INCOME TAX

Rev. Rul. 2000–48, page 349.Low-income housing credit; satisfactory bond; “bondfactor” amounts for the period July throughSeptember 2000. This ruling announces the monthly bondfactor amounts to be used by taxpayers who dispose of qual-ified low-income buildings or interests therein during the peri-od July through September 2000.

T.D. 8903, page 352.Final regulations under section 1397E of the Code provideguidance to state and local governments that issue qualifiedzone academy bonds and to banks, insurance companies,and other taxpayers that hold those bonds.

T.D. 8904, page 350.Final regulations under sections 351, 354, 355, 356, and1036 of the Code relate to the effective date of the defini-tion of nonqualified preferred stock and the treatment ofnonqualified preferred stock and similar preferred stock re-ceived by shareholders in certain reorganizations and distrib-utions.

REG–103805–99, page 376.Proposed regulations under section 1502 of the Code relateto the common parent of a consolidated group as agent forthe members of the group. A public hearing is scheduled forJanuary 22, 2001.

Announcement 2000–82, page 385.The IRS released new Form 8870, Information Return forTransfers Associated With Certain Personal BenefitContracts. For taxable years beginning prior to January 1,

2000, organizations that pay premiums on “personal benefitcontracts,” as that term is used in section 170(f)(10) of theCode, must file Form 8870 by the later of 90 days after thisannouncement or the date the organization is required to fileits annual return. See also Notice 2000–24, 2000–17 I.R.B.952.

EMPLOYEE PLANS

Rev. Proc. 2000–40, page 357.Minimum funding standards; automatic change in fund-ing method. This procedure provides approval to change thefunding method used to determine the minimum funding stan-dard for defined benefit plans for plan years beginning on orafter January 1, 2000, to any one of the specific methods con-tained therein. Rev. Proc. 95–51 superseded.

Rev. Proc. 2000–41, page 371.Qualified defined benefit plan; change in fundingmethod. This procedure sets forth an updated procedure thata plan administrator or plan sponsor may use to obtainapproval to change the funding method of its qualified definedbenefit plan. Rev. Proc. 78–37 superseded. Rev. Proc.2000–4 modified.

EMPLOYMENT TAX

Page 354.Railroad retirement; rate determination; quarterly. TheRailroad Retirement Board has determined that the rate of taximposed by section 3221 of the Code shall be 26 1/2 centsfor the quarter beginning October 1, 2000.

Internal Revenue

bbuulllleettiinnBulletin No. 2000–42

October 16, 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.(Continued on the next page)

EXEMPT ORGANIZATIONS

Announcement 2000–82, page 385.The IRS released new Form 8870, Information Return forTransfers Associated With Certain Personal BenefitContracts. For taxable years beginning prior to January 1,2000, organizations that pay premiums on “personal benefitcontracts,” as that term is used in section 170(f)(10) of theCode, must file Form 8870 by the later of 90 days after thisannouncement or the date the organization is required to fileits annual return. See also Notice 2000–24, 2000–17 I.R.B.952.

Announcement 2000–84, page 385.Application of tax laws to use of the Internet byexempt organizations. The Service requests commentson the need for guidance clarifying the application of InternalRevenue Code provisions to use of the Internet by exemptorganizations.

EXCISE TAXNotice 2000–54, page 356.Determinations have been made to add nine polyether poly-ol substances to the list of taxable substances in section4672(a)(3) of the Code.

October 16, 2000 2000–42 I.R.B.

2000–42 I.R.B. October 16, 2000

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.

For a list of bond factor amounts applica-ble to dispositions occurring during othercalendar years, see the following revenuerulings: Rev. Rul. 98–3, 1998–1 C.B.248, for dispositions occurring during thecalendar years 1996 and 1997;Rev. Rul. 98–13, 1998–1 C.B. 686, fordispositions occurring during the periodJanuary through March 1998; Rev. Rul.98–31, 1998–1 C.B. 1269, for disposi-

tions occurring during the period Aprilthrough June 1998; Rev. Rul. 98–45,1998–2 C.B. 364, for dispositions occur-ring during the period July through Sep-tember 1998; Rev. Rul. 99–1, 1999–2I.R.B. 4, for dispositions occurring duringthe period October through December1998; Rev. Rul. 99–54, 1999–51 I.R.B.675, for dispositions occurring during thecalendar year 1999; Rev. Rul. 2000–22,

2000–16 I.R.B. 880, for dispositions oc-curring during the period January throughMarch 2000; and Rev. Rul. 2000–31,2000–26 I.R.B. 1269, for dispositions oc-curring during the period April throughJune 2000.

DRAFTING INFORMATION

The principal author of this revenueruling is Gregory N. Doran of the Office

2000–42 I.R.B. 349 October 16, 2000

Section 42.—Low-IncomeHousing Credit

Low-income housing credit; satis-factory bond; “bond factor”amounts for the period July throughSeptember 2000. This ruling an-nounces the monthly bond factoramounts to be used by taxpayers whodispose of qualified low-income build-ings or interests therein during the pe-riod July through September 2000.

Rev. Rul. 2000–48

In Rev. Rul. 90–60, 1990–2 C.B. 3, theInternal Revenue Service provided guid-ance to taxpayers concerning the generalmethodology used by the Treasury De-partment in computing the bond factoramounts used in calculating the amount ofbond considered satisfactory by the Sec-retary under § 42(j)(6) of the InternalRevenue Code. It further announced thatthe Secretary would publish in the Inter-

nal Revenue Bulletin a table of “bond fac-tor” amounts for dispositions occurringduring each calendar month.

This revenue ruling provides in Table 1the bond factor amounts for calculatingthe amount of bond considered satisfac-tory under § 42(j)(6) for dispositions ofqualified low-income buildings or inter-ests therein during the period July throughSeptember 2000.

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

Table 1Rev. Rul. 2000–48

Monthly Bond Factor Amounts for Dispositions ExpressedAs a Percentage of Total Credits

Calendar Year Building Placed in Serviceor, if Section 42(f)(1) Election Was Made,

the Succeeding Calendar Year

Month of 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997Disposition

Jul ‘00 39.75 54.78 67.30 77.84 79.31 82.61 86.02 89.38 92.82 96.56 100.53

Aug ‘00 39.75 54.78 67.30 77.84 79.09 82.39 85.78 89.14 92.57 96.29 100.25

Sep ‘00 39.75 54.78 67.30 77.84 78.89 82.17 85.55 88.89 92.32 96.04 99.99

Table 1 (cont’d)Rev. Rul. 2000–48

Monthly Bond Factor Amounts for Dispositions ExpressedAs a Percentage of Total Credits

Calendar Year Building Placed in Serviceor, if Section 42(f)(1) Election Was Made,

the Succeeding Calendar Year

Month of 1998 1999 2000Disposition

Jul ‘00 104.92 109.29 112.52

Aug ‘00 104.64 109.02 112.52

Sep ‘00 104.37 108.77 112.52

of Associate Chief Counsel (Passthroughsand Special Industries). For further infor-mation regarding this revenue ruling, con-tact Mr. Doran at (202) 622-3040 (not atoll-free call).

Section 351.—Transfer toCorporation Controlled byTransferor

26 CFR 1.351–2: Receipt of property.

T.D. 8904

DEPARTMENT OF THE TREASURYInternal Revenue Service26 CFR Part 1

Treatment of NonqualifiedPreferred Stock and OtherPreferred Stock in CertainExchanges and Distributions

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document containsfinal regulations relating to nonqualifiedpreferred stock. The regulations addressthe effective date of the definition of non-qualified preferred stock and the treat-ment of nonqualified preferred stock andsimilar preferred stock received by share-holders in certain corporate reorganiza-tions and distributions. The regulationsare necessary to reflect changes to the lawconcerning these types of preferred stockthat were made by the Taxpayer ReliefAct of 1997.

EFFECTIVE DATE: These regulationsare effective October 2, 2000.

FOR FURTHER INFORMATION CON-TACT: Richard E. Coss, (202) 622-7790(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background and Explanation ofProvisions

On January 26, 2000, the IRS andTreasury published in the Federal Regis-ter a notice of proposed rulemaking(REG–105089–99, 2000–6 I.R.B. 580[65 F.R. 4203]) relating to nonqualifiedpreferred stock (as defined in section351(g)(2) of the Internal Revenue Code)

(NQPS). The proposed regulations ad-dress the effective date of the definitionof NQPS, and provide rules exemptingfrom treatment as NQPS certain pre-ferred stock received by shareholders incorporate reorganizations and distribu-tions subject to sections 354, 355, and356.

No comments responding to the noticeof proposed rulemaking were submitted,and no public hearing was requested orheld. However, one commentator sug-gested that the rule in the proposed regula-tions interpreting section 351(g)(2)-(C)(i)(II) (relating to preferred stocktransferred in connection with the perfor-mance of services) should be expanded toinclude transactions subject to section351.

The IRS and Treasury agree with thissuggestion. Accordingly, these final regu-lations extend the exemption from treat-ment as NQPS in §1.356–7(c) to preferredstock received by shareholders in certainstock exchanges under section 351. Theproposed regulations are adopted as re-vised by this Treasury decision.

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 has also 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 and, because the regulations do notimpose a collection of information onsmall entities, the Regulatory FlexibilityAct (5 U.S.C. chapter 6) does not apply.Pursuant to section 7805(f) of the InternalRevenue Code, the notice of proposedrulemaking preceding these regulationswas submitted to the Chief Counsel forAdvocacy of the Small Business Adminis-tration for comment on its impact on smallbusiness.

Drafting Information

The principal author of these regula-tions is Richard E. Coss of the Office ofAssociate Chief Counsel (Corporate).However, other personnel from the IRSand Treasury participated in their develop-ment.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 is amendedas follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by adding the followingentries in numerical order to read in partas follows:

Authority: 26 U.S.C. 7805 * * *Section 1.351–2 also issued under 26U.S.C. 351(g)(4). Section 1.354–1 also issued under 26U.S.C. 351(g)(4).Section 1.355–1 also issued under 26U.S.C. 351(g)(4). Section 1.356–7 also issued under 26U.S.C. 351(g)(4). * * *Section 1.1036–1 also issued under 26U.S.C. 351(g)(4). * * *

Par. 2. Section 1.351–2 is amended byadding paragraph (e) to read as follows:

§1.351–2 Receipt of property.

* * * * *(e) See §1.356–7(a) for the applicabil-

ity of the definition of nonqualified pre-ferred stock in section 351(g)(2) for stockissued prior to June 9, 1997, and for stockissued in transactions occurring after June8, 1997, that are described in section1014(f)(2) of the Taxpayer Relief Act of1997, Public Law 105–34 (111 Stat. 788,921). See §1.356–7(c) for the treatmentof preferred stock received in certain ex-changes for common or preferred stockdescribed in section 351(g)(2)(C)(i)(II).

Par. 3. Section 1.354–1 is amended byadding paragraph (f) to read as follows:

§1.354–1 Exchanges of stock andsecurities in certain reorganizations.

* * * * *(f) See §1.356–7(a) and (b) for the

treatment of nonqualified preferred stock(as defined in section 351(g)(2)) receivedin certain exchanges for nonqualified pre-ferred stock or preferred stock. See§1.356–7(c) for the treatment of preferredstock received in certain exchanges forcommon or preferred stock described insection 351(g)(2)(C)(i)(II).

Par. 4. Section 1.355–1 is amended byadding paragraph (d) to read as follows:

October 16, 2000 350 2000–42 I.R.B.

§1.355–1 Distribution of stock andsecurities of a controlled corporation.

* * * * *(d) Nonqualified preferred stock. See

§1.356–7(a) and (b) for the treatment ofnonqualified preferred stock (as definedin section 351(g)(2)) received in certainexchanges for (or in certain distributionswith respect to) nonqualified preferredstock or preferred stock. See §1.356–7(c)for the treatment of the receipt of pre-ferred stock in certain exchanges for (orin certain distributions with respect to)common or preferred stock described insection 351(g)(2)(C)(i)(II).

Par. 5. Section 1.356–7 is added toread as follows:

§1.356–7 Rules for treatment ofnonqualified preferred stock and otherpreferred stock received in certaintransactions.

(a) Stock issued prior to effective date.Stock described in section 351(g)(2) isnonqualified preferred stock (NQPS) re-gardless of the date on which the stock isissued. However, sections 351(g),354(a)(2)(C), 355(a)(3)(D), 356(e), and1036(b) do not apply to any transactionoccurring prior to June 9, 1997, or to anytransaction occurring after June 8, 1997,that is described in section 1014(f)(2) ofthe Taxpayer Relief Act of 1997, PublicLaw 105–34 (111 Stat. 788, 921). Forpurposes of this section, preferred stockthat is not NQPS is referred to as Quali-fied Preferred Stock (QPS).

(b) Receipt of preferred stock in ex-change for (or distribution on) substan-tially identical preferred stock—(1) Gen-eral rule. For purposes of sections354(a)(2)(C)(i), 355(a)(3)(D), and356(e)(2), preferred stock is QPS, eventhough it is described in section351(g)(2), if it is received in exchange for(or in a distribution with respect to) pre-ferred stock (the original preferred stock)that is QPS, provided —

(i) The original preferred stock is QPSsolely because, on its issue date, either aright or obligation described in clause (i),(ii), or (iii) of section 351(g)(2)(A) wasnot exercisable until after a 20-year pe-riod beginning on the issue date, or theright or obligation was exercisable withinthe 20-year period beginning on the issuedate but was subject to a contingency

which made remote the likelihood of theredemption or purchase, or the issuer’s (ora related party’s) right to redeem or pur-chase the stock was not more likely thannot to be exercised within a 20-year pe-riod beginning on the issue date, or be-cause of any combination of these rea-sons; and

(ii) The stock received is substantiallyidentical to the original preferred stock.

(2) Substantially identical. The stockreceived is substantially identical to theoriginal preferred stock if—

(i) The stock received does not containany term or terms that, in relation to anyterm or terms of the original preferredstock, either decrease the period in whicha right or obligation described in clause(i), (ii), or (iii) of section 351(g)(2)(A)can be exercised, or increase the likeli-hood that such a right or obligation willbe exercised, or accelerate the timing ofthe returns from the stock instrument, in-cluding the timing of actual or deemeddividends or other distributions receivedon the stock; and

(ii) As a result of the exchange or distri-bution, exercise of the right or obligationdoes not become more likely than not tooccur within a 20-year period beginningon the issue date of the original preferredstock.

(3) Treatment of stock received. Thestock received will continue to be treatedas QPS in subsequent transactions involv-ing such stock, and the principles of thisparagraph (b) apply to such transactionsas though the stock received is the origi-nal preferred stock issued on the samedate as the original preferred stock.

(c) Stock transferred for services. Forpurposes of sections 351(g)(1), 354(a)-(2)(C)(i), 355(a)(3)(D), and 356(e)(2),preferred stock containing a right orobligation described in clause (i), (ii) or(iii) of section 351(g)(2)(A) that is exer-cisable only upon the holder’s separationfrom service from the issuer or a relatedperson (as described in section351(g)(3)(B)) will be treated as trans-ferred in connection with the performanceof services (and representing reasonablecompensation) within the meaning of sec-tion 351(g)(2)(C)(i)(II), if such preferredstock is received in exchange for (or in adistribution with respect to) existing stockcontaining a similar right or obligation(exercisable only upon separation from

service) and the existing stock was trans-ferred in connection with the performanceof services for the issuer or a related per-son (and represented reasonable compen-sation when transferred). In applying therules relating to NQPS, the preferredstock received will continue to be treatedas transferred in connection with the per-formance of services (and representingreasonable compensation) in subsequenttransactions involving such stock, and theprinciples of this paragraph (c) apply tosuch transactions.

(d) Rights to acquire stock. For pur-poses of §1.356–6, the principles of para-graphs (a), (b), and (c) of this sectionapply.

(e) Examples. In the examples in thisparagraph (e), T and P are corporations, Ais a shareholder of T, and A surrenders andreceives (in addition to the stock ex-changed in the examples) common stock inthe reorganizations described. The follow-ing examples illustrate paragraphs (a), (b),and (c) of this section:

Example 1. In 1995, A transfers property to T andreceives T preferred stock that is described in section351(g)(2) in a transaction under section 351. In 2002,pursuant to a reorganization under section368(a)(1)(B), A surrenders the T preferred stock inexchange for P NQPS. Under paragraph (a) of thissection, the T preferred stock issued to A in 1995 isNQPS. However, because section 351(g) does notapply to transactions occurring before June 9, 1997,the T NQPS was not “other property” within themeaning of section 351(b) when issued in 1995.Under sections 354(a)(2)(C) and 356(e)(2), the PNQPS received by A in 2002 is not “other property”within the meaning of section 356(a)(1)(B) because itis received in exchange for NQPS.

Example 2. T issues QPS to A on January 1, 2000that is not NQPS solely because the holder cannot re-quire T to redeem the stock until January 1, 2022. In2007, pursuant to a reorganization under section368(a)(1)(A) in which T merges into P, A surrendersthe T preferred stock in exchange for P preferredstock with terms that are identical to the terms of theT preferred stock, including the term that the holdercannot require the redemption of the stock until Janu-ary 1, 2022. Because the P stock and the T stock haveidentical terms, and because the redemption did notbecome more likely than not to occur within the 20-year period that begins on January 1, 2000 (which isthe issue date of the T preferred stock) as a result ofthe exchange, under paragraph (b) of this section, theP preferred stock received by A is treated as QPS.Thus, the P preferred stock received is not “otherproperty” within the meaning of section 356(a)(1)(B).

Example 3. The facts are the same as in Example2, except that, in addition, in 2010, pursuant to a re-capitalization of P under section 368(a)(1)(E), A ex-changes the P preferred stock above for P NQPS thatpermits the holder to require P to redeem the stock in2020. Under paragraph (b) of this section, the P pre-ferred stock surrendered by A is treated as QPS. Be-

2000–42 I.R.B. 351 October 16, 2000

cause the P preferred stock received by A in the recap-italization is not substantially identical to the P pre-ferred stock surrendered, the P preferred stock re-ceived by A is not treated as QPS. Thus, the Ppreferred stock received is “other property” within themeaning of section 356(a)(1)(B).

Example 4. T issues preferred stock to A on Jan-uary 1, 2000 that permits the holder to require T toredeem the stock on January 1, 2018, or at any timethereafter, but which is not NQPS solely because, asof the issue date, the holder’s right to redeem is sub-ject to a contingency that makes remote the likeli-hood of redemption on or before January 1, 2020. In2007, pursuant to a reorganization under section368(a)(1)(A) in which T merges into P, A surrendersthe T preferred stock in exchange for P preferredstock with terms that are identical to the terms of theT preferred stock. Immediately before the ex-change, the contingency to which the holder’s rightto cause redemption of the T stock is subject makesremote the likelihood of redemption before January1, 2020, but the P stock, although subject to thesame contingency, is more likely than not to be re-deemed before January 1, 2020. Because, as a resultof the exchange of T stock for P stock, the exerciseof the redemption right became more likely than notto occur within the 20-year period beginning on theissue date of the T preferred stock, the P preferredstock received by A is not substantially identical tothe T stock surrendered, and is not treated as QPS.Thus, the P preferred stock received is “other prop-erty” within the meaning of section 356(a)(1)(B).

Example 5. The facts are the same as in Example4, except that, immediately before the merger of Tinto P in 2007, the contingency to which the holder’sright to cause redemption of the T stock is subjectmakes it more likely than not that the T stock will beredeemed before January 1, 2020. Because exerciseof the redemption right did not become more likelythan not to occur within the 20-year period begin-ning on the issue date of the T preferred stock as aresult of the exchange, the P preferred stock re-ceived by A is substantially identical to the T stocksurrendered, and is treated as QPS. Thus, the P pre-ferred stock received is not “other property” withinthe meaning of section 356(a)(1)(B).

Example 6. A is an employee of T. In connectionwith A’s performance of services for T, T transfers toA in 2000 an amount of T common stock that repre-sents reasonable compensation. The T commonstock contains a term granting A the right to requireT to redeem the common stock, but only upon A’sseparation from service from T. In 2005, pursuant toa reorganization under section 368(a)(1)(A) inwhich T merges into P, A receives, in exchange forA’s T common stock, P preferred stock granting asimilar redemption right upon A’s separation fromP’s service. Under paragraph (c) of this section, theP preferred stock received by A is treated as trans-ferred in connection with the performance of ser-vices (and representing reasonable compensation)within the meaning of section 351(g)(2)(C)(i)(II).Thus, the P preferred stock received by A is QPS.

(f) Effective dates. This section appliesto transactions occurring on or after Octo-ber 2, 2000.

Par. 6. Section 1.1036–1 is amendedby adding paragraph (d) to read as fol-lows:

§1.1036–1 Stock for stock of the samecorporation.

* * * * *(d) Nonqualified preferred stock. See

§1.356–7(a) for the applicability of thedefinition of nonqualified preferred stockin section 351(g)(2) for stock issued priorto June 9, 1997, and for stock issued intransactions occurring after June 8, 1997,that are described in section 1014(f)(2) ofthe Taxpayer Relief Act of 1997, PublicLaw 105–34 (111 Stat. 788, 921).

Robert E. Wenzel,Deputy Commissioner

of Internal Revenue.

Approved September 25, 2000.

Jonathan Talisman,Acting Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register on Sep-tember 29, 2000, 8:45 a.m., and published in theissue of the Federal Register for October 2, 2000, 65F.R. 58650)

Section 412.—Minimum FundingStandards

A revenue procedure describes certain changes tothe funding method used to determine the minimumfunding standard for defined benefit plans for planyears beginning on or after January 1, 2000. SeeRev. Proc. 2000–40, page 357.

A procedure describes a method whereby a planadministrator or plan sponsor may obtain approvalfor a change in funding method. See Rev. Proc.2000–41, page 371.

Section 1397.—OtherDefinitions and Special Rules

26 CFR 1.1397E–1: Qualified zone academy bonds.

T.D. 8903

DEPARTMENT OF THE TREASURYInternal Revenue Service26 CFR Part 1

Qualified Zone Academy Bonds;Obligations of States and

Political Subdivisions

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document containsfinal regulations relating to the Federal in-come tax treatment of qualified zoneacademy bonds. These regulations pro-vide guidance to State and local govern-ments that issue qualified zone academybonds and to banks, insurance companies,and other taxpayers that hold those bonds.These regulations make final certain tem-porary regulations.

DATES: Effective Date: These regula-tions are effective September 26, 2000.

Applicability Date: For dates of applic-ability, see §1.1397E–1(k).

FOR FURTHER INFORMATION CON-TACT: Timothy L. Jones or Allan B.Seller at 202-622-3980 (not a toll-freenumber).

SUPPLEMENTARY INFORMATION:

Background

Section 226(a) of the Taxpayer ReliefAct of 1997, Public Law 105-34 (111Stat. 788), amended the Internal RevenueCode (Code) by redesignating section1397E as section 1397F and adding a newsection 1397E. Section 1397E authorizesa type of debt instrument known as aqualified zone academy bond.

Explanation of Provisions

In General

A qualified zone academy bond is ataxable bond issued by a State or localgovernment, the proceeds of which areused to enhance certain eligible publicschools. In lieu of receiving periodic in-terest payments from the issuer, an eligi-ble holder of a qualified zone academybond is generally allowed annual federalincome tax credits while the bond is out-standing. These credits compensate theholder for lending money to the issuer andfunction as payments of interest on thebond.

Temporary regulations (REG–119-449–97, 1998–1 C.B. 667) interpretingsection 1397E were published on January7, 1998 (63 F.R. 671), and amended on

October 16, 2000 352 2000–42 I.R.B.

2000–42 I.R.B. 353 October 16, 2000

July 1, 1999 (64 F.R. 35573). The tempo-rary regulations generally treat the al-lowance of the credit as if it were a pay-ment of interest on the bond.

Code section 1397E(e), as amended bysection 509 of the Ticket to Work andWork Incentives Improvement Act of1999, Public Law 106–170 (113 Stat.1860), imposes a national limitation onthe amount of qualified zone academybonds that can be issued. For each applic-able year, the IRS publishes a revenueprocedure allocating the national limita-tion among the States and the posses-sions.

