allocable share of section1250 capital gain in determining the un-recaptured section 1250 gain under sec-

tion 1(h)(7)(A), without regard to thelimitation set forth in section 1(h)(7)(B).

d. Redemption of a Partnership Interest

Some practitioners have expressed con-cern that the look-through capital gainsprovisions of the proposed regulationsapply to the redemption of a partnershipinterest. To apply the regulations in thecontext of redemptions, it would be nec-essary to import the concepts utilized insection 751(b). Treasury and the IRS be-lieve that this would not be advisable.Accordingly, these regulations do notapply to any transaction that is treated as aredemption of a partnership interest forFederal income tax purposes.

e. Allocating Section 704(c) Gain andLoss

Certain commentators requested thatthe final regulations provide guidancewith respect to the proportionate part ofthe section 704(c) built-in gain or loss thatis transferred to the purchaser when a sec-tion 704(c) partner sells a portion of apartnership interest. This issue is relevantbecause, in determining a taxpayer ’sshare of collectibles gain or section 1250capital gain on the sale of a partnershipinterest, it is necessary to calculate howmuch of such gain would be allocatedwith respect to the partnership interestsold if the underlying collectibles or sec-tion 1250 property held by the partnershipwere sold for their fair market value. Inmaking this determination where a part-ner sells only a portion of its interest in apartnership, it is necessary to determinehow much section 704(c) gain relating tocollectibles or section 1250 property is al-locable to the portion of the partnershipinterest that is sold. Although relevant,Treasury and the IRS believe that thisissue is beyond the scope of these regula-tions. Accordingly, this comment is notaddressed in these regulations.

f. Look-Through Capital Gain Where thePass-Thru Entity Has a Short-TermHolding Period in Collectibles

The final regulations modify the pro-posed regulations to provide that a pass-thru entity’s holding period in the col-lectibles is not relevant in determiningwhether long-term capital gain recog-nized on the sale of an interest in the en-

tity is collectibles gain (taxable at a 28-percent rate). Consistent with the purposeof the look-through provisions containedin section 1(h), these regulations charac-terize a transferor’s long-term capital gainrecognized on the sale of the interest in apass-thru entity by reference to the en-tity’s underlying assets that give rise tosuch gain. Where a transferor recognizeslong-term capital gain on the sale of an in-terest in a partnership, S corporation, ortrust, it would be anomalous to providethe transferor with a better tax result if theentity has a short-term holding period incollectibles than if the entity has a long-term holding period in such property.This rule is not relevant with respect tosection 1250 property. Because all depre-ciation with respect to section 1250 prop-erty held for one year or less is treated asadditional depreciation under section1250(b)(1), such amounts will be treatedas unrealized receivables under section751(c) and thus will give rise to ordinaryincome under section 751(a) upon a dis-position of the partnership interest.

2. Determination of Holding Period in aPartnership

a. In General

The proposed regulations provide rulesrelating to the allocation of a dividedholding period with respect to an interestin a partnership. These rules generallyprovide that the holding period of a part-nership interest will be divided if a part-ner acquires portions of an interest at dif-ferent times or if an interest is acquired ina single transaction that gives rise to dif-ferent holding periods under section1223. Under the proposed regulations,the holding period of a portion of a part-nership interest generally is determinedbased on a fraction that is equal to the fairmarket value of the portion of the partner-ship interest to which the holding periodrelates (determined immediately after theacquisition) over the fair market value ofthe entire partnership interest.

Under the proposed regulations, a sell-ing partner generally cannot identify anduse the actual holding period for a portionof the partner’s interest. However, theproposed regulations provide that a sell-ing partner is permitted to identify theportion of a partnership interest sold withits holding period if the partnership is a

publicly traded partnership (as definedunder section 7704(b)), the partnershipinterest is divided into identifiable unitswith ascertainable holding periods, andthe selling partner can identify the portionof the interest transferred.

b. Contributions of Cash by ExistingPartners

The proposed regulations include anexample of a pro rata contribution of cashby partners that results in a divided hold-ing period in those partners’ interests inthe partnership. Commentators suggestedthat it is inappropriate to provide for a di-vided holding period where an existingpartner contributes cash to the partner-ship, particularly where the contributionis pro rata by all of the partners. Accord-ing to these commentators, such an ap-proach may unfairly convert portions oflong-term appreciation of partnership as-sets into a short-term capital gain on thesale of a long held partnership interest.(This conversion occurs regardless ofwhether the partner sells all or a portionof a partnership interest.)

The conversion of long-term apprecia-tion in partnership assets into short-termcapital gain upon the sale of a partnershipinterest as a result of cash contributions tothe partnership is largely the product ofpartners having unitary bases in their part-nership interests. See Rev. Rul. 84-53(1984-1 C.B. 159) (a partner has a singlebasis in a partnership interest). Under thisrule, gain attributable to previously con-tributed or acquired assets may be allo-cated to the short-term portion of a part-nership interest even though the value ofthe short-term portion is no greater thanthe amount of cash contributed to thepartnership. If basis from contributedcash or property could be traced to a seg-regated interest in the partnership, thisconversion of long-term capital apprecia-tion into short-term capital gain would notoccur. Larger problems would arise,however, in the context of partnershiptaxation if a partner were allowed to havea divided basis in a partnership interest.

An aggregate approach to determiningthe holding period of an interest in a part-nership would make it more likely that acontribution of cash would not give rise toa short-term holding period. Under an ag-gregate approach, one could trace con-tributed funds into the partnership and de-

termine whether a new holding periodwas created by reference to whether thefunds were used for capital expenditures(in which circumstance, a short-termholding period generally would be appro-priate) or for operating expenditures ofthe partnership (in which circumstance,no new holding period should be created).On the other hand, to the extent that apartnership interest is a capital asset thatis distinct from the partnership’s assets(an entity approach), its holding periodand basis should be determined indepen-dently and should not be affected by thepartnership’s use of the contributed funds.In choosing the entity approach in theproposed regulations, Treasury and theIRS concluded that tracing funds to theirultimate use in the partnership is not anadministrable means of determiningwhether a contribution to a partnershipcreates a new holding period.

Furthermore, the proposed regulationsare consistent with general rules relatingto the holding period of capital and sec-tion 1231 assets. Where a capital asset(including a capital asset held for one yearor less) or property described in section1231 is contributed to a partnership, sec-tion 1223(1) requires the tacking of theholding period in the partnership interest,whether the partners make pro rata contri-butions of property or instead make non-pro rata contributions that increase theproportionate interests of one or morepartners.

In addition, the proposed regulationsavoid inappropriate results that may occurif cash contributions are ignored after theformation of a partnership. If cash contri-butions were ignored, it would be possiblefor partners to form shelf partnershipswith nominal cash contributions in orderto start their holding period in the inter-ests, where the majority of cash would notbe contributed (and significant operatingassets of the partnership would not be ac-quired) until some time in the future. Thisclearly would not be a proper result.

Based upon the foregoing, Treasury andthe IRS continue to believe that the ap-proach taken in the proposed regulationsis appropriate. However, in response tocomments, Treasury and the IRS have pro-vided one exception, and explicitly grantauthority for another, where the contribu-tion of cash will not create a new holdingperiod in a partnership interest.

If a partner makes cash contributionsand receives cash distributions from apartnership during the one-year period be-fore sale of all or a portion of the interestin the partnership, Treasury and the IRSbelieve it is appropriate that the net cashcontribution to the partnership determinethe portion of the interest that is held forone year or less. Therefore, the final reg-ulations provide that, if a partner makesone or more cash contributions and re-ceives one or more cash distributions withrespect to the partnership during the one-year period ending on the date of the saleor exchange of all or a portion of the part-ner’s interest in the partnership, in apply-ing the rules for determining the partner’sholding period in its partnership interestwith respect to cash contributions, thepartner may reduce the cash contributionsmade during the year by cash distribu-tions received on a last-in-first-out basis,treating all cash distributions as if theywere received by the partner immediatelybefore the sale or exchange. This rulealso applies in determining the holdingperiod of a partnership interest where gainor loss is recognized under section 731(a)upon a distribution by the partnership.

In addition, the final regulations in-clude authority for the Secretary to pro-vide, in published guidance, additionalexceptions to the general holding periodrules with respect to other cash contribu-tions, including de minimiscash contribu-tions, to a partnership. Treasury and theIRS request comments as to the appropri-ate level for a de minimisexception.

c. Treatment of Deemed CashContributions under Section 752(a)

Section 752(a) provides that an in-crease in a partner’s share of partnershipliabilities, or an increase in a partner’s in-dividual liabilities by reason of the part-ner’s assumption of partnership liabilities,shall be treated as a contribution ofmoney by the partner to the partnership.Some practitioners have questionedwhether a partner’s deemed contributionof cash under section 752(a) will give riseto a new holding period in that partner’sinterest in the partnership. A deemed con-tribution of cash resulting from a shiftamong partners in their share of liabilitiesor as a result of a partnership incurringnew debt does not expand the net assetbase of the partners represented by their

2000–41 I.R.B. 325 October 10, 2000

interests in the partnership. Accordingly,it is inappropriate to create a new holdingperiod as a result of such deemed contri-butions. However, to the extent that apartner actually assumes a debt of thepartnership, thus causing an increase inthe net asset base of the partnership, thecreation of a new holding period with re-spect to a portion of the partner’s interestis appropriate.

In addressing a similar issue, the capi-tal account rules regarding the treatmentof liabilities under §1.704–1(b)(2)(iv)(c)attempt to measure the increase or de-crease in a partner’s economic interest inthe partnership resulting from the as-sumption of liabilities by either the part-ner or the partnership. Those rules pro-vide:

(1) money contributed by a partner to a partner-ship includes the amount of any partnership liabili-ties that are assumed by such partner (other than[certain] liabilities . . . that are assumed by a distrib-utee partner [in connection with a distribution ofproperty by the partnership]) but does not includeincreases in such partner’s share of partnership lia-bilities (see section 752(a)), and (2) money distrib-uted to a partner by a partnership includes theamount of such partner’s individual liabilities thatare assumed by the partnership (other than [certain]liabilities . . . that are assumed by the partnership [inconnection with a contribution of property to thepartnership]) but does not include decreases in suchpartner’s share of partnership liabilities (see section752(b)). . .

This rule is incorporated in the finalregulations. The final regulations providethat deemed contributions and distribu-tions of cash under sections 752(a) and(b) will be disregarded in determining apartner’s holding period in its partnershipinterest to the same extent that suchamounts are disregarded under§1.704–1(b)(2)(iv)(c). (Deemed distribu-tions under section 752(b) are relevant asa result of the cash netting rule added inthese final regulations.)

d. Contribution of Section 751 Assets

Commentators noted that, if a partnerhas a short-term holding period in a part-nership interest on account of the contri-bution of assets described in section751(c) or (d) (section 751 assets), therules of section 751(a) in conjunctionwith the proposed regulations cause thesection 751 assets to be counted twice if apartnership interest is sold within 12months of the contribution, once in apply-ing section 751(a) to treat part of theamount received as ordinary income, and

again in determining the selling partner’sshort-term capital gain. In response tothese comments, the final regulations pro-vide that, if a partner recognizes ordinaryincome or loss on account of section 751assets, either under section 751(a) as a re-sult of the sale of all or part of the partner-ship interest or as a result of the sale bythe partnership of the section 751 assets,the section 751 assets shall be disregardedin determining the division of the holdingperiod of an interest in a partnership upona sale of such partnership interest duringthe one-year period following the contri-bution. This rule does not apply if, in theabsence of the rule, a partner would notbe treated as having held any portion ofthe interest for more than one year. Ac-cordingly, if a partner’s only contributionsto a partnership are contributions of sec-tion 751 assets or section 751 assets andcash within the prior one-year period, theadjustment will not be available, and thepartner appropriately will be treated ashaving a short-term holding period withrespect to the entire interest.

A similar rule disregarding the contri-bution of section 751 assets does notapply in determining the holding periodof a partnership interest with respect togain or loss recognized under section 731upon a distribution by a partnership.Properly coordinating the holding periodrules with gain or loss determinationsunder section 751(b) would be inordi-nately complex. In addition, where,within a one-year period, a partner con-tributes section 751 assets to a partnershipand receives a cash distribution largeenough to require the recognition of gain,it is likely that the contribution and distri-bution will constitute a disguised sale ofthe section 751 assets to the partnershipunder section 707(a)(2)(B), thus render-ing the holding period rules irrelevantsince the sale of an asset to a partnershipdoes not affect the holding period of aninterest in the partnership.

e. Treatment of Recapture and OtherUnrealized Receivables

An example in the proposed regula-tions treats the portion of a contributedasset that would be recaptured as ordinaryincome under section 1245 upon disposi-tion as non-section 1231 property for pur-poses of the tacked holding period rule insection 1223(1). Some commentators

have raised questions regarding the posi-tion taken in this example. For purposesof these regulations, Treasury and the IRSbelieve that it is appropriate to character-ize all properties and potential gaintreated as unrealized receivables undersection 751(c) and the regulations there-under as separate assets that are not capi-tal assets or property described in section1231. Accordingly, while the example inthe proposed regulations has been elimi-nated, a specific rule has been added inthe final regulations to provide for such aresult. This rule is consistent with therule added in the final regulations regard-ing the holding period exception for con-tributed section 751 assets. As discussedabove, that rule will disregard the contri-bution of section 751 assets (includingproperties and potential gain treated asunrealized receivables under section751(c)) in computing the holding periodof a partnership interest where the interestis sold within one year after contribution.Accordingly, while section 1245 recap-ture (and similar items treated as unreal-ized receivables) will be treated as a sepa-rate asset that is not a capital or section1231 asset, the asset will not give rise to ashort-term holding period where a part-nership interest is sold. This rule also issimilar to the rule contained in § 1.755–1(a), which provides that proper-ties and potential gain treated as unreal-ized receivables under section 751(c) areconsidered separate ordinary income as-sets for purposes of allocating basis ad-justments under section 755.

f. Identification of Publicly TradedPartnership Units

The proposed regulations provide thata selling partner may use the actual hold-ing period of the portion of a partnershipinterest sold if the partnership is a “pub-licly traded partnership” (as definedunder section 7704(b)), the partnershipinterest is divided into identifiable unitswith ascertainable holding periods, andthe selling partner can identify the por-tion of the interest transferred. Commen-tators suggested that it may be appropri-ate to provide that a partner must beconsistent in electing, for holding periodpurposes, to identify units of a publiclytraded partnership that are sold or ex-changed in order to avoid distortion inthe total long-term and short-term capital

October 10, 2000 326 2000–41 I.R.B.

gain recognized. This suggestion isadopted in the final regulations.

g. Conversion from General Partnershipto Limited Partnership

A commentator requested clarificationthat a partner’s holding period in its part-nership interest carries over when a part-nership converts from a general partner-ship to a limited partnership, as describedin Rev. Rul. 84-52 (1984–1 C.B. 157).The ruling concludes that, pursuant tosection 1223(1), there will be no changeto the holding period of any partner’s in-terest in the partnership as a result of sucha conversion. The final regulations do notchange the result set forth in Rev. Rul. 84-52.

h. Other Miscellaneous Issues

The proposed regulations contain an ex-ample which, consistent with Rev. Rul.84–53, states that a partner has a singlebasis in its partnership interest. Certaincommentators suggested that the principlethat a partner has a single basis in its part-nership interest should be set forth in regu-lations, rather than simply relying on Rev.Rul. 84–53. The rules set forth in theseregulations address only holding periodand character issues. In illustrating theoperation of certain of these rules, the ex-ample accurately reflects current law.Treasury and the IRS believe that the in-clusion of a separate rule providing that apartner has a single basis in its partnershipinterest is unnecessary and is beyond thescope of these regulations.