Bonds Issued by a State or LocalGovernment

Section 1397E(d)(1)(B) requires that aqualified zone academy bond be issued bya State or local government within the ju-risdiction of which a qualified zone acad-emy (as defined in section 1397E(d)(4)) islocated. Commentators requested clarifi-cation that, for these purposes, a State orlocal government means a State or politi-cal subdivision as defined for purposes ofsection 103(c). Commentators also re-quested that the final regulations include aprovision for the issuance of qualifiedzone academy bonds on behalf of a Stateor local government in a manner similarto the issuance of obligations on behalf ofa State or political subdivision under sec-tion 103.

The final regulations provide that, forpurposes of section 1397E(d)(1)(B), theterm State or local governmentmeans aState or political subdivision as definedfor purposes of section 103(c). The finalregulations also specify that a qualifiedzone academy bond may be issued on be-half of a State or local government underrules similar to those for determiningwhether a bond issued on behalf of a Stateor political subdivision constitutes anobligation of that State or political subdi-vision for purposes of section 103.

Private Business ContributionRequirement

Section 1397E(d)(1)(C)(ii) requires theissuer of a qualified zone academy bondto certify that it has written assurancesthat the private business contribution re-quirement of section 1397E(d)(2) will bemet with respect to the qualified zoneacademy. For these purposes, the private

business contribution requirement is metif the eligible local education agency (asdefined in section 1397E(d)(4)(B)) haswritten commitments from private entitiesto make qualified contributions having apresent value as of the issue date of 10percent or more of the proceeds of theissue.

The Code does not define private enti-ties for these purposes. Section1397E(d)(2)(B) defines qualified contri-bution as any contribution (of a type andquality acceptable to the eligible local ed-ucation agency) of (i) equipment for usein the qualified zone academy, (ii) techni-cal assistance in developing curriculum orin training teachers in order to promoteappropriate market driven technology inthe classroom, (iii) services of employeesas volunteer mentors, (iv) internships,field trips, or other educational opportuni-ties outside the academy for students, or(v) any other property or service specifiedby the eligible local education agency.

Commentators requested clarificationof the meaning of private entitiesforthese purposes. For example, commenta-tors asked whether the term may includean organization described in section501(c)(3) or a private individual.

The final regulations provide that, forpurposes of section 1397E(d)(2)(A), theterm private entitiesincludes any person(as defined in section 7701(a)) other thanthe United States, a State or local govern-ment, or any agency or instrumentalitythereof or related party with respectthereto.

Commentators also sought clarificationregarding the meaning of qualified contri-bution under section 1397E(d)(2)(B).The final regulations provide that cash re-ceived with respect to a qualified zoneacademy from a private entity constitutesa qualified contribution if it is to be usedto purchase any property or service de-scribed in section 1397E(d)(2)(B)(i), (ii),(iii), (iv) or (v). The final regulations alsoindicate that services of employees of theeligible local education agency do notconstitute qualified contributions.

Issuer Certifications

Section 1397E(d)(1)(C) requires the is-suer to certify (1) that it has written assur-ances that the private business contribu-tion requirement will be met, and (2) thatit has the written approval of the eligible

local education agency for the bond is-suance. The Treasury and the IRS intendthat these certifications will be respectedand may be relied on by taxpayers if thecertifications are reasonably made.

95 Percent Test

Section 1397E(d)(1)(A) requires that95 percent or more of the proceeds of anissue of qualified zone academy bonds beused for a qualified purpose described insection 1397E(d)(5) with respect to aqualified zone academy. The Treasuryand the IRS intend that the qualified pur-poses set forth in section 1397E(d)(5) areto be broadly interpreted. The Treasuryand the IRS also intend that issuers mayapply principles similar to the require-ments of §1.142–2 (without regard to therequirement therein that the period be-tween the issue date and the first call datenot exceed 10 1/2 years) to cure an unex-pected failure to spend 95 percent or moreof the proceeds of an issue for a qualifiedpurpose. Further, the Treasury and theIRS intend that taxpayers may rely on anissuer’s determination that a public school(or academic program within a publicschool) is a qualified zone academy forpurposes of section 1397E(d)(4) if the de-termination has a reasonable basis.

Effective Dates

The final regulations apply to bondssold on or after September 26, 2000. Inaddition, the final regulations permit elec-tive, retroactive application to bonds soldbefore September 26, 2000, of either ofthe following sections of the regulations:§1.1397E–1(c) (private business contri-bution requirement) and §1.1397E–1(i)(State or local government).

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 has also been de-termined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C.chapter 5) does not apply. The Regula-tory Flexibility Act (5 U.S.C. chapter 6)does not apply because these regulationsdo not impose a collection of informationon small entities. Pursuant to section7805(f) of the Code, the notice of pro-

October 16, 2000 354 2000–42 I.R.B.

posed rulemaking preceding these regula-tions was sent to the Chief Counsel forAdvocacy of the Small Business Admin-istration for comment on its impact onsmall businesses.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 is amendedas follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by removing the entryfor Section 1.1397E–1T and adding a newentry in numerical order to read in part asfollows:

Authority: 26 U.S.C. 7805 * * * Sec-tion 1.1397E–1 also issued under 26U.S.C. 1397E(b) and (d).

§1.1397E–1T [Redesignated as§1.1397E–1]

Par. 2. Section 1.1397E–1T is redesig-nated as ‘1.1397E–1.

Par. 3. Newly designated ‘1.1397E–1 isamended as follows:

1. The section heading is revised.2. Revising paragraphs (c), (f)(2), (i)

and (j).3. Adding a new paragraph (k).The revisions and addition read as fol-

lows:

§1.1397E–1 Qualified zone academybonds.

* * * * *(c) Private business contribution re-

quirement—(1) Reasonable discount rate.To determine the present value (as of theissue date) of qualified contributions fromprivate entities under section1397E(d)(2), the issuer must use a reason-able discount rate. The credit rate deter-mined under paragraph (b) of this sectionis a reasonable discount rate.

(2) Definition of private entities. Forpurposes of section 1397E(d)(2)(A), theterm private entitiesincludes any person(as defined in section 7701(a)) other thanthe United States, a State or local govern-ment, or any agency or instrumentalitythereof or related party with respectthereto. To determine whether a person isrelated to the United States or a State orlocal government under this paragraph

(c)(2), rules similar to those for determin-ing whether a person is a related partyunder §1.150–1(b) shall apply (treatingthe United States as a governmental unitfor purposes of §1.150–1(b)).

(3) Qualified contribution. For pur-poses of section 1397E(d)(2)(A), the termqualified contributionmeans any contri-bution (of a type and quality acceptable tothe eligible local education agency) ofany property or service described in sec-tion 1397E(d)(2)(B)(i), (ii), (iii), (iv) or(v). In addition, cash received with re-spect to a qualified zone academy from aprivate entity (other than cash received in-directly from a person that is not a privateentity as part of a plan to avoid the re-quirements of section 1397E) constitutesa qualified contribution if it is to be usedto purchase any property or service de-scribed in section 1397E(d)(2)(B)(i), (ii),(iii), (iv) or (v). Services of employees ofthe eligible local education agency do notconstitute qualified contributions.* * * * *

(f) * * *(2) Adjustment if the holder cannot use

the credit to offset a tax liability. If a holderholds a qualified zone academy bond on thecredit allowance date but cannot use all or aportion of the credit to reduce its incometax liability (for example, because theholder is not an eligible taxpayer or becausethe limitation in section 1397E(c) applies),the holder is allowed a deduction for thetaxable year that includes the credit al-lowance date (or, at the option of theholder, the next succeeding taxable year).The amount of the deduction is equal to theamount of the unused credit deemed paidon the credit allowance date. * * * * *

(i) State or local government—(1) Ingeneral. For purposes of section1397E(d)(1)(B), the term State or localgovernmentmeans a State or political sub-division as defined for purposes of section103(c).

(2) On behalf of issuer. A qualified zoneacademy bond may be issued on behalf of aState or local government under rules simi-lar to those for determining whether a bondissued on behalf of a State or political sub-division constitutes an obligation of thatState or political subdivision for purposesof section 103.

(j) Cross-references. See section 171 andthe regulations thereunder for rules relating

to amortizable bond premium. See§1.61–7(d) for the seller’s treatment of abond sold between interest payment dates(credit allowance dates) and §1.61–7(c) forthe buyer’s treatment of a bond purchasedbetween interest payment dates (credit al-lowance dates).

(k) Effective dates. Except as provided inthis paragraph (k), this section applies tobonds sold on or after September 26, 2000.Each of paragraphs (c) and (i) of this sec-tion may be applied by issuers to bonds thatare sold before September 26, 2000.

Bob Wenzel,Deputy Commissioner

of Internal Revenue.

Approved September 19, 2000.

Jonathan Talisman,Acting Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register on Septem-ber 25, 2000, 8:45 a.m., and published in the issue ofthe Federal Register for September 26, 2000, 65 F.R.57732)

Section 3221.—Rate of Tax

Determination of Quarterly Rate ofExcise Tax for Railroad RetirementSupplemental Annuity Program

In accordance with directions in Section3221(a) of the Railroad Retirement Tax Act(26 U.S.C., Section 3221(c)), the Railroad Retirement Board has determined that theexcise tax imposed by such Section 3221(c)on every employer, with respect to havingindividuals in his employ, for each work-hour for which compensation is paid bysuch employer for services rendered to himduring the quarter beginning October 1,2000, shall be at the rate of 26 1/2 cents.

In accordance with directions in Section15(a) of the Railroad Retirement Act of1974, the Railroad Retirement Board hasdetermined that for the quarter beginningOctober 1, 2000, 38.3 percent of the taxescollected under Sections 3211(b) and3221(c) of the Railroad Retirement Tax Actshall be credited to the Railroad RetirementAccount and 61.7 percent of the taxes col-lected under such Sections 3211(b) and3221(c) plus 100 percent of the taxes col-lected under Section 3221(d) of the Rail-road Retirement Tax Act shall be credited to

the Railroad Retirement Supplemental Ac-count.

Dated August 30, 2000.By Authority of the Board.

Beatrice Ezerski,Secretary to the Board.

(Filed by the Office of the Federal Register on Septem-ber 11, 2000, 8:45 a.m., and published in the issue ofthe Federal Register for September 12, 2000, 65 F.R.55066)

2000–42 I.R.B. 355 October 16, 2000

October 16, 2000 356 2000–42 I.R.B.

Tax on Certain ImportedSubstances; Notice ofDeterminations

Notice 2000–54

This notice announces determinations,under Notice 89–61 (1989–1 C.B. 717),that the list of taxable substances in § 4672(a)(3) will be modified to includenine polyether polyol substances. Thismodification is effective October 1, 1992.

Background

Under § 4672(a), an importer or ex-porter of any substance may request thatthe Secretary determine whether that sub-stance should be listed as a taxable sub-stance. The Secretary shall add the sub-stance to the list of taxable substances in § 4672(a)(3) if the Secretary determinesthat taxable chemicals constitute morethan 50 percent of the weight, or morethan 50 percent of the value, of the mate-rials used to produce the substance. Thisdetermination is to be made on the basisof the predominant method of production.Notice 89–61 sets forth the rules relatingto the determination process.

Determinations

On July 14, 2000, the Secretary deter-mined that nine polyether polyol sub-stances should be added to the list of tax-able substances in § 4672(a)(3), effectiveOctober 1, 1992.

The rate of tax prescribed forpoly(propylene)glycol, under § 4671-(b)(3), is $7.74 per ton. This is based upona conversion factor for propylene of 0.781,a conversion factor for chlorine of 1.31, anda conversion factor for sodium hydroxideof 1.43.

The rate of tax prescribed forpoly(propylene/ethylene)glycol, under § 4671(b)(3), is $7.16 per ton. This isbased upon a conversion factor for propy-lene of 0.663, a conversion factor for chlo-rine of 1.11, a conversion factor for sodiumhydroxide of 1.21, and a conversion factorfor ethylene of 0.123.

The rate of tax prescribed for poly(propyleneoxy)glycerol, under § 4671(b)-(3), is $6.38 per ton. This is based upon aconversion factor for propylene of 0.645, a

conversion factor for chlorine of 1.08, and aconversion factor for sodium hydroxide of1.18.

The rate of tax prescribed for poly(ethyl-eneoxy)glycerol, under § 4671(b)(3), is$3.31 per ton. This is based upon a conver-sion factor for ethylene of 0.681.

The rate of tax prescribed for poly(propyleneoxy/ethyleneoxy)glycerol, un-der § 4671(b)(3), is $7.20 per ton. This isbased upon a conversion factor for propy-lene of 0.71, a conversion factor for chlo-rine of 1.05, a conversion factor for sodiumhydroxide of 1.05, and a conversion factorfor ethylene of 0.126.

The rate of tax prescribed for poly(propyleneoxy)sucrose, under § 4671(b)-(3), is $4.18 per ton. This is based upon aconversion factor for propylene of 0.423, aconversion factor for chlorine of 0.707, anda conversion factor for sodium hydroxideof 0.773.

The rate of tax prescribed for poly(propyleneoxy/ethyleneoxy)sucrose, un-der § 4671(b)(3), is $6.11 per ton. This isbased upon a conversion factor for propy-lene of 0.549, a conversion factor for chlo-rine of 0.918, a conversion factor forsodium hydroxide of 1.0, and a conversionfactor for ethylene of 0.14.

The rate of tax prescribed for poly(propyleneoxy/ethyleneoxy)diamine, un-der § 4671(b)(3), is $4.92 per ton. This isbased upon a conversion factor for propy-lene of 0.498, a conversion factor for chlo-rine of 0.833, and a conversion factor forsodium hydroxide of 0.91.

The rate of tax prescribed for poly(propyleneoxy/ethyleneoxy)benzenedia-mine, under § 4671(b)(3), is $5.25 per ton.This is based upon a conversion factor forpropylene of 0.491, a conversion factor forchlorine of 0.821, a conversion factor forsodium hydroxide of 0.897, and a conver-sion factor for ethylene of 0.081.

The petitioner is Dow Chemical Com-pany, a manufacturer and exporter of thesesubstances. No material comments werereceived on this petition. The following in-formation is the basis for the determina-tions.

The nine polyether polyol substances areliquids. They are produced predominantlyby the base-catalyzed reaction of cyclicethers, usually ethylene oxide and propy-lene oxide, with active hydrogen-contain-

ing compounds (initiators) such as water,glycols, polyols, and amines. The reactionis carried out by a discontinuous batchprocess at elevated temperatures and pres-sures and under an inert atmosphere. Theparticular substance produced dependsupon the oxides, initiators, reaction condi-tions, and catalysts used. The stoichiomet-ric amounts of oxide reacted on the initiatordetermine the chain lengths and thus themolecular weights. The HTS number forthese substances is 3907.20.00.

Poly(propylene)glycol

CAS number: 025322–69–4Poly(propylene)glycol is derived from

the taxable chemicals propylene, chlorine,and sodium hydroxide.

The stoichiometric material consump-tion formula for this substance is:n+1(C3H6 (propylene) + Cl2 (chlorine) + 2NaOH (sodium hydroxide)) + H2O (water)➝ C3H8O2(C3H6O)n (poly(propylene)gly-col) + n+1(2 NaCl (sodium chloride) +H2O (water))

Poly (propylene)glycol has been deter-mined to be a taxable substance because a re-view of its stoichiometric material consump-tion formula shows that, based on thepredominant method of production, taxablechemicals constitute at least 90 percent byweight of the materials used in its production.

Poly(propylene/ethylene)glycol

CAS number: 053637–25–5Poly(propylene/ethylene)glycol is de-

rived from the taxable chemicals propy-lene, chlorine, sodium hydroxide, andethylene.

The stoichiometric material consump-tion formula for this substance is:n+1(C3H6 (propylene) + Cl2 (chlorine) +2 NaOH (sodium hydroxide)) + H2O(water) + m/2(2 C2H4 (ethylene) + O2(oxygen)) ➝ C3H8O2(C3H6O)n(C2H4O)m(poly(propylene/ethylene)glycol) + n+1(2NaCl (sodium chloride) + H2O (water))

Poly(propylene/ethylene)glycol hasbeen determined to be a taxable substancebecause a review of its stoichiometric ma-terial consumption formula shows that,based on the predominant method of pro-duction, taxable chemicals constitute atleast 90 percent by weight of the materialsused in its production.

Part III. Administrative, Procedural, and Miscellaneous

2000–42 I.R.B. 357 October 16, 2000

Poly(propyleneoxy)glycerol

CAS number: 025791–96–2Poly(propyleneoxy)glycerol is derived

from the taxable chemicals propylene,chlorine, and sodium hydroxide.

The stoichiometric material consump-tion formula for this substance is:C3H8O3(glycerine) + n(C3H6 (propylene) + Cl2(chlorine) + 2 NaOH (sodium hydroxide))➝ C3H8O3(C3H6O)n (poly(propyle-neoxy)glycerol) + n(2 NaCl (sodiumchloride) + H2O (water))

Poly(propyleneoxy)glycerol has beendetermined to be a taxable substance be-cause a review of its stoichiometric mate-rial consumption formula shows that,based on the predominant method of pro-duction, taxable chemicals constitute atleast 85 percent by weight of the materialsused in its production.

Poly(ethyleneoxy)glycerol

CAS number: 031694–55–0Poly(ethyleneoxy)glycerol is derived

from the taxable chemical ethylene.The stoichiometric material consump-

tion formula for this substance is: C3H8O3(glycerine) + m/2(2 C2H4 (ethylene) + O2(oxygen)) ➝ C3H8O3(C2H4O)m (poly(eth-yleneoxy)glycerol)

Poly(ethyleneoxy)glycerol has beendetermined to be a taxable substance be-cause a review of its stoichiometric mate-rial consumption formula shows that,based on the predominant method of pro-duction, taxable chemicals constitutemore than 50 percent by weight of thematerials used in its production.

Poly(propyleneoxy/ethyleneoxy)glycerol

CAS number: 009082–00–2Poly(propyleneoxy/ethyleneoxy)glyce-

rol is derived from the taxable chemicalspropylene, chlorine, sodium hydroxide, andethylene.

The stoichiometric material consump-tion formula for this substance is: C3H8O3(glycerine) + n(C3H6 (propylene) + Cl2(chlorine) + 2 NaOH (sodium hydroxide))+ m/2(2 C2H4 (ethylene) + O2 (oxygen)) ➝C3H8O3(C3H6O)n(C2H4O)m (poly(propyle-neoxy/ethyleneoxy)glycerol) + n(2 NaCl(sodium chloride) + H2O (water))

Poly(propyleneoxy/ethyleneoxy)glyc-erol has been determined to be a taxablesubstance because a review of its stoi-chiometric material consumption formula

shows that, based on the predominantmethod of production, taxable chemicalsconstitute at least 85 percent by weight ofthe materials used in its production.

Poly(propyleneoxy)sucrose

CAS number: 009049–71–2Poly(propyleneoxy)sucrose is derived

from the taxable chemicals propylene,chlorine, and sodium hydroxide.

The stoichiometric material consump-tion formula for this substance is:C12H22O11(sucrose) + n(C3H6 (propylene)+ Cl2 (chlorine) + 2 NaOH (sodium hy-droxide)) ➝ C12H22O11(C3H6O)n(poly(propyleneoxy)sucrose) + n(2 NaCl(sodium chloride) + H2O (water))

Poly(propyleneoxy)sucrose has been de-termined to be a taxable substance becausea review of its stoichiometric material con-sumption formula shows that, based on thepredominant method of production, tax-able chemicals constitute at least 65 per-cent by weight of the materials used in itsproduction.

Poly(propyleneoxy/ethyleneoxy)sucrose

CAS number: 026301–10–0Poly(propyleneoxy/ethyleneoxy) su-

crose is derived from the taxable chemicalspropylene, chlorine, sodium hydroxide,and ethylene.

The stoichiometric material consumptionformula for this substance is: C12H22O11(su-crose) + n(C3H6 (propylene) + Cl2 (chlorine)+ 2 NaOH (sodium hydroxide)) + m/2(2C2H4 (ethylene) + O2 (oxygen)) ➝C12H22O11(C3H6O)n(C2H4O)m (poly(propy-leneoxy/ethyleneoxy)sucrose) + n(2 NaCl(sodium chloride) + H2O (water))

Poly(propyleneoxy/ethyleneoxy) su-crose has been determined to be a taxablesubstance because a review of its stoichio-metric material consumption formulashows that, based on the predominantmethod of production, taxable chemicalsconstitute at least 75 percent by weight ofthe materials used in its production.

Poly(propyleneoxy/ethyleneoxy)diamine

CAS number: 031568–06–6Poly(propyleneoxy/ethyleneoxy)di-

amine is derived from the taxable chemi-cals propylene, chlorine, and sodium hy-droxide.

The stoichiometric material consump-tion formula for this substance is:

C4H12N2O (aminoethylethanolamine) +n(C3H6 (propylene) + Cl2 (chlorine) + 2NaOH (sodium hydroxide)) ➝ C4H12N2O(C3H6O)n (poly(propyleneoxy/ethyl-eneoxy)diamine) + n(2 NaCl (sodiumchloride) + H2O (water))

Poly(propyleneoxy/ethyleneoxy) di-amine has been determined to be a taxablesubstance because a review of its stoi-chiometric material consumption formulashows that, based on the predominantmethod of production, taxable chemicalsconstitute at least 60 percent by weight ofthe materials used in its production.

Poly(propyleneoxy/ethyleneoxy)benzenediamine

CAS number: 067800–94–6Poly(propyleneoxy/ethyleneoxy)ben-

zenediamine is derived from the taxablechemicals propylene, chlorine, sodiumhydroxide, and ethylene.

The stoichiometric material consump-tion formula for this substance is:C7H10N2 (ortho–toluenediamine) +n(C3H6 (propylene) + Cl2 (chlorine) + 2NaOH (sodium hydroxide)) + m/2(2 C2H4(ethylene) + O2 (oxygen)) ➝ C7H10N2(C3H6O)n(C2H4O)m (poly(propyle-neoxy/ethyleneoxy)benzenediamine) +n(2 NaCl (sodium chloride) + H2O(water))

Poly(propyleneoxy/ethyleneoxy)ben-zenediamine has been determined to be ataxable substance because a review of itsstoichiometric material consumption for-mula shows that, based on the predomi-nant method of production, taxable chem-icals constitute at least 60 percent byweight of the materials used in its produc-tion.

The principal author of this notice isRuth Hoffman, Office of Associate ChiefCounsel (Passthroughs and Special Indus-tries). For further information regardingthis notice contact Ruth Hoffman at (202)622-3130 (not a toll-free number).

26 CFR 601.201: Rulings and determinationletters.(Also, Part I, § 412.)

Rev. Proc. 2000–40

TABLE OF CONTENTS

SECTION 1. PURPOSE AND SCOPE

October 16, 2000 358 2000–42 I.R.B.