Finally, it was suggested that the finalregulations cross-reference section 83(f),which provides that in determining theholding period of property to which sec-tion 83(a) applies, only the holding periodduring which rights are transferable or arenot subject to a substantial risk of forfei-ture shall be included. Treasury and theIRS currently are studying the extent towhich section 83(a) applies to the issuanceof certain partnership interests (i.e., a prof-its interest in a partnership) in exchangefor services. Section 83(f) is relevant tothe extent that section 83(a) applies withrespect to a partnership interest. However,in order to avoid any implication that sec-tion 83(a) applies to all partnership inter-ests issued in exchange for services, across reference to section 83(f) has notbeen included in the final regulations.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assess-ment is not required. It also has been de-termined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C.chapter 5) does not apply to these regula-tions. It is hereby certified that the collec-tion of information in these regulationswill not have a significant impact on asubstantial number of small businesses.This certification is based upon the factthat the economic burden imposed on tax-payers by the collection of informationand recordkeeping requirements of theseregulations is insignificant. For example,the estimated average annual burden perrespondent is 10 minutes. Therefore, aRegulatory Flexibility Analysis is not re-quired under the Regulatory FlexibilityAct (5 U.S.C. chapter 6). Pursuant to sec-tion 7805(f) of the Internal RevenueCode, the notice of proposed rulemakingpreceding these regulations was submit-ted to the Chief Counsel for Advocacy ofthe Small Business Administration forcomment on its impact on small business.

Drafting Information

The principal authors of these regula-tions are Jeanne M. Sullivan and David J.Sotos of the Associate Chief Counsel(Passthroughs and Special Industries).However, other personnel from Treasuryand the IRS participated in their develop-ment.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR parts 1 and 602are amended as follows:

PART 1— INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by adding an entry innumerical order to read in part as fol-lows:

Authority: 26 U.S.C. 7805 * * *Section 1.1(h)–1 is also issued under

26 U.S.C. 1(h); * * *Par. 2. Section 1.1(h)–1 is added to

read as follows:

§1.1(h)–1 Capital gains look-through

rule for sales or exchanges of interests ina partnership, S corporation, or trust.

(a) In general. When an interest in apartnership held for more than one year issold or exchanged, the transferor may rec-ognize ordinary income (e.g., under sec-tion 751(a)), collectibles gain, section1250 capital gain, and residual long-termcapital gain or loss. When stock in an Scorporation held for more than one year issold or exchanged, the transferor may rec-ognize ordinary income (e.g., under sec-tions 304, 306, 341, 1254), collectiblesgain, and residual long-term capital gainor loss. When an interest in a trust heldfor more than one year is sold or ex-changed, a transferor who is not treated asthe owner of the portion of the trust attrib-utable to the interest sold or exchanged(sections 673 through 679) (a non-grantortransferor) may recognize collectiblesgain and residual long-term capital gainor loss.

(b) Look-through capital gain—(1) Ingeneral. Look-through capital gain is theshare of collectibles gain allocable to aninterest in a partnership, S corporation, ortrust, plus the share of section 1250 capi-tal gain allocable to an interest in a part-nership, determined under paragraphs(b)(2) and (3) of this section.

(2) Collectibles gain—(i) Definition.For purposes of this section, collectiblesgain shall be treated as gain from the saleor exchange of a collectible (as defined insection 408(m) without regard to section408(m)(3)) that is a capital asset held formore than 1 year.

(ii) Share of collectibles gain allocableto an interest in a partnership, S corpora-tion, or a trust. When an interest in apartnership, S corporation, or trust heldfor more than one year is sold or ex-changed in a transaction in which all real-ized gain is recognized, the transferorshall recognize as collectibles gain theamount of net gain (but not net loss) thatwould be allocated to that partner (takinginto account any remedial allocationunder §1.704–3(d)), shareholder, or bene-ficiary (to the extent attributable to theportion of the partnership interest, S cor-poration stock, or trust interest transferredthat was held for more than one year) ifthe partnership, S corporation, or trusttransferred all of its collectibles for cashequal to the fair market value of the assetsin a fully taxable transaction immediately

2000–41 I.R.B. 327 October 10, 2000

before the transfer of the interest in thepartnership, S corporation, or trust. If lessthan all of the realized gain is recognizedupon the sale or exchange of an interest ina partnership, S corporation, or trust, thesame methodology shall apply to deter-mine the collectibles gain recognized bythe transferor, except that the partnership,S corporation, or trust shall be treated astransferring only a proportionate amountof each of its collectibles determined as afraction that is the amount of gain recog-nized in the sale or exchange over theamount of gain realized in the sale or ex-change. With respect to the transfer of aninterest in a trust, this paragraph (b)(2)applies only to transfers by non-grantortransferors (as defined in paragraph (a) ofthis section). This paragraph (b)(2) doesnot apply to a transaction that is treated,for Federal income tax purposes, as a re-demption of an interest in a partnership, Scorporation, or trust.

(3) Section 1250 capital gain—(i) Defi-nition. For purposes of this section, sec-tion 1250 capital gainmeans the capitalgain (not otherwise treated as ordinary in-come) that would be treated as ordinaryincome if section 1250(b)(1) included alldepreciation and the applicable percent-age under section 1250(a) were 100 per-cent.

(ii) Share of section 1250 capital gainallocable to interest in partnership.When an interest in a partnership held formore than one year is sold or exchangedin a transaction in which all realized gainis recognized, there shall be taken into ac-count under section 1(h)(7)(A)(i) in deter-mining the partner’s unrecaptured section1250 gain the amount of section 1250capital gain that would be allocated (tak-ing into account any remedial allocationunder §1.704–3(d)) to that partner (to the

extent attributable to the portion of thepartnership interest transferred that washeld for more than one year) if the part-nership transferred all of its section 1250property in a fully taxable transaction forcash equal to the fair market value of theassets immediately before the transfer ofthe interest in the partnership. If less thanall of the realized gain is recognized uponthe sale or exchange of an interest in apartnership, the same methodology shallapply to determine the section 1250 capi-tal gain recognized by the transferor, ex-cept that the partnership shall be treatedas transferring only a proportionateamount of each section 1250 property de-termined as a fraction that is the amountof gain recognized in the sale or exchangeover the amount of gain realized in thesale or exchange. This paragraph (b)(3)does not apply to a transaction that istreated, for Federal income tax purposes,as a redemption of a partnership interest.

(iii) Limitation with respect to net sec-tion 1231 gain. In determining a trans-feror partner’s net section 1231 gain (asdefined in section 1231(c)(3)) for pur-poses of section 1(h)(7)(B), the transferorpartner’s allocable share of section 1250capital gain in partnership property shallnot be treated as section 1231 gain, re-gardless of whether the partnership prop-erty is used in the trade or business (as de-fined in section 1231(b)).

(c) Residual long-term capital gain orloss. The amount of residual long-termcapital gain or loss recognized by a part-ner, shareholder of an S corporation, orbeneficiary of a trust on account of thesale or exchange of an interest in a part-nership, S corporation, or trust shall equalthe amount of long-term capital gain orloss that the partner would recognizeunder section 741, that the shareholder

would recognize upon the sale or ex-change of stock of an S corporation, orthat the beneficiary would recognize uponthe sale or exchange of an interest in atrust (pre-look-through long-term capitalgain or loss) minus the amount of look-through capital gain determined underparagraph (b) of this section.

(d) Special rule for tiered entities.Indetermining whether a partnership, S cor-poration, or trust has gain from col-lectibles, such partnership, S corporation,or trust shall be treated as owning its pro-portionate share of the collectibles of anypartnership, S corporation, or trust inwhich it owns an interest either directly orindirectly through a chain of such entities.In determining whether a partnership hassection 1250 capital gain, such partner-ship shall be treated as owning its propor-tionate share of the section 1250 propertyof any partnership in which it owns an in-terest, either directly or indirectly througha chain of partnerships.

(e) Notification requirements. Report-ing rules similar to those that apply to thepartners and the partnership under section751(a) shall apply in the case of sales orexchanges of interests in a partnership, Scorporation, or trust that cause holders ofsuch interests to recognize collectibles gainand in the case of sales or exchanges of in-terests in a partnership that cause holdersof such interests to recognize section 1250capital gain. See §1.751–1(a)(3).

(f) Examples.The following examplesillustrate the requirements of this section:

Example 1. Collectibles gain. (i) A and B areequal partners in a personal service partnership(PRS). B transfers B’s interest in PRSto T for$15,000 when PRS’s balance sheet (reflecting a cashreceipts and disbursements method of accounting) isas follows:

October 10, 2000 328 2000–41 I.R.B.

ASSETS

Adjusted MarketBasis Value

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,000 $3,000Loans Owed to Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 10,000

Collectibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 3,000Other Capital Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 2,000

Capital Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 5,000Unrealized Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 14,000

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000 $32,000

LIABILITIES AND CAPITAL

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000 $ 2,000Capital:

A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 15,000B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 15,000Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000 $32,000

2000–41 I.R.B. 329 October 10, 2000

(ii) At the time of the transfer, B has held the in-terest in PRSfor more than one year, and B’s basisfor the partnership interest is $10,000 ($9,000 plus$1,000, B’s share of partnership liabilities). None ofthe property owned by PRSis section 704(c) prop-erty. The total amount realized by B is $16,000,consisting of the cash received, $15,000, plus$1,000, B’s share of the partnership liabilities as-sumed by T. See section 752. B’s undivided one-half interest in PRSincludes a one-half interest inthe partnership’s unrealized receivables and a one-half interest in the partnership’s collectibles.

(iii) If PRSwere to sell all of its section 751 prop-erty in a fully taxable transaction for cash equal tothe fair market value of the assets immediately priorto the transfer of B’s partnership interest to T, Bwould be allocated $7,000 of ordinary income fromthe sale of PRS’s unrealized receivables. Therefore,B will recognize $7,000 of ordinary income with re-spect to the unrealized receivables. The differencebetween the amount of capital gain or loss that thepartner would realize in the absence of section 751($6,000) and the amount of ordinary income or lossdetermined under §1.751–1(a)(2) ($7,000) is thepartner’s capital gain or loss on the sale of the part-nership interest under section 741. In this case, thetransferor has a $1,000 pre-look-through long-termcapital loss.

(iv) If PRSwere to sell all of its collectibles in afully taxable transaction for cash equal to the fairmarket value of the assets immediately prior to thetransfer of B’s partnership interest to T, B would beallocated $1,000 of gain from the sale of the col-lectibles. Therefore, B will recognize $1,000 of col-lectibles gain on account of the collectibles held byPRS.

(v) The difference between the transferor’s pre-look-through long-term capital gain or loss (-$1,000)and the look-through capital gain determined underthis section ($1,000) is the transferor’s residual long-term capital gain or loss on the sale of the partner-ship interest. Under these facts, B will recognize a$2,000 residual long-term capital loss on account ofthe sale or exchange of the interest in PRS.

Example 2. Special allocations. Assume thesame facts as in Example 1, except that under thepartnership agreement, all gain from the sale of thecollectibles is specially allocated to B, and B trans-fers B’s interest to T for $16,000. All items of in-come, gain, loss, or deduction of PRS, other thanthe gain from the collectibles, are divided equallybetween A and B. Under these facts, B’s amount re-alized is $17,000, consisting of the cash received,$16,000, plus $1,000, B’s share of the partnershipliabilities assumed by T. See section 752. B willrecognize $7,000 of ordinary income with respectto the unrealized receivables (determined under§1.751–1(a)(2)). Accordingly, B’s pre-look-throughlong-term capital gain would be $0. If PRSwere tosell all of its collectibles in a fully taxable transac-tion for cash equal to the fair market value of the as-sets immediately prior to the transfer of B’s partner-ship interest to T, B would be allocated $2,000 ofgain from the sale of the collectibles. Therefore, Bwill recognize $2,000 of collectibles gain on ac-count of the collectibles held by PRS. B will recog-nize a $2,000 residual long-term capital loss on ac-count of the sale of B’s interest in PRS.

Example 3. Net collectibles loss ignored. As-sume the same facts as in Example 1, except that thecollectibles held by PRShave an adjusted basis of$3,000 and a fair market value of $1,000, and theother capital assets have an adjusted basis of $4,000and a fair market value of $4,000. (The total ad-justed basis and fair market value of the partner-ship’s capital assets are the same as in Example 1.)If PRSwere to sell all of its collectibles in a fullytaxable transaction for cash equal to the fair marketvalue of the assets immediately prior to the transferof B’s partnership interest to T, B would be allo-cated $1,000 of loss from the sale of the col-lectibles. Because none of the gain from the sale ofthe interest in PRSis attributable to unrealized ap-preciation in the value of collectibles held by PRS,the net loss in collectibles held by PRSis not recog-nized at the time B transfers the interest in PRS. Bwill recognize $7,000 of ordinary income (deter-mined under §1.751–1(a)(2)) and a $1,000 long-

term capital loss on account of the sale of B’s inter-est in PRS.

Example 4. Collectibles gain in an S corpora-tion. (i) A corporation (X) has always been an Scorporation and is owned by individuals A, B, andC. In 1996, X invested in antiques. Subsequent totheir purchase, the antiques appreciated in value by$300. A owns one-third of the shares of X stock andhas held that stock for more than one year. A’s ad-justed basis in the X stock is $100. If A were to sellall of A’s X stock to T for $150, A would realize $50of pre-look-through long-term capital gain.

(ii) If X were to sell its antiques in a fully taxabletransaction for cash equal to the fair market value ofthe assets immediately before the transfer to T, Awould be allocated $100 of gain on account of thesale. Therefore, A will recognize $100 of col-lectibles gain (look-through capital gain) on ac-count of the collectibles held by X.

(iii) The difference between the transferor’s pre-look-through long-term capital gain or loss ($50)and the look-through capital gain determined underthis section ($100) is the transferor’s residual long-term capital gain or loss on the sale of the S corpo-ration stock. Under these facts, A will recognize$100 of collectibles gain and a $50 residual long-term capital loss on account of the sale of A’s inter-est in X.

Example 5. Sale or exchange of partnership in-terest where part of the interest has a short-termholding period. (i) A, B, and C form an equal part-nership (PRS). In connection with the formation, Acontributes $5,000 in cash and a capital asset with afair market value of $5,000 and a basis of $2,000; Bcontributes $7,000 in cash and a collectible with afair market value of $3,000 and a basis of $3,000;and C contributes $10,000 in cash. At the time ofthe contribution, A had held the contributed prop-erty for two years. Six months later, when A’s basisin PRSis $7,000, A transfers A’s interest in PRStoT for $14,000 at a time when PRS’s balance sheet(reflecting a cash receipts and disbursementsmethod of accounting) is as follows:

ASSETS

Adjusted Market Basis Value

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,000 $22,000Unrealized Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 6,000

Capital Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 5,000Collectible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 9,000

Capital Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 14,000Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,000 $42,000

October 10, 2000 330 2000–41 I.R.B.

(ii) Although at the time of the transfer A hasnot held A’s interest in PRS for more than oneyear, 50 percent of the fair market value of A’s in-terest in PRSwas received in exchange for a capi-tal asset with a long-term holding period. There-fore, 50 percent of A’s interest in PRShas along-term holding period. See §1.1223–3(b)(1).

(iii) If PRS were to sell all of its section 751property in a fully taxable transaction immediatelybefore A’s transfer of the partnership interest, Awould be allocated $2,000 of ordinary income.Accordingly, A will recognize $2,000 ordinary in-come and $5,000 ($7,000 - $2,000) of capital gainon account of the transfer to T of A’s interest inPRS. Fifty percent ($2,500) of that gain is long-term capital gain and 50 percent ($2,500) is short-term capital gain. See §1.1223–3(c)(1).

(iv) If the collectible were sold or exchangedin a fully taxable transaction immediately beforeA’s transfer of the partnership interest, A would beallocated $2,000 of gain attributable to the col-lectible. The gain attributable to the collectiblethat is allocable to the portion of the transferred in-terest in PRSwith a long-term holding period is$1,000 (50 percent of $2,000). Accordingly, Awill recognize $1,000 of collectibles gain on ac-count of the transfer of A’s interest in PRS.

(v) The difference between the amount of pre-look-through long-term capital gain or loss($2,500) and the look-through capital gain($1,000) is the amount of residual long-term capi-tal gain or loss that A will recognize on account ofthe transfer of A’s interest in PRS. Under thesefacts, A will recognize a residual long-term capitalgain of $1,500 and a short-term capital gain of$2,500.

(g) Effective date. This section ap-plies to transfers of interests in partner-ships, S corporations, and trusts thatoccur on or after September 21, 2000.

Par. 3. Section 1.741–1 is amendedby adding paragraphs (e) and (f) to readas follows:

§1.741–1 Recognition and character ofgain or loss on sale or exchange.

* * * * *(e) For rules relating to the capital

gain or loss recognized when a partnersells or exchanges an interest in a part-nership that holds appreciated col-lectibles or section 1250 property withsection 1250 capital gain, see §1.1(h)–1. This paragraph (e) applies totransfers of interests in partnerships thatoccur on or after September 21, 2000.

(f) For rules relating to dividing theholding period of an interest in a part-nership, see §1.1223–3. This paragraph(f) applies to transfers of partnership in-terests and distributions of propertyfrom a partnership that occur on or afterSeptember 21, 2000.

Par. 4. Section 1.1223–3 is added

under the undesignated center heading“General Rules for Determining CapitalGains and Losses” to read as follows:

§1.1223–3 Rules relating to the holdingperiods of partnership interests.

(a) In general. A partner shall nothave a divided holding period in an in-terest in a partnership unless—

(1) The partner acquired portions ofan interest at different times; or

(2) The partner acquired portions ofthe partnership interest in exchange forproperty transferred at the same time butresulting in different holding periods(e.g., section 1223).

(b) Accounting for holding periods ofan interest in a partnership—(1) Gen-eral rule. The portion of a partnershipinterest to which a holding period relatesshall be determined by reference to afraction, the numerator of which is thefair market value of the portion of thepartnership interest received in thetransaction to which the holding periodrelates, and the denominator of which isthe fair market value of the entire part-nership interest (determined immedi-ately after the transaction).

(2) Special rule. For purposes of ap-plying paragraph (b)(1) of this section todetermine the holding period of a part-nership interest (or portion thereof) thatis sold or exchanged (or with respect towhich gain or loss is recognized upon adistribution under section 731), if a part-ner makes one or more contributions ofcash to the partnership and receives oneor more distributions of cash from thepartnership during the one-year periodending on the date of the sale or ex-change (or distribution with respect towhich gain or loss is recognized undersection 731), the partner may reduce thecash contributions made during the yearby cash distributions received on a last-in-first-out basis, treating all cash distri-butions as if they were received immedi-ately before the sale or exchange (or atthe time of the distribution with respectto which gain or loss is recognizedunder section 731).

(3) Deemed contributions and distrib-utions. For purposes of paragraphs(b)(1) and (2) of this section, deemedcontributions of cash under section752(a) and deemed distributions of cashunder section 752(b) shall be disre-

garded to the same extent that suchamounts are disregarded under§1.704–1(b)(2)(iv)(c).

(4) Adjustment with respect to con-tributed section 751 assets. For purposesof applying paragraph (b)(1) of this sec-tion to determine the holding period of apartnership interest (or portion thereof)that is sold or exchanged, if a partner re-ceives a portion of the partnership interestin exchange for property described in sec-tion 751(c) or (d) (section 751 assets)within the one-year period ending on thedate of the sale or exchange of all or aportion of the partner’s interest in thepartnership, and the partner recognizesordinary income or loss on account ofsuch a section 751 asset in a fully taxabletransaction (either as a result of the sale ofall or part of the partner’s interest in thepartnership or the sale by the partnershipof the section 751 asset), the contributionof the section 751 asset during the one-year period shall be disregarded. How-ever, if, in the absence of this paragraph, apartner would not be treated as havingheld any portion of the interest for morethan one year (e.g., because the partner’sonly contributions to the partnership arecontributions of section 751 assets or sec-tion 751 assets and cash within the priorone-year period), this adjustment is notavailable.

(5) Exception. The Commissioner mayprescribe by guidance published in the In-ternal Revenue Bulletin (see §601.-601(d)(2) of this chapter) a rule disregard-ing certain cash contributions (includingcontributions of ade minimisamount ofcash) in applying paragraph (b)(1) of thissection to determine the holding period ofa partnership interest (or portion thereof)that is sold or exchanged.

(c) Sale or exchange of all or a portionof an interest in a partnership—(1) Saleor exchange of entire interest in a part-nership. If a partner sells or exchangesthe partner’s entire interest in a partner-ship, any capital gain or loss recognizedshall be divided between long-term andshort-term capital gain or loss in the sameproportions as the holding period of theinterest in the partnership is divided be-tween the portion of the interest held formore than one year and the portion of theinterest held for one year or less.

(2) Sale or exchange of a portion of aninterest in a partnership—(i) Certain

publicly traded partnerships. A sellingpartner in a publicly traded partnership(as defined under section 7704(b)) mayuse the actual holding period of the por-tion of a partnership interest transferredif—

(A) The ownership interest is dividedinto identifiable units with ascertainableholding periods;

(B) The selling partner can identify theportion of the partnership interest trans-ferred; and

(C) The selling partner elects to use theidentification method for all sales or ex-changes of interests in the partnershipafter September 21, 2000. The sellingpartner makes the election referred to inthis paragraph (c)(2)(i)(C) by using theactual holding period of the portion of thepartner’s interest in the partnership firsttransferred after September 21, 2000, inreporting the transaction for federal in-come tax purposes.

(ii) Other partnerships. If a partnerhas a divided holding period in a partner-ship interest, and paragraph (c)(2)(i) ofthis section does not apply, then the hold-ing period of the transferred interest shallbe divided between long-term and short-term capital gain or loss in the same pro-portions as the long-term and short-termcapital gain or loss that the transferorpartner would realize if the entire interestin the partnership were transferred in afully taxable transaction immediately be-fore the actual transfer.

(d) Distributions—(1) In general. Ex-cept as provided in paragraph (b)(2) ofthis section, a partner’s holding period ina partnership interest is not affected bydistributions from the partnership.

(2) Character of capital gain or lossrecognized as a result of a distributionfrom a partnership. If a partner is re-quired to recognize capital gain or loss asa result of a distribution from a partner-ship, then the capital gain or loss recog-nized shall be divided between long-termand short-term capital gain or loss in thesame proportions as the long-term andshort-term capital gain or loss that thedistributee partner would realize if suchpartner’s entire interest in the partnershipwere transferred in a fully taxable trans-action immediately before the distribu-tion.

(e) Section 751(c) assets. For purposesof this section, properties and potential

gain treated as unrealized receivablesunder section 751(c) shall be treated asseparate assets that are not capital assetsas defined in section 1221 or property de-scribed in section 1231.

(f) Examples. The provisions of thissection are illustrated by the followingexamples:

Example 1. Division of holding period—contri-bution of money and a capital asset. (i) A con-tributes $5,000 of cash and a nondepreciable capitalasset A has held for two years to a partnership (PRS)for a 50 percent interest in PRS. A’s basis in thecapital asset is $5,000, and the fair market value ofthe asset is $10,000. After the exchange, A’s basisin A’s interest in PRSis $10,000, and the fair mar-ket value of the interest is $15,000. A received one-third of the interest in PRSfor a cash payment of$5,000 ($5,000/$15,000). Therefore, A’s holdingperiod in one-third of the interest received (attribut-able to the contribution of money to the partnership)begins on the day after the contribution. A receivedtwo-thirds of the interest in PRSin exchange for thecapital asset ($10,000/$15,000). Accordingly, pur-suant to section 1223(1), A has a two-year holdingperiod in two-thirds of the interest received in PRS.

(ii) Six months later, when A’s basis in PRSis$12,000 (due to a $2,000 allocation of partnershipincome to A), A sells the interest in PRS for$17,000. Assuming PRSholds no inventory or un-realized receivables (as defined under section751(c)) and no collectibles or section 1250 prop-erty, A will realize $5,000 of capital gain. As deter-mined above, one-third of A’s interest in PRShas aholding period of one year or less, and two- thirdsof A’s interest in PRShas a holding period equal totwo years and six months. Therefore, one-third ofthe capital gain will be short-term capital gain, andtwo-thirds of the capital gain will be long-term cap-ital gain.

Example 2. Division of holding period—contri-bution of section 751 asset and a capital asset. Acontributes inventory with a basis of $2,000 and afair market value of $6,000 and a capital assetwhich A has held for more than one year with abasis of $4,000 and a fair market value of $6,000,and B contributes cash of $12,000 to form a partner-ship (AB). As a result of the contribution, one-halfof A’s interest in AB is treated as having been heldfor more than one year under section 1223(1). Sixmonths later, A transfers one-half of A’s interest inAB to C for $6,000, realizing a gain of $3,000. IfAB were to sell all of its section 751 property in afully taxable transaction immediately before A’stransfer of the partnership interest, A would be allo-cated $4,000 of ordinary income on account of theinventory. Accordingly, A will recognize $2,000 ofordinary income and $1,000 of capital gain ($3,000- $2,000) on account of the transfer to C. BecauseA recognizes ordinary income on account of the in-ventory that was contributed to AB within the oneyear period ending on the date of the sale, the in-ventory will be disregarded in determining the hold-ing period of A’s interest in AB. All of the capitalgain will be long-term.

Example 3. Netting of cash contributions anddistributions. (i) On January 1, 2000, A holds a 50percent interest in the capital and profits of a part-

nership (PS). The value of A’s PS interest is $900,and A’s holding period in the entire interest is long-term. On January 2, 2000, when the value of A’s PSinterest is still $900, A contributes $100 to PS. OnJune 1, 2000, A receives a distribution of $40 cashfrom the partnership. On September 1, 2000, whenthe value of A’s interest in PS is $1,350, A con-tributes an additional $230 cash to PS, and on Octo-ber 1, 2000, A receives another $40 cash distribu-tion from PS. A sells A’s entire partnership intereston November 1, 2000, for $1,600. A’s adjustedbasis in the PS interest at the time of the sale is$1,000.

(ii) For purposes of netting cash contributionsand distributions in determining the holding periodof A’s interest in PS, A is treated as having receiveda distribution of $80 on November 1, 2000. Apply-ing that distribution on a last-in-first-out basis to re-duce prior contributions during the year, the contri-bution made on September 1, 2000, is reduced to$150 ($230 - $80). The holding period then is de-termined as follows: Immediately after the contri-bution of $100 on January 2, 2000, A’s holding pe-riod in A’s PS interest is 90 percent long-term($900/($900 + $100)) and 10 percent short-term($100/($900 + $100)). The contribution of $150 onSeptember 1, 2000, causes 10 percent of A’s part-nership interest ($150/($1,350 + $150)) to have ashort-term holding period. Accordingly, immedi-ately after the contribution on September 1, 2000,A’s holding period in A’s PS interest is 81 percentlong-term (.90 x .90) and 19 percent short-term((.10 x .90) + .10). Accordingly, $486 ($600 x .81)of the gain from A’s sale of the PS interest is long-term capital gain, and $114 ($600 x .19) is short-term capital gain.

Example 4. Division of holding period whencapital account is increased by contribution. A, B,C, and D are equal partners in a partnership (PRS),and the fair market value of a 25 percent interest inPRSis $100. A, B, C, and D each contribute an ad-ditional $100 to partnership capital, thereby in-creasing the fair market value of each partner’s in-terest to $200. As a result of the contribution, eachpartner has a new holding period in the portion ofthe partner’s interest in PRSthat is attributable tothe contribution. That portion equals 50 percent($100/$200) of each partner’s interest in PRS.

Example 5. Sale or exchange of a portion of aninterest in a partnership. (i) A, B, and C form anequal partnership (PRS). In connection with theformation, A contributes $5,000 in cash and a capi-tal asset (capital asset 1) with a fair market value of$5,000 and a basis of $2,000; B contributes $7,000in cash and a capital asset (capital asset 2) with afair market value of $3,000 and a basis of $3,000;and C contributes $10,000 in cash. At the time ofthe contribution, A had held the contributed prop-erty for two years. Six months later, when A’s basisin PRSis $7,000, A transfers one-half of A’s interestin PRSto T for $7,000 at a time when PRS’s bal-ance sheet (reflecting a cash receipts and disburse-ments method of accounting) is as follows:

2000–41 I.R.B. 331 October 10, 2000

October 10, 2000 332 2000–41 I.R.B.

(ii) Although at the time of the transfer A has notheld A’s interest in PRSfor more than one year, 50percent of the fair market value of A’s interest inPRSwas received in exchange for a capital assetwith a long-term holding period. Therefore, 50 per-cent of A’s interest in PRShas a long-term holdingperiod.

(iii) If PRSwere to sell all of its section 751 prop-erty in a fully taxable transaction immediately be-fore A’s transfer of the partnership interest, A wouldbe allocated $2,000 of ordinary income. One-half ofthat amount ($1,000) is attributable to the portion ofA’s interest in PRStransferred to T. Accordingly, Awill recognize $1,000 ordinary income and $2,500($3,500 - $1,000) of capital gain on account of thetransfer to T of one-half of A’s interest in PRS. Fiftypercent ($1,250) of that gain is long-term capitalgain and 50 percent ($1,250) is short-term capitalgain.

Example 6. Sale of units of interests in a partner-ship. A publicly traded partnership (PRS) has own-ership interests that are segregated into identifiableunits of interest. A owns 10 limited partnership unitsin PRSfor which A paid $10,000 on January 1,1999. On August 1, 2000, A purchases five addi-tional units for $10,000. At the time of purchase, thefair market value of each unit has increased to$2,000. A’s holding period for one-third($10,000/$30,000) of the interest in PRSbegins onthe day after the purchase of the five additionalunits. Less than one year later, A sells five units ofownership in PRSfor $11,000. At the time, A’sbasis in the 15 units of PRSis $20,000, and A’s capi-tal gain on the sale of 5 units is $4,333 (amount real-ized of $11,000 - one-third of the adjusted basis or$6,667). For purposes of determining the holdingperiod, A can designate the specific units of PRSsold. If A properly identifies the five units sold asfive of the ten units for which A has a long-termholding period and elects to use the identification

method for all subsequent sales or exchanges of in-terests in the partnership by using the actual holdingperiod in reporting the transaction on A’s federal in-come tax return, the capital gain realized will belong-term capital gain.

Example 7. Disproportionate distribution. In1997, A and B each contribute cash of $50,000 toform and become equal partners in a partnership(PRS). More than one year later, A receives a distri-bution worth $22,000 from PRS, which reduces A’sinterest in PRSto 36 percent. After the distribution,B owns 64 percent of PRS. The holding periods of Aand B in their interests in PRSare not affected by thedistribution.