SECTION 2. BACKGROUND

SECTION 3. APPROVAL FORSPECIFIED CHANGES

.01 Approval 1 - Unit Credit

.02 Approval 2 - Level percent of com-pensation aggregate method

.03 Approval 3 - Level dollar aggregatemethod

.04 Approval 4 - Level percent of com-pensation individual aggregatemethod

.05 Approval 5 - Level dollar individualaggregate method

.06 Approval 6 - Level percent of com-pensation frozen initial liabilitymethod

.07 Approval 7 - Level dollar frozen ini-tial liability method

.08 Approval 8 - Level percent of com-pensation individual entry age nor-mal method

.09 Approval 9 - Level dollar individualentry age normal method

.10 Approval 10 - Asset valuationmethod change to fair market value

.11 Approval 11 - Asset valuationmethod change to average marketvalue without phase-in

.12 Approval 12 - Asset valuationmethod change to average marketvalue with phase-in

.13 Approval 13 - Valuation date changeto first day of plan year

.14 Approval 14 - Change in method forvaluing ancillary benefits

.15 Approval 15 - Asset valuationmethod change to smoothed marketvalue without phase-in

.16 Approval 16 - Asset valuationmethod change to smoothed marketvalue with phase-in

.17 Approval 17 - Asset valuationmethod change to average marketvalue with alternative phase-in

SECTION 4. SPECIALAPPROVALS

.01 Approvals to remedy unreasonableallocation of costs

.02 Approval for change in fundingmethod for fully funded terminatedplans

.03 Approval for takeover plans

.04 Approval for change in valuationsoftware

.05 Approval for de minimis mergers

.06 Approval for mergers with same plan

year and first or last day merger date.07 Approval for certain mergers with

transition period no more than 12months

.08 Approval for certain mergers withtransition period more than 12months

SECTION 5. GENERAL RULESRELATING TO FUNDING METHODS

.01 Amortization bases

.02 Consistent compensation limitationin normal cost determination

.03 Consistent compensation inclusionin normal cost determination

SECTION 6. RESTRICTIONS UNDERREVENUE PROCEDURE

.01 General restrictions

(1) Schedule B filed(2) Administrator approval(3) Waiver/amortization period exten-

sion(4) Plans under examination(5) Terminated plans(6) Non-applicability if shortfall

method is discontinued.02 Additional restrictions for approvals

in section 3(1) Non-applicability for reversion

cases(2) Non-applicability for plans using

universal life insurance products(3) Four-year limitation on changes(4) Non-applicability when liabilities

adjusted for assets(5) Non-applicability if benefit accru-

als are frozen under the plan(6) Non-applicability if negative nor-

mal cost or negative unfunded lia-bility results from the change

(7) Non-applicability if change inmethod is being made pursuant toa spin-off or merger

SECTION 7. EFFECTIVE DATE

SECTION 8. EFFECT ON OTHERREVENUE PROCEDURES

DRAFTING INFORMATION

SECTION 1. PURPOSE AND SCOPE

.01 This revenue procedure providesapproval to change the funding methodused to determine the minimum funding

standard for defined benefit plans as fur-ther described below. The approval underthis revenue procedure is granted in ac-cordance with § 412(c)(5) of the InternalRevenue Code and section 302(c)(5) ofthe Employee Retirement Income Secu-rity Act of 1974 (ERISA). Section 3 pro-vides approval to change the fundingmethod of the plan to one of seventeenmethods, including a change in the assetvaluation method to one of six asset valu-ation methods, a change in the valuationdate to the first day of the plan year, and achange in the method for valuing ancil-lary benefits to the method used to valueretirement benefits. Section 4 providesapprovals for certain changes that becomenecessary or expedient under special cir-cumstances.

.02 Any changes in funding methodunder this revenue procedure must sat-isfy the rules of Section 5 concerning thecontinued maintenance of certain amorti-zation bases, the creation of an amortiza-tion base resulting from the change inmethod (method change base), and theamortization period for the methodchange base. Taxpayers, plan administra-tors, and enrolled actuaries are cautionedto consider the overall restrictions foruse of this procedure (see section 6.01),the additional restrictions for approval ofany of the changes listed in section 3(see section 6.02), and specific restric-tions described under each of the ap-provals. Approval for changes not pro-vided by this revenue procedure may berequested from the Internal Revenue Ser-vice.

.03 The funding method changes ap-proved in this revenue procedure alsoapply for purposes of § 404. However,calculations under the funding methodfor purposes of § 404 may require cer-tain modifications to elements in the cal-culations. For example, for purposes of § 412, the value of assets used in the de-termination of the normal cost under anaggregate funding method is adjusted forany credit balance or funding deficiencyin the funding standard account. Thevalue of assets is not adjusted in thatmanner for purposes of § 404 but is, in-stead, adjusted for any undeducted con-tributions (see § 1.404(a)–14(d)(2) of theIncome Tax Regulations).

.04 The application of a fundingmethod must conform to all of the re-

2000–42 I.R.B. 359 October 16, 2000

quirements of the regulations under § 412. Thus, for example, in a methodwhich allocates liabilities among differentelements of past and future service, the al-location of liabilities must be reasonableas required under § 1.412(c)(3)–1(c)(5).

SECTION 2. BACKGROUND

.01 Section 412(c)(5)(A), as amended,and section 302(c)(5)(A) of ERISA, Pub.L. 93–406, 1974–3 C.B. 1, 40, asamended, state that if the funding methodof a plan is changed, the new fundingmethod shall become effective only if thechange is approved by the Secretary.

.02 Section 1.412(c)(1)–1 providesthat the term “funding method”, whenused in § 412 of the Code, has the samemeaning as the term “actuarial costmethod” in section 3(31) of ERISA. Sec-tion 1.412(c)(1)–1 of the regulations fur-ther provides that the funding method of aplan includes not only the overall fundingmethod used by the plan but also eachspecific method of computation used inapplying the overall method. Therefore,for example, the funding method of a planincludes the date on which assets and lia-bilities are valued (the valuation date).The funding method also includes the def-inition of compensation which is used todetermine the normal cost or accrued lia-bility. Furthermore, a change in a particu-lar aspect of a funding method does notchange any other aspects of that method.For example, a change in funding methodfrom the unit credit to the level dollar in-dividual entry age normal method doesnot change the current valuation date orasset valuation method used for the plan.

.03 Section 1.412(c)(2)–1 generallyprovides that a change in the actuarial val-uation method used to value the assets ofa plan is a change in funding method thatrequires approval under § 412(c)(5) of the Code.

.04 Rev. Proc. 95–51, 1995–2 C.B.431, as modified by Rev. Proc. 98–10,1998–1 C.B. 279, and by Rev. Proc.99–45, 1999–49 I.R.B. 603, granted ap-proval for certain changes in fundingmethod. Rev. Proc. 2000–41, 2000–42I.R.B. 371, provides the procedure bywhich a plan administrator or plan spon-sor may obtain approval of the Secretaryof the Treasury for a change in fundingmethod.

SECTION 3. APPROVAL FORSPECIFIED CHANGES

Subject to the applicability restrictionsof section 6 and to the individual condi-tions under each method below, approvalis granted for a change to one of the fol-lowing funding methods. The develop-ment of the normal cost is described foreach of the funding methods provided insubsections .01, through .09. For fundingmethods that directly calculate an accruedliability, within the meaning of Rev. Rul.81–13, 1981–1 C.B. 229, the developmentof the accrued liability is also described.

.01 Approval 1. Approval is grantedfor a change in funding method to the unitcredit funding method described below.

(1) This approval does not apply if theplan is a cash balance plan. For this pur-pose, a cash balance plan is a defined ben-efit plan that defines any portion of an em-ployee’s benefits by reference to theemployee’s hypothetical account, wheresuch hypothetical account is determinedby reference to hypothetical allocationsand hypothetical earnings that are de-signed to mimic the actual allocations ofcontributions and earnings to an em-ployee’s account that would occur under adefined contribution plan.

(2) Under this method, the normal costis the sum of the individual normal costsfor all active participants. An individualnormal cost is the sum of the normal costsfor the various benefits valued using themethod. The normal cost for each benefitis the present value of the portion of theprojected benefit at each expected separa-tion date that is allocated to the currentplan year as set forth in paragraphs (5) and(6) below. For purposes of this approval,separation date includes any date of bene-fit commencement, if earlier.

(3) The accrued liability under themethod is the sum of the individual ac-crued liabilities for each participant. Anindividual’s accrued liability is the sum ofthe accrued liabilities for the various bene-fits valued using the method. The accruedliability for each benefit is the presentvalue of the portion of the projected bene-fit at each expected separation date that isallocated to prior plan years as set forth inparagraphs (4), (5), and (6) below.

(4) For a participant other than an ac-tive participant, or for a beneficiary, theprojected benefit is the accrued retirementbenefit, or other plan benefit, under the

terms of the plan and the projected benefitis allocated to prior plan years.

(5) For an active participant, whenvaluing all benefits other than ancillarybenefits that are not directly related to theaccrued retirement benefit, the projectedbenefit related to a particular separationdate is the benefit determined for the par-ticipant under the plan’s benefit for-mula(s) calculated using the projectedcompensation and the projection, underrespective assumptions, of any othercomponents that would be used in thecalculation of the benefit on the expectedseparation date. The projected benefit ateach expected separation date is allocatedto the years of credited service as fol-lows.

(a) The portion of the projected benefitallocated to the current plan year is deter-mined as

(i) the benefit that would be deter-mined for the participant under the plan’sbenefit formula(s) calculated using theprojected compensation, if applicable,and the projection, under respective as-sumptions, of any other components thatwould be used in the calculation of thebenefit on the expected separation date,except taking into account only creditedservice through the end of the current planyear, minus

(ii) the benefit that would be deter-mined for the participant under the plan’sbenefit formula(s) calculated using theprojected compensation, if applicable,and the projection, under respective as-sumptions, of any other components thatwould be used in the calculation of thebenefit on the expected separation date,except taking into account only creditedservice through the beginning of the cur-rent plan year.

(b) The portion of the projected bene-fit allocated to prior plan years is the ben-efit determined for the participant underthe plan’s benefit formulas calculatedusing the projected compensation, if ap-plicable, and the projection, under respec-tive assumptions, of any other compo-nents that would be used in thecalculation of the benefit on the expectedseparation date, except taking into ac-count only credited service through thebeginning of the current plan year (i.e.,the amount in subparagraph (a)(ii)above).

(c) Notwithstanding that the alloca-

October 16, 2000 360 2000–42 I.R.B.

tions in subparagraphs (a) and (b) onlytake into account credited service as of thebeginning and end of the plan year, if aparticipant is expected to satisfy an eligi-bility requirement for a particular benefitthat is being valued (e.g., subsidized earlyretirement benefit) as of an expected sepa-ration date, the amounts in subparagraphs(a) and (b), and in paragraph (6) below,must be determined as if the employee hassatisfied the eligibility requirement.

(d) The portion of the projected benefitallocated to prior plan years may not beless than the participant’s actual accruedbenefit as of the beginning of the currentplan year. In addition, the benefit deter-mined as of the end of the current planyear in subparagraph (a)(i) above may notbe less than the participant’s estimated ac-crued benefit as of the end of the currentplan year.

(6) For active participants, when valu-ing ancillary benefits that are not directlyrelated to the accrued retirement benefit,the projected benefit related to a particular

separation date is the benefit determinedfor the participant under the plan’s benefitformula(s) calculated using the projectedcompensation and the projection, underrespective assumptions, of any other com-ponents that would be used in the calcula-tion of the benefit on the expected separa-tion date. The portion of the projectedbenefit allocated to the current plan year isthe projected benefit at the expected sepa-ration date divided by the number of yearsof service the participant will have at suchdate. The portion of such projected bene-fit allocated to prior years of service is theprojected benefit multiplied by a fraction,the numerator of which is the number ofyears of service at the beginning of theplan year, and the denominator of which isthe number of years of service the partici-pant will have at the expected separationdate.

(7) The unfunded liability equals thetotal accrued liability less the actuarialvalue of plan assets. All present values aredetermined as of the valuation date.

(8) The following examples illustratethe application of the method.

(a) Example 1. The retirement benefit under theterms of a plan is equal to 1.3% of high 1-year com-pensation per year of service, but not less than thetop-heavy minimum of 2% of high 5-year averagecompensation for each year the plan is top-heavy(not exceeding 20%), as required under § 416(c).Compensation under the plan is limited to $100,000.The plan has been top-heavy only for the last 7years. Employee E has 10 years of service at the be-ginning of the current plan year. E’s compensationfor that year is $30,000. The compensation is as-sumed to increase at the rate of 5% compoundedyearly. The particular benefit being valued is theearly retirement benefit anticipated to commence atthe expected separation date 7 years in the future(i.e., after completion of 17 years of service). At thisseparation date, the employee will be eligible forearly retirement, and will have projected compensa-tion of $40,202, and projected high 5-year averagecompensation of $36,552. The allocated benefitsdetermined for Employee E at the beginning and endof the plan year, and on the separation date, areshown in the table below.

Determined As of the

Allocated Benefit Beginning ofDetermined Under Plan Plan Year End of Plan Year Separation Date

(1) 1.3% Benefit Formula $5,2261 $5,7491 $8,8853

(2) Top-Heavy Formula $5,1172 $5,8482 $7,3103

(3) Allocated Benefit(greater of (1) and (2)) $5,226 $5,848 $8,885

FOOTNOTES

1$5,226 = $40,202 x 1.3% x 10; $5,749 = $40,202 x 1.3% x 11 2$5,117 = $36,552 x 2.0% x 7; $5,848 = $36,552 x 2.0% x 8 3$8,885 = $40,202 x 1.3% x 17; $7,310 = $36,552 x 2.0% x 10

The benefit allocated to the current year is $622($5,848- $5,226), and the benefit allocated to prioryears is $5,226. In this case, the projected benefit atthe separation date is based on the 1.3% benefit for-mula, and the current year’s benefit allocation of theprojected benefit results in an amount which isbased on the 1.3% benefit formula at the beginningof the year and on the top-heavy formula at the endof the year.

(b) Example 2: Plan B is an accumulation planwithin the meaning of § 1.401(a)(4)–12. The benefitformula under Plan B for each plan year is 1% ofcompensation for such year. The sum of the amountsfor each of the years constitutes an employee’s bene-fit. The accrued benefit at any date under Plan B is thebenefit payable at normal retirement age for the yearsof service to date. Employee F has 3 years of serviceat the beginning of the year. The benefit being valued

is the normal retirement benefit payable at the normalretirement date (the date Employee F reaches normalretirement age). At normal retirement age, EmployeeF will have 20 years of service. Compensation is as-sumed to increase at a rate of 5% per year. EmployeeF’s compensation was $28,665, $27,170, and $26,000for the prior year, the second prior year, and the thirdprior year, respectively. For valuation purposes, Em-ployee F’s compensation for the current year is as-sumed to be $30,098. During the preceding plan year,Plan B was amended effective on the first day of thecurrent plan year to provide that with respect to allprior plan years, the normal retirement benefit is up-dated to the greater of the benefit actually accumu-lated as of the beginning of the current plan year or1% of the preceding year’s compensation multipliedby the number of years of service prior to the begin-ning of the current plan year.

The benefit determined for Employee F, takinginto account only credited service through the begin-ning of the current plan year under the plan’s benefitformula is $860 (the greater of (a) $818 ((1% x$26,000) + (1% x $27,170) + (1% x $28,665)), or(b) $860 (1% x $28,665 x 3)). Taking the amend-ment into account, the projected benefit payable atnormal retirement age is $8,637 ($860 + (1% x$30,098 x 25.84), where 25.84 is the accumulationof $1 payable at the end of the year for 17 years de-termined at 5% interest). For purposes of allocatingthe projected benefit, changes in compensation as-sumed for later plan years are not taken into accountin accordance with the plan’s benefit formula. Thebenefit allocated to the current plan year is $301((860 + (1% x $30,098)) - 860).

.02 Approval 2. Approval is grantedfor a change in funding method to the

2000–42 I.R.B. 361 October 16, 2000

level percent of compensation aggregatefunding method described below.

(1) This approval applies only to planswhich provide for compensation-relatedbenefits.

(2) Under this method, the normal costis calculated in the aggregate as the nor-mal cost accrual rate multiplied by thetotal compensation of all active partici-pants.

(a) The normal cost accrual rate is (i) the total present value of future

benefits of all participants and beneficia-ries less adjusted assets, divided by

(ii) the total, for all active participants,of the present value of the compensationexpected to be paid to each participant foreach year of the participant’s anticipatedfuture service, determined as of the par-ticipant’s attained age.

(b) For this purpose, the adjusted as-sets are equal to

(i) the actuarial value of the assets,plus

(ii) the sum of the outstanding bal-ances of the amortization bases estab-lished on account of funding waiversunder § 412(b)(2)(C), switchback to theregular funding standard under § 412(b)-(2)(D), use of the shortfall method under§ 1.412(c)(1)–2, and the transition under§ 1.412(c)(3)–2(d), minus

(iii) the credit balance (or plus thefunding deficiency), if any, in the fundingstandard account.

.03 Approval 3. Approval is grantedfor a change in funding method to thelevel dollar aggregate funding method de-scribed below.

(1) Under this method, the normal costis calculated in the aggregate as the nor-mal cost per active participant multipliedby the number of active participants.

(a) The normal cost per active partici-pant is

(i) the total present value of futurebenefits of all participants and beneficia-ries, less adjusted assets, divided by

(ii) the total, for all active participants,of the present value of an annuity of $1per year for every year of a participant’santicipated future service, determined asof the participant’s attained age.

(b) For this purpose, the adjusted as-sets are equal to

(i) the actuarial value of the assets,plus

(ii) the sum of the outstanding bal-

ances of the amortization bases estab-lished on account of funding waiversunder § 412(b)(2)(C), switchback to theregular funding standard under § 412(b)-(2)(D), use of the shortfall method under § 1.412(c)(1)–2 of the regulations, and thetransition under § 1.412(c)(3)–2(d), minus

(iii) the credit balance (or plus thefunding deficiency), if any, in the fundingstandard account.

.04 Approval 4. Approval is grantedfor a change in funding method to thelevel percent of compensation individualaggregate funding method describedbelow.

(1) This approval applies only forplans which provide for compensation-re-lated benefits.

(2) This approval does not apply if theactuarial value of assets is less than thepresent value of benefits for inactive par-ticipants and beneficiaries, or if theamount in paragraph (3)(b)(i) is less thanzero.

(3) Under this method, the normal costis the sum of the individual normal costsfor each active participant.

(a) The normal cost for an active par-ticipant is

(i) the present value of future benefitsfor the participant, less allocated ad-justed assets, divided by

(ii) the ratio of (A) the present valueof the compensation expected to be paidto the participant for each year of theparticipant’s anticipated future service,determined as of the participant’s at-tained age, to (B) the participant’s cur-rent compensation.

(b) For this purpose, allocated ad-justed assets are calculated as follows:

(i) First, the adjusted value of the as-sets is equal to:

(A) the actuarial value of the assets,plus

(B) the sum of the outstanding bal-ances of the amortization bases estab-lished on account of funding waiversunder § 412(b)(2)(C), switchback to theregular funding standard under § 412(b)(2)(D), use of the shortfall methodunder § 1.412(c)(1)–2, and the transitionunder § 1.412(c)(3)–2(d), minus

(C) the credit balance (or plus thefunding deficiency), if any, in the fund-ing standard account, minus

(D) any liabilities retained by the planfor any inactive participant or benefi-

ciary. (ii) In the first year the method is

used, the allocated adjusted value of theassets for an active participant is calcu-lated by allocating the adjusted value ofthe assets in proportion to the presentvalue of accrued benefits, or in propor-tion to the accrued liability determinedunder one of the immediate gain fundingmethods described in subsection .01 or.08.

(iii) For years subsequent to the firstyear in which the method is used, the ad-justed value of the assets is allocated toan active participant in the proportionthat

(A) the sum of the allocated adjustedassets and calculated normal cost as ofthe valuation date for the prior year forthat active participant bears to

(B) the total of the amounts in (A) forall active participants.

.05 Approval 5. Approval is grantedfor a change in funding method to thelevel dollar individual aggregate fundingmethod described below.

(1) This approval does not apply if theactuarial value of assets is less than thepresent value of benefits of inactive par-ticipants and beneficiaries, or if theamount in paragraph (2)(b)(i) is less thanzero.

(2) Under this method, the normal costis the sum of the individual normal costsfor each active participant.

(a) The normal cost for an active partic-ipant is

(i) the present value of future benefitsfor the participant less allocated adjustedassets, divided by

(ii) the present value of an annuity of$1 per year for every year of the partici-pant’s anticipated future service, deter-mined as of the participant’s attained age.

(b) For this purpose, allocated adjustedassets are calculated as follows:

(i) First, the adjusted value of the assetsis equal to:

(A) the actuarial value of the assets, plus (B) the sum of the outstanding balances

of the amortization bases established onaccount of funding waivers under § 412(b)(2)(C), switchback to the regularfunding standard under § 412(b)(2)(D),use of the shortfall method under § 1.412(c)(1)-2, and the transition under§ 1.412(c)(3)-2(d), minus

(C) the credit balance (or plus the fund-

October 16, 2000 362 2000–42 I.R.B.

ing deficiency), if any, in the funding stan-dard account, minus

(D) any liabilities retained by the planfor any inactive participant or beneficiary.

(ii) In the first year the method is used,allocated adjusted assets for an active par-ticipant is calculated by allocating the ad-justed value of the assets in proportion tothe present value of accrued benefits, or inproportion to the accrued liability deter-mined under one of the immediate gainfunding methods described in subsection.01 or .09.

(iii) For years subsequent to the firstyear in which the method is used, the ad-justed value of the assets is allocated to anactive participant in the proportion that

(A) the sum of the allocated adjusted as-sets and calculated normal cost as of thevaluation date for the prior year for that ac-tive participant bears to

(B) the total of the amounts in (A) forall active participants.

.06 Approval 6. Approval is grantedfor a change in funding method to thelevel percent of compensation frozen ini-tial liability funding method describedbelow.

(1) This approval applies only for planswhich provide for compensation-relatedbenefits.

(2) Under this method, the normal costis calculated in the aggregate, for everyyear the method is used including thefirst, as the normal cost accrual rate multi-plied by the total compensation of all ac-tive participants.

(a) The normal cost accrual rate is (i) the total present value of future ben-

efits of all participants and beneficiariesless the sum of the actuarial value of as-sets and the unfunded liability, divided by

(ii) the total, for all active participants,of the present value of the compensationexpected to be paid to each participant foreach year of the participant’s anticipatedfuture service, determined as of the par-ticipant’s attained age.

(b) As of the date of change, the un-funded liability is set equal to the un-funded accrued liability determined underthe level percentage of compensation in-dividual entry age normal funding methoddescribed in subsection .08.

(c) For years subsequent to the planyear of the change in method, the un-funded liability equals

(i) the unfunded liability for the prior

plan year, plus the normal cost for theprior plan year (the result adjusted withappropriate interest to the valuation date),minus the actual contribution(s) for theprior plan year (adjusted with appropriateinterest to the valuation date), and

(ii) the unfunded liability is further in-creased (or decreased) by the amount ofany base established on the valuation datewhich results from a plan amendment or achange in assumptions. Such bases areamortized over the period(s) described in§ 412(b)(2)(B) or § 412(b)(3)(B), as ap-plicable.

.07 Approval 7. Approval is grantedfor a change in funding method to thelevel dollar frozen initial liability fundingmethod described below.

(1) Under this method, the normal costis calculated in the aggregate, for everyyear the method is used including thefirst, as the normal cost per active partici-pant multiplied by the number of activeparticipants.

(a) The normal cost per active partici-pant is

(i) the total present value of future ben-efits of all participants and beneficiariesless the sum of the actuarial value of as-sets and the unfunded liability, divided by

(ii) the total, for all active participants,of the present value of an annuity of $1per year for every year of a participant’santicipated future service, determined asof the participant’s attained age.

(b) As of the date of change, the un-funded liability is set equal to the unfundedaccrued liability determined under the leveldollar individual entry age normal fundingmethod described in subsection .09.

(c) For years subsequent to the planyear of the change in method, the un-funded liability equals

(i) the unfunded liability for the priorplan year, plus the normal cost for theprior plan year (the result adjusted withappropriate interest to the valuation date),minus the actual contribution(s) for theprior plan year (adjusted with appropriateinterest to the valuation date), and

(ii) the unfunded liability is further in-creased (or decreased) by the amount ofany base established on the valuation datewhich results from a plan amendment or achange in assumptions. Such bases areamortized over the period(s) described in§ 412(b)(2)(B) or § 412(b)(3)(B), as ap-plicable.

.08 Approval 8. Approval is grantedfor a change in funding method to thelevel percent of compensation individualentry age normal funding method de-scribed below.

(1) This approval does not apply if thealternative minimum funding standard ac-count is used at any time within the 5-yearperiod commencing with the first day ofthe plan year for which the change ismade.

(2) This approval applies only for planswhich provide for compensation-relatedbenefits.

(3) Under this method, the normal costis the sum of the individual normal costsfor all active participants. For an activeparticipant, the normal cost is the partici-pant’s normal cost accrual rate, multipliedby the participant’s current compensation.

(a) The normal cost accrual rate equals (i) the present value of future benefits

for the participant, determined as of theparticipant’s entry age, divided by

(ii) the present value of the compensa-tion expected to be paid to the participantfor each year of the participant’s antici-pated future service, determined as of theparticipant’s entry age.

(b) In calculating the present value offuture compensation, the salary scalemust be applied both retrospectively andprospectively to estimate compensation inyears prior to and subsequent to the valua-tion year based on the compensation usedfor the valuation.

(c) The accrued liability is the sum ofthe individual accrued liabilities for allparticipants and beneficiaries. A partici-pant’s accrued liability equals the presentvalue, at the participant’s attained age, offuture benefits less, the present value atthe participant’s attained age of the indi-vidual normal costs payable in the future.A beneficiary’s accrued liability equalsthe present value, at the beneficiary’s at-tained age, of future benefits. The un-funded accrued liability equals the totalaccrued liability less the actuarial value ofassets.