Example 8. Gain or loss as a result of a distribu-tion—(i) On January 1, 1996, A contributes prop-erty with a basis of $10 and a fair market value of$10,000 in exchange for an interest in a partnership(ABC). On September 30, 2000, when A’s interest inABC is worth $12,000 (and the basis of A’s partner-ship interest is still $10), A contributes $12,000 cashin exchange for an additional interest in ABC. A isallocated a loss equal to $10,000 by ABCfor the tax-able year ending December 31, 2000, thereby reduc-ing the basis of A’s partnership interest to $2,010.On February 1, 2001, ABC makes a cash distribu-tion to A of $10,000. ABCholds no inventory or un-realized receivables. (Assume that A is allocated nogain or loss for the taxable year ending December31, 2001, so that the basis of A’s partnership interestdoes not increase or decrease as a result of such allo-cations.)

(ii) The netting rule contained in paragraph (b)(2)of this section provides that, in determining theholding period of A’s interest in ABC, the cash con-tribution made on September 30, 2000, must be re-duced by the distribution made on February 1, 2001.Accordingly, for purposes of determining the hold-ing period of A’s interest in ABC, A is treated as hav-ing made a cash contribution of $2,000 ($12,000 -

$10,000) to ABCon September 30, 2000. A’s hold-ing period in one-seventh of A’s interest in ABC($2,000 cash contributed over the $14,000 value ofthe entire interest (determined as if only $2,000 werecontributed rather than $12,000)) begins on the dayafter the cash contribution. A recognizes $7,990 ofcapital gain as a result of the distribution. See sec-tion 731(a)(1). One-seventh of the capital gain rec-ognized as a result of the distribution is short-termcapital gain, and six-sevenths of the capital gain islong-term capital gain. After the distribution, A’sbasis in the interest in PRSis $0, and the holding pe-riod for the interest in PRScontinues to be dividedin the same proportions as before the distribution.

(g) Effective date. This section appliesto transfers of partnership interests anddistributions of property from a partner-ship that occur on or after September 21,2000.

PART 602—OMB CONTROLNUMBERS UNDER THEPAPERWORK REDUCTION ACT

Par. 5. The authority citation for part602 continues to read as follows:

Authority: 26 U.S.C. 7805.Par. 6. In § 602.101, paragraph (b) is

amended by adding an entry in numericalorder to the table to read as follows:

§602.101 OMB Control numbers.

* * * * *(b) * * *

ASSETS

Adjusted Market Basis Value

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,000 $22,000Unrealized Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 6,000

Capital Asset 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 5,000Capital Asset 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 9,000

Capital Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 14,000Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,000 $42,000

CFR part or section where Current OMBidentified and described control No.

1.1(h)–1(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545-1654* * * * *

2000–41 I.R.B. 333 October 10, 2000

Robert E. Wenzel,Deputy Commissioner

of Internal Revenue.

Approved August 29, 2000.

Jonathan Talisman,Acting Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register on Sep-tember 20, 2000, 8:45 a.m., and published in the issueof the Federal Register for September 21, 2000, 65F.R. 57092)

Section 42.—Low-IncomeHousing Credit

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof October 2000. See Rev. Rul. 2000–45, page 337.

Section 62.—Adjusted GrossIncome Defined

26 CFR 1.62–2: Reimbursements and otherexpense allowance arrangements.

Rules are set forth under which a reimbursementor other expense allowance arrangement for the costof lodging, meal, and incidental expenses or mealand incidental expenses incurred by an employeewhile traveling away from home will satisfy the re-quirement of § 62 (c) of the Code as to substantia-tion of the amount of the expenses. See Rev. Proc.2000–39, page 340.

Section 162.—Trade orBusiness Expenses

26 CFR 1.162–17: Reporting and substantiation ofcertain business expenses of employees.

Rules are set forth for substantiating the amountof a deduction or an expense for lodging, meal, andincidental expenses or meal and incidental expensesincurred while traveling away from home. See Rev.Proc. 2000–39, page 340.

Section 170.—Charitable, Etc.,Contributions and Gifts(Also § 1366.)

Charitable contributions; S corpora-tions; section 170(a)(2).This ruling pro-vides that an accrual-basis S corporationmay not elect under section 170(a)(2) totreat a charitable contribution as paid inthe year authorized by the S corporation’sboard of directors if the contribution is

paid by the S corporation after the closeof the tax year.

Rev. Rul. 2000–43

ISSUE

May an accrual-basis subchapter S cor-poration elect under § 170(a)(2) of the In-ternal Revenue Code to treat a charitablecontribution as paid in the year authorizedby the S corporation’s Board of Directorsif the contribution is paid by the S corpo-ration after the close of the taxable yearand before the 15th day of the third monthfollowing the close of the taxable year?

FACTS

Taxpayer is the sole shareholder of anaccrual-basis subchapter S corporation.The S corporation reports on a calendaryear period. On December 31, 1999, theS corporation’s Board of Directors autho-rized a charitable contribution to Charity,a qualified donee under § 170(c)(2) andan organization described under § 501(c)(3). The S corporation paid thecharitable contribution to Charity onMarch 1, 2000.

LAW AND ANALYSIS

Section 170(a)(1) allows as a deduc-tion any charitable contribution (as de-fined in § 170(c)) the payment of whichis made within the taxable year. Under § 170(b)(1), the percentage limitation oncharitable contributions for an individualis 50 percent, 30 percent, or 20 percent ofthe taxpayer’s contribution base (gener-ally adjusted gross income) for the tax-able year, depending generally on thetype of property contributed and the typeof qualified donee. Under § 170(b)(2),the percentage limitation on charitablecontributions by a corporation is 10 per-cent of the taxpayer’s taxable incomewith certain adjustments.

Under § 170(a)(2), a corporation re-porting its taxable income on the accrualbasis may elect to deduct a charitablecontribution in the year in which theboard of directors authorizes the contri-bution, if the payment is made by the15th day of the third month following theclose of the taxable year. The electionmay be made only at the time of the filingof the return for the taxable year and ismade by reporting the contribution on the

return. See § 1.170A–11(b)(2) of the In-come Tax Regulations.

The legislative history to § 170(a)(2)provides that the exception for accrualbasis corporations was desirable becausecorporations intending to make the maxi-mum charitable contribution allowable asa deduction had experienced difficulty indetermining before the end of the taxableyear what constituted 5 percent of theirnet income (the § 170(b) gross incomelimitation for corporations at the time ofenactment). S. Rep. No. 831, 81stCong., 1st Sess. at 1949–2 C.B. 289,290–1.

Section 1363(b) states that the taxableincome of an S corporation is computedin the same manner as in the case of anindividual with certain exceptions,among which is an exception that the de-ductions referred to in § 703(a)(2) are notallowed to the corporation. Section703(a)(2)(C) specifically refers to the de-duction for charitable contributions pro-vided in § 170.

Section 1366(a)(1)(A) provides that indetermining the tax of a shareholder, eachshareholder takes into account the share-holder’s pro rata share of the corporation’sitems of income (including tax-exempt in-come), loss, deduction or credit, the sepa-rate treatment of which could affect anyshareholder ’s tax liability. Section1366(a)(1) provides further that the itemsreferred to in § 1366(a)(1)(A) includeamounts described in § 702(a)(4). Section702(a)(4) refers to charitable contributions(as defined in § 170(c)).

Section 1.1366–1(a)(2)(iii) provides thatthe separately stated items of a subchapterS corporation include charitable contribu-tions, grouped by the percentage limitationsof § 170(b), paid by the corporation withinthe taxable year of the corporation.

The legislative history of § 1366 statesthat the corporate limitation on charitablecontributions will no longer apply. Instead,charitable contributions by S corporationswill pass through to the shareholders and besubject to the individual limitations on de-ductibility. See H.R. Rep. No. 826, 97thCong., 2d Sess. 14 (1982); S. Rep. No. 640,97th Cong., 2d Sess. 16 (1982).

Under § 1363(b), a subchapter S corpo-ration computes its taxable income in thesame manner as an individual. The electionin § 170(a)(2) is not available to an individ-ual. An individual taxpayer may deduct a

charitable contribution only in the year inwhich payment is actually made to thecharitable organization. Furthermore, therationale behind § 170(a)(2), a corpora-tion’s difficulty in determining its charita-ble contribution limit under § 170(b)(2),does not apply to subchapter S corporationsbecause a subchapter S corporation is notsubject to the same § 170(b)(2) limit.

Accordingly, under the facts describedabove, the S corporation must report thecharitable contribution on its tax return forthe year in which it actually paid the chari-table contribution, the taxable year endingDecember 31, 2000.

HOLDING

An accrual-basis subchapter S corpo-ration may not elect under § 170(a)(2) totreat a charitable contribution as paid inthe year authorized by the S corpora-tion’s Board of Directors if the contribu-tion is paid by the S corporation afterthe close of the taxable year.

DRAFTING INFORMATION

The principal author of this revenueruling is Martin Schäffer of the Office ofAssociate Chief Counsel (Passthroughsand Special Industries). For further in-formation regarding this revenue rulingcontact Martin Schäffer at (202) 622-3080 (not a toll-free call).

Section 267.—Losses,Expenses, and Interest WithRespect to Transactions BetweenRelated Taxpayers

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

When a payor provides a per diem allowance toan employee who is a related party, the rules set forthfor the deemed substantiation to the payor of theamount of the employee’s ordinary and necessarybusiness expenses for lodging, meal, and incidentalexpenses incurred while traveling away from homedo not apply. See Rev. Proc. 2000–39, page 340.

Section 274.—Disallowance ofCertain Entertainment, etc.,Expenses

26 CFR 1.274–5: Substantiation requirements.

Rules are set forth for an optional method for sub-stantiating the amount of ordinary and necessarybusiness expenses of an employee for lodging, meal,and incidental expenses or meal and incidental ex-penses incurred while traveling away from homewhen a payor provides a per diemallowance under areimbursement or other expense allowance arrange-ment to pay for such expenses. Rules are also setforth for an optional method for employees and self-employed individuals to use in computing the de-ductible costs of business meal and incidental ex-pense paid or incurred while traveling away fromhome. See Rev. Proc. 2000–39, page 340.

Section 280G.—GoldenParachute Payments

Federal short-term, mid-term, and long-term ratesare set forth for the month of October 2000. See Rev.Rul. 2000–45, page 337.

Section 382.—Limitation on NetOperating Loss Carryforwardsand Certain Built-In LossesFollowing Ownership Change

The adjusted applicable federal long-term rate isset forth for the month of October 2000. See Rev.Rul. 2000–45, page 337.

Section 412.—Minimum FundingStandards

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof October 2000. See Rev. Rul. 2000–45, page 337.

Section 467.—Certain Paymentsfor the Use of Property orServices

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof October 2000. See Rev. Rul. 2000–45, page 337.

Section 468.—Special Rules forMining and Solid WasteReclamation and Closing Costs

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof October 2000. See Rev. Rul. 2000–45, page 337.

Section 472.—Last-in, First-outInventories

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

LIFO; price indexes; departmentstores. The August 2000 Bureau of LaborStatistics price indexes are accepted foruse by department stores employing theretail inventory and last-in, first-out in-ventory methods for valuing inventoriesfor tax years ended on, or with referenceto, August 31, 2000.

Rev. Rul. 2000–46

The following Department Store Inven-tory Price Indexes for August 2000 wereissued by the Bureau of Labor Statistics.The indexes are accepted by the InternalRevenue Service, under § 1.472–1(k) ofthe Income Tax Regulations and Rev.Proc. 86–46, 1986–2 C.B. 739, for appro-priate application to inventories of depart-ment stores employing the retail inven-tory and last-in, first-out inventorymethods for tax years ended on, or withreference to, August 31, 2000.

The Department Store Inventory PriceIndexes are prepared on a national basisand include (a) 23 major groups of depart-ments, (b) three special combinations ofthe major groups - soft goods, durablegoods, and miscellaneous goods, and (c) astore total, which covers all departments,including some not listed separately, ex-cept for the following: candy, food,liquor, tobacco, and contract departments.

October 10, 2000 334 2000–41 I.R.B.

2000–41 I.R.B. 335 October 10, 2000

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE

INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Percent Change

Groups Aug. Aug. from Aug. 1999

1999 2000 to Aug. 20001

1. Piece Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 546.1 509.2 -6.8

2. Domestics and Draperies. . . . . . . . . . . . . . . . . . . . 630.1 617.9 -1.9

3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . 635.3 618.3 -2.7

4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 882.3 913.2 3.5

5. Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 623.9 619.8 -0.7

6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . 550.7 570.2 3.5

7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . 322.1 334.7 3.9

8. Women’s and Girls’Accessories . . . . . . . . . . . . . . 528.1 532.0 0.7

9. Women’s Outerwear and Girls’ Wear . . . . . . . . . . 377.6 370.5 -1.9

10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . 609.9 605.4 -0.7

11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . 610.6 612.9 0.4

12. Boys’ Clothing and Furnishings . . . . . . . . . . . . . . 473.3 473.0 -0.1

13. Jewelry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 962.0 936.5 -2.7

14. Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 793.9 785.9 -1.0

15. Toilet Articles and Drugs. . . . . . . . . . . . . . . . . . . . 971.6 971.0 -0.1

16. Furniture and Bedding. . . . . . . . . . . . . . . . . . . . . . 679.3 687.9 1.3

17. Floor Coverings. . . . . . . . . . . . . . . . . . . . . . . . . . . 602.1 603.2 0.2

18. Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 788.2 778.5 -1.2

19. Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . 234.8 230.9 -1.7

20. Radio and Television . . . . . . . . . . . . . . . . . . . . . . . 65.7 58.8 -10.5

21. Recreation and Education2 . . . . . . . . . . . . . . . . . . 97.0 92.2 -4.9

22. Home Improvements2 . . . . . . . . . . . . . . . . . . . . . . 127.6 129.2 1.3

23. Auto Accessories2 . . . . . . . . . . . . . . . . . . . . . . . . . 106.8 106.2 -0.6

Groups 1 - 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . 589.9 585.3 -0.8

Groups 16 - 20: Durable Goods . . . . . . . . . . . . . . . . . . . 447.4 437.2 -2.3

Groups 21 - 23: Misc. Goods2. . . . . . . . . . . . . . . . . . . . . 102.9 99.8 -3.0

Store Total3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536.9 529.7 -1.3

1 Absence of a minus sign before the percentage change in this column signifies a price increase.2 Indexes on a January 1986=100 base.3 The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco, and contract departments.

DRAFTING INFORMATION

The principal author of this revenueruling is Alan J. Tomsic of the Office ofAssociate Chief Counsel (Income Tax andAccounting). For further information re-garding this revenue ruling, contact Mr.Tomsic at (202) 622-4970 (not a toll-freecall).

Section 482.—Allocation ofIncome and Deductions AmongTaxpayers

Federal short-term, mid-term, and long-term ratesare set forth for the month of October 2000. See Rev.Rul. 2000–45, page 337.

Section 483.—Interest onCertain Deferred Payments

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof October 2000. See Rev. Rul. 2000–45, page 337.

Section 642.—Special Rules forCredits and Deductions

Federal short-term, mid-term, and long-term ratesare set forth for the month of October 2000. See Rev.Rul. 2000–45, page 337.

Section 707.—TransactionsBetween Partner and Partnership

26 CFR 1.707–3: Disguised sales of property topartnership; general rules.

(Also §§ 381, 707, 721, 731, 752; 1.707–3, 1.707–4,1.707–5.)

This ruling provides that a corporationthat acquires assets of another corporationin a transaction described in § 381(a) of theCode succeeds to the status of the othercorporation for purposes of applying theexception for reimbursements of preforma-tion expenditures and determining whethera liability is a qualified liability under theregulations regarding the disguised saleprovisions of § 707(a)(2)(B)

Rev. Rul. 2000–44

ISSUE

Does a corporation that acquires assetsof another corporation in a transaction de-scribed in § 381(a) of the Internal Rev-enue Code succeed to the status of theother corporation for purposes of applyingthe exception for reimbursements of pre-formation expenditures and determiningwhether a liability is a qualified liabilityunder the regulations regarding the dis-guised sale provisions of § 707(a)(2)(B)?