(d) Under this method, the entry ageused for each active participant is the par-ticipant’s age at the time he or she wouldhave commenced participation if the planhad always been in existence under cur-rent terms, or the age as of which he orshe first earns service credits for purposesof benefit accrual under the current terms

2000–42 I.R.B. 363 October 16, 2000

of the plan. Alternatively, the entry agemay be determined as the age at the valu-ation date next following the time de-scribed in the preceding sentence.

.09 Approval 9. Approval is grantedfor a change in funding method to thelevel dollar individual entry age normalfunding method described below.

(1) This approval does not apply if thealternative minimum funding standard ac-count is used at any time within the 5-yearperiod commencing with the first day ofthe plan year for which the change ismade.

(2) Under this method, the normal costis the sum of the individual normal costsfor all active participants.

(a) For an active participant, the indi-vidual normal cost equals

(i) the present value of future benefitsfor the participant, determined as of theparticipant’s entry age, divided by

(ii) the present value of an annuity of$1 per year for every year of the partici-pant’s anticipated future service, deter-mined as of the participant’s entry age.

(b) The accrued liability is the sum ofthe individual accrued liabilities for allparticipants and beneficiaries. A partici-pant’s accrued liability equals the presentvalue, at the participant’s attained age, offuture benefits, less the present value atthe participant’s attained age of the indi-vidual normal costs payable in the future.A beneficiary’s accrued liability equalsthe present value, at the beneficiary’s at-tained age, of future benefits. The un-funded accrued liability equals the totalaccrued liability less the actuarial value ofthe plan assets.

(c) Under this method, entry age usedfor each active participant is the partici-pant’s age at the time he or she wouldhave commenced participation if the planhad always been in existence under cur-rent terms, or the age as of which he orshe first earns service credits for purposesof benefit accrual under the current termsof the plan. Alternatively, the entry agemay be determined as the age at the valu-ation date next following the time de-scribed in the preceding sentence.

.10 Approval 10. Approval is grantedfor a change in asset valuation method tofair market value as defined in § 1.412(c)(2)–1(c).

.11 Approval 11. Approval is grantedfor a change in asset valuation method to

the average value as defined in § 1.412(c)(2)–1(b)(7) (which does nothave a phase-in), or to any alternative for-mulation that is algebraically equivalentto this average value. The asset value de-termined under the method will be ad-justed to be no greater than 120% and noless than 80% of the fair market value de-fined in § 1.412(c)(2)–1(c).

For example, under § 1.412(c)-(2)–1(b)(7), if the averaging period is fiveyears, the average value is based on thefair market value of assets in the currentyear and the adjusted values of assets forthe prior four years as provided in § 1.412(c)(2)–1(b)(8). An alternative for-mulation which is algebraically equiva-lent to this method is one in which the av-erage value of assets is equal to the fairmarket value on the valuation date, minusdecreasing fractions (4/5, 3/5, 2/5 and 1/5,in this example) of the appreciation anddepreciation of the assets in each of thefour preceding years. The stated averag-ing period may not exceed five (5) planyears.

.12 Approval 12. Approval is grantedfor a change in asset valuation method tothe average value (as defined in § 1.412(c)(2)–1(b)(7)), modified to usethe phase-in described below, or to any al-ternative formulation that is algebraicallyequivalent to this average value. The assetvalue determined under the method willbe adjusted to be no greater than 120%and no less than 80% of the fair marketvalue defined in § 1.412(c)(2)–1(c).

In the first year this method is used, theaverage value is calculated as in Approval11, except that the adjusted values for allbut the most recent prior year are replacedby the adjusted value for the most recentprior year. In the second year, the averageis calculated as in Approval 11, exceptthat the values for all but the most recenttwo prior years are replaced by the ad-justed value for the second most recentprior year. This process is continued untilvalues for all prior years in the averagingperiod are phased in. The stated averagingperiod may not exceed five (5) plan years.

.13 Approval 13. Approval is grantedfor a change in the valuation date to theday that is the first day of the plan year.

.14 Approval 14. Approval is grantedto change the funding method used forvaluing ancillary benefits to the fundingmethod used to value retirement benefits,

if the prior method for valuing ancillarybenefits had been the one-year termmethod. For this purpose, ancillary bene-fits are defined in § 1.412(c)(3)–1(f)(2)and include pre-retirement death and dis-ability benefits.

.15 Approval 15. Approval is grantedfor a change in asset valuation method tothe smoothed market value (withoutphase-in) described below, or to any alter-native formulation that is algebraicallyequivalent to this smoothed value. Theasset value determined under the methodwill be adjusted to be no greater than120% and no less than 80% of the fairmarket value defined in § 1.412(c-(2)–1(c).

Under this method, the actuarial valueof assets is equal to the market value ofassets less a decreasing fraction (i.e.,(n-1)/n, (n-2)/n, etc., where n equals thenumber of years in the smoothing period)of the gain or loss for each of the preced-ing n-1 years. The stated smoothing pe-riod may not exceed five (5) plan years.

Under this method, a gain or loss for ayear is determined by calculating the dif-ference between the expected value of theassets for the year and the market value ofthe assets at the valuation date. The ex-pected value of the assets for the year isthe market value of the assets at the valua-tion date for the prior year brought for-ward with interest at the valuation interestrate to the valuation date for the currentyear plus contributions minus disburse-ments (i.e., benefits and expenses), all ad-justed with interest at the valuation rate tothe valuation date for the current year. Ifthe expected value is less than the marketvalue, the difference is a gain. Con-versely, if the expected value is greaterthan the market value, the difference is aloss.

For example, if the smoothing period isfive years, the actuarial value of the assetswill be the market value of the plan’s as-sets, with gains subtracted or losses addedat the rates described as follows:(i) 4/5 of the prior year’s gain or loss(ii) 3/5 of the second preceding year’sgain or loss(iii) 2/5 of the third preceding year’s gainor loss(iv) 1/5 of the fourth preceding year’sgain or loss

.16 Approval 16. Approval is grantedfor a change in asset valuation method to

October 16, 2000 364 2000–42 I.R.B.

the smoothed market value (with phase-in) described below, or to any alternativeformulation that is algebraically equiva-lent to this smoothed value. The assetvalue determined under the method willbe adjusted to be no greater than 120%and no less than 80% of the fair marketvalue defined in § 1.412(c)(2)–1(c).

In the first year this method is used theactuarial value of assets is equal to themarket value as of the valuation date. Ineach subsequent year, the smoothed valueis calculated in the same manner as in Ap-proval 15, except that the only gains orlosses recognized are those occurring inthe year of the change and in later years.The stated smoothing period may not ex-ceed five (5) plan years.

.17 Approval 17. Approval is grantedfor a change in asset valuation method tothe average value (as defined in § 1.412-(c)(2)–1(b)(7)), modified to use the alter-native phase-in as described below, or toany alternative formulation that is alge-braically equivalent to this average. Theasset value determined under the methodwill be adjusted to be no greater than120% and no less than 80% of the fairmarket value defined in § 1.412-(c)(2)–1(c).

In the first year this method is used, theactuarial value of assets is equal to themarket value. In the second year, the av-erage value is calculated in the same man-ner as in Approval 11, except that the av-eraging period is two years. In the thirdyear, the average value is calculated in thesame manner as in Approval 11, exceptthat the averaging period is three years.This process continues until the stated av-eraging period (not to exceed five years)is reached.

SECTION 4. SPECIAL APPROVALS

.01 Approvals to Remedy Unreason-able Allocation of Costs.

(1) If a plan uses an individual aggregatefunding method and an individual normalcost becomes negative for a participant,approval is granted to re-allocate excessassets to other participants in proportion tothe present value of accrued benefits, or inproportion to the accrued liability deter-mined under the immediate gain fundingmethod described in section 3.01, section3.08 (only if the normal cost for a partici-pant is determined as a level percent ofcompensation under the plan’s method),

section 3.09 (only if the normal cost for aparticipant is determined as a level dollaramount under the plan’s method) or in pro-portion to the allocated adjusted assetsprior to the reallocation. For this purpose,excess assets are defined as the excess, ifany, of the assets currently allocated to theparticipant over the present value of theparticipant’s future benefits.

(2) If a plan uses a spread gain fundingmethod which establishes an initial un-funded liability using an immediate gainfunding method (e.g., frozen initial liabil-ity or attained age normal), and the nor-mal cost and/or unfunded liability be-come(s) negative, then, in the case wherethe normal cost under the plan’s method isdetermined as a level percentage of com-pensation, approval is granted to reestab-lish the unfunded liability under the fund-ing method described in section 3.01 ifthe unfunded liability was originally es-tablished under the unit credit method, orunder the funding method described insection 3.08 if the unfunded liability wasoriginally established under the entry agenormal method. See Rev. Rul. 81–213,1981–2 C.B. 101, regarding whether afunding method is a spread gain fundingmethod or an immediate gain fundingmethod. In the case where the normal costunder the plan’s method is determined asa level dollar amount, approval is grantedto reestablish the unfunded liability underthe funding method described in section3.01 if the unfunded liability was origi-nally established under the unit creditmethod, or under the funding method de-scribed in section 3.09 if the unfunded lia-bility was originally established under theentry age normal method. If the reestab-lished unfunded liability is less than zero,approval is granted to change to the ag-gregate funding method described in sec-tion 3.02 (if the normal cost under theplan’s method is determined as a levelpercent of compensation), or section 3.03(if the normal cost under the plan’smethod is determined as a level dollaramount).

(3) If a plan that uses a spread gainfunding method which establishes an ini-tial unfunded liability using an immediategain funding method (e.g., frozen initialliability or attained age normal), becomesfully funded within the meaning of § 412-(c)(6) (without taking into account § 412-(c)(7)(A)(i)(I)), approval is granted to

change to the aggregate funding methoddescribed in section 3.02 (if the normalcost under the plan’s method is deter-mined as a level percent of compensa-tion), or section 3.03 (if the normal costunder the plan’s method is determined asa level dollar amount).

(4) If a plan uses an individual aggregatefunding method and the actuarial value ofplan assets is less than the present value ofbenefits for inactive participants and bene-ficiaries, or if the actuarial value of the as-sets, plus the sum of the outstanding bal-ances of the amortization bases establishedon account of funding waivers under § 412(b)(2)(C), switchback to the regularfunding standard under § 412(b)(2)(D), useof the shortfall method under § 1.412-(c)(1)–2, and the transition under § 1.412(c)(3)–2(d), minus the credit bal-ance (or plus the funding deficiency), ifany, in the funding standard account, minusany liabilities retained by the plan for anyinactive participant or beneficiary is lessthan zero, approval is granted to change tothe aggregate funding method described insection 3.02 (if the normal cost under theplan’s method is determined as a level per-cent of compensation), or section 3.03 (ifthe normal cost under the plan’s method isdetermined as a level dollar amount).

(5) If a plan provides that no participantmay accrue a benefit as of a date that is nolater than the first day of the plan year, ap-proval is granted to change to the unitcredit method described in section 3.01.

.02 Approval for Change in FundingMethod for Fully Funded TerminatedPlans.

(1) For a plan year during which a planis terminated, the funding method may bechanged to a method described in para-graph (2) provided that the conditions setforth in paragraph (3) are satisfied. Aspart of the change in method, the valua-tion date may be changed to the date oftermination or the first day of the planyear, and the asset valuation method maybe changed to value plan assets at fairmarket value.

(2) A method is described in this sub-section if the normal cost for the plan yearis the present value of the benefits accru-ing in the plan year, and the accrued lia-bility is the present value of the benefitsaccrued as of the first day of the plan year.

(3) The conditions in this subsectionare satisfied if:

2000–42 I.R.B. 365 October 16, 2000

(a) As of the date of termination, thefair market value of the assets of the plan(exclusive of contributions receivable) isnot less than the present value of all bene-fit liabilities (whether or not vested), and

(b) if applicable, a timely notice of in-tention to terminate was filed with thePension Benefit Guaranty Corporation(PBGC).

.03 Approval for Takeover Plans. (1) Approval is granted by this para-

graph for a change in funding methodwhere all the conditions set forth in para-graphs (2) through (4) are satisfied.

(2) There has been both a change in theenrolled actuary for the plan and a changein the business organization providing ac-tuarial services to the plan.

(3) The method used by the new actu-ary is substantially the same as themethod used by the prior actuary, and isconsistent with the information containedin the prior actuarial valuation reports orprior Schedules B of Form 5500. Also, themethod used by the new actuary must beapplied to the prior year (using the as-sumptions of the prior actuary) and theabsolute value of each resulting differ-ence in normal cost, accrued liability (ifdirectly computed under the method) andactuarial value of assets, that is attribut-able to the change in cost method, doesnot exceed five percent (5%) of the re-spective amounts calculated by the prioractuary for that year.

(4) The change in costs due to thechange in method is treated in the samemanner as an experience gain or loss, un-less the actuarial assumptions are beingchanged, in which case the change inmethod is treated as part of the change inassumptions.

.04 Approval for Change in ValuationSoftware

(1) Approval is granted for a change inmethod that results from a change in valu-ation software where all the conditions setforth in paragraphs (2) through (8) are sat-isfied. Note that certain changes in valua-tion software may not constitute changesin funding method. For example, the up-date of the valuation software to incorpo-rate the actual social security taxable wagebase for the current year is not a change infunding method. Also, if all of the resultsof each specific computation are the sameafter the change in valuation software,there is no change in funding method.

(2) There has been a modification tothe computations in the valuation soft-ware or a different valuation software sys-tem has been used. Examples of modifi-cations to the computations in thevaluation software include a change fromcommutation functions to direct calcula-tion of actuarial values, changes in therounding conventions or changes to cor-rect errors or inefficiencies in the compu-tations. Examples of using a different val-uation software system include a changein the spreadsheet software (e.g., Lotus 1-2-3 to Excel) or a change in the actuarialsoftware vendor.

(3) The underlying method is un-changed and is consistent with the infor-mation contained in the prior actuarialvaluation reports and prior Schedules B ofForm 5500.

(4) The modification to the computa-tions in the valuation software or the use ofa different valuation software system is de-signed to produce results that are no lessaccurate than the results produced prior tothe modification or change.

(5) The net charge to the funding stan-dard account for the year (or for the prioryear) determined using the new softwaredoes not differ from the net charge to thefunding standard account determined usingthe old software (all other factors beingheld constant) by more than two percent(2%).

(6) A change in valuation software re-quiring approval was not made for theprior plan year.

(7) Section 4.04 (Approval for TakeoverPlans) of this revenue procedure is not ap-plicable to the change.

(8) The effect of the change in method istreated in the same manner as an experi-ence gain or loss, unless the actuarial as-sumptions are being changed, in whichcase the effect of the change in method istreated as part of the effect of the change inassumptions.

.05 Approval for De MinimisMergers(1) Approval is granted for a change in

method in connection with a merger de-scribed in paragraph (2) where the proce-dures set forth in paragraphs (3) through(5) below are followed.

(2) The merger involves the merger of asmaller plan (within the meaning of § 1.414(l)–1(h)(1)) and a larger plan(within the meaning of § 1.414(l)–1(h)(1)).For purposes of this paragraph (2), the

rules of §§ 1.414(l)–1(h)(2), 1.414-(l)–1(h)(3), and 1.414(l)–1(h)(4) apply indetermining whether a merger is de min-imis.

(3) For the period from the beginning ofthe plan year of the smaller plan to the dateof the merger, the charges and credits tothe funding standard account for thesmaller plan are determined without regardto the merger. If that period is less than afull 12-month plan year, the charges andcredits to the funding standard account forthe smaller plan for this period are ratablyadjusted using the principles of Rev. Rul.79–237, 1979–2 C.B. 190, in the samemanner as if the date of the merger was thedate of plan termination of the smallerplan. The deductible limit under § 404 forcontributions to the smaller plan is deter-mined by treating the period from the be-ginning of the plan year to the date ofmerger as a short plan year and followingthe procedure set forth in section 5 of Rev.Proc. 87–27, 1987–1 C.B. 769. Schedule Bof Form 5500 is filed for the smaller planfor the period from the beginning of theplan year of the smaller plan to the date ofthe merger. Any contributions made for thesmaller plan after the date of the merger,but not later than 8 1/2 months after thedate of the merger, are credited to the fund-ing standard account of the smaller planfor this period. For purposes of applying § 4971(b) (but not § 4971(a)) with respectto the smaller plan, any funding deficiencythat existed for the smaller plan is consid-ered corrected as of the date of merger.

(4) If the valuation date for the largerplan for the plan year in which the mergeroccurs precedes the date of the merger, thecharges and credits to the funding standardaccount for the larger plan for that planyear are determined without regard to themerger. Consequently, Schedule B of Form5500 for the plan year of the larger plan inwhich the merger occurs is filed withoutregard to the merger in such a case. Simi-larly, the deductible limit determined under§ 404 with respect to the plan year of thelarger plan in which the merger occurs isdetermined without regard to the merger.

(5) For the actuarial valuation of thelarger plan as of the valuation date coinci-dent with or next following the date of themerger, the funding method (includingasset valuation method) used is that forthe larger plan, and the funding method(including asset valuation method) used

October 16, 2000 366 2000–42 I.R.B.

for the smaller plan is disregarded. Thecharges and credits to the funding stan-dard account for the larger plan are deter-mined by treating the net effect of thechange in assets and liabilities due to themerger in the same manner as any othergain or loss experienced by the largerplan. Consequently, any amortizationbases, credit balances, or funding defi-ciencies with respect to the smaller planare disregarded for purposes of applying § 412 and § 4971 with respect to thelarger plan.

.06 Approval for Certain Mergers WithSame Plan Year And Merger Date of Firstor Last Day of Plan Year

(1) Approval is granted for a change inmethod that results from a merger of oneplan with another plan in a given planyear where all the conditions set forth inparagraphs (2) through (6) are satisfied,and the procedures set forth in paragraphs(7) through (13) are followed.

(2) The merger is not a de minimismerger within the meaning of § 1.414-(l)–1(h).

(3) The funding method (without re-gard to the asset valuation method) usedfor each of the plans is a method de-scribed in section 3.

(4) Both plans have the same plan yearand a valuation date that is either the firstor last day of the plan year.

(5) The date of the merger is either thefirst day of the plan year or the last day ofthe plan year of the two plans.

(6) In a case in which the date of themerger is the first day of the plan year,neither plan has a funding deficiency forthe prior plan year. In a case in which thedate of the merger is the last day of theplan year, neither plan has a funding defi-ciency for the plan year of the merger(after taking into account contributionsmade after the date of the merger as pro-vided in paragraph (13) below).

(7) If the date of the merger is the firstday of the plan year, the minimum fund-ing standard of § 412 and the deductiblelimit of § 404 are determined for themerged plan for the entire plan year inwhich the merger occurs in the mannerprovided in paragraphs (8), (9), (10), (11),and (12) below. Consequently, for theplan year in which the merger occurs,only one Schedule B of Form 5500 isfiled for the merged plan in such a case.

(8) If the same asset valuation method

(in all respects) is used for each of the twoplans, the asset valuation method of themerged plan is that method. If the sameasset valuation method (in all respects) isnot used for each of the two plans (for ex-ample, the smoothing period is threeyears for one of the plans and five yearsfor the other plan), the asset valuationmethod used for the merged plan must bean asset valuation method described insection 3.

(9) If the funding method (without re-gard to the asset valuation method) usedfor each of the two plans is the same, thatfunding method is continued for the planafter the merger. If the funding method(without regard to the asset valuationmethod) used for each of the two plans isnot the same, then the funding methodused for the ongoing plan is continuedafter the merger. For this purpose, the on-going plan is the plan as designated by theplan administrator (within the meaning of§ 414(g)), whose name and plan numberwill continue to be reported on ScheduleB of Form 5500 for years after themerger. The funding method used for theplan which is not the ongoing plan is dis-regarded.

(10) An experience gain or loss is de-termined separately for each of the twoplans, for the period prior to the date ofthe merger, without regard to the mergerand any associated changes (i.e., changesin funding method, actuarial assumptions,or plan benefits). The preceding sentenceapplies only to the extent that an experi-ence gain or loss would have been deter-mined under the methods used for theplans prior to the merger.

(11) All amortization bases that weremaintained for the two plans continue tobe maintained for the merged plan to theextent they would be maintained underthe funding method used for the mergedplan. The credit balances, if any, of eachof the two plans from the prior year arecarried forward to the current plan yearand combined.

(12) If an unfunded liability is deter-mined under the funding method used forthe ongoing plan, it must be determinedafter any change in actuarial assumptionsand methods (including a change in assetvaluation method pursuant to paragraph(8)). In the case of such a funding methodthat is a spread gain method, the unfundedliability is redetermined in the same man-

ner that the unfunded liability was origi-nally determined for the ongoing plan.Therefore, the amortization base estab-lished pursuant to the rules of section5.01(2) will reflect any change of actuarialassumptions and methods. For purposes ofthis paragraph, a spread gain method is anymethod that does not directly calculate anaccrued liability. See Rev. Rul. 81–13 forwhether a funding method directly calcu-lates an accrued liability.

(13) If the date of the merger is the lastday of the plan year, the minimum fund-ing standard under § 412 and the de-ductible limit under § 404 for each of theplans for the plan year in which themerger occurs are determined without re-gard to the merger. Consequently, sepa-rate Schedules B of Form 5500 are filedfor the plans for the plan year in which themerger occurs without regard to themerger in such a case. Any contributionfor the plan year that is made to the trustafter the date of the merger may be cred-ited on either of the Schedules B providedthat the contribution is made for such planwithin the period described in § 412-(c)(10). For the plan year following theplan year in which the merger occurs, theminimum funding standard and the de-ductible limit are determined for the planafter the merger by following the proce-dures set forth in paragraphs (8), (9), (10),(11) and (12) above as if the merger oc-curred on the first day of such followingplan year.

.07 Approval for Certain Mergers WithTransition Period No More Than 12Months

(1) Approval is granted for a change inmethod that results from a merger of oneplan with another plan where all the con-ditions set forth in paragraphs (2) through(7) are satisfied, and the procedures setforth in paragraphs (8) through (15) arefollowed.

(2) The merger is not a de minimismerger within the meaning of § 1.414-(l)–1(h).

(3) The funding method (without re-gard to the asset valuation method) usedfor each of the plans is a method de-scribed in section 3.

(4) Each of the plans, prior to themerger, had a valuation date that was thefirst day of the plan year.

(5) The plans do not have the same planyear, or, if both plans have the same plan

2000–42 I.R.B. 367 October 16, 2000

year, the date of the merger is not the firstday or the last day of the plan year.

(6) The period from the first day of theplan year of the plan that is not the ongo-ing plan to the end of the plan year of theongoing plan (as defined in section4.06(9) above) in which the merger takesplace (the “transition period”) does notexceed 12 months.

(7) The ongoing plan does not have afunding deficiency for the prior plan year,and the plan that is not the ongoing plandoes not have a funding deficiency for theshort plan year described in (8) below.

(8) For the period from the beginningof the plan year of the plan that is not theongoing plan to the date of the merger(the “short plan year”), the charges andcredits to the funding standard account forsuch plan are determined without regardto the merger. For the short plan year, thecharges and credits to the funding stan-dard account for that plan are ratably ad-justed using the principles of Rev. Rul.79–237 in the same manner as if the dateof the merger was the date of plan termi-nation of that plan, and a Schedule B ofForm 5500 is filed for the short plan year.Any contributions made for that plan afterthe date of the merger, but not later than 81/2 months after the date of the merger,are credited to the funding standard ac-count of that plan for the short plan year.

(9) Charges and credits attributable tothe plan that is not the ongoing plan for theperiod, if any, from the date of the mergerto the end of the plan year of the ongoingplan (the “interim period”) are determinedwithout regard to the merger as set forth inthis paragraph. Accordingly, the chargesand credits are determined based upon thefunding method, actuarial assumptions,and valuation results used for purposes ofparagraph (8) above, and are ratably ad-justed to reflect the length of the interimperiod. Such charges and credits shouldinclude interest to reflect the period fromthe valuation date (of the plan that is notthe ongoing plan) to the date of the merger,as well as interest for the interim period.The credit balance, if any, at the end of theshort plan year described in paragraph (8)above is carried forward to the beginningof the interim period.

(10) Unless the date of the merger isthe first day of the plan year of the ongo-ing plan, the funding standard account forthe ongoing plan for the plan year in

which the merger occurs is determined insteps. In the first step the funding stan-dard account for the ongoing plan is de-termined without regard to the merger. Inthe second step, charges and credits attrib-utable to the plan that is not the ongoingplan are determined for the interim periodas described in paragraph (9) above. Inthe third step the charges and credits fromthe first two steps are combined in a man-ner similar to the treatment for separateplans under § 413(c)(4)(A) except that thecredit balance or funding deficiency foreach plan at the end of the year are com-bined to determine an overall credit bal-ance or funding deficiency. Schedule Bof Form 5500 is filed for the ongoing planfor the plan year in which the merger oc-curred with the combined entries to thefunding standard account as describedabove. The other entries on the ScheduleB (e.g. lines dealing with accrued liabil-ity) should be those for the ongoing planwithout regard to the merger.

(11) For the plan year of the ongoingplan following the plan year in which themerger occurs the funding method for theongoing plan is determined in accordancewith the rules set forth in paragraphs (11),(12), and (13). If the same asset valuationmethod (in all respects) is used for each ofthe two plans, the asset valuation methodof the merged plan is that method. If thesame asset valuation method (in all re-spects) is not used for each of the twoplans (for example, the smoothing periodis three years for one of the plans, andfive years for the other plan), the assetvaluation method used for the mergedplan must be an asset valuation methoddescribed in section 3. If the fundingmethod (without regard to the asset valua-tion method) used for each of the twoplans is the same, that funding method iscontinued for the plan after the merger. Ifthe funding method (without regard to theasset valuation method) used for each ofthe two plans is not the same, then thefunding method used for the ongoing planis continued after the merger. The fund-ing method used for the plan which is notthe ongoing plan is disregarded.

(12) An experience gain or loss is de-termined separately for each of the twoplans, for the period prior to the valuationdate for the plan year following the planyear in which the merger occurred, with-out regard to the merger and any associ-

ated changes (i.e., changes in fundingmethod, actuarial assumptions, or planbenefits). The preceding sentence appliesonly to the extent that an experience gainor loss would have been determined underthe methods used for the plans prior to themerger.

(13) All amortization bases that weremaintained for the two plans continue tobe maintained for the ongoing plan to theextent they would be maintained underthe funding method used for the ongoingplan. If an unfunded liability is deter-mined under the funding method used forthe ongoing plan, it must be determinedafter any change in actuarial assumptionsand methods (including a change in assetvaluation method pursuant to paragraph(12)). In the case of a funding methodthat is a spread gain method, the unfundedliability is redetermined in the same man-ner that the unfunded liability was origi-nally determined for the ongoing plan.Therefore, the amortization base estab-lished pursuant to the rules of section5.01(2) will reflect any change of actuar-ial assumptions and methods. For pur-poses of this paragraph, a spread gainmethod is any method that does not di-rectly calculate an accrued liability. SeeRev. Rul. 81–13 for whether a fundingmethod directly calculates an accrued lia-bility.

(14) The deductible limit under § 404for the plan that is not the ongoing planfor the short plan year is determined,without regard to the merger, followingthe procedures set forth in section 5 ofRev. Proc. 87–27. The deductible limitunder § 404 for the plan that is the ongo-ing plan is determined for the plan year inwhich the merger occurs as the sum of thelimit determined for the plan without re-gard to the merger plus the limit deter-mined with respect to the plan that is notthe ongoing plan for the interim perioddescribed in paragraph (9) above.

(15) If the date of the merger is the firstday of the plan year of the ongoing plan,the minimum funding standard and thedeductible limit under § 404 are deter-mined under this paragraph (15). Theminimum funding standard and de-ductible limit under § 404 are determinedfor the short plan year as described inparagraphs (8) and (14) above as if themerger occurred on the last day of thepreceding plan year of the ongoing plan.

October 16, 2000 368 2000–42 I.R.B.

However, as there is no interim period,the calculations described in paragraphs(9) and (10) are not made. Instead, theminimum funding standard and de-ductible limit under § 404 for the planyear of the merger will fully reflect themerger in the manner described in para-graphs (11), (12), and (13).

(16) The following example illustratesthe application of this subsection.

(a) Plan A has a plan year that begins on Octo-ber 1 and ends on the following September 30. Thevaluation date for Plan A is October 1, the first dayof the plan year.

(b) Plan B has a plan year that begins on July 1and ends on the following June 30. The valuationdate for Plan B is July 1, the first day of the planyear.

(c) Plan A is merged into Plan B on April 1,2001.

(d) An actuarial valuation was made with re-spect to Plan A as of October 1, 2000, for the planyear commencing October 1, 2000, using the entryage normal method as described in section 3.09 withthe actuarial value of the assets determined using thesmoothing method described in section 3.15. Thevaluation interest rate for Plan A is 6 percent. Therelevant valuation results are as follows: the normalcost equals $5,000; the unfunded accrued liabilityequals $50,000; the credit balance from the prioryear equals $10,000; the amortization chargesequals $6,938; and the outstanding balance of amor-tization bases equal $60,000. Plan A has no un-funded current liability. No contribution was madeto Plan A for the short plan year from October 1,2000, through April 1, 2001.

(e) An actuarial valuation was made with re-spect to Plan B as of July 1, 2000, for the plan yearcommencing July 1, 2000, using the entry age nor-mal method as described in section 3.08 with the ac-tuarial value of the assets determined as the fair mar-ket value of the assets. The valuation interest rate forPlan B is 8 percent. The relevant valuation resultsare as follows: the normal cost equals $8,000; theunfunded accrued liability equals $101,000; thecredit balance from the prior year equals $19,000;the amortization charges equal $11,428; and the out-standing balance of amortization bases equals$120,000. Plan B has no unfunded current liability.

(f) For Plan A, the period from October 1, 2000,to April 1, 2001, is treated as a short plan year forpurposes of § 412. The charges and credits to thefunding standard are determined based upon the Oc-tober 1, 2000, actuarial valuation without regard tothe merger and are ratably adjusted to reflect theshort plan year from October 1, 2000, to April 1,2001. A Schedule B of Form 5500 is filed for theshort plan year with the relevant entries for the fund-ing standard account reported as follows: the nor-mal cost is $2,500 (1/2 times $5,000), the amortiza-tion charge is $3,469 (1/2 times $6,938), and theinterest on the normal cost and amortization chargeis $176 (for the period from October 1, 2000,through April 1, 2001). Thus, the total charges are$6,145. The credits to the funding standard accountthat are reported on the Schedule B are $10,295 rep-resenting the prior year credit balance of $10,000plus $295 interest for the short plan year. As a re-

sult, a credit balance of $4,150 ($10,295 less$6,145) is reported on the Schedule B as of April 1,2001.

(g) For Plan B, the minimum funding standardfor the plan year beginning July 1, 2000, is deter-mined in steps as described in paragraph (10)above.

First, the minimum funding standard is deter-mined for Plan B without regard to the merger usingthe July 1, 2000, actuarial valuation. Thus, the nor-mal cost would be $8,000, the amortization chargewould be $11,428, and interest on these amounts(using the 8 percent interest rate) would be $1,554,and the total charges would be $20,982. The credits(without regard to employer contributions) wouldbe the credit balance of $19,000 plus interest (at 8percent) of $1,520 for total credits of $20,520. Ac-cordingly, Plan B would have a funding deficiencyof $462 ($20,982 minus $20,520) if there were noemployer contributions and the merger was disre-garded.

Second, charges and credits attributable to PlanA are determined for the interim period (from April1, 2001 (the date of the merger) to June 30, 2001(the end of the plan year of the ongoing plan inwhich the merger occurs)). The charges consist of anormal cost of $1,287 (3/12 of $5,000 adjusted forone half years interest at 6 percent), an amortizationcharge of $1,786 (3/12 of $6,938 adjusted for onehalf years interest at 6 percent), plus interest of $45(for the interim period at 6 percent) for total chargesof $3,118. The credits (without regard to employercontributions) consist of the credit balance of$4,150 (from the Schedule B for the short plan yearfrom October 1, 2000, to April 1, 2001) plus interest(at 6 percent for the interim period) of $61 for totalcredits of $4,211. Accordingly, for the interim pe-riod from April 1, 2001, to June 30, 2001, thecharges and credits attributable to Plan A would re-sult in a credit balance of $1,093 (the excess of$4,211 over $3,118) if there were no employer con-tribution and the merger was disregarded.

Third, the charges and credits for the first twosteps are combined except that the credit balance orfunding deficiency that were separately determinedat the end of the year are combined to determine anoverall credit balance or funding deficiency. Thus,the charges reported on the 2000 Schedule B forPlan B would consist of a normal cost of $9,287($8,000 plus $1,287), an amortization charge of$13,214 ($11,428 plus $1,786), interest charge of$1,599, and total charges of $24,100 ($20,982 plus$3,118). The credits reported on the 2000 ScheduleB for Plan B would consist of a prior year creditbalance of $23,150 ($19,000 plus $4,150), interestcredits of $1,581 ($1,520 plus $61), and total cred-its of $24,731 ($20,520 plus $4,211). The creditbalance reported on the 2000 Schedule B as of June30, 2001, would be $631 ($1,093 minus $462).

(h) With the July 1, 2001, actuarial valuationfor Plan B, the funding method for the plan asmerged is the entry age normal method with the ac-tuarial value of the assets determined using amethod described in section 3. An amortizationbase is established pursuant to section 5 to reflectthe change in funding method.

.08 Approval for Other Mergers WithTransition Period More Than 12 Months

(1) Approval is granted for a change in

method that is otherwise described insection 4.07 (except that the transitionperiod described in section 4.07(6) ex-ceeds 12 months) if the procedures setforth in paragraphs (2) through (6) arefollowed. If, however, the date of themerger is the first day of the plan year ofthe ongoing plan, the merger is treated asoccurring on the day before the first dayof the plan year of the ongoing plan. Insuch a case, the length of the transitionperiod would be less than 12 months, andthe rules of section 4.07 apply.

(2) For the period from the beginningof the plan year of the plan that is not theongoing plan to the date of the merger(the “short plan year”), the charges andcredits to the funding standard accountfor that plan are determined without re-gard to the merger. For the short planyear, the charges and credits to the fund-ing standard account for that plan are rat-ably adjusted using the principles of Rev.Rul. 79–237 in the same manner as if thedate of the merger was the date of plantermination of that plan, a Schedule B ofForm 5500 is filed for that plan for theshort plan year. Any contributions madefor that plan after the date of the merger,but not later than 8 1/2 months after thedate of the merger, are credited to thefunding standard account of that plan forthe short plan year.

(3) Charges and credits attributable tothe plan that is not the ongoing plan forthe period from the date of the merger tothe end of the plan year of the plan that isthe ongoing plan (the “interim period”)are determined without regard to themerger as set forth in this paragraph (3).Accordingly, the charges and credits aredetermined based upon the fundingmethod, actuarial assumptions, and valu-ation results used for purposes of para-graph (2) above.

(a) For the period from the date of themerger to the date that would have beenthe end of the plan year of the plan that isnot the ongoing plan had there been nomerger (the “first partial period”), thecharges and credits to the funding stan-dard account are determined by ratablyadjusting the charges and credits deter-mined under paragraph (2) above to re-flect the length of the first partial period.Such charges and credits should includeinterest to reflect the period from the val-uation date (of the plan that is not the on-

2000–42 I.R.B. 369 October 16, 2000

going plan) to the date of the merger, aswell as interest for the interim period. Thecredit balance at the end of the short planyear described in paragraph (2) above iscarried forward to the beginning of thefirst partial period.

(b) For the period from the date thatwould have been the end of the plan yearof the plan that is not the ongoing planhad there been no merger to the end of theplan year of the ongoing plan in which themerger occurs (the “second partial pe-riod”), the charges and credits to the fund-ing standard account are determinedbased upon the expected normal costamortization charge, and amortizationcredit from the valuation used for pur-poses of paragraph (2) above, and are rat-ably adjusted to reflect the length of thesecond partial period. Such charges andcredits should include interest for the sec-ond partial period. In addition, if the fund-ing method used for the plan that is notthe ongoing plan is a funding method thatdirectly calculates an accrued liabilitywithin the meaning of Rev. Rul. 81–13,an amortization base is developed to re-flect the gain or loss with respect to assetsfor the short plan year by comparing theexpected and actual value of the assets.For this purpose, the expected value ofthe assets is computed as the market valueof the assets determined for purposes ofparagraph (2), plus contributions madefor the short plan year described in para-graph (2), minus disbursements (i.e., ben-efit payments and expenses determinedon either an actual or expected basis),with all items adjusted for expected inter-est at the valuation rate for the period tothe date of the merger. The actual valueof the assets is set to the market value ofthe assets of the plan that is not the ongo-ing plan (that become part of the assets ofthe ongoing plan) on the date of themerger. The amortization charge or credit(whichever is the case) is determined forsuch base and is ratably adjusted to reflectthe length of the interim period.

(4) The funding standard account forthe ongoing plan for the plan year inwhich the merger occurs is determined insteps. In the first step the funding stan-dard account for the ongoing plan is de-termined without regard to the merger. Inthe second step, the funding standard ac-count for the plan that is not the ongoingplan is determined for the interim period

by adding together the charges and creditsfor the first and second partial periods de-scribed in paragraph (3) above. In thethird step the charges and credits from thefirst two steps are combined in a mannersimilar to the treatment for separate plansunder § 413(c)(4)(A) except that thecredit balance or funding deficiency foreach plan at the end of the year are com-bined to determine an overall credit bal-ance or funding deficiency. Schedule Bof Form 5500 is filed for the ongoing planfor the plan year in which the merger oc-curred with the combined entries to thefunding standard account as describedabove. The other entries on the ScheduleB (e.g., lines dealing with accrued liabil-ity) should be those for the ongoing planwithout regard to the merger.

(5) For the plan year following theplan year in which the merger occurs thefunding method for the ongoing plan isdetermined in accordance with the rulesin paragraphs (11), (12), and (13) of sec-tion 4.07.

(6) The deductible limit under § 404for the plan that is not the ongoing planfor the short plan year is determined,without regard to the merger, followingthe procedures set forth in section 5 ofRev. Proc. 87–27. The deductible limitunder § 404 for the plan that is the ongo-ing plan is determined for the plan year inwhich the merger occurs as the sum of thelimit determined for the plan without re-gard to the merger plus the limit deter-mined with respect to the plan that is notthe ongoing plan for the interim period.

(7) The following example illustratesthe application of this subsection. Thefacts are the same as in the example insection 4.07(16) except that the plan yearof Plan B is the calendar year and the val-uation date is January 1, 2001. Additionalfacts are that the market value of the as-sets of Plan A as of the valuation date ofOctober 1, 2000, is $800,000, the marketvalue of the assets of Plan A at the date ofthe merger is $820,000, and there are nodisbursements expected from Plan A dur-ing this period.

(a) For Plan A, for the period from October 1,2000, through April 1, 2001, is treated as a shortplan year. The funding standard account for this pe-riod is determined as shown in section 4.07(16)(f).Thus, there is a credit balance of $4,150 as of theend of the short period.

(b) For Plan B, the minimum funding standardfor the plan year beginning January 1, 2001, is deter-mined in steps as described in paragraph (4) above.

First, the minimum funding standard is deter-mined is determined for Plan B without regard tothe merger using the January 1, 2001, actuarial val-uation. Thus, the normal cost would be $8,000, theamortization charge would be $11,428, the intereston these amounts (using the 8 percent interest rate)would be $1,554, and the total charges would be$20,982. The credits (without regard to employercontributions) would be the credit balance of$19,000 plus interest (at 8 percent) of $1,520 fortotal credits of $20,520. Accordingly, Plan B wouldhave a funding deficiency of $462 ($20,982 minus$20,520) if there were no employer contributionsand the merger was disregarded.

Second, charges and credits are determined forPlan A for the interim period (from April 1, 2001(the date of the merger) to December 31, 2001 (theend of the plan year of the ongoing plan in whichthe merger occurs)) by adding together the chargesand credits for the first and second partial periods.For the first partial period, the charges consist of anormal cost of $2,574 (6/12 of $5,000 adjusted forone half years interest at 6 percent), an amortizationcharges of $3,572 (6/12 of $6,938, with one halfyears interest at 6 percent) plus interest of $275 (forthe period from April 1, 2001, to December 31,2001). The credits consist of the credit balance of$4,150 (from the Schedule B for the short plan yearfrom October 1, 2000, to April 1, 2001) plus interest(at 6 percent for the period from April 1, 2001, toDecember 31, 2001) of $185 for total credits of$4,336. For the second partial period, the chargesconsist of a normal cost of $1,250 (3/12 of $5,000),amortization charges of $2,348 ( 3/12 of $6,938plus 9/12 of $818) plus interest of $71 (which in-cludes interest on 9/12 of $818 for the period fromApril 1, 2001, to December 31, 2001). As part ofthis calculation, an amortization base of $3,650 isestablished to represent the asset loss from October1, 2000, to April 1, 2001 (determined as expectedassets of $823,650 less actual assets of $820,000).The amortization charge for this base is $818.There are no amortization credits for the secondpartial period.

Third, the charges and credits for the first twosteps are combined except that the credit balance orfunding deficiency for each plan at the end of theyear are combined to produce an overall credit bal-ance or funding deficiency. Thus, the charges re-ported on the 2001 Schedule B for Plan B wouldconsist of a normal cost of $11,824 ($8,000 plus$2,574 plus $1,250), amortization charges of$17,347 ($11,428 plus $3,572 plus $2,347), interestof $1,900 ($1,554 plus $275 plus $71) for totalcharges of $31,071. The credits reported on the2001 Schedule B (without regard to employer con-tributions) would be a prior year credit balance of$23,150 ($19,000 plus $4,150), interest credits of$1,705 ($1,520 plus $185), and total credits of$24,856 . The funding deficiency reported on the2001 Schedule B as of December 31, 2001, wouldbe $6,216 ($462 plus $5,753) if there were no em-ployer contributions for the plan year.

SECTION 5. GENERAL RULESRELATING TO FUNDING METHODS

Approval for a change to any method inthis revenue procedure does not apply un-

October 16, 2000 370 2000–42 I.R.B.

less the provisions of sections .01 through.03 are satisfied.

.01 Amortization Bases. (1) Continued Maintenance of Waiver,

Shortfall, Five-Year Alternative Switch-back, and Transition Bases. In the case ofa plan which, prior to a change in fundingmethod, has a funding waiver base de-scribed in § 412(b)(2)(C), a base due to aswitchback to the regular funding stan-dard account described in § 412(b)(2)(D),a shortfall base described in § 1.412(c)(1)–2(g), or a transition base describedin § 1.412(c)(3)–2(d), the current fundingmethod, regardless of any other character-istics, must maintain such base(s) as if thefunding method had not changed andmust charge, or credit, the funding stan-dard account with the amortizationcharge(s), or credit(s), for such base(s)after the change in funding method.

(2) Creation of a Funding MethodChange Base. Except in the case of achange to a funding method described insection 3.02, section 3.03, section 3.04, orsection 3.05, all existing bases shall bemaintained and an amortization base shallbe established equal to the difference be-tween the unfunded accrued liabilityunder the new method and an amountequal to (A) the net sum of the outstand-ing balances of all amortization bases (in-cluding, when the preceding method wasan immediate gain method, the gain orloss base for the immediately precedingperiod), treating credit bases as negativebases, less (B) the credit balance (or plusthe funding deficiency), if any, in thefunding standard account, less (C) thesum of (i) any existing accumulation ofadditional funding charges for prior planyears due to § 412(l), (ii) any existing ac-cumulation of additional interest chargesdue to late or unpaid quarterly install-ments for prior plan years and (iii) any ex-isting accumulation of additional interestcharges due to the amortization of priorfunding waivers (which sum can be foundon the Schedule B, for example, in 1997on Line 9q(4)), all adjusted for interest atthe valuation rate to the valuation date inthe plan year for which the change ismade. If this difference is a positive ornegative number, the resulting base willbe a charge base or a credit base, respec-tively. In the case of a change to a fundingmethod described in section 3.02, section3.03, section 3.04, or section 3.05, (a) the

bases described in paragraph (1) must bemaintained, and (b) all amortization basesother than those described in paragraph(1) shall be considered fully amortized.

(3) Amortization Period. For anycharge or credit base established pursuantto the requirements of paragraph (2), theamortization period is 10 years.

(4) No base is established due solely toa change in valuation date.

.02 Although compensation must belimited in accordance with § 401(a)(17) indetermining benefits to be valued, it mayor may not be so limited in determiningthe present value of future compensationexpected to be paid to the participant foreach year of the participant’s anticipatedfuture service. However, the alternativeused is part of the method and any changein such practice is a change in fundingmethod.

.03 Whenever, under the fundingmethod, the normal cost is calculated as alevel percentage of compensation, then anindividual’s compensation is included inthe amount of current year’s compensa-tion to which the normal cost percentageis applied if and only if the compensationfor that individual is included in the pre-sent value of future compensation overwhich normal costs are spread. Similarly,whenever the normal cost is calculated asa level dollar amount, then an individualis included in the determination of thenumber of individuals by which the nor-mal cost per participant is multiplied ifand only if that individual is included forpurposes of determining the present valueof an annuity of $1 for years of antici-pated service over which normal costs arespread.

SECTION 6. RESTRICTIONS UNDERREVENUE PROCEDURE

.01 General Restrictions. (1) This revenue procedure does not

apply to a change in funding method for aplan year if either (a) a Schedule B ofForm 5500 has been filed for such planyear using some other funding method or(b) the due date (including extensions) forsuch Schedule B has passed.

(2) This revenue procedure does notapply unless the plan administrator(within the meaning of § 414(g)) or an au-thorized representative of the plan spon-sor indicates as part of the series Form5500 for the plan year for which the

change is effective that the plan adminis-trator or plan sponsor agrees to the changein funding method. In the case of a spe-cial approval for a change in fundingmethod described in section 4, other thanthe approval described in section 4.02(Approval for Change in Funding Methodfor Fully Funded Terminated Plans), therequirement that the plan administrator orauthorized representative of the plansponsor agree to the change will be satis-fied if the plan administrator or an autho-rized representative of the plan sponsor ismade aware of the change before theSchedule B is filed.

(3) This revenue procedure does notapply if, for the plan year of the change, aminimum funding waiver under § 412(d)has been requested for the plan or is beingamortized, or if an extension of an amorti-zation period under § 412(e) has been re-quested or is currently applicable forcomputing minimum funding require-ments, for the plan.

(4) This revenue procedure does notapply if the plan is under an EmployeePlans examination for any plan year, or ifthe plan sponsor, or a representative, hasreceived verbal or written notificationfrom the Tax Exempt and GovernmentEntities Division of an impending Em-ployee Plans examination, or of an im-pending referral from another part of theService for an Employee Plans examina-tion, or if the plan has been under such anexamination and is in Appeals or in litiga-tion for issues raised in an EmployeePlans examination.

(5) Except as provided in section 4.02,this revenue procedure does not apply to achange which is made for a plan year inwhich the plan is terminated.

(6) Non-Applicability if ShortfallMethod is Discontinued. If the currentmethod makes use of the shortfallmethod, approval to change to anotherfunding method under this revenue proce-dure will apply only if the new fundingmethod continues to make use of theshortfall method. For example, approvalis not granted to change from the entryage normal method (which uses the short-fall method) to the unit credit methodunder section 3.01 unless the unit creditmethod makes use of the shortfallmethod.

.02 Additional Restrictions For Ap-provals in Section 3.

2000–42 I.R.B. 371 October 16, 2000

(1) Non-Applicability for ReversionCases. This revenue procedure does notapply to changes in funding method re-quired by Treasury Release R-2697 datedMay 24, 1984, concerning the reversionof assets from a terminated plan. Fur-thermore, approval under section 3 doesnot apply if, in the 15 years preceding thedate of change, such plan was involvedin a transaction described in such Trea-sury Release subsequent to May 24,1984.

(2) Non-Applicability for Plans UsingUniversal Life Insurance Products. Ap-proval to change to a method describedin section 3 does not apply in the case ofa plan for which some of the assets areprovided through universal life insurancepolicies unless, under the fundingmethod adopted, (a) all plan benefits in-cluding those provided by the universallife insurance policies are considered lia-bilit ies in calculating costs and arefunded using the same method as usedfor retirement costs, and (b) the cashvalue as of the valuation date of suchcontracts is treated the same as all otherassets of the plan in calculating costs.However, the requirements of (a) abovewill not fail to be satisfied merely be-cause ancillary benefits, within themeaning of § 1.412(c)(3)–1(f)(2) of theregulations, are funded on a reasonableone-year term funding method.