FACTS

Corporation P owns all of the stock ofcorporation S. S has only one asset,rental property, that is encumbered by anonrecourse liability of $40x originallyincurred by S on January 1, 1995. S in-curred $5x in capital expenditures withrespect to the rental property on Decem-ber 1, 1998.

On January 1, 1999, S distributes therental property, subject to the $40x liabil-ity, to P in a transaction that qualifies as acomplete liquidation of S within themeaning of § 332.

On January 1, 2000, P contributes therental property, subject to the $40x liabil-ity, to a partnership (PRS) in exchange

for an interest in PRS. In connectionwith the transaction, PRSreimburses P$5x for the capital expenditures incurredby Swith respect to the contributed prop-erty. At the time that P transfers therental property to PRS, the rental prop-erty has a fair market value of $100x andan adjusted basis of $70x.

LAW

Section 721(a) provides that no gain orloss shall be recognized to a partnershipor to any of its partners in the case of acontribution of property to the partner-ship in exchange for an interest in thepartnership.

Section 731(a)(1) provides that in thecase of a distribution by a partnership to apartner, gain shall not be recognized tothe partner, except to the extent that anymoney distributed exceeds the adjustedbasis of the partner’s interest in the part-nership immediately before the distribu-tion.

Section 752(b) provides that any de-crease in a partner’s share of the liabili-ties of a partnership, or any decrease in apartner’s individual liabilities by reasonof the assumption by the partnership ofthe individual liabilities, shall be consid-ered as a distribution of money to thepartner by the partnership.

Section 707(a)(2)(B) provides that if (i)there is a direct or indirect transfer ofmoney or other property by a partner to apartnership, (ii) there is a related direct orindirect transfer of money or other prop-erty by the partnership to the partner (oranother partner), and (iii) the transferswhen viewed together are properly char-acterized as a sale or exchange of prop-erty, then the transfers shall be treated ei-ther as a transaction between thepartnership and a partner not acting in thepartner’s capacity as a partner or as atransaction between two or more partnersacting other than in their capacity as part-ners.

Section 1.707–3(a) of the Income TaxRegulations provides that, except as oth-erwise provided in § 1.707–3, if a transferof property by a partner to a partnershipand one or more transfers of money orother consideration by the partnership tothe partner constitute a sale based on allthe facts and circumstances, the transfersare treated as a sale of property to thepartnership.

Section 1.707–3(c)(1) provides that ifwithin a 2-year period a partner transfersproperty to a partnership and the partner-ship transfers money or other considera-tion to the partner (without regard to theorder of the transfers), the transfers arepresumed to be a sale of the property to thepartnership unless the facts and circum-stances clearly establish that the transfersdo not constitute a sale.

Section 1.707-4(d) provides that, ingeneral, notwithstanding the presumptionrelating to transfers made within 2 years ofeach other, a transfer of money or otherconsideration by the partnership to a part-ner is not treated as part of a sale of prop-erty by the partner to the partnership under§ 1.707-3(a) to the extent that the transferto the partner by the partnership is made toreimburse the partner for, and does not ex-ceed the amount of, capital expendituresthat (1) are incurred during the 2-year pe-riod preceding the transfer by the partnerto the partnership; and (2) are incurred bythe partner with respect to (i) partnershiporganization and syndication costs de-scribed in § 709; or (ii) property con-tributed to the partnership by the partner,but only to the extent the reimbursed capi-tal expenditures do not exceed 20 percentof the fair market value of the property atthe time of the contribution (preformationexpenditures).

Section 1.707-5(a)(1) provides that forpurposes of the disguised sale rules, if apartnership assumes or takes propertysubject to a qualified liability, as definedin

§ 1.707-5(a)(6), the partnership istreated as transferring consideration tothe partner only to the extent that thetransfer of property to the partnership isotherwise treated as part of a sale. Bycontrast, if the partnership assumes ortakes property subject to a liability of thepartner other than a qualified liability, thepartnership is treated as transferring con-sideration to the partner to the extent thatthe amount of the liability exceeds thepartner’s share of that liability immedi-ately after the partnership assumes ortakes subject to the liability as providedin § 1.707-5(a)(2), (3), and (4).

Under § 1.707-5(a)(6), a qualified lia-bility is (1) a liability that was incurredby the partner more than 2 years prior tothe earlier of the date the partner agreesin writing to transfer the property or the

October 10, 2000 336 2000–41 I.R.B.

date the partner transfers the property tothe partnership and that has encumberedthe transferred property throughout that2-year period; (2) a liability that was in-curred within the 2-year period that hasencumbered the transferred propertysince it was incurred, so long as the lia-bility was not incurred in anticipation ofthe transfer of the property to a partner-ship; (3) a liability that is allocable underthe rules of § 1.163–8T of the temporaryIncome Tax Regulations to capital expen-ditures with respect to the property; or (4)a liability that was incurred in the ordi-nary course of the trade or business inwhich property transferred to the partner-ship was used or held but only if all theassets related to that trade or business aretransferred other than assets that are notmaterial to a continuation of the trade orbusiness. Certain additional limitationsapply with respect to recourse liabilities.See § 1.707–5(a)(6)(ii).

Under § 1.707–4(e), the Commissionermay provide by guidance published in theInternal Revenue Bulletin situations inaddition to those specifically addressed inthe regulations where payments or trans-fers to a partner will not be treated as partof a disguised sale.

Section 381(a) references certain trans-actions that involve one corporation ac-quiring assets of another corporation in atax-free transfer (that is, liquidationsunder § 332, reorganizations under § 368(a)(1)(A), (C), and (F), and certainnondivisive reorganizations under § 368(a)(1)(D) and (G)).

ANALYSIS

The rules regarding preformation ex-penses and qualified liabilities containedin the disguised sale regulations recog-nize that certain expenditures will bemade, and certain liabilities will be in-curred, under circumstances that do notviolate the disguised sale rules. Where acorporation incurs preformation expensesor undertakes a borrowing, and anothercorporation acquires assets of the corpo-ration in a § 381 transaction, the transferdoes not alter the circumstances underwhich the expenditures or indebtednesswere originally incurred or otherwiseraise concerns that would justify nottreating the transferee corporation as hav-ing incurred the expenditures or under-taken the liabilities at the time they were

incurred or undertaken by the predeces-sor corporation.

Transactions enumerated in § 381(a)involve situations where the transferorcorporation is absorbed by the transfereecorporation in a tax-free transaction.Given the purposes for the rules relatingto preformation expenses and qualifiedliabilities, it is appropriate that, in trans-actions described in § 381(a), the trans-feree corporation will succeed to the sta-tus of the distributor or transferorcorporation for purposes of applying theexception for reimbursements of prefor-mation expenditures and determiningwhether a liability is a qualified liability.

Accordingly, under the facts presented,P will succeed to the status of S for pur-poses of determining whether the $5x cashreimbursement from PRSqualifies for theexception for reimbursements of prefor-mation expenditures under § 1.707–4(d).S incurred $5x in capital expenditures withrespect to the rental property on December1, 1998, which is within the 2-year periodpreceding the transfer of the property toPRS. The reimbursed capital expendituresdo not exceed 20 percent of the fair mar-ket value of the contributed property.Thus, the $5x cash reimbursement fromPRSto P for the capital expenditures in-curred by Swith respect to the rental prop-erty falls within the exception for reim-bursement of preformation expendituresand will not give rise to a disguised salebetween P and PRSunder § 707(a)(2)(B)and the regulations.

P also will succeed to the status of Sfor purposes of determining whether the$40x liability is a qualified liabilitywithin the meaning of § 1.707–5(a)(6).The $40x liability encumbering the prop-erty was incurred by S on January 1,1995, which is more than 2 years prior tothe date the rental property was con-tributed to PRS. Accordingly, the $40xliability is a qualified liability within themeaning of § 1.707-5(a)(6). As a result,the fact that P transfers the rental prop-erty to PRSsubject to the liability willnot give rise to a disguised sale betweenP and PRSunder § 707(a)(2)(B) and theregulations.

HOLDING

A corporation that acquires assets ofanother corporation in a transaction de-scribed in § 381(a) will succeed to status

of the other corporation for purposes ofapplying the exception for reimburse-ments of preformation expenditures anddetermining whether a liability is a quali-fied liability under the regulations re-garding the disguised sale provisions of § 707(a)(2)(B).

DRAFTING INFORMATION

The principal author of this revenueruling is Shannon Cohen of the Office ofAssociate Chief Counsel (Passthroughsand Special Industries). For further in-formation regarding this revenue rulingcontact Shannon Cohen at (202) 622-3050 (not a toll-free call).

Section 807.—Rules for CertainReserves

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof October 2000. See Rev. Rul. 2000–45, page 337.

Section 846.—DiscountedUnpaid Losses Defined

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof October 2000. See Rev. Rul. 2000–45, page 337.

Section 1274.—Determinationof Issue Price in the Case ofCertain Debt Instruments Issuedfor Property

(Also Sections 42, 280G, 382, 412, 467, 468, 482,483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates;adjusted federal long-term rate, andthe long-term exempt rate.For purposesof sections 1274, 1288, 382, and othersections of the Code, tables set forth therates for October 2000.

Rev. Rul. 2000–45

This revenue ruling provides variousprescribed rates for federal income taxpurposes for October 2000 (the currentmonth.) Table 1 contains the short-term,mid-term, and long-term applicable fed-eral rates (AFR) for the current month forpurposes of section 1274(d) of the Inter-nal Revenue Code. Table 2 contains theshort-term, mid-term, and long-term ad-

2000–41 I.R.B. 337 October 10, 2000

justed applicable federal rates (adjustedAFR) for the current month for purposesof section 1288(b). Table 3 sets forth theadjusted federal long-term rate and thelong-term tax-exempt rate described in

section 382(f). Table 4 contains the ap-propriate percentages for determining thelow-income housing credit described insection 42(b)(2) for buildings placed inservice during the current month. Finally,

Table 5 contains the federal rate for deter-mining the present value of an annuity, aninterest for life or for a term of years, or aremainder or a reversionary interest forpurposes of section 7520.

October 10, 2000 338 2000–41 I.R.B.

REV. RUL. 2000–45 TABLE 1Applicable Federal Rates (AFR) for October 2000

Period for Compounding

Annual Semiannual Quarterly MonthlyShort-Term

AFR 6.30% 6.20% 6.15% 6.12%110% AFR 6.94% 6.82% 6.76% 6.73%120% AFR 7.58% 7.44% 7.37% 7.33%130% AFR 8.22% 8.06% 7.98% 7.93%

Mid-Term

AFR 6.09% 6.00% 5.96% 5.93%110% AFR 6.71% 6.60% 6.55% 6.51%120% AFR 7.33% 7.20% 7.14% 7.09%130% AFR 7.95% 7.80% 7.73% 7.68%150% AFR 9.20% 9.00% 8.90% 8.84%175% AFR 10.78% 10.50% 10.37% 10.28%

Long-Term

AFR 5.96% 5.87% 5.83% 5.80%110% AFR 6.56% 6.46% 6.41% 6.37%120% AFR 7.16% 7.04% 6.98% 6.94%130% AFR 7.78% 7.63% 7.56% 7.51%

REV. RUL. 2000–45 TABLE 2Adjusted AFR for October 2000

Period for Compounding

Annual Semiannual Quarterly MonthlyShort-termadjusted AFR 4.30% 4.25% 4.23% 4.21%

Mid-termadjusted AFR 4.52% 4.47% 4.45% 4.43%

Long-termadjusted AFR 5.33% 5.26% 5.23% 5.20%

REV. RUL. 2000–45 TABLE 3

Rates Under Section 382 for October 2000

Adjusted federal long-term rate for the current month 5.33%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjustedfederal long-term rates for the current month and the prior two months.) 5.53%

REV. RUL. 2000–45 TABLE 4

Appropriate Percentages Under Section 42(b)(2) for October 2000

Appropriate percentage for the 70% present value low-income housing credit 8.41%

Appropriate percentage for the 30% present value low-income housing credit 3.60%

2000–41 I.R.B. 339 October 10, 2000

Section 1288.—Treatment ofOriginal Issue Discounts on Tax-1 Exempt Obligations

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof October 2000. See Rev. Rul. 2000–45, page 337.

Section 1366.—Pass-Thru ofItems to Shareholders

26 CFR 1.1366–1: Shareholder’s share of items ofan S corporation.

May an accrual-basis subchapter S corporationelect under § 170(a)(2) of the Internal RevenueCode to treat a charitable contribution as paid in theyear authorized by the S corporation’s Board of Di-rectors if the contribution is paid by the S corpora-tion after the close of the taxable year and before the15th day of the third month following the close ofthe taxable year? See Rev. Rul. 2000–43, page 333.

Section 7520.—Valuation Tables

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof October 2000. See Rev. Rul. 2000–45, page 337.

Section 7872.—Treatment ofLoans with Below-MarketInterest Rates

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof October 2000. See Rev. Rul. 2000–45, page 337.

REV. RUL. 2000–45 TABLE 5

Rate Under Section 7520 for October 2000

Applicable federal rate for determining the present value of an annuity, an interest for life ora term of years, or a remainder or reversionary interest 7.4%

26 CFR 601.105: Examination of returns andclaims for refund, credit, or abatement;determination of correct tax liability. (Also Part I, sections 62, 162, 267, 274; 1.62-2,1.162-17, 1.267(a)-1, 1.274-5.)

Rev. Proc. 2000-39

SECTION 1. PURPOSE

This revenue procedure updates Rev.Proc. 2000-9, 2000-2 I.R.B. 280, by pro-viding rules under which the amount ofordinary and necessary business expensesof an employee for lodging, meal, and in-cidental expenses or for meal and inciden-tal expenses incurred while travelingaway from home will be deemed substan-tiated under § 1.274-5 of the Income TaxRegulations when a payor (the employer,its agent, or a third party) provides a perdiemallowance under a reimbursement orother expense allowance arrangement topay for such expenses. This revenue pro-cedure also provides an optional methodfor employees and self-employed individ-uals to use in computing the deductiblecosts of business meal and incidental ex-penses paid or incurred while travelingaway from home. Use of a method de-scribed in this revenue procedure is notmandatory and a taxpayer may use actualallowable expenses if the taxpayer main-tains adequate records or other sufficientevidence for proper substantiation. Thisrevenue procedure does not provide rulesunder which the amount of an employee’slodging expenses will be deemed substan-tiated when a payor provides an al-lowance to pay for those expenses but notmeal and incidental expenses.

SECTION 2. BACKGROUND ANDCHANGES

.01 Section 162(a) of the Internal Rev-enue Code allows a deduction for all theordinary and necessary expenses paid orincurred during the taxable year in carry-ing on any trade or business. Under thatprovision, an employee or self-employedindividual may deduct expenses paid orincurred while traveling away from homein pursuit of a trade or business. How-ever, under § 262, no portion of suchtravel expenses that is attributable to per-sonal, living, or family expenses is de-ductible.

.02 Section 274(n) generally limits theamount allowable as a deduction under § 162 for any expense for food, bever-ages, or entertainment to 50 percent of theamount of the expense that otherwisewould be allowable as a deduction. In thecase of any expenses for food or bever-ages consumed while away from home(within the meaning of § 162(a)(2)) by anindividual during, or incident to, the pe-riod of duty subject to the hours of servicelimitations of the Department of Trans-portation, § 274(n)(3) gradually increasesthe deductible percentage to 80 percentfor taxable years beginning in 2008. Fortaxable years beginning in 2000 or 2001,the deductible percentage for these ex-penses is 60 percent.