(3) Four-Year Limitation on Changes.Approval to change to a method de-scribed in section 3 does not apply to anyof the following changes:

(a) the asset valuation method is beingchanged and the asset valuation methodwas changed in any of the four (4) pre-ceding plan years,

(b) the valuation date is being changedand the valuation date was changed inany of the four (4) preceding plan years,or

(c) The funding method is beingchanged in a way not described in (a) or(b), and a funding method change (otherthan a change for which approval is pro-vided by section 4 of this revenue proce-dure, or a change described in (a) or (b))was made in any of the four (4) preced-ing plan years.

(4) Non-Applicability when Liabilitiesare Adjusted for Assets. Approval tochange to a method described in section3 does not apply to a change in funding

method under which the liabilities areadjusted to reflect the performance or ex-pected performance of the assets.

(5) Non-Applicability if Benefit Accru-als are Frozen Under the Plan. Approvalto change to any method described in sec-tions 3.02 through 3.09, does not apply ifa plan provides that no participant mayaccrue a benefit as of a date that is no laterthan the first day of the plan year. In sucha case, approval to change to the methoddescribed in section 3.01 applies only asdescribed in section 4.01(5).

(6) Non-Applicability if Negative Nor-mal Cost or Negative Unfunded LiabilityResults From the Change. Approval tochange to a method described in section 3does not apply if, after the change inmethod, a negative normal cost exists.Also, approval to change to a method de-scribed in section 3 does not apply if,after the change in method, a negative un-funded liability exists, and the method (a)is a spread gain method, and (b) uses anunfunded liability in determining the nor-mal cost. For purposes of the precedingsentence, a spread gain method is anymethod that does not directly calculate anaccrued liability. See Rev. Rul. 81–13 forwhether a funding method directly calcu-lates an accrued liability.

(7) Non-Applicability if Change inMethod is Being Made Pursuant to aSpin-off or Merger. Approval to changeto a method described in section 3 doesnot apply if the funding method for a planyear is being changed in connection witha plan spin-off or merger unless thechange is made as provided in section4.05, section 4.06, section 4.07, or section4.08.

SECTION 7. EFFECTIVE DATE

This revenue procedure is effective forplan years commencing on or after Janu-ary 1, 2000.

SECTION 8. EFFECT ON OTHERREVENUE PROCEDURES

Rev. Proc. 95–51, as clarified and mod-ified by Rev. Proc. 98–10 and Rev. Proc.99–45, is superseded.

DRAFTING INFORMATION

The principal author of this revenueprocedure is James E. Holland, Jr. of theTax Exempt and Government Entities Di-

vision. For further information regardingthis revenue procedure, call (202) 622-6076 between 2:30 and 3:30 Eastern time(not a toll free number) Monday throughFriday. Mr. Holland’s number is (202)622-6730 (also not a toll free number).

26 CFR 601.201: Rulings and determination letters.

(Also Part I, § 412.)

Rev. Proc. 2000–41

Section 1. Purpose

The purpose of this revenue procedureis to set forth the procedure by which aplan administrator or plan sponsor mayobtain approval of the Secretary of theTreasury for a change in funding methodas provided by § 412(c)(5)(A) of the In-ternal Revenue Code, as amended (the“Code”), and § 302(c)(5)(A) of the Em-ployee Retirement Income Security Act of1974, as amended (“ERISA”).

Section 2. Background

.01 Section 3(31) of ERISA lists someacceptable actuarial cost methods.

.02 Section 412(c)(5)(A) of the Codeand § 302(c)(5)(A) of ERISA state that ifthe funding method of a plan is changed,the new funding method shall become ef-fective only if the change is approved bythe Secretary.

.03 Rev. Proc. 78–37, 1978–2 C.B.540, provides the procedure by which aplan administrator or plan sponsor mayobtain approval of the Secretary of theTreasury for a change in funding method.

.04 Rev. Proc. 2000–40, 2000–42I.R.B. 357, provides approval to changethe funding method used to determine theminimum funding requirement for de-fined benefit plans to any one of the meth-ods described therein.

.05 Rev. Proc. 2000–4, 2000–1 I.R.B.115, sets forth the current general proce-dures of the Service relating to the is-suance of rulings, determination letters,and opinion letters on employee plans andexempt organization matters. These gen-eral procedures are updated annually.Sections 9.02(11) and (12) of Rev. Proc.2000–4 set forth the requirements for des-ignating an authorized representative.

.06 Rev. Proc. 2000–8, 2000–1 I.R.B.230, sets forth the current procedures re-

October 16, 2000 372 2000–42 I.R.B.

lating to the payment of user fees for re-quests to the Service for rulings, opinionletters, determination letters, and similarrequests. The user fee procedures are up-dated annually.

Section 3. Scope and Definition

.01 This revenue procedure applies toany defined benefit plan that is subject to§ 412 of the Code or § 302 of ERISA.

.02 Any change in a plan’s currentmethod of computing the minimum fund-ing requirement under § 412 of the Codeor § 302 of ERISA is a change in fundingmethod (see § 1.412(c)(1)–1(b) of the In-come Tax Regulations). The followingare examples of a change in fundingmethod:

Example 1 – The minimum funding requirementis computed using the entry age normal method.Changing the method to the unit credit method is achange in funding method.

Example 2 – The minimum funding requirementis computed using the aggregate method underwhich the normal cost is level as a percentage ofcompensation. Changing the method to the aggre-gate method under which the normal cost is level asa dollar amount is a change in funding method.

Example 3 – The method of valuing liabilities isunchanged, but the method of valuing assets ischanged from one method to another method. Thisis a change in funding method.

Example 4 – The valuation date for the plan is thedate that is the first day of the plan year. Changingthe valuation date to the date that is the last day ofthe plan year is a change in funding method.

Example 5 – The valuation date for the plan is thedate that is the first day of the plan year. The planyear is changed, and the valuation date is changed tothe date that is the first day of the new plan year.This is a change in funding method.

Example 6 – The plan’s enrolled actuary usesVendor A’s software to determine the plan’s mini-mum funding requirement. If the enrolled actuarychanges to Vendor B’s software and the results ofeach specific computation are not the same after thechange in valuation software, this is a change infunding method.

Example 7 – The method for determining the costof ancillary benefits is changed from one method toanother method. This is a change in fundingmethod.

.03 This revenue procedure applies toany change in funding method for anyplan year after the first plan year in whicha plan is subject to § 412 of the Code or§ 302 of ERISA. A funding methodadopted for a newly established plan isnot a change in funding method. A planestablished as a result of a spin-off withinthe meaning of § 1.414(l)–1(b)(4), otherthan a plan established as a result of a deminimis spin-off, is not a newly estab-lished plan for this purpose.

.04 Approval will be given to a changein funding method only if the proposedmethod is acceptable and the transition tothe proposed method is acceptable. In ad-dition, a change in funding method thathas a significant effect on a plan’s mini-mum funding requirement or full fundinglimitation in the year of change may bereviewed to assess the appropriateness ofthe change in light of that effect.

Section 4. Application

.01 A plan administrator, plan sponsor,or the authorized representative of eitherwho desires to obtain approval for achange in funding method should make awritten request (no form is prescribed forrequesting approval) to:

Internal Revenue ServiceCommissioner, TE/GEAttention: T:EP:RAP.O. Box 27063, McPherson StationWashington, DC 20038

.02 (1) The request should be made nolater than the close of the plan year forwhich the change is to be effective. How-ever, requests made after the close of theplan year, but no later than 2 1/2 monthsafter the close of the plan year, will gener-ally be considered, at the discretion of theService, if a statement is attached to the re-quest detailing an adequate reason for thedelay. Requests made after 2 1/2 monthsafter the close of the plan year generallywill not be considered. However, if a re-quest for approval of a change in fundingmethod involves a plan merger, the requestshould be made no later than 4 months be-fore the filing deadline for Schedule B (Ac-tuarial Information) of Form 5500 (of themerged plan) for the plan year in which themerger took place.

(2) If a change to an element of a fund-ing method was recently approved and asubsequent modification of the same ele-ment is requested, the subsequent modifi-cation generally will not be considered.For example, if a plan was using a 5-yearsmoothing asset valuation method prior to1999 and the plan sponsor received ap-proval to set the actuarial value of assetsat market value for 1999 (with a phase-inof gains and/or losses in subsequentyears), a request in 2001 to set the actuar-ial value of assets to market value for2001 (with a phase-in of gains and/orlosses in subsequent years) will not beconsidered.

.03 The request must satisfy all the re-quirements of Rev. Proc. 2000–4. Atten-tion is called to section 9 of Rev. Proc.2000–4 concerning signatures, authorizedrepresentatives, a power of attorney anddeclaration of representative, and a penal-ties of perjury statement. However, astatement of proposed deletions pursuantto § 6110(c) of the Code is not required tobe furnished. All signatures should be ac-companied by the typed name and title (ifapplicable) of the signer.

.04 The following information shall ac-company the request:

(1) The employer identificationnumber, the plan name and num-ber, and the name and address ofthe plan administrator or plansponsor.

(2) A copy of the actuarial valuationreport for the plan year preced-ing the year of change, and, ifavailable, a draft of the actuarialvaluation report for the year ofchange. For requests involvingmergers, a copy of each of thevaluation reports for all themerging plans for the plan yearpreceding the change and, ifavailable, a draft of the actuarialvaluation report for the year ofchange, should be included.

(3) A copy of the Schedule B (Actu-arial Information) of Form 5500,including attachments thereto,that has been filed for the planyear preceding the year ofchange. For requests involvingmergers, a copy of the most re-cent Schedule B that has beenfiled for a plan year precedingthe year of change should be in-cluded for each of the mergingplans.

(4) A statement of the plan year firstaffected by the proposed change.

(5) A description of the currentfunding method and the pro-posed funding method. Themethod can be described by ref-erence to a method contained inRev. Proc. 2000–40. For exam-ple, the level percent of compen-sation individual entry age nor-mal method may be described byreference to section 3.08 of Rev.Proc. 2000–40. The method canalso be described by indicating a

2000–42 I.R.B. 373 October 16, 2000

particular variation of a methoddescribed in Rev. Proc. 2000–40.The description of a methodshould be such that it wouldallow two independent actuariesto arrive at the same valuationresults using the same methodand assumptions for a givenplan. If applicable, the descrip-tion should indicate whether themethod involves the use of a cer-tain rule in the first year of thechange and a different rule insubsequent years. For example,an asset valuation methodchange may restart at marketvalue in the year of change, andmay phase-in gains and losses insubsequent years. Additionally,if the method is an asset valua-tion method not described inRev. Proc. 2000–40, a numericalillustration demonstrating thecalculation of the actuarial valueof assets under the currentmethod and the proposedmethod should be included. Ifthe change in funding methodinvolves a plan merger, a de-scription of the funding methodthat was used by each of themerging plans before the mergerand the proposed fundingmethod that is used by themerged plan should be included.

(6) A brief statement of the reasonfor the proposed change and astatement why automatic ap-proval under Rev. Proc. 2000–40cannot be used to make thechange.

(7) A statement of whether a changein funding method was previ-ously requested.

(8) A statement of other changesbeing made for the year ofchange, such as a change in planyear or change in actuarial as-sumptions.

(9) Technical Information(A) A worksheet should be pre-

pared by the enrolled actuaryfor the plan. The worksheetshould contain the informa-tion described below deter-mined as of the valuation datein the year of the change infunding method. The infor-

mation below should beshown (1) prior to any changein plan provisions, assump-tions, or funding methodsthat apply in the year ofchange, and (2) after thechange in funding methodand other changes that occurin the year of change:

(i) A list of the amortizationbases maintained (includ-ing, for each base, the typeof base, outstanding bal-ance, amortization period,and amortization amount).Note that the bases main-tained prior to and afterimplementing all currentyear changes will differ bythe inclusion of the newbase(s). The calculation ofthe new base(s) should alsobe shown.

If bases are combined andoffset in the year of change,in addition to the resultingsingle base, show informa-tion on each of the basesinvolved.

(ii) The unfunded liability ofthe plan. For immediategain methods, show theactuarial value of assetsprior to any adjustments.

(iii) The basic funding formula(or equation of balance).If the equation of balanceis not satisfied, explain theeffect on the operation ofthe funding method in theyear of change.

In the case of a plan changeinvolving a merger, the aboveinformation should be providedfor all merging plans as of thedate of the merger. If the planchange involves a spin-off, theabove information should beprovided for the original planimmediately prior to the spin-off date and for the plans imme-diately after the spin-off date.

(B) The calculation of the § 412full funding limitation for theplan year prior to the planyear of change, and for theplan year of change. In thecase of a plan merger, the cal-

culation of the § 412 fullfunding limitation should begiven for all merging plansimmediately prior to themerger and for the mergedplan after the merger.

(10) A statement of whether awaiver of the minimum fund-ing standard is currently in ef-fect and whether a request for awaiver is currently pending oris expected to be submitted inthe near future.

A checklist has been provided in Ap-pendix A for the convenience of the tax-payer submitting the request. In certaincases some of the material describedabove may be inappropriate or burden-some to furnish. In such cases, the re-quest for approval should include a state-ment indicating why such material is notbeing furnished.

.05 The Service may request additionalinformation as needed.

.06 If a conference has been requested,a conference will be granted only in ac-cordance with section 12 of Rev. Proc.2000–4. Furthermore, if the Service pro-poses an adverse holding, the taxpayerwill be offered a conference in accor-dance with section 12.02 of Rev. Proc.2000–4.

.07 If the request for the change infunding method is approved, the instruc-tions under line 5 of Schedule B (Actuar-ial Information) of Form 5500 should befollowed in reporting the change. Cur-rently, this requires entering the date ofthe ruling letter on line 5k of Schedule B.

Section 5. Class Rulings

.01 In a case where approval is desiredfor a change in funding method that isidentical for a group of plans in excess of40 receiving actuarial services from thesame insurance company or consultingfirm, a “class ruling” may be requestedapproving the change for all consentingtaxpayers in the class. A class generallyconsists of the group of plans (1) receiv-ing actuarial services from the same in-surance company or consulting firm, orwhose actuarial valuations are producedusing the software of the same vendor,and (2) for which the element of the fund-ing method that is proposed to be changedwas the same. An element of a fundingmethod is defined for purposes of this

October 16, 2000 374 2000–42 I.R.B.

revenue procedure as (1) an asset valua-tion method, (2) a valuation date, or (3)the funding method without regard to theasset valuation method or the valuationdate.

.02 The class ruling may be requestedby an enrolled actuary on behalf of an in-surance company or consulting firm thatprovides actuarial services to the plans.An enrolled actuary on behalf of a soft-ware vendor may also request a class rul-ing; such ruling would apply to all planswhose actuarial valuations are producedusing that vendor’s software (both beforeand after the change in funding method).

.03 The enrolled actuary making the re-quest should state the period for which theclass ruling is proposed to be effective.The ruling will apply to plan years begin-ning within the stated period. The statedperiod cannot begin prior to 12 monthsbefore the month in which the request ismade. Generally, the period cannot belonger than 36 months.

.04 In lieu of the plan-specific informa-tion otherwise required under section 4,the request for a class ruling shall containthe following information:

(1) The name and enrollment num-ber of the actuary making the re-quest.

(2) The name and address of the in-surance company, consultingfirm, or software vendor de-scribed in subsection 5.02.

(3) A statement indicating that theapplicant believes that the classruling will be applied to at least40 plans and an estimate of thenumber of plans that is expectedto change the funding method inaccordance with the class ruling.

(4) The information described insubsections 4.04(5), 4.04(6), and4.04(9), except that the numeri-cal results requested in 4.04(9)should be a numerical illustra-tive example rather than actualnumerical results.

.05 If the change in funding method isapproved, a “class ruling letter” will be is-sued to the insurance company, consult-

ing firm, or software vendor requestingthe ruling. However, it is not incumbentupon the plan administrator or plan spon-sor of any plan to agree to the change infunding method. If the change in fundingmethod covered by the class ruling letteris desired, the instructions under line 5 ofSchedule B (Actuarial Information) andline 7 of Schedule R (Retirement Plan In-formation) of Form 5500 should be fol-lowed in reporting the change. Currently,this requires entering the date of the classruling letter on line 5k of Schedule B andreporting the plan sponsor’s agreement tothe change in funding method on line 7 ofSchedule R.

.06 If a request for a class ruling is ap-proved, at least 30 of the plans covered bythe ruling must make the change in fund-ing method in order for the ruling to be-come effective.

.07 The Service may, in its discretion,limit the period for which a class rulingwill be effective, impose conditions onthe use of the class ruling, or decline toissue a class ruling.

Section 6. Effect on other Documents

.01 Rev. Proc. 2000–4 is modified tothe extent that this revenue procedure pro-vides special procedures for issuing rul-ings with respect to a change in fundingmethod.

.02 Rev. Proc. 78–37 is superseded.

Section 7. Effective Date

This revenue procedure is effective forrequests for changes in funding methodmade on or after December 1, 2000.

Section 8. Paperwork Reduction Act

The collection of information con-tained in this revenue procedure has beenreviewed and approved by the Office ofManagement and Budget in accordancewith the Paperwork Reduction Act (44U.S.C. § 3507) under control number1545–1704.

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.

The collection of information in thisrevenue procedure is in sections 4 and 5.This information is required to evaluateand process the request for a change infunding method. The collection of infor-mation is required to obtain approval for achange in funding method. The likely re-spondents are businesses or other for-profit institutions, nonprofit institutions,and small businesses and organizations.

The estimated total annual reportingburden is 5,400 hours.

The estimated annual burden per re-spondent varies from 12 to 24 hours, de-pending on individual circumstances,with an estimated average burden of 18hours. The estimated number of respon-dents and/or recordkeepers is 300.

The estimated annual frequency of re-sponses is one.

Books or records relating to a 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.

Drafting Information

The principal author of this revenueprocedure is John C. Heil of EmployeePlans Actuarial Group 2, TE/GE Rulingsand Agreements. For further informationregarding this revenue procedure, pleasecontact the Employee Plans ActuarialGroup taxpayer assistance telephone ser-vice between the hour of 2:30 p.m. and3:30 p.m., Eastern Time, Monday throughThursday at (202) 622-6076 (not a toll-free number). Mr. Heil’s telephone num-ber is (202) 622-7383 (prior to October28, 2000), or (202) 283-9694 (after Octo-ber 28, 2000), also not toll-free numbers.

2000–42 I.R.B. 375 October 16, 2000

Appendix A

CHANGE IN FUNDING METHOD REQUEST CHECKLISTIS YOUR SUBMISSION COMPLETE?

Instructions

The Service will be able to respond more quickly to your change in funding method request if it is carefully prepared and complete.To ensure your request is in order, use this checklist. Answer each question in the checklist by inserting Y for yes, N for no, or N/Afor not applicable, as appropriate, in the blank next to the item. Sign and date the checklist (as taxpayer or authorized representa-tive) and place it on top of your request.You must submit a completed copy of this checklist with your request. If a completed checklist is not submitted with your request,substantive consideration of your submission will be deferred until a completed checklist is received. However, this checklist neednot be submitted if the request involves a class ruling described in section 5 of this revenue procedure.

1. If you want to designate an authorized representative or a third party contact, have you included aproperly executed Form 2848 (Power of Attorney and Declaration of Representative) or Third PartyContact Authorization Form?

2. Have you satisfied all the requirements of Rev. Proc. 2000–4 or its successors (especially concerningsignatures and penalties of perjury statement)? (See sections 2.05 & 4.03)

3. Have you included the user fee required under Rev. Proc. 2000–8 or its successors? (See section2.06)

4. Have you included the employer identification number, the plan name and number, and the name andaddress of the plan administrator or plan sponsor? (See section 4.04(1))

5. Have you included a copy of the actuarial valuation report for the plan year preceding the year ofchange, and, if available, a draft of the actuarial valuation report for the year of change? (See section4.04(2))

6. Have you included a copy of the last Schedule B (Actuarial Information) of Form 5500, including at-tachments thereto (for requests involving mergers, a copy of the last Schedule B for each of themerging plans)? (See section 4.04(3))

7. Have you included a statement of the plan year first affected by the proposed change? (See section4.04(4))

8. Have you included a complete description of the current and proposed funding methods, includingasset valuation methods? (See section 4.04(5))

9. Have you included a brief statement of the reason for the proposed change and a statement why auto-matic approval under Rev. Proc. 2000–40 cannot be used to make the change? (See section 4.04(6))

10. Have you included a statement whether a change in funding method was previously requested? (Seesection 4.04(7))

11. Have you included a statement of other changes being made for the year of change, such as a changein plan year or change in actuarial assumptions? (See section 4.04(8))

12. Have you included a worksheet prepared by the enrolled actuary for the plan, showing a “before andafter” list of the amortization bases, the unfunded liability of the plan, and the basic funding formula(or equation of balance) using the proposed method? Have you included the calculation of the fullfunding limitation for the plan year prior to the plan year of change and for the plan year of change?(See section 4.04(9))

13. Have you included a statement of whether a waiver of the minimum funding standard is currentlyin effect and whether a request for a waiver is currently pending or is expected to be submitted inthe near future? (See section 4.04(10))

Signature Date

Title or Authority

Typed or printed name of person signing checklist

October 16, 2000 376 2000–42 I.R.B.

Withdrawal of PreviousProposed Regulations; Notice ofProposed Rulemaking andNotice of Public Hearing

Agent for Consolidated Group

REG–103805–99

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Withdrawal of previous pro-posed regulations; notice of proposedrulemaking; and notice of public hearing.

SUMMARY: This document containsproposed regulations regarding the agentfor an affiliated group that files a consoli-dated return (consolidated group). Theproposed regulations address certain is-sues raised by the current regulations con-cerning the agent for the group when thecommon parent ceases to be the commonparent, as well as questions concerningthe scope of the common parent’s author-ity. These proposed regulations affect allconsolidated groups. This document alsoprovides notice of a public hearing onthese proposed regulations. In addition,this document withdraws a portion of theproposed rulemaking (LR–97–79, 1984–2C.B. 821) published in the Federal Reg-ister, July 31, 1984.

DATES: Written and electronic com-ments must be received by December 26,2000. Outlines of topics to be discussed atthe public hearing scheduled for 10 a.m.on January 22, 2001, must be received byDecember 26, 2000.

ADDRESSES: Send submissions to:CC:M&SP:RU (REG–103805–99), room5226, Internal Revenue Service, POB7604, Ben Franklin Station, Washington,DC 20044. Submissions may also be handdelivered Monday through Friday betweenthe hours of 8 a.m. and 5 p.m. toCC:M&SP:RU (REG–103805–99),Courier’s Desk, Internal Revenue Service,1111 Constitution Avenue, NW., Washing-ton, DC. Alternatively, taxpayers may sub-mit comments electronically via the inter-net by selecting the “Tax Regs” option onthe IRS Home Page, or by submitting com-ments directly to the IRS internet site athttp://www.irs.ustreas.gov/tax_regs/regslis

t.html. The public hearing will be held inroom 4718, Internal Revenue Building,1111 Constitution Avenue, NW., Washing-ton, DC.

FOR FURTHER INFORMATION CON-TACT: Concerning the regulations, Ger-ald B. Fleming or George R. Johnson,(202) 622-7930; concerning submissionsof comments, the hearing and/or to beplaced on the building access list to attendthe hearing, Sonya Cruse, (202) 622-7180(not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information con-tained in this notice of proposed rulemak-ing has been submitted to the Office ofManagement and Budget for review in ac-cordance with the Paperwork ReductionAct of 1995 (44 U.S.C. 3507(d)).

Comments on the collection of infor-mation should be sent 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, withcopies to the Internal Revenue Service,Attn: IRS Reports Clearance Officer,OP:FS:FP, Washington, DC 20224. Com-ments on the collection of informationshould be received by November 27,2000.

Comments are specifically requestedconcerning:

Whether the proposed collection of in-formation is necessary for the proper per-formance of the functions of the InternalRevenue Service, including whether thecollection will have practical utility;

The accuracy of the estimated burdenassociated with the proposed collection ofinformation;

How the quality, utility, and clarity ofthe information to be collected may be en-hanced;

How the burden of complying with theproposed collection of information maybe minimized, including through the ap-plication of automated collection tech-niques or other forms of information tech-nology; and

Estimates of capital or start-up costsand costs of operation, maintenance, and

purchase of services to provide informa-tion.

The collection of information in theproposed regulations is in §1.1502–77(d).This information is required for the com-mon parent to notify the IRS of the desig-nation of a new agent for the consolidatedgroup when the common parent’s exis-tence is about to terminate and for thedesignated corporation to confirm that itagrees to serve as the group’s new agentand qualifies to be the group’s agent. Thecollection of information is required toobtain a benefit, i.e., to designate a newagent for the consolidated group. Thelikely respondents are business or otherfor-profit institutions.

The regulations provide that a commonparent or a previously designated agent ofa consolidated group should notify theCommissioner in writing, in accordancewith procedures prescribed by the Com-missioner, that it anticipates going out ofexistence and that it designates anothercorporation to serve as the group’s agentfor specified prior consolidated returnyears. In addition, the notification shouldinclude a statement by the designated cor-poration agreeing to serve as the group’sagent and, if the designated corporationwas not itself a member of the group, astatement that it is or will be liable for thetax. An agent designated by the Commis-sioner is required to give notice to eachcorporation (or any successor) that was amember of the group during any part ofthe relevant consolidated return year. Theburden for the collection of information in§1.1502–77(d) is as follows:

Estimated total annual reporting bur-den: 200 hours.

Estimated average annual burden perrespondent: 2 hours.

Estimated number of respondents:100.

Estimated annual frequency of re-sponses: On occasion.

An agency may not conduct or spon-sor, and a person is not required to re-spond to, a collection of information un-less it displays a valid control numberassigned by the Office of Managementand Budget.

Books or records relating to a collec-tion of information must be retained aslong as their contents may become mate-

Part IV. Items of General Interest

2000–42 I.R.B. 377 October 16, 2000

rial in the administration of any internalrevenue law. Generally, tax returns andtax return information are confidential,as required by 26 U.S.C. 6103.

Background

This document proposes amendmentsto 26 CFR part 1 under section 1502 ofthe Internal Revenue Code of 1986(Code). The proposed amendments clar-ify and supplement existing rules under§1.1502–77 concerning the agent for aconsolidated group and the designationof a new agent to act for the group. Theproposed amendments also clarify rulesconcerning the common parent as agentfor a corporation whose income is im-properly included in a consolidated re-turn. In addition, the proposed amend-ments modify and clarify the rulesconcerning the proper party to apply forand receive a refund payment due to atentative carryback adjustment under§1.1502–78. The proposed regulationsalso terminate §1.1502–77T for taxyears beginning on or after the effectivedate of f inal regulations amending§1.1502–77.

Section 1.1502–77(a) currently pro-vides that the common parent is the“sole agent” for the consolidated groupwith respect to nearly all procedural taxmatters relating to the group’s tax liabil-i ty for a consolidated return year.Notwithstanding this general rule,§1.1502–77(a) provides that the IRSmay, upon notifying the common parent,deal directly with any member of thegroup in respect of its liability, in whichcase that member shall have full author-ity to act for itself.

Because the common parent’s author-ity to act as agent for the group termi-nates when the common parent corpora-tion ceases to exist, §1.1502–77(d)provides for the designation of a newagent to act for the group. Section1.1502–77(d) first grants the terminatingcommon parent, prior to going out of ex-istence, the authority to designate a re-maining member to act as agent for thegroup (a designated agent) regarding thegroup’s prior consolidated return years.If the common parent goes out of exis-tence without designating a new agent,§1.1502–77(d) provides that the remain-ing members of the group may designatea new agent. A designation of a new

agent under this provision, by either thecommon parent or the remaining mem-bers, is subject to the approval of thedistrict director with which the groupfiles its return. Section 1.1502–77(d)also grants the IRS the authority to dealseparately with each remaining memberof the group with respect to its liabilityin the event that neither the commonparent nor the surviving members desig-nate a new agent.

Decisions of the United States TaxCourt have highlighted difficulties in ap-plying these rules to situations where agroup continues to exist following atransaction described in §1.1502–75(d)(a group structure change), in which anew common parent has replaced theformer common parent (which may ormay not have remained in existence orremained a member of the group). SeeInterlake Corp. v. Commissioner, 112T.C. 103 (1999); Union Oil Co. v. Com-missioner, 101 T.C. 130 (1993); South-ern Pacific Co. v. Commissioner, 84 T.C.395, 404 (1985).

On September 8, 1988, various finaland temporary regulations under section1502 were published in the FederalRegister (T.D. 8226, 1988–2 C.B. 325[53 F.R. 34729]). At the same time, anotice of proposed rulemaking (LR-66-88, 1988–2 C.B. 848) cross-referencedto the text of the temporary regulationswas also published (53 F.R. 34779). In-cluded in the temporary regulations was§1.1502–77T. In situations where thecorporation that was the common parentof the group ceases to be the commonparent, §1.1502–77T provides alterna-tive agents to act for a consolidatedgroup, but only for purposes of mailingnotices of deficiency and waiving peri-ods of l imitations. Specif ical ly,§1.1502–77T allows the following alter-native agents to act on behalf of thegroup: (1) the common parent of thegroup for all or any part of the year towhich the notice or waiver applies, (2) asuccessor to the former common parentin a transaction to which section 381(a)applies, (3) the agent designated by thegroup under §1.1502–77(d), or (4) if thegroup remains in existence under§1.1502–75(d)(2) or (3), the commonparent of the group at the time the noticeis mailed or the waiver given.

The IRS received no comments on

§1.1502–77T and has not issued finalregulations concerning alternativeagents.

Reasons for Change

Given the common parent’s role as theagent for the group, issues arise aboutwho has authority to act on behalf of thegroup for consolidated return yearswhere the common parent has ceased toexist (e.g., due to a merger or liquida-tion) or where, while continuing to exist,it has ceased to be the common parent ofthe group (e.g., as a result of being ac-quired by another corporation). Otherissues arise concerning the proper agent,as well as the scope of that agency,where a consolidated return improperlyincludes the income of a corporation thatshould have filed separately or when theIRS issues a tentative refund in responseto a claim filed by a former member ofthe group.

Although the current provisions of§§1.1502–77 and 1.1502–77T provideguidance in limited situations, numerousissues have arisen in situations outsidethe scope of these provisions. The alter-native agent approach of §1.1502–77Taddressed agency issues regarding no-tices of deficiency and waivers of peri-ods of limitations. It was intended tooffer flexibility in allowing both taxpay-ers and the IRS to choose from amongseveral potential agents to act for thegroup and also to ensure that whichevercorporation is selected would be a per-missible agent to act for the group.However, an alternative agent providedby §1.1502–77T is the agent for thegroup only for purposes of mailing no-tices of deficiency or for executing con-sents to extend periods of limitations.Under §1.1502–77T, an alternative agenthas no authority to act as the group’sagent for other purposes (e.g., filing a re-fund claim, receiving refund paymentsor executing a closing agreement). As aresult, under the current rules, absent adesignation of one of the remainingmembers to act as agent under§1.1502–77(d), the IRS may have no op-tion other than to deal separately witheach remaining member for any purposenot covered by §1.1502–77T.

The IRS and Treasury initially consid-ered the possibility of expanding thescope of the authority of alternative

October 16, 2000 378 2000–42 I.R.B.

agents under §1.1502–77T to include allmatters under the common parent’s scopeof authority as set forth in §1.1502–77(a).However, it was ultimately concluded thatthe shortcomings of the alternative agentapproach outweigh its benefits. In partic-ular, that approach lacks certainty becausethe IRS could deal with any one of severalalternative agents and more than one cor-poration could initiate actions on behalfof the group. Also, a corporation couldserve as an alternative agent without hav-ing been related to members of the groupduring the consolidated return year atissue or without being liable for the con-solidated tax for that year.

In lieu of expanding the alternativeagent approach of §1.1502–77T, the IRSand Treasury propose to revise the rulesof §1.1502–77 and to terminate the ap-plication of §1.1502–77T. Under theproposed regulations, as discussed inmore detail below, the common parentremains the agent for the group’s con-solidated return year as long as it re-mains in existence, regardless ofwhether it continues to be a commonparent or a member of the group, orwhether the group continues under§1.1502–75(d).

The proposed regulations set forthprocedures for a common parent to des-ignate a new agent for the group whenthe common parent ceases to exist, andpermit the IRS to designate a new agentif the common parent fails to do so. Theproposed regulations do not contain aprovision allowing the remaining mem-bers to designate a new agent if the com-mon parent fails to make a designationbefore it ceases to exist. The proposedregulations provide that the commonparent acts as the agent with regard tothe liability of any corporation whoseincome is improperly included in thegroup’s return but whose liability is sub-sequently computed on the basis of aseparate return or as a member of an-other consolidated group.

Finally, the proposed regulationsmodify the rule in §1.1502–78(a) con-cerning an application under section6411 for a tentative carryback adjust-ment with respect to a loss or businesscredit arising in a separate return limita-tion year. Under the proposed amend-ments, the application should be filed bythe common parent for the carryback

year instead of the corporation to whichthe loss or credit is attributable. In addi-tion, the proposed amendments clarifythat any refund under §1.1502–78(b) re-lated to a tentative carryback adjustmentmust be paid to the corporation that wasthe common parent (or is the designatedagent) for the carryback year. The pro-posed amendments also replace theword “investment” with “business” inthe term unused investment creditin§1.1502–78(a) to conform to changes insection 6411.

Explanation of Provisions

In order to reduce uncertainty for bothtaxpayers and the IRS, the proposedamendments to §1.1502–77(a) providethat the common parent for a consolidatedreturn year remains the agent for thegroup for that year as long as it continuesto exist. This rule applies even if thecommon parent, for whatever reason,ceases to be the common parent. Thus,for example, if the common parent be-comes a subsidiary member of the consol-idated group, which continues under§1.1502–75(d), if the common parent be-comes a stand-alone corporation, or evenif the common parent becomes a sub-sidiary member of another group, it re-mains the agent of the group for thoseconsolidated return years during which itwas the group’s common parent. Cf. In-terlake Corp. v. Commissioner, 112 T.C.103 (1999); Union Oil Co. v. Commis-sioner, 101 T.C. 130 (1993).

The proposed regulations provide arule for situations where a corporationfiles a consolidated return as the commonparent of an affiliated group but is subse-quently determined not to be the actualcommon parent of that group. In such sit-uations, the corporation that filed as thecommon parent is considered to be theagent for each member of the claimedgroup even though it was not actually thecommon parent. This situation may arise,for example, where the common parentfails to own stock satisfying the 80-per-cent voting and value requirement of sec-tion 1504(a)(2).

The proposed regulations clarify thatthe common parent’s authority as agentfor a taxable year extends to any succes-sor of a member. For purposes of§1.1502–77 only, the term successormeans a party that, pursuant to applicable

law, has become primarily liable for thetax liabilities of the common parent orany subsidiary member. Such determina-tion is made without regard to§1.1502–1(f)(4) (defining the term suc-cessorfor purposes of the definition of aseparate return limitation year). The pro-posed regulations also clarify that thecommon parent remains the sole agentwith respect to the consolidated tax liabil-ity under §1.1502–6 of a subsidiary (or itssuccessor) that is or becomes a disre-garded entity for Federal tax purposes.

Where transferee liability exists underapplicable law, the proposed regulationsprovide that, for purposes of assessing,paying or collecting transferee liability,actions of the common parent with re-spect to the group’s tax liability will de-rivatively affect the liability of a trans-feree of a member, regardless of whetherthe transferor member remains in exis-tence. This provision is essentially an ap-plication of general principles of trans-feree liability in the context of aconsolidated group. Under case law, theactions of a transferor derivatively affectthe liability of a transferee, even if the ac-tions are taken after the transfer occurs.See, e.g., United States v. Vassallo, Inc.,274 F.2d 791, 793–794 (3d Cir. 1960). Asprovided in the proposed regulations, thecommon parent’s actions on behalf of thegroup are always binding on each mem-ber of the group. Therefore, any actionsof a common parent with respect to thegroup’s liability for a consolidated returnyear will derivatively affect the liabilityof a transferee of a transferor member thatremains in existence, even if the actionoccurs after the transfer giving rise to thetransferee liability.

The proposed regulations recognize thederivative effect of the common parent’sactions on transferee liability and furtherprovide that actions taken by or with re-spect to the common parent, as agent forthe group, after a transferor member hasceased to exist, also derivatively affect theliability of a transferee of such member tothe same extent as if the transferor mem-ber had remained in existence. For exam-ple, under this provision, a waiver extend-ing the limitations period for assessment,executed by the common parent (as agentfor the group) after a member ceases toexist, would have the derivative effect ofextending the limitations period with re-

2000–42 I.R.B. 379 October 16, 2000

spect to a transferee of such member. The proposed regulations revise the

rules governing the designation of a newagent for the group when the commonparent ceases to exist. They retain thecurrent provision under §1.1502–77(d)for the common parent to notify the IRSand designate, subject to the approval ofthe IRS, another member to act as thegroup’s agent for the consolidated returnyear.

As under the current rule, the proposedregulations provide that the common par-ent may designate one of the remainingmembers of the group as the new agentfor the group. The proposed regulationsprovide that the member designated as theagent for a consolidated return year musthave been a member of the group duringthe consolidated return year and must notsubsequently have been disregarded as anentity separate from its owner or treatedas a partnership for purposes of Federaltaxes. However, the common parent mayalso designate a domestic corporation(that is not disregarded as an entity sepa-rate from its owner or classified as a part-nership for Federal tax purposes) that isprimarily liable as a successor of any cor-poration that was a member of the groupduring the consolidated return year. Inaddition, the common parent will be per-mitted to designate any domestic corpora-tion (that is not disregarded as an entityseparate from its owner or classified as apartnership for Federal tax purposes) thatis to become primarily liable as the com-mon parent’s successor in connectionwith a transaction in which the commonparent’s existence terminates. If an agentpreviously designated under this provi-sion ceases to exist, the proposed regula-tions provide for such terminating agentto designate a new agent in the same man-ner that is available to a common parentthat is going out of existence.

For purposes of the designation provi-sion, a corporation’s existence is deemed tocease not only if the corporation ceases toexist under applicable law, but also if thecorporation becomes a disregarded entityor reclassified as a partnership for Federaltax purposes. However, if treating a corpo-ration as ceasing to exist when it becomes adisregarded entity or reclassified as a part-nership would leave no other corporationeligible to serve as a designated agent forthe group, its existence would not be

deemed to terminate. As used in the pro-posed regulations, the term disregarded en-tity includes a qualified subchapter S sub-sidiary for which an election is madepursuant to section 1361(b)(3)(B), a quali-fied REIT subsidiary within the meaning ofsection 856(i)(2), or an entity that is disre-garded as an entity separate from its ownerunder the “check-the-box” rules of§301.7701–3. If, as a result of becoming adisregarded entity or reclassified as a part-nership, the group’s agent ceases to existfor Federal tax purposes without designat-ing a new agent and subsequently purportsto act on behalf of the group, any actionstaken by the purported agent will, to the ex-tent determined appropriate by the Com-missioner, have the same effect as if theagent’s existence had not terminated.

In the event the common parent (or apreviously designated agent) fails to des-ignate a new agent before going out of ex-istence, the proposed regulations autho-rize the IRS to designate a new agent forthe group. The IRS may designate one ofthe remaining members of the group forthe consolidated return year (that has notbeen disregarded as an entity separatefrom its owner or reclassified as a partner-ship for Federal tax purposes), or any do-mestic corporation (that is not disregardedas an entity separate from its owner orclassified as a partnership for Federal taxpurposes) that is primarily liable as a suc-cessor of such a member, to act as thegroup’s agent. This provides the IRS witha readily available option in cases whereit needs to address a consolidated group’stax liability and no new agent has other-wise been designated. Any corporationthat the IRS designates as the agent forthe consolidated return year generally willcontinue as the group’s agent as long as itremains in existence. At the request ofone or more members, however, the IRSmay (but is not required to) replace a des-ignated agent with another member (orsuccessor of a member) for the consoli-dated return year.

The proposed regulations direct theIRS and the designated agent to providenotification of the designation to the otherremaining members/successors. Any fail-ure by the IRS and/or the designatedagent to give notification to amember/successor does not invalidate thedesignation.

Under the current regulations, the re-

maining members for a consolidated re-turn year may designate a new agent inthe event the common parent does notdesignate a new agent that is approved bythe IRS. In practice, taxpayers have sel-dom utilized this provision because it isunwieldy and largely impracticable ex-cept for groups comprising only a fewmembers. Accordingly, in light of the in-frequency with which taxpayers use thisprovision, and in the interest of providingsimple and administrable procedures, theIRS and Treasury have concluded thatthere is no longer a need to provide forany designation by the remaining mem-bers.

As under the current regulations, theproposed regulations provide that a desig-nation by the common parent or a desig-nated agent cannot become effective untilit is approved by the IRS. The proposedregulations clarify that the Commis-sioner’s approval of a designation by acommon parent (or designated agent) willnot be effective before the corporationmaking the designation ceases to exist. Inthe absence of an effective approved des-ignation, a notice of deficiency or anyother communication mailed to the for-mer common parent or former designatedagent, even if no longer in existence, istreated as having been properly mailed toall members and successors.

The proposed regulations retain theprovision in the current regulations autho-rizing the Commissioner, upon notifyingthe common parent, to deal separatelywith a member concerning that member’sseveral liability for the consolidated tax.In such a case, the member would havefull authority to act for itself.

The proposed regulations eliminate§1.1502–77T for consolidated returnyears beginning after the date that thefinal regulations under §1.1502–77 arepublished in the Federal Register.

The proposed regulations provide thatthe common parent is the sole agent for anycorporation that is improperly included inthe group’s return and whose tax liabilityshould have been computed on the basis ofa separate return or as a member of anotherconsolidated group. This provision is con-sistent with the current rule of§1.1502–77(c)(2), relating to the effect ofwaivers of periods of limitations on assess-ment that are executed by the common par-ent. The proposed regulations are also con-

October 16, 2000 380 2000–42 I.R.B.

sistent with rulings of the Tax Court in sev-eral cases. See Intervest Enterprises, Inc. v.Commissioner, 59 T.C. 91, 96–97 (1972);Lone Star Life Insurance Company v. Com-missioner, T.C. Memo. 1997–465; INI, Inc.v. Commissioner, T.C. Memo. 1995–112,aff ’d per curiam, 107 F.3d 27 (11th Cir.1997). See also Alumax Inc. v. Commis-sioner, 109 T.C. 133, 196 (1997) (holdingthat the improper inclusion of a corporationin a consolidated return does not alter theagency relationship established under§1.1502–77(c)), aff ’d on other grounds,165 F.3d 822 (11th Cir. 1999).

The proposed regulations amend§1.1502–78(a) to provide that the commonparent for the carryback year should fileany application under section 6411 for atentative carryback adjustment with respectto a loss or credit arising in a separate re-turn limitation year that may be carriedback to a consolidated return year. The cur-rent rule, which provides that the corpora-tion to which such loss or credit is attribut-able should file such application, isinconsistent with the general rule of§1.1502–77 that the common parent is thesole agent for the group and with the rule of§1.1502–78(b) that payment of any result-ing refund is made to the common parent.

In Interlake Corp. v. Commissioner, 112T.C. 103, 112–113 (1999), the Tax Courtfound that §1.1502–78(b) is unclear as towhether the common parent in the carry-back year or the common parent in the lossyear should be the group’s agent to receivea refund resulting from a tentative carry-back adjustment. 112 T.C. at 112–113. Theproposed regulations amend §1.1502–78(b)to provide expressly that the refund shouldbe paid to the common parent or designatedagent for the group’s carryback year.

Finally, because the position of districtdirector will be eliminated in the restructur-ing of the IRS, the proposed regulationssubstitute “the Commissioner” for variousreferences to the district director in§1.1502–77. If the proposed rules areadopted, procedures for the designation of anew agent under the new IRS structure, byeither a terminating common parent or theCommissioner, will be announced whenfinal regulations are issued. It is anticipatedthat such procedures will be embodied in arevenue procedure that may also includeprovisions for one or more members of agroup to request that the Commissioner

designate an agent in situations where thecommon parent or previously designatedagent failed to designate a new agent beforeit ceased to exist, whether or not the Com-missioner has already designated an agent.Comments are invited concerning theseprocedures.

Proposed Effective Date

The amendments to §1.1502–77 areproposed to apply to consolidated returnyears beginning on or after the date finalregulations are published in the FederalRegister. The current rules of§§1.1502–77 and 1.1502–77T continueto apply with respect to consolidated re-turn years beginning before the effectivedate of f inal regulations under§1.1502–77. Thus, the alternative agentapproach of the temporary regulationwould continue to apply for purposes ofmailing notices of deficiency and execut-ing waivers of periods of limitations onassessment with respect to consolidatedreturn years beginning before the datefinal regulations are published in theFederal Register.

The amendments to §1.1502–78 areproposed to apply to taxable years towhich a loss or credit may be carriedback and for which the due date (withoutextensions) of the original return is afterthe date final regulations are published inthe Federal Register.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a signifi-cant regulatory action as defined in Exec-utive Order 12866. Therefore, a regula-tory assessment is not required. It ishereby certified that these regulations donot have a significant economic impacton a substantial number of small entities.This certification is based on the fact thatthese regulations will primarily affect af-filiated groups of corporations that haveelected to file consolidated returns, whichtend to be larger businesses, and, more-over, that any burden on taxpayers isminimal. Therefore, a Regulatory Flexi-bility Analysis under the RegulatoryFlexibility Act (5 U.S.C. chapter 6) is notrequired. Pursuant to section 7805(f) ofthe Code, these regulations will be sub-mitted to the Chief Counsel for Advocacy

of the Small Business Administration forcomment on their impact on small busi-ness.

Comments and Public Hearing

Before these proposed regulations areadopted as final regulations, considera-tion will be given to any written com-ments (a signed original and eight (8)copies) or electronic comments that aretimely submitted to the IRS.

The IRS and Treasury request com-ments on the clarity of the proposed rulesand how they may be made easier to un-derstand or to implement. In addition,comments are requested on the treatmentin the proposed regulations of entitiesthat become disregarded as entities sepa-rate from their owners or become part-nerships for Federal tax purposes. Allcomments will be available for public in-spection and copying.

A public hearing has been scheduledfor January 22, 2001, beginning at 10a.m. in room 4718, Internal Revenue Ser-vice Building, 1111 Constitution Avenue,NW., Washington, DC. Due to buildingsecurity procedures, visitors must enter atthe 10th Street entrance, located betweenConstitution and Pennsylvania Avenues,NW. In addition, all visitors must presentphoto identification to enter the building.Because of access restrictions, visitorswill not be admitted beyond the immedi-ate entrance area more than 15 minutesbefore the hearing starts. For informa-tion about having your name placed onthe building access list to attend the hear-ing, see the FOR FURTHER INFORMA-TION CONTACT section of this pream-ble.

The rules of 26 CFR 601.601(a)(3)apply to the hearing. Persons who wishto present oral comments at the hearingmust request to speak, and submit writtencomments and an outline of the topics tobe discussed and the time to be devotedto each topic (a signed original and eight(8) copies) by December 26, 2000.

A period of ten minutes will be allo-cated to each person for making com-ments. An agenda showing the schedul-ing of the speakers will be prepared afterthe deadline for receiving outlines haspassed. Copies of the agenda will beavailable free of charge at the hearing.

2000–42 I.R.B. 381 October 16, 2000

Drafting Information

The principal authors of these pro-posed regulations are Gerald B. Fleming,George R. Johnson and Steven J. Hankin,Office of the Assistant Chief Counsel(Field Service). However, other person-nel from the IRS and Treasury Depart-ment participated in their development.