.03 Section 274(d) provides, in part,that no deduction shall be allowed under§ 162 for any traveling expense (includ-ing meals and lodging while away fromhome) unless the taxpayer complies withcertain substantiation requirements. Thesection further provides that regulationsmay prescribe that some or all of thesubstantiation requirements do not applyto an expense that does not exceed anamount prescribed by such regulations.

.04 Section 1.274-5(g) of the regula-tions, in part, grants the Commissionerthe authority to prescribe rules relatingto reimbursement arrangements or perdiem allowances for ordinary and neces-sary expenses paid or incurred whiletraveling away from home. Pursuant tothis grant of authority, the Commissionermay prescribe rules under which sucharrangements or allowances, if in accor-dance with reasonable business practice,will be regarded (1) as equivalent to sub-stantiation, by adequate records or othersufficient evidence, of the amount ofsuch travel expenses for purposes of §1.274-5(c), and (2) as satisfying the re-quirements of an adequate accounting tothe employer of the amount of suchtravel expenses for purposes of § 1.274-5(f).

.05 For purposes of determining ad-justed gross income, § 62(a)(2)(A) al-lows an employee a deduction for ex-penses allowed by Part VI (§ 161 andfollowing), subchapter B, chapter 1 ofthe Code, paid or incurred by the em-ployee in connection with the perfor-

mance of services as an employee undera reimbursement or other expense al-lowance arrangement with a payor.

.06 Section 62(c) provides that anarrangement will not be treated as a reim-bursement or other expense allowancearrangement for purposes of § 62(a)(2)(A)if it—

(1) does not require the employee tosubstantiate the expenses covered by thearrangement to the payor, or

(2) provides the employee with theright to retain any amount in excess of thesubstantiated expenses covered under thearrangement.

Section 62(c) further provides that thesubstantiation requirements describedtherein shall not apply to any expense tothe extent that, under the grant of regula-tory authority prescribed in § 274(d), theCommissioner has provided that substan-tiation is not required for such expense.

.07 Under § 1.62-2(c)(1) a reimburse-ment or other expense allowance arrange-ment satisfies the requirements of § 62(c)if it meets the requirements of businessconnection, substantiation, and returningamounts in excess of expenses as speci-fied in the regulations. Section 1.62-2(e)(2) specifically provides that substan-tiation of certain business expenses inaccordance with rules prescribed underthe authority of § 1.274-5(g) or 1.274-5(j)(1) will be treated as substantiation ofthe amount of such expenses for purposesof § 1.62-2. Under § 1.62-2(f)(2), theCommissioner may prescribe rules underwhich an arrangement providing per diemallowances will be treated as satisfyingthe requirement of returning amounts inexcess of expenses, even though thearrangement does not require the em-ployee to return the portion of such an al-lowance that relates to days of travel sub-stantiated and that exceeds the amount ofthe employee’s expenses deemed substan-tiated pursuant to rules prescribed under § 274(d), provided the allowance is rea-sonably calculated not to exceed theamount of the employee’s expenses or an-ticipated expenses and the employee is re-quired to return any portion of such an al-lowance that relates to days of travel notsubstantiated.

.08 Section 1.62-2(h)(2)(i)(B) providesthat if a payor pays a per diem allowance

October 10, 2000 340 2000–41 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous

that meets the requirements of § 1.62-2(c)(1), the portion, if any, of the al-lowance that relates to days of travel sub-stantiated in accordance with § 1.62-2(e),that exceeds the amount of the em-ployee’s expenses deemed substantiatedfor such travel pursuant to rules pre-scribed under § 274(d) and § 1.274-5(g)or § 1.274-5(j)(1), and that the employeeis not required to return, is subject towithholding and payment of employmenttaxes. See §§ 31.3121(a)-3, 31.3231(e)-1(a)(5), 31.3306(b)-2, and 31.3401(a)-4of the Employment Tax Regulations. Be-cause the employee is not required to re-turn this excess portion, the reasonableperiod of time provisions of § 1.62-2(g)(relating to the return of excess amounts)do not apply to this portion.

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

.10 Section 1.274-5(j)(1) grants theCommissioner the authority to establish amethod under which a taxpayer may electto use a specified amount for meals paid orincurred while traveling away from homein lieu of substantiating the actual cost ofmeals.

.11 Section 5.04 of this revenue proce-dure contains revisions to the list of high-cost localities and to the high-low rates forpurposes of section 5.

.12 Section 6.07 of this revenue proce-dure contains a revision to the related partyrules.

.13 Sections 3.02, 4.04(5), and 5.06 pro-vide transition rules for the last 3 monthsof calendar year 2000 due to changes in theeffective date of the CONUS rates pub-lished by GSA.

SECTION 3. DEFINITIONS

.01 Per diem allowance. The term “perdiemallowance” means a payment under areimbursement or other expense allowancearrangement that meets the requirementsspecified in § 1.62-2(c)(1) and that is

(1) paid with respect to ordinary andnecessary business expenses incurred, orwhich the payor reasonably anticipateswill be incurred, by an employee for lodg-ing, meal, and incidental expenses or formeal and incidental expenses for travelaway from home in connection with theperformance of services as an employee of

the employer,(2) reasonably calculated not to ex-

ceed the amount of the expenses or the an-ticipated expenses, and

(3) paid at or below the applicablefederal per diem rate, a flat rate or statedschedule, or in accordance with any otherService-specified rate or schedule.

.02Federal per diem rate and federalM&IE rate.

(1) General rule. The federal perdiemrate is equal to the sum of the applic-able federal lodging expense rate and theapplicable federal meal and incidental ex-pense (M&IE) rate for the day and localityof travel.

(a) CONUS rates. The rates for lo-calities in the continental United States(“CONUS”) are set forth in Appendix A to41 C.F.R. ch. 301. However, in applyingsection 4.01, 4.02, or 4.03 of this revenueprocedure, taxpayers may continue to usethe CONUS rates in effect for the first 9months of 2000 for expenses of allCONUS travel while away from home thatare paid or incurred during calendar year2000 in lieu of the updated GSA rates. Ataxpayer must consistently use either theserates or the updated rates for the period ofOctober 1, 2000, through December 31,2000.

(b) OCONUS rates. The rates forlocalities outside the continental UnitedStates (“OCONUS”) are established by theSecretary of Defense (rates for non-foreignlocalities, including Alaska, Hawaii,Puerto Rico, the Northern Mariana Islands,and the possessions of the United States)and by the Secretary of State (rates for for-eign localities), and are published in thePer Diem Supplement to the StandardizedRegulations (Government Civilians, For-eign Areas) (updated on a monthly basis).

(c) Internet access to the rates.The CONUS and OCONUS rates may befound on the Internet at www.policy-works.gov/perdiem.

(2) Locality of travel. The term “lo-cality of travel” means the locality wherean employee traveling away from home inconnection with the performance of ser-vices as an employee of the employer stopsfor sleep or rest.

(3) Incidental expenses. The term“incidental expenses” includes, but is notlimited to, expenses for laundry, cleaningand pressing of clothing, and fees and tips

for services, such as for porters and bag-gage carriers. The term “incidental ex-penses” does not include taxicab fares,lodging taxes, or the costs of telegrams ortelephone calls.

.03 Flat rate or stated schedule.

(1) In general. Except as provided insection 3.03(2) of this revenue procedure,an allowance is paid at a flat rate or statedschedule if it is provided on a uniform andobjective basis with respect to the ex-penses described in section 3.01 of thisrevenue procedure. Such allowance maybe paid with respect to the number of daysaway from home in connection with theperformance of services as an employee oron any other basis that is consistently ap-plied and in accordance with reasonablebusiness practice. Thus, for example, anhourly payment to cover meal and inciden-tal expenses paid to a pilot or flight atten-dant who is traveling away from home inconnection with the performance of ser-vices as an employee is an allowance paidat a flat rate or stated schedule. Likewise,a payment based on the number of milestraveled (e.g., cents per mile) to cover mealand incidental expenses paid to an over-the-road truck driver who is traveling awayfrom home in connection with the perfor-mance of services as an employee is an al-lowance paid at a flat rate or stated sched-ule.

(2) Limitation. For purposes of thisrevenue procedure, an allowance that iscomputed on a basis similar to that used incomputing the employee’s wages or othercompensation (e.g., the number of hoursworked, miles traveled, or pieces pro-duced) does not meet the business connec-tion requirement of § 1.62-2(d), is not a perdiem allowance, and is not paid at a flatrate or stated schedule, unless, as of De-cember 12, 1989, (a) the allowance wasidentified by the payor either by making aseparate payment or by specifically identi-fying the amount of the allowance, or (b)an allowance computed on that basis wascommonly used in the industry in whichthe employee is employed. See § 1.62-2(d)(3)(ii).

SECTION 4. PER DIEMSUBSTANTIATION METHOD

.01 Per diem allowance. If a payorpays a per diemallowance in lieu of reim-bursing actual expenses for lodging, meal,

2000–41 I.R.B. 341 October 10, 2000

and incidental expenses incurred or to beincurred by an employee for travel awayfrom home, the amount of the expensesthat is deemed substantiated for each cal-endar day is equal to the lesser of the perdiem allowance for such day or theamount computed at the federal per diemrate (see section 3.02 of this revenue pro-cedure) for the locality of travel for suchday (or partial day, see section 6.04 of thisrevenue procedure).

.02 Meals only per diem allowance. Ifa payor pays a per diemallowance onlyfor meal and incidental expenses in lieu ofreimbursing actual expenses for meal andincidental expenses incurred or to be in-curred by an employee for travel awayfrom home, the amount of the expensesthat is deemed substantiated for each cal-endar day is equal to the lesser of the perdiem allowance for such day or theamount computed at the federal M&IErate (see section 3.02 of this revenue pro-cedure) for the locality of travel for suchday (or partial day, see section 6.04 of thisrevenue procedure). Aper diemal-lowance is treated as paid only for mealand incidental expenses if (1) the payorpays the employee for actual expenses forlodging based on receipts submitted to thepayor, (2) the payor provides the lodgingin kind, (3) the payor pays the actual ex-penses for lodging directly to the providerof the lodging, (4) the payor does nothave a reasonable belief that lodging ex-penses were or will be incurred by theemployee, or (5) the allowance is com-puted on a basis similar to that used incomputing the employee’s wages or othercompensation (e.g., the number of hoursworked, miles traveled, or pieces pro-duced).

.03 Optional method for meals only de-duction. In lieu of using actual expenses,employees and self-employed individu-als, in computing the amount allowable asa deduction for ordinary and necessarymeal and incidental expenses paid or in-curred for travel away from home, mayuse an amount computed at the federalM&IE rate (see section 3.02 of this rev-enue procedure) for the locality of travelfor each calendar day (or partial day, seesection 6.04 of this revenue procedure)the employee or self-employed individualis away from home. Such amount will bedeemed substantiated for purposes ofparagraphs (b)(2) (travel away from

home) and (c) of § 1.274-5, provided theemployee or self-employed individualsubstantiates the elements of time, place,and business purpose of the travel ex-penses in accordance with those regula-tions.

.04 Special rules for transportationindustry.

(1) In general. This section 4.04 ap-plies to (a) a payor that pays a per diemallowance only for meal and incidentalexpenses for travel away from home asdescribed in section 4.02 of this revenueprocedure to an employee in the trans-portation industry, or (b) an employee orself-employed individual in the trans-portation industry who computes theamount allowable as a deduction for mealand incidental expenses for travel awayfrom home in accordance with section4.03 of this revenue procedure.

(2) Rates. A taxpayer described insection 4.04(1) of this revenue proceduremay treat $38 as the federal M&IE ratefor any locality of travel in CONUS,and/or $42 as the federal M&IE rate forany locality of travel OCONUS. A payorthat uses either (or both) of these specialrates with respect to an employee mustuse the special rate(s) for all amounts sub-ject to section 4.02 of this revenue proce-dure paid to that employee for travel awayfrom home within CONUS and/orOCONUS, as the case may be, during thecalendar year. Similarly, an employee orself-employed individual that uses either(or both) of these special rates must usethe special rate(s) for all amounts com-puted pursuant to section 4.03 of this rev-enue procedure for travel away fromhome within CONUS and/or OCONUS,as the case may be, during the calendaryear. See section 4.04(5) of this revenueprocedure for transition rules.

(3) Periodic rule. A payor describedin section 4.04(1) of this revenue proce-dure may compute the amount of the em-ployee’s expenses that is deemed substan-tiated under section 4.02 of this revenueprocedure periodically (not less fre-quently than monthly), rather than daily,by comparing the total per diemal-lowance paid for the period to the sum ofthe amounts computed at the federalM&IE rate(s) for the localities of travelfor the days (or partial days, see section6.04 of this revenue procedure) the em-

ployee is away from home during the pe-riod. For example, assume an employeein the transportation industry travels awayfrom home within CONUS on 17 days(including partial days, see section 6.04 ofthis revenue procedure) during a calendarmonth and receives a per diemallowanceonly for meal and incidental expensesfrom a payor that uses the special ruleunder section 4.04(2) of this revenue pro-cedure. The amount deemed substanti-ated under section 4.02 of this revenueprocedure is equal to the lesser of the totalper diemallowance paid for the month or$646 (17 days at $38 per day).

(4) Transportation industry defined.For purposes of this section 4.04 of thisrevenue procedure, an employee or self-employed individual is “in the transporta-tion industry” only if the employee’s orindividual’s work (a) is of the type that di-rectly involves moving people or goodsby airplane, barge, bus, ship, train, ortruck, and (b) regularly requires travelaway from home which, during any singletrip away from home, usually involvestravel to localities with differing federalM&IE rates. For purposes of the preced-ing sentence, a payor must determine thatan employee or a group of employees is“in the transportation industry” by using amethod that is consistently applied and inaccordance with reasonable businesspractice.

(5) Transition rules. Under the cal-endar-year convention provided in section4.04(2), a taxpayer who used the federalM&IE rates during the first 9 months ofcalendar year 2000 to substantiate theamount of an individual’s travel expensesunder sections 4.02 or 4.03 of Rev. Proc.2000-9 may not use, for that individual,the special transportation industry ratesprovided in this section 4.04 until January1, 2001. Similarly, a taxpayer who usedthe special transportation industry ratesduring the first 9 months of calendar year2000 to substantiate the amount of an in-dividual’s travel expenses may not use,for that individual, the federal M&IErates until January 1, 2001.

SECTION 5. HIGH-LOWSUBSTANTIATION METHOD

.01 General rule. If a payor pays a perdiemallowance in lieu of reimbursing ac-tual expenses for lodging, meal, and inci-dental expenses incurred or to be incurred

October 10, 2000 342 2000–41 I.R.B.

by an employee for travel away fromhome and the payor uses the high-lowsubstantiation method described in thissection 5 for travel within CONUS, theamount of the expenses that is deemedsubstantiated for each calendar day isequal only substantiation method pro-vided in section 4.02 or 4.03 of this rev-enue procedure.

.02 Specific high-low rates. Except asprovided in section 5.06 of this revenueprocedure, the per diemrate set forth inthis section 5.02 is $201 for travel to any

“high-cost locality” specified in section5.03 of this revenue procedure, or $124for travel to any other locality withinCONUS. Whichever per diemrate ap-plies, it is applied as if it were the federalper diemrate for the locality of travel.For purposes of applying the high-lowsubstantiation method and the § 274(n)limitation on meal expenses (see section6.05 of this revenue procedure), the fed-eral M&IE rate shall be treated as $42 fora high-cost locality and $34 for any otherlocality within CONUS.

.03 High-cost localities. The followinglocalities have a federal per diemrate of$163 or more, and are high-cost localitiesfor all of the calendar year or the portionof the calendar year specified in parenthe-sis under the key city name, except asprovided in section 5.06 of this revenueprocedure:

2000–41 I.R.B. 343 October 10, 2000

Key city County or other defined location

CaliforniaPalm Springs Riverside(January 1-May 31)

San Francisco San FranciscoSunnyvale/Palo Alto/San Jose Santa ClaraTahoe City Placer

ColoradoAspen Pitkin

(January 1-April 30)Silverthorne/Keystone SummitTelluride San Miguel

(January 1-March 31)Vail Eagle

(July 1-March 31)

District of ColumbiaWashington, D.C. Washington, D.C.; the cities of Alexandria,

Fairfax, and Falls Church, and the counties ofArlington, Fairfax, and Loudoun, in Virginia;and the counties of Montgomery and PrinceGeorge’s in Maryland

FloridaKey West Monroe(January 1-April 30)

IdahoSun Valley City limits of Sun Valley

IllinoisChicago Cook and Lake

LouisianaNew Orleans/St. Bernard Orleans, St. Bernard, Plaquemine,(January 1-May 31) and Jefferson Parishes

Maryland(For the counties of Montgomery and Prince George’s, see District of Columbia)Ocean City Worcester(June 15-October 31)

MassachusettsBoston SuffolkCambridge Middlesex County (except Lowell) Martha’s Vineyard Dukes(June 1-October 15)

MichiganMackinac Island MackinacTraverse City Grand Traverse

(June 1-September 30)

MontanaBig Sky Gallatin (except West Yellowstone Park)(November 1-April 30)

New JerseyCape May Cape May (except Ocean City)(June 1-November 30)

Ocean City City limits of Ocean City(June 15-September 15)

Piscataway/Belle Mead Somerset and MiddlesexPrinceton/Trenton Mercer County

New YorkThe Bronx/Brooklyn/Queens The boroughs of The Bronx, Brooklyn, and

Queens

Manhattan ManhattanNassau County/Great Neck Nassau CountySuffolk County Suffolk CountyWhite Plains City limits of White Plains

PennsylvaniaHershey City limits of Hershey(June 1-September 15)

Philadelphia Philadelphia

UtahPark City Summit(December 15-March 31)

Virginia(For the cities of Alexandria, Fairfax, and Falls Church, and the countiesof Arlington, Fairfax, and Loudoun, see District of Columbia)

Wintergreen Nelson

October 10, 2000 344 2000–41 I.R.B.

.04 Changes in high-cost localities.The list of high-cost localities in section5.03 of this revenue procedure differsfrom the list of high-cost localities in sec-tion 5.03 of Rev. Proc. 2000-9.

(1) The following localities (listed bykey cities) have been added to the list ofhigh-cost localities: Palm Springs, Califor-nia; New Orleans/St. Bernard, Louisiana;Traverse City, Michigan; Trenton, New Jer-sey; and Wintergreen, Virginia.

(2) The portion of the year for whichthe following are high-cost localities (listedby key cities) has been changed: Aspen,Colorado; Telluride, Colorado; Vail, Col-orado; Key West, Florida; Sun Valley,Idaho; Ocean City, Maryland; Martha’sVineyard, Massachusetts; Big Sky, Mon-tana; Cape May, New Jersey; and ParkCity, Utah.

(3) The following localities (generallylisted by key cities) have been removed

from the list of high-cost localities:Charlevoix, Michigan, and Union County,New Jersey.

.05 Specific limitation.

(1) Except as provided in section5.05(2) of this revenue procedure, a payorthat uses the high-low substantiationmethod with respect to an employee mustuse that method for all amounts paid tothat employee for travel away from homewithin CONUS during the calendar year.See section 5.06 of this revenue proce-dure for transition rules.

(2) With respect to an employee de-scribed in section 5.05(1) of this revenueprocedure, the payor may reimburse ac-tual expenses or use the meals only perdiemmethod described in section 4.02 ofthis revenue procedure for any travelaway from home, and may use the per

diem substantiation method described insection 4.01 of this revenue procedure forany OCONUS travel away from home.

.06 Transition rules. A payor who usedthe substantiation method of section 4.01of Rev. Proc. 2000-9 for an employee dur-ing the first 9 months of calendar year2000 may not use the High-Low Substan-tiation Method in section 5 of this revenueprocedure for that employee until January1, 2001. A payor who used the High-LowSubstantiation Method of section 5 ofRev. Proc. 2000-9 for an employee duringthe first 9 months of calendar year 2000must continue to use the High-Low Sub-stantiation Method for the remainder ofcalendar year 2000 for that employee. Apayor described in the previous sentencemay use the rates and high-cost localitiespublished in section 5 of Rev. Proc. 2000-9, in lieu of the updated rates and high-cost localities provided in section 5 of this

revenue procedure, for travel on or afterOctober 1, 2000, and before January 1,2001, if those rates and localities are usedconsistently during this period for all em-ployees reimbursed under this method.

SECTION 6. LIMITATIONS ANDSPECIAL RULES

.01 In general. The federal per diemrate and the federal M&IE rate describedin section 3.02 of this revenue procedurefor the locality of travel will be applied inthe same manner as applied under theFederal Travel Regulations, 41 C.F.R.Part 301-11 (2000), except as provided insections 6.02 through 6.04 of this rev-enue procedure.

.02 Federal per diem rate. A receiptfor lodging expenses is not required indetermining the amount of expensesdeemed substantiated under section 4.01or 5.01 of this revenue procedure. Seesection 7.01 of this revenue procedure forthe requirement that the employee sub-stantiate the time, place, and businesspurpose of the expense.

.03 Federal per diem or M&IE rate. Apayor is not required to reduce the federalper diemrate or the federal M&IE ratefor the locality of travel for meals pro-vided in kind, provided the payor has areasonable belief that meal and incidentalexpenses were or will be incurred by theemployee.

.04 Proration of the federal per diemor M&IE rate. Pursuant to the FederalTravel Regulations, in determining thefederal per diemrate or the federal M&IErate for the locality of travel, the full ap-plicable federal M&IE rate is availablefor a full day of travel from 12:01 a.m. to12:00 midnight. For purposes of deter-mining the amount deemed substantiatedunder section 4 or 5 of this revenue pro-cedure with respect to partial days oftravel away from home, either of the fol-lowing methods may be used to proratethe federal M&IE rate to determine thefederal per diemrate or the federal M&IErate for the partial days of travel:

(1) Such rate may be prorated usingthe method prescribed by the FederalTravel Regulations. Currently the Fed-eral Travel Regulations allow three-fourths of the applicable federal M&IErate for each partial day during which theemployee or self-employed individual istraveling away from home in connection

with the performance of services as anemployee or self-employed individual; or

(2) Such rate may be prorated usingany method that is consistently appliedand in accordance with reasonable busi-ness practice. For example, if an em-ployee travels away from home from 9a.m. one day to 5 p.m. the next day, amethod of proration that results in anamount equal to 2 times the federal M&IErate will be treated as being in accordancewith reasonable business practice (eventhough only 1 1/2 times the federal M&IErate would be allowed under the FederalTravel Regulations).

.05 Application of the appropriate § 274(n) limitation on meal expenses. Allor part of the amount of an expensedeemed substantiated under this revenueprocedure is subject to the appropriatelimitation under § 274(n) (see section2.02 of this revenue procedure) on the de-ductibility of food and beverage ex-penses.

(1) When an amount for meal andincidental expenses is computed pur-suant to section 4.03 of this revenue pro-cedure, the taxpayer must treat suchamount as an expense for food and bev-erages.

(2) When a per diemallowance ispaid only for meal and incidental ex-penses, the payor must treat an amountequal to the lesser of the allowance orthe federal M&IE rate for the locality oftravel for such day (or partial day, seesection 6.04 of this revenue procedure)as an expense for food and beverages.

(3) When a per diemallowance ispaid for lodging, meal, and incidentalexpenses, the payor must treat an amountequal to the federal M&IE rate for the lo-cality of travel for each calendar day (orpartial day, see section 6.04 of this rev-enue procedure) the employee is awayfrom home as an expense for food andbeverages. For purposes of the preced-ing sentence, when a per diemallowancefor lodging, meal, and incidental ex-penses is paid at a rate that is less thanthe federal per diemrate for the localityof travel for such day (or partial day, seesection 6.04 of this revenue procedure),the payor may treat an amount equal to40 percent of such allowance as the fed-eral M&IE rate for the locality of travelfor such day (or partial day, see section6.04 of this revenue procedure).

.06 No double reimbursement or de-duction. If a payor pays a per diemal-lowance in lieu of reimbursing actual ex-penses for lodging, meal, and incidentalexpenses or for meal and incidental ex-penses in accordance with section 4 or 5of this revenue procedure, any additionalpayment with respect to such expenses istreated as paid under a nonaccountableplan, is included in the employee’s grossincome, is reported as wages or othercompensation on the employee’s FormW-2, and is subject to withholding andpayment of employment taxes. Simi-larly, if an employee or self-employedindividual computes the amount allow-able as a deduction for meal and inciden-tal expenses for travel away from homein accordance with section 4.03 or 4.04of this revenue procedure, no other de-duction is allowed to the employee orself-employed individual with respect tosuch expenses. For example, assume anemployee receives a per diemallowancefrom a payor for lodging, meal, and inci-dental expenses or for meal and inciden-tal expenses incurred while travelingaway from home. During that trip, theemployee pays for dinner for the em-ployee and two business associates. Thepayor reimburses as a business entertain-ment meal expense the meal expense forthe employee and the two business asso-ciates. Because the payor also pays a perdiem allowance to cover the cost of theemployee’s meals, the amount paid bythe payor for the employee’s portion ofthe business entertainment meal expenseis treated as paid under a nonaccountableplan, is reported as wages or other com-pensation on the employee’s Form W-2,and is subject to withholding and pay-ment of employment taxes.

.07 Related parties. Sections 4.01 and5 of this revenue procedure will notapply in any case in which a payor andan employee are related within the mean-ing of § 267(b), but for this purpose thepercentage of ownership interest referredto in § 267(b)(2) shall be 10 percent.

SECTION 7. APPLICATION

.01 If the amount of travel expenses isdeemed substantiated under the rules pro-vided in section 4 or 5 of this revenue pro-cedure, and the employee actually sub-stantiates to the payor the elements oftime, place, and business purpose of the

2000–41 I.R.B. 345 October 10, 2000

travel expenses in accordance with para-graphs (b)(2) (travel away from home)and (c) (other than subparagraph(2)(iii)(A) thereof) of § 1.274-5, the em-ployee is deemed to satisfy the adequateaccounting requirements of § 1.274-5(f)as well as the requirement to substantiateby adequate records or other sufficient ev-idence for purposes of § 1.274-5(c). See§ 1.62-2(e)(1) for the rule that an arrange-ment must require business expenses tobe substantiated to the payor within a rea-sonable period of time.

.02 An arrangement providing per diemallowances will be treated as satisfyingthe requirement of § 1.62-2(f)(2) with re-spect to returning amounts in excess ofexpenses if the employee is required to re-turn within a reasonable period of time (asdefined in § 1.62-2(g)) any portion ofsuch an allowance that relates to days oftravel not substantiated, even though thearrangement does not require the em-ployee to return the portion of such an al-lowance that relates to days of travel sub-stantiated and that exceeds the amount ofthe employee’s expenses deemed substan-tiated. For example, assume a payor pro-vides an employee an advance per diemallowance for meal and incidental ex-penses of $200, based on an anticipated 5days of business travel at $40 per day to alocality for which the federal M&IE rateis $34, and the employee substantiates 3full days of business travel. The require-ment to return excess amounts will betreated as satisfied if the employee is re-quired to return within a reasonable pe-riod of time (as defined in § 1.62-2(g)) theportion of the allowance that is attribut-able to the 2 unsubstantiated days oftravel ($80), even though the employee isnot required to return the portion of the al-lowance ($18) that exceeds the amount ofthe employee’s expenses deemed substan-tiated under section 4.02 of this revenueprocedure ($102) for the 3 substantiateddays of travel. However, the $18 excessportion of the allowance is treated as paidunder a nonaccountable plan as discussedin section 7.04 of this revenue procedure.

.03 An employee is not required to in-clude in gross income the portion of a perdiem allowance received from a payorthat is less than or equal to the amountdeemed substantiated under the rules pro-vided in section 4 or 5 of this revenue pro-cedure if the employee substantiates the

business travel expenses covered by theper diem allowance in accordance withsection 7.01 of this revenue procedure.See § 1.274-5(f)(2)(i). In addition, suchportion of the allowance is treated as paidunder an accountable plan, is not reportedas wages or other compensation on theemployee’s Form W-2, and is exemptfrom the withholding and payment of em-ployment taxes. See § 1.62-2(c)(2) and(c)(4).

.04 An employee is required to includein gross income only the portion of theper diem allowance received from a payorthat exceeds the amount deemed substan-tiated under the rules provided in section4 or 5 of this revenue procedure if the em-ployee substantiates the business travelexpenses covered by the per diem al-lowance in accordance with section 7.01of this revenue procedure. See § 1.274-5(f)(2)(ii). In addition, the excess portionof the allowance is treated as paid under anonaccountable plan, is reported as wagesor other compensation on the employee’sForm W-2, and is subject to withholdingand payment of employment taxes. See § 1.62-2(c)(3)(ii), (c)(5), and (h)(2)(i)(B).

.05 If the amount of the expenses thatis deemed substantiated under the rulesprovided in section 4.01, 4.02, or 5 of thisrevenue procedure is less than theamount of the employee’s business ex-penses for travel away from home, theemployee may claim an itemized deduc-tion for the amount by which the businesstravel expenses exceed the amount that isdeemed substantiated, provided the em-ployee substantiates all the businesstravel expenses, includes on Form 2106,Employee Business Expenses, thedeemed substantiated portion of the perdiemallowance received from the payor,and includes in gross income the portion(if any) of the per diemallowance re-ceived from the payor that exceeds theamount deemed substantiated. See § 1.274-5(f)(2)(iii). However, for pur-poses of claiming this itemized deductionwith respect to meal and incidental ex-penses, substantiation of the amount ofthe expenses is not required if the em-ployee is claiming a deduction that isequal to or less than the amount com-puted under section 4.03 of this revenueprocedure minus the amount deemedsubstantiated under sections 4.02 and7.01 of this revenue procedure. The

itemized deduction is subject to the ap-propriate limitation (see section 2.02 ofthis revenue procedure) on meal and en-tertainment expenses provided in § 274(n) and the 2-percent floor on mis-cellaneous itemized deductions providedin § 67.

.06 An employee who does not receivea per diemallowance for meal and inci-dental expenses may deduct an amountcomputed pursuant to section 4.03 of thisrevenue procedure only as an itemizeddeduction. This itemized deduction issubject to the appropriate limitation (seesection 2.02 of this revenue procedure)on meal and entertainment expenses pro-vided in § 274(n) and the 2-percent flooron miscellaneous itemized deductionsprovided in § 67.

.07 A self-employed individual maydeduct an amount computed pursuant tosection 4.03 of this revenue procedure indetermining adjusted gross income under§ 62(a)(1). This deduction is subject tothe appropriate limitation (see section2.02 of this revenue procedure) on mealand entertainment expenses provided in § 274(n).

.08 If a payor’s reimbursement or otherexpense allowance arrangement evi-dences a pattern of abuse of the rules of § 62(c) and the regulations thereunder, allpayments under the arrangement will betreated as made under a nonaccountableplan. Thus, such payments are includedin the employee’s gross income, are re-ported as wages or other compensationon the employee’s Form W-2, and aresubject to withholding and payment ofemployment taxes. See § 1.62-2(c)(3),(c)(5), and (h)(2).

SECTION 8. WITHHOLDING ANDPAYMENT OF EMPLOYMENTTAXES.

.01 The portion of a per diemal-lowance, if any, that relates to the days ofbusiness travel substantiated and that ex-ceeds the amount deemed substantiatedfor those days under section 4.01, 4.02,or 5 of this revenue procedure is subjectto withholding and payment of employ-ment taxes. See § 1.62-2(h)(2)(i)(B).

.02 In the case of a per diemallowancepaid as a reimbursement, the excess de-scribed in section 8.01 of this revenueprocedure is subject to withholding andpayment of employment taxes in the pay-

October 10, 2000 346 2000–41 I.R.B.

roll period in which the payor reimbursesthe expenses for the days of travel sub-stantiated. See § 1.62-2(h)(2)(i)(B)(2).

.03 In the case of a per diemallowancepaid as an advance, the excess describedin section 8.01 of this revenue procedureis subject to withholding and payment ofemployment taxes no later than the firstpayroll period following the payroll pe-riod in which the days of travel with re-spect to which the advance was paid aresubstantiated. See § 1.622(h)(2)(i)(B)(3).If some or all of the days of travel withrespect to which the advance was paidare not substantiated within a reasonableperiod of time and the employee does notreturn the portion of the allowance thatrelates to those days within a reasonableperiod of time, the portion of the al-lowance that relates to those days is sub-ject to withholding and payment of em-ployment taxes no later than the firstpayroll period following the end of thereasonable period. See § 1.622(h)(2)-(i)(A).

.04 In the case of a per diemallowanceonly for meal and incidental expenses fortravel away from home paid to an em-ployee in the transportation industry by apayor that uses the rule in section 4.04(3)of this revenue procedure, the excess ofthe per diemallowance paid for the pe-riod over the amount deemed substanti-ated for the period under section 4.02 of

this revenue procedure (after applyingsection 4.04(3) of this revenue proce-dure), is subject to withholding and pay-ment of employment taxes no later thanthe first payroll period following the pay-roll period in which the excess is com-puted. See § 1.62-2(h)(2)(i)(B)(4).

.05 For example, assume that an em-ployer pays an employee a per diemal-lowance to cover business expenses formeals and lodging for travel away fromhome at a rate of 120 percent of the fed-eral per diemrate for the localities towhich the employee travels. The em-ployer does not require the employee toreturn the 20 percent by which the reim-bursement for those expenses exceeds thefederal per diemrate. The employee sub-stantiates 6 days of travel away fromhome: 2 days in a locality in which thefederal per diemrate is $100 and 4 daysin a locality in which the federal per diemrate is $125. The employer reimbursesthe employee $840 for the 6 days oftravel away from home (2 x (120% x$100) + 4 x (120% x $125)), and does notrequire the employee to return the excesspayment of $140 (2 days x $20 ($120-$100) + 4 days x $25 ($150-$125)). Forthe payroll period in which the employerreimburses the expenses, the employermust withhold and pay employment taxeson $140. See section 8.02 of this revenueprocedure.

SECTION 9. EFFECT ON OTHERDOCUMENTS

.01 Rev. Proc. 2000-9 is hereby super-seded (except to the extent specified insections 4.04(5) and 5.06 of this revenueprocedure) for per diemallowances thatare paid both (1) to an employee on orafter October 1, 2000, and (2) with re-spect to lodging, meal, and incidental ex-penses or with respect to meal and inci-dental expenses paid or incurred for travelwhile away from home on or after Octo-ber 1, 2000. Rev. Proc. 2000-9 is alsohereby superseded (except to the extentspecified in section 4.04(5) of this rev-enue procedure) for purposes of comput-ing the amount allowable as a deductionfor meal and incidental expenses paid orincurred by an employee or self-em-ployed individual for travel while awayfrom home on or after October 1, 2000.

.02 Notice 2000-48, 2000-37 I.R.B.265, is hereby superseded.

DRAFTING INFORMATION

The principal author of this revenueprocedure is Edwin B. Cleverdon of theOffice of Associate Chief Counsel (In-come Tax and Accounting). For furtherinformation regarding this revenue proce-dure, contact Mr. Cleverdon at (202) 622-4920 (not a toll-free call).

2000–41 I.R.B. 347 October 10, 2000

TeleFile Voice Signature Test;Correction

Announcement 2000–81

AGENCY: Internal Revenue Service(IRS), Treasury

ACTION: Correction to removal of tem-porary regulations.

SUMMARY: This document containscorrections to a removal of temporaryregulations that provides that an individ-ual Federal income tax return completedas part of the Telefile Voice Signature testwill be treated as a return that is signed,authenticated, verified and filed by thetaxpayer. This document was publishedin the Federal Register on July 18, 2000(65 F.R. 44437).

DATES: This correction is effective July18, 2000.

FOR FURTHER INFORMATION CON-TACT: Beverly A. Baughman (202)622-4940 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Need for Correction

As published, the removal of tempo-

rary regulations (TD 8892, 2000–32I.R.B.158) contains errors that may proveto be misleading and is in need of clarifi-cation.

Correction of Publication

Accordingly, the publication of theremoval of temporary regulations (TD8892), which is the subject of FR Doc.00-18116, is corrected as follows:

1. On page 44438, column 1, inamendatory instruction Par. 6., line 1, thelanguage, “Par. 6. Section 602.101(c) isamended” is corrected to read “Par. 6.Section 602.101(b) is amended”.§602.101 [Corrected]

2. On page 44438, column 1, the para-graph designation §602.101 (c) is cor-rectly designated §602.101 (b).

Cynthia Grigsby,Chief, Regulations Unit,

Office of Special Counsel(Modernization and Strategic Planning).

(Filed by the Office of the Federal Regis-ter on September 18, 2000, 8:45 a.m., andpublished in the issue of the Federal Reg-ister for September 19, 2000, 65 F.R.56484)

New Form 8869, QualifiedSubchapter S SubsidiaryElection

Announcement 2000-83

New Form 8869 is now available. Aparent S corporation uses Form 8869 toelect to treat one or more of its eligiblesubsidiaries as a qualified subchapter Ssubsidiary (QSub).

The new form replaces the temporaryprocedures for filing a QSub electionunder Notice 97-4, 1997-1 C.B. 351. As aresult, Form 966, Corporate Dissolutionor Liquidation, may no longer be used tomake a QSub election.

You can obtain Form 8869 by tele-phone or by using IRS electronic informa-tion services.

Request by Number or address

Telephone 1-800-TAX-FORM

(1-800-829-3676)

Personal computer:

IRS Internet Web Site www.irs.gov

File transfer protocol ftp.irs.gov

Part IV. Items of General Interest

2000–41 I.R.B. 348 October 10, 2000

2000–41 I.R.B. i October 10, 2000

Revenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe theeffect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position isbeing extended to apply to a variation ofthe fact situation set forth therein. Thus,if an earlier ruling held that a principleapplied to A, and the new ruling holdsthat the same principle also applies to B,the earlier ruling is amplified. (Comparewith 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 in aprior ruling is being changed.

Distinguisheddescribes a situationwhere a ruling mentions a previouslypublished ruling and points out an essen-tial 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 but notto B, and the new ruling holds that it ap-

plies to both A and B, the prior ruling ismodified because it corrects a publishedposition. (Compare with amplified andclarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly usedin a ruling that lists previously publishedrulings that are obsoleted because ofchanges in law or regulations. A rulingmay also be obsoleted because the sub-stance has been included in regulationssubsequently adopted.

Revoked describes situations where theposition in the previously published rul-ing is not correct and the correct positionis being stated in the new ruling.

Superseded describes a situation wherethe new ruling does nothing more thanrestate the substance and situation of apreviously published ruling (or rulings).Thus, the term is used to republish underthe 1986 Code and regulations the sameposition published under the 1939 Codeand regulations. The term is also usedwhen it is desired to republish in a singleruling a series of situations, names, etc.,that were previously published over a pe-riod of time in separate rulings. If the

new ruling does more than restate thesubstance of a prior ruling, a combinationof terms is used. For example, modifiedand superseded describes a situationwhere the substance of a previously pub-lished ruling is being changed in part andis continued without change in part and itis desired to restate the valid portion ofthe previously published ruling in a newruling that is self contained. In this casethe previously published ruling is firstmodified and then, as modified, is super-seded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling andthat list is expanded by adding furthernames in subsequent rulings. After theoriginal ruling has been supplementedseveral times, a new ruling may be pub-lished that includes the list in the originalruling and the additions, and supersedesall prior rulings in the series.

Suspended is used in rare situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome ofcases in litigation, or the outcome of aService study.

AbbreviationsThe following abbreviations in current use and for-merly used will appear in material published in theBulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

E.O.—Executive Order.

ER—Employer.

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

FC—Foreign Country.

FICA—Federal Insurance Contributions Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statements of Procedural Rules.

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

X—Corporation.

Y—Corporation.

Z—Corporation.

Definition of Terms

October 10, 2000 ii 2000–41 I.R.B.

Numerical Finding List1

Bulletins 2000–27 through 2000–40

Announcements:

2000–57, 2000–28 I.R.B. 1152000–58, 2000–30 I.R.B. 1352000–59, 2000–29 I.R.B. 1202000–60, 2000–31 I.R.B. 1492000–61, 2000–30 I.R.B. 1362000–62, 2000–30 I.R.B. 1372000–63, 2000–31 I.R.B. 1492000–64, 2000–31 I.R.B. 1492000–65, 2000–31 I.R.B. 1502000–66, 2000–32 I.R.B. 1602000–67, 2000–32 I.R.B. 1602000–68, 2000–32 I.R.B. 1612000–69, 2000–33 I.R.B. 1832000–70, 2000–34 I.R.B. 2042000–72, 2000–35 I.R.B. 2262000–73, 2000–35 I.R.B. 2302000–74, 2000–35 I.R.B. 2302000–75, 2000–37 I.R.B. 2682000–76, 2000–36 I.R.B. 2602000–77, 2000–36 I.R.B. 2602000–79, 2000–39 I.R.B. 3032000–80, 2000–40 I.R.B. 320

Court Decisions:

2068, 2000–28 I.R.B. 109

Notices:

2000–33, 2000–27 I.R.B. 972000–34, 2000–33 I.R.B. 1722000–35, 2000–29 I.R.B. 1182000–36, 2000–33 I.R.B. 1732000–37, 2000–29 I.R.B. 1182000–38, 2000–33 I.R.B. 1742000–39, 2000–30 I.R.B. 1322000–40, 2000–30 I.R.B. 1342000–41, 2000–33 I.R.B. 1772000–42, 2000–39 I.R.B. 3022000–43, 2000–35 I.R.B. 2092000–44, 2000–36 I.R.B. 2552000–45, 2000–36 I.R.B. 2562000–46, 2000–37 I.R.B. 2652000–48, 2000–37 I.R.B. 2652000–49, 2000–37 I.R.B. 2662000–50, 2000–38 I.R.B. 2912000–51, 2000–38 I.R.B. 2912000–52, 2000–38 I.R.B. 2922000–53, 2000–38 I.R.B. 293

Proposed Regulations:

REG–209038–89, 2000–34 I.R.B. 191REG–105316–98, 2000–27 I.R.B. 98REG–110311–98, 2000–36 I.R.B. 258REG–116495–99, 2000–33 I.R.B. 179REG–103735–00, 2000–36 I.R.B. 258REG–103736–00, 2000–36 I.R.B. 258REG–108522–00, 2000–34 I.R.B. 187REG–112502–00, 2000–40 I.R.B. 316

Railroad Retirement Quarterly Rate:

2000–28, I.R.B. 1122000–29, I.R.B. 117

Revenue Procedures:

2000–28, 2000–27 I.R.B. 602000–29, 2000–28 I.R.B. 113

Revenue Procedures—continued:

2000–30, 2000–28 I.R.B. 1132000–31, 2000–31 I.R.B. 1462000–32, 2000–33 I.R.B. 1722000–33, 2000–36 I.R.B. 2572000–34, 2000–34 I.R.B. 1862000–35, 2000–35 I.R.B. 2112000–36, 2000–37 I.R.B. 2672000–37, 2000–40 I.R.B. 3082000–38, 2000–40 I.R.B. 310

Revenue Rulings:

2000–32, 2000–27 I.R.B. 12000–33, 2000–31 I.R.B. 1422000–34, 2000–29 I.R.B. 1162000–35, 2000–31 I.R.B. 1382000–36, 2000–31 I.R.B. 1402000–37, 2000–32 I.R.B. 1562000–38, 2000–32 I.R.B. 1572000–39, 2000–34 I.R.B. 1842000–40, 2000–35 I.R.B. 2082000–41, 2000–36 I.R.B. 2482000–42, 2000–39 I.R.B. 2972000–47, 2000–37 I.R.B. 264

Treasury Decisions:

8886, 2000–27 I.R.B. 38888, 2000–27 I.R.B. 38889, 2000–30 I.R.B. 1248890, 2000–30 I.R.B. 1228891, 2000–32 I.R.B. 1528892, 2000–32 I.R.B. 1588893, 2000–31 I.R.B. 1438894, 2000–33 I.R.B. 1628895, 2000–40 I.R.B. 3048896, 2000–36 I.R.B. 2498897, 2000–36 I.R.B. 2348898, 2000–38 I.R.B. 2768899, 2000–38 I.R.B. 2888900, 2000–38 I.R.B. 2798901, 2000–38 I.R.B. 272

1 A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., published inInternal Revenue Bulletins 2000–1 through 2000–26is in Internal Revenue Bulletin 2000–27, dated July3, 2000.

2000–41 I.R.B. iii October 10, 2000

Finding List of Current Actions onPreviously Published Items1

Bulletins 2000–27 through 2000–40

Notices:

87–76Obsoleted byT.D. 8897, 2000–36 I.R.B. 234

88–24Obsoleted byT.D. 8897, 2000–36 I.R.B. 234

88–86Obsoleted byT.D. 8897 (section V), 2000–36 I.R.B. 234

Proposed Regulations:

FI–42–90Withdrawn byAnnouncement 2000–63, 2000–31 I.R.B. 149

IA–38–93Withdrawn byAnnouncement 2000–68, 2000–32 I.R.B. 161

REG–107644–98Corrected byAnnouncement 2000–66, 2000–32 I.R.B. 160

Revenue Procedures:

88–23Superseded byRev. Proc. 2000–35, 2000–35 I.R.B. 211

98–50Modified and superseded byRev. Proc. 2000–31, 2000–31 I.R.B. 146

98–51Modified and superseded byRev. Proc. 2000–31, 2000–31 I.R.B. 146

99–18Modified by Rev. Proc. 2000–29, 2000–28 I.R.B. 113

99–34Superseded by Rev. Proc. 2000–28, 2000–27 I.R.B. 60

99–49Modified and amplified byRev. Proc. 2000–38, 2000–40 I.R.B. 310

Treasury Decisions:

8873Corrected by Announcement 2000–74, 2000–35 I.R.B. 230

8883Corrected by Announcement 2000–57, 2000–28 I.R.B. 115

8884Corrected by Announcement 2000–73, 2000–35 I.R.B. 230

1 A cumulative list of current actions on previouslypublished items in Internal Revenue Bulletins2000–1 through 2000–26 is in Internal RevenueBulletin 2000–27, dated July 3, 2000.

INTERNAL REVENUE BULLETINThe Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

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