* * * * *

Proposed Amendments to theRegulations

Accordingly, 26 CFR part 1 is pro-posed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by removing entries forsections 1.1502–77(e) and 1.1502–78(b)and adding entries in numerical order toread in part as follows:

Authority: 26 U.S.C. 7805 * * * Section 1.1502–77 also issued under 26U.S.C. 1502 and 6402(j).Section 1.1502–78 also issued under 26U.S.C. 1502, 6402(j), and 6411(c). * * *Section 1.1502–77A also issued under 26U.S.C. 1502 and 6402(j). * * *

Par. 2. Immediately following§1.1502–41A, an undesignated centerheading is added to read as follows:

REGULATIONS APPLICABLE TOTAXABLE YEARS BEGINNINGBEFORE THE DATE FINALREGULATIONS ARE PUBLISHED INTHE FEDERAL REGISTER

Par. 3. Immediately before§1.1502–79A, an undesignated centerheading is added to read as follows:

REGULATIONS APPLICABLE TOTAXABLE YEARS BEFORE January 1,1997

Par. 4. Section 1.1502–77 is redesig-nated as §1.1502–77A and transferred im-mediately after the undesignated centerheading “REGULATIONS APPLICA-BLE TO TAXABLE YEARS BEGIN-NING BEFORE THE DATE FINALREGULATIONS ARE PUBLISHED INTHE FEDERAL REGISTER ”; the sec-tion heading of newly designated§1.1502–77A is revised; paragraph (e) isredesignated as paragraph (f); and para-graph (g) is added to read as follows:

§1.1502–77A Common parent agent forsubsidiaries applicable for consolidatedreturn years beginning before the datefinal regulations are published in theFederal Register.

* * * * *(g) Effective date. This section applies

to consolidated return years beginning be-fore the date final regulations under§1.1502–77 are published in the FederalRegister, except paragraph (e) of this sec-tion applies to statutory notices andwaivers of the statute of limitations fortaxable years for which the due date(without extensions) of the consolidatedreturn is after September 7, 1988, andwhich begin before the date final regula-tions under §1.1502–77 are published inthe Federal Register.

Par. 5. New §1.1502–77 is added toread as follows:

§1.1502–77 Agent for the group.

(a) Scope of agency—(1) In general—(i) Common parent. Except as providedin paragraphs (a)(3) and (6) of this sec-tion, the common parent for a consoli-dated return year, for all matters relatingto the tax liability for the consolidated re-turn year, shall be the sole agent for—

(A) Each subsidiary in the group; and(B) Any successor of any member (in-

cluding the common parent).(ii) Other agents. For purposes of this

section, any corporation described inparagraphs (a)(1)(ii)(A) and (B) of thissection will act as the agent in place of thecommon parent to the same extent andsubject to the same limitations as are ap-plicable to the common parent, and anyreference in this section to the commonparent will include any such otheragent—

(A) Any corporation designated as theagent pursuant to paragraph (d) of thissection to replace the common parent or apreviously designated agent; and

(B) Any corporation that files a consol-idated return as the common parent for agroup, notwithstanding that such corpora-tion is subsequently determined not tohave been the proper agent for theclaimed group.

(iii) Successor. For purposes of thissection only, the term successormeans aparty that is primarily liable, pursuant toapplicable law (including, for example,

by operation of a state or Federal mergerstatute), for the tax liability of the com-mon parent or any subsidiary of thegroup. Such determination is made with-out regard to §1.1502–1(f)(4).

(iv) Disregarded entity. If a subsidiaryof a group or its successor is or becomes adisregarded entity for Federal tax pur-poses, the common parent will continueto serve as the sole agent with respect tothat subsidiary’s tax liability under§1.1502–6 for consolidated return yearsduring which it was a member of thegroup, even though the entity generally isnot treated as a person separate from itsowner for Federal tax purposes.

(v) Transferee liability. For purposesof assessing, paying and collecting trans-feree liability, any action taken by or di-rected to the common parent with respectto the group’s tax liability will deriva-tively affect the liability of a transferee(or subsequent transferees) of a member,regardless of whether the member termi-nates its existence prior to such action.

(2) Specific matters subject to agency.As sole agent, the common parent is au-thorized to act in its own name for allmatters relating to the tax liability for theconsolidated return year. Except as pro-vided in paragraphs (a)(3) and (6) of thissection, no subsidiary or successor shallhave authority to act for or to represent it-self in any such matter. For example—

(i) Any election available to a sub-sidiary corporation in the computation ofits separate taxable income must be madeby the common parent, as must anychange in an election previously made byor for a subsidiary corporation;

(ii) All correspondence will be carriedon directly with the common parent;

(iii) The common parent shall file forall extensions of time, including exten-sions of time for payment of tax undersection 6164;

(iv) The common parent in its own namewill give waivers, give bonds, and executeclosing agreements, offers in compromise,and all other documents, and any waiver orbond so given, or agreement, offer in com-promise, or any other document so exe-cuted, shall be considered as having alsobeen given or executed by each member orany successor thereof;

(v) The common parent will file claimsfor refund, and any refund will be madedirectly to and in the name of the common

October 16, 2000 382 2000–42 I.R.B.

parent and will discharge any liability ofthe Government to any member or anysuccessor thereof with respect to such re-fund;

(vi) Notices of claim disallowance willbe mailed only to the common parent,and the mailing to the common parentshall be considered as a mailing to eachmember or any successor thereof;

(vii) Notices of deficiencies will bemailed only to the common parent, andthe mailing to the common parent shallbe considered as a mailing to each mem-ber or any successor thereof;

(viii) The common parent will file peti-tions and conduct proceedings before theUnited States Tax Court, and any suchpetition shall be considered as also hav-ing been filed by each member or anysuccessor thereof;

(ix) Any assessment of tax may bemade in the name of the common parent,and an assessment naming the commonparent shall be considered as an assess-ment with respect to each member andany successor thereof; and

(x) Notice and demand for payment oftaxes will be given only to the commonparent and such notice and demand willbe considered as a notice and demand toeach member or any successor thereof.

(3) Matters reserved to subsidiaries.Notwithstanding the role of the commonparent as exclusive agent under para-graph (a)(1) of this section, the followingmatters shall be reserved to each sub-sidiary and, if applicable, to a successorof a subsidiary—

(i) The making of the consent requiredby §1.1502–75(a)(1);

(ii) The making of an election undersection 936(e);

(iii) The making of an election to betreated as a DISC under §1.992–2; and

(iv) A change of the annual accountingperiod pursuant to §1.991–1(b)(3)(ii).

(4) Term of agency—(i) In general.Except as provided in paragraph(a)(4)(iii) of this section, the commonparent for the consolidated return yearshall remain the sole agent with respectto that year until its existence terminates,regardless of whether one or more sub-sidiaries become or cease to be membersof the group at any time, whether thegroup files a consolidated return for anysubsequent year, whether the commonparent ceases to be the common parent or

a member of the group in any subsequentyear, or whether the group continues pur-suant to §1.1502–75(d) with a new com-mon parent in any subsequent year.

(ii) Replacement of agent designatedby Commissioner. If the Commissionerreplaces a previously designated agentpursuant to paragraph (d)(2)(ii) of thissection, the term of the replaced agentshall terminate when the Commissionerdesignates another agent.

(iii) New common parent after a groupstructure change. If the group continuesin existence with a new common parentpursuant to §1.1502–75(d) during a con-solidated return year, the common parentat the beginning of the year is the group’ssole agent through the date of the transac-tion, and the new common parent be-comes the continuing group’s sole agentbeginning the day after the transaction.

(5) Identifying members in notices.Notwithstanding the provisions of thisparagraph (a)—

(i) Any notice of deficiency with re-spect to the tax for a consolidated returnyear will name each corporation that wasa member of the group during any part ofsuch period (but a failure to include thename of any such member will not affectthe validity of the notice of deficiency asto the other members or their successors),and any notice of deficiency that is validas to a member so named will be valid asto any successor of such member;

(ii) Any notice and demand for pay-ment will name each corporation that wasa member of the group during any part ofthe applicable consolidated return year(but a failure to include the name of anysuch member will not affect the validityof the notice and demand as to the othermembers or their successors), and anynotice and demand for payment that isvalid as to a member so named will bevalid as to any successor of such mem-ber;

(iii) Any notice of a lien, any levy orany other proceeding to collect theamount of any assessment, after the as-sessment has been made, will name thetaxpayer from which such collection is tobe made;

(iv) Any notice described in para-graphs (a)(5)(i) through (iii) of this sec-tion that fails to include the name of amember during the consolidated returnyear shall still be valid as to that mem-

ber ’s successor, if such successor isnamed in the notice; and

(v) If a notice of deficiency fails toname a member or its successor, any as-sessment of tax based on such noticeshall still be a valid assessment as to theother members or their successors.

(6) Direct dealing with a member.Notwithstanding the provisions of thisparagraph (a), the Commissioner may,upon notifying the common parent, dealdirectly with any member of the group orany successor of a member with respectto its several liability for the consolidatedtax of the group, in which event suchmember or successor shall have full au-thority to act for itself.

(b) Copy of notice of deficiency to cor-poration which has ceased to be a mem-ber of the group. If a corporation hasceased to be a member of the group dur-ing or after a consolidated return year andif such corporation or its successor fileswritten notice of such cessation with theCommissioner, then the Commissionerupon request of such corporation or itssuccessor will furnish a copy of any no-tice of deficiency with respect to the taxfor a consolidated return year for whichthe corporation was a member or a copyof any notice and demand for payment ofsuch deficiency. The filing of such writ-ten notification and request by a corpora-tion or its successor shall not have the ef-fect of limiting the scope of the agency ofthe common parent provided for in para-graph (a) of this section. Any failure bythe Commissioner to comply with suchwritten request shall not have the effectof l imiting the tax l iabil i ty under§1.1502–6 of such corporation or its suc-cessor.

(c) References to member or subsi-diary. For purposes of this section, allreferences to a member or subsidiaryshall include—

(1) Each corporation that was a mem-ber of the group during any part of suchtaxable year (except that any reference toa subsidiary shall not include the com-mon parent); and

(2) Each claimed member the incomeof which was included in the consoli-dated return for such taxable year,notwithstanding that the tax liability ofany such claimed member should havebeen computed on the basis of a separatereturn, or as a member of another consol-

2000–42 I.R.B. 383 October 16, 2000

idated group, under the provisions of§1.1502–75.

(d) Termination of common parent—(1) Designation by common parent. (i) Ifthe common parent will terminate its exis-tence, it shall—

(A) Designate, subject to the approvalof the Commissioner, for each consoli-dated return year for which the period oflimitations for assessment, for collectionafter assessment, or for claiming a creditor refund has not expired, one of the fol-lowing to act as agent in its place—

(1) Any corporation that was a memberof the group during any part of the consol-idated return year and, except as providedin paragraph (e)(3)(ii) of this section, hasnot subsequently been disregarded as anentity separate from its owner or reclassi-fied as a partnership for Federal tax pur-poses; or

(2) Any successor (as defined in para-graph (a)(1) of this section) of such a cor-poration or of the common parent that is adomestic corporation (and, except as pro-vided in paragraph (e)(3)(ii) of this sec-tion, is not disregarded as an entity sepa-rate from its owner or classified as apartnership for Federal tax purposes), in-cluding a corporation that will become asuccessor at the time that the commonparent ceases to exist; and

(B) Notify the Commissioner (underprocedures prescribed by the Commis-sioner) of the designation, including—

(1) A statement by the designated cor-poration agreeing to serve as the group’snew agent; and

(2) If the designated corporation wasnot itself a member of the group duringthe consolidated return year (because thedesignated corporation is a successor of amember of the group for the consolidatedreturn year), a statement by the desig-nated corporation acknowledging that it isor will be primarily liable for the consoli-dated tax as a successor of a member.

(ii) A designation under paragraph(d)(1)(i)(A) of this section will not be ef-fective until it is approved by the Com-missioner. The Commissioner’s approvalof such a designation will not be effectivebefore the existence of the common par-ent terminates.

(2) Designation by the Commissioner.(i) In the event the common parent termi-nates its existence and no designation ismade and approved under paragraph

(d)(1) of this section, the Commissionermay, with or without the request of anymember of the group or its successor, atany time designate, effective immedi-ately, a corporation described in para-graph (d)(1)(i)(A) of this section to act asthe agent. The designation will be madein accordance with procedures prescribedby the Commissioner.

(ii) At the request of any member orsuccessor of a member, the Commissionermay, but is not required to, replace anagent previously designated under thisparagraph (d)(2) with another corporationdescribed in paragraph (d)(1)(i)(A) of thissection.

(iii) The Commissioner and the desig-nated agent shall give notice of any desig-nation to each corporation that was amember of the group during any part ofthe consolidated return year or its succes-sor. A failure by the Commissionerand/or designated agent to notify any suchmember of the group or its successor doesnot invalidate the designation.

(3) Absence of designation. Until ei-ther a notice in writing designating a newagent has become effective or the Com-missioner has designated a new agent,any notice of deficiency or other commu-nication mailed to the common parent,even if no longer in existence, shall beconsidered as having been properlymailed to the agent of the group; or if theCommissioner has reason to believe thatthe existence of the common parent hasterminated, he may, if he deems it advis-able, deal directly with any member or itssuccessor with respect to the member’sseveral liability under §1.1502–6 withouthaving to give notice pursuant to para-graph (a)(6) of this section.

(e) Termination of a corporation’s exis-tence—(1) In general. For purposes ofparagraphs (a)(1)(v), (a)(4)(i), and (d) ofthis section, the existence of a corporationis deemed to terminate if—

(i) It ceases to exist under applicablelaw; or

(ii) Except as provided in paragraph(e)(3) of this section, it becomes, for Fed-eral tax purposes, either—

(A) An entity that is disregarded as anentity separate from its owner; or

(B) An entity that is reclassified as apartnership.

(2) Purported agency. If the group’sagent ceases to exist under circumstances

described in paragraph (e)(1)(ii) of thissection without designating a new agentfor the group pursuant to paragraph (d)(1)of this section, and the agent subsequentlypurports to act as agent for the group, anyactions by that purported agent on behalfof the group will, to the extent determinedappropriate by the Commissioner, havethe same effect as if the agent’s existencehad not terminated.

(3) Exceptions where no eligible corpo-ration exists. (i) For purposes of para-graphs (a)(4)(i) and (d) of this section, if acorporation becomes either disregarded asan entity separate from its owner or re-classified as a partnership for Federal taxpurposes, its existence shall not bedeemed to terminate if the effect of suchtermination would be that no corporationremains eligible to serve as the designatedagent for the group’s consolidated returnyear.

(ii) Similarly, an entity that is either dis-regarded as an entity separate from itsowner or reclassified as a partnership forFederal tax purposes shall not be precludedfrom designation as an agent merely be-cause of such classification if the effect ofthe inability to make such designationwould be that no corporation remains eligi-ble to serve as the designated agent for thegroup’s consolidated return year.

(f) Examples. The following examplesillustrate the principles of this section. Ineach example, as of January 1 of Year 1,the P group consists of P and its two sub-sidiaries, S and S-1. P, as the common par-ent of the P group, files consolidated re-turns for the P group in Years 1 and 2. OnJanuary 1 of Year 1, domestic corporationsS-2, U, V, W, W-1, X, Y, Z and Z-1 are notrelated to P or the members of the P group.All corporations are calendar year taxpay-ers. Any surviving corporation in a mergeris a successor as described in paragraph(a)(1)(iii) of this section. Any notificationto the Commissioner of the designation ofthe P group’s new agent also contains astatement signed on behalf of the desig-nated agent that it consents to act as thegroup’s new agent and, in the case of a suc-cessor, that it is primarily liable as a suc-cessor of a member. The examples are asfollows:

Example 1. Disposition of all group members. OnDecember 31 of Year 1, P sells all the stock of S-1 toX. On December 31 of Year 2, P distributes all thestock of S to P’s shareholders. P files a separate re-turn for Year 3. Although P is no longer a common

October 16, 2000 384 2000–42 I.R.B.

parent after Year 2, P remains the sole agent of the Pgroup for Years 1 and 2. Except as provided in para-graph (a)(6) of this section, for as long as P remains inexistence, only P may execute a waiver of the periodof limitations on assessment on behalf of the groupfor Years 1 and 2.

Example 2. Acquisition of common parent byanother group. The facts are the same as in Exam-ple 1, except on January 1 of Year 3, P is acquiredby Y. P thereafter joins in the Y group consolidatedreturn as a member of Y group. Although P is amember of Y group in Year 3, P remains the agentof the P group for Years 1 and 2. Except as pro-vided in paragraph (a)(6) of this section, for as longas P remains in existence, only P may execute awaiver of the period of limitations on assessmenton behalf of the P group for Years 1 and 2.

Example 3. Merger of common parent—desig-nation of remaining member as new agent. On De-cember 31 of Year 1, P sells all the stock of S-1 toX. On July 1 of Year 2, P acquires all the stock ofS-2. On November 30 of Year 2, P distributes allthe stock of S to P’s shareholders. On January 1 ofYear 3, P merges into Y corporation. Just beforethe merger, P notifies the Commissioner in writingof the planned merger and of its designation of S asthe new agent of the P group for Years 1 and 2. S isthe only member that P can designate as the newagent for both Years 1 and 2 because it is the onlysubsidiary that was a member of P group duringpart of both years. Although S-2 is the only re-maining subsidiary of the P group when P mergesinto Y, S-2 was a member of the P group only inYear 2. For that reason, S-2 cannot be the group’sagent for Year 1. Alternatively, P could designate adifferent agent for each year, selecting S or S-1 asthe new agent for Year 1; and S or S-2 as the newagent for Year 2. P could also designate its succes-sor Y as the new agent for both Years 1 and 2.

Example 4. Forward triangular merger of com-mon parent. On January 1 of Year 3, P merges withand into Z-1, a subsidiary of Z, in a forward trian-gular merger described in section 368(a)(1)(A) and(a)(2)(D). The transaction constitutes a reverse ac-quisition under §1.1502–75(d)(3)(i) because P’sshareholders receive more than 50% of Z’s stock inexchange for all of P’s stock. Just before themerger, P notifies the Commissioner in writing ofthe planned merger and its designation of Z-1, thecorporation that will survive the planned merger, asthe new agent of the P group for Years 1 and 2. Be-cause Z-1 will be P’s successor (within the meaningof paragraph (a)(1) of this section) after the plannedmerger, P may designate Z-1 as the new agent forthe P group for Years 1 and 2, pursuant to paragraph(d)(1) of this section. Alternatively, P could havedesignated S or S-1 as the new agent for the Pgroup for Years 1 and 2. Although Z is the newcommon parent of the P group, which continuespursuant to §1.1502–75(d)(3)(i), P may not desig-nate Z as the new agent for Years 1 and 2 because Zwas not a member of the group during any part ofYears 1 or 2 and is not a successor of P or any othermember of the group.

Example 5. Reverse triangular merger of com-mon parent. On March 1 of Year 3, W-1, a sub-sidiary of W, merges into P, in a reverse triangularmerger described in section 368(a)(1)(A) and(a)(2)(E). P survives the merger with W-1. Thetransaction constitutes a reverse acquisition under

§1.1502–75(d)(3)(i) because P’s shareholders re-ceive more than 50% of W’s stock in exchange forall of P’s stock. Under paragraph (a) of this sec-tion, P remains the agent of the P group for Years 1and 2, even though the P group continues with W asits new common parent. Because the transactionconstitutes a reverse acquisition, the P group istreated as remaining in existence with W as itscommon parent. Before March 2 of Year 3, P is thesole agent for the P group for Year 3. Beginning onMarch 2 of Year 3, W becomes the sole agent forthe P group with respect to all of Year 3 (includingthe period through March 1) and subsequent con-solidated return years.

Example 6. Reverse triangular merger of com-mon parent—spinoff of common parent. The factsare the same as in Example 5, except that on April 1of Year 3, P distributes the stock of its subsidiariesS and S-1 to W, and W then distributes the stock ofP to the W shareholders. Although P is no longer amember of the P group and W is the continuing Pgroup’s new common parent, P remains the agentfor the P group under paragraph (a) of this sectionfor Years 1 and 2. Before March 2 of Year 3, P isthe sole agent for the P group for Year 3. Beginningon March 2 of Year 3, W becomes the sole agent forthe P group with respect to Year 3 (including theperiod through March 1) and subsequent consoli-dated return years.

Example 7. Qualified stock purchase and sec-tion 338 election. On March 31 of Year 2, V pur-chases the stock of P in a qualified stock purchase(within the meaning of section 338(d)(3)), and Vmakes a timely election pursuant to section 338(g)with respect to P. Section 338(a)(2) provides that Pis treated as a new corporation as of the beginningof the day after the acquisition date for purposes ofsubtitle A. For purposes of other subtitles, such assubtitle F (Procedure and Administration), how-ever, new P is treated as a continuation of old P.Therefore, new P remains the agent of the P groupfor Year 1 and the period ending March 31 of Year2 (short Year 2). Except as provided in paragraph(a)(6) of this section, for as long as new P remainsin existence, only new P may execute a waiver ofthe period of limitations on assessment on behalf ofthe P group for Year 1 and short Year 2.

Example 8. Fraudulent conveyance of assets.On March 15 of Year 2, P files a consolidated returnthat includes the income of S and S-1 for Year 1.On December 1 of Year 2, S-1 transfers assets hav-ing a fair market value of $100x to U in exchangefor $10x. This transfer of assets for less than fairmarket value constitutes a fraudulent conveyanceunder applicable state law. On March 1 of Year 5, Pexecutes a waiver extending to December 31 ofYear 6 the period of limitations on assessment withrespect to the group’s Year 1 consolidated return.On February 1 of Year 6, the Commissioner issues anotice of deficiency to P asserting a deficiency of$30x for the P group’s Year 1 consolidated tax lia-bility. P does not file a petition for redeterminationin the Tax Court, and the Commissioner makes atimely assessment against the P group. P, S and S-1are all insolvent and are unable to pay the defi-ciency. On February 1 of Year 8, the Commissionersends a notice of transferee liability to U, whichdoes not file a petition in the Tax Court. On August1 of Year 8, the Commissioner assesses the amountof the P group’s deficiency against U. Under sec-

tion 6901(c), the Commissioner may assess U’stransferee liability within one year after the expira-tion of the period of limitations against the trans-feror S-1. By operation of section 6213(a) and6503(a), the issuance of the notice of deficiency toP and the expiration of the 90-day period for filinga petition in the Tax Court have the effect of furtherextending by 150 days the P group’s limitations pe-riod on assessment from the previously extendeddate of December 31 of Year 6 to May 30 of Year 7.Pursuant to paragraph (a)(1)(v) of this section, thewaiver executed by P on March 1 of Year 5 to ex-tend the period of limitations on assessment to De-cember 31 of Year 6 and the further extension of theP group’s limitations period to May 30 of Year 7(by operation of sections 6213(a) and 6503(a)) havethe derivative effect of extending the period of lim-itations on assessment of U’s transferee liability toMay 30 of Year 8. By operation of section 6901(f),the issuance of the notice of transferee liability to Uand the expiration of the 90-day period for filing apetition in the Tax Court have the effect of furtherextending the limitations period on assessment ofU’s liability as a transferee by 150 days, from May30 of Year 8 to October 27 of Year 8. Accordingly,the Commissioner may send a notice of transfereeliability to U at any time on or before May 30 ofYear 8 and assess the unpaid liability against U atany time on or before October 27 of Year 8. The re-sult would be the same even if S-1 ceased to existbefore March 1 of Year 5, the date P executed thewaiver.

(g) Cross-reference. For further rulesapplicable to groups that include insol-vent f inancial institutions, see§301.6402–7 of this chapter.

(h) Effective date—(1) Application.This section applies with respect to tax-able years beginning on or after the datefinal regulations are published in theFederal Register.

(2) Prior law. For taxable years be-ginning before the date final regulationsare published in the Federal Register,see §1.1502–77A.

Par. 6. Section 1.1502–77T(a) is re-designated as §1.1502–77A(e) and§1.1502–77T is removed.

Par. 7. The amendments to§1.1502–78(a), as contained in the noticeof proposed rulemaking (LR–97–79)published in the Federal RegisteronJuly 31, 1984 (49 F.R. 30528), are with-drawn.

Par. 8. Section 1.1502–78 is amendedas follows:

1. Paragraph (a) is revised.2. Paragraph (b)(1) is amended by

adding the language “for the carrybackyear (or agent designated under§1.1502–77(d) for the carryback year)”at the end of the first sentence.

3. In paragraph (c), the last sentenceof Example (1)is amended by adding the

2000–42 I.R.B. 385 October 16, 2000

language “for the carryback year” after“parent.”

4. In paragraph (c), the last sentenceof Example (2)is amended by removingthe language “S-1” and adding “P” in itsplace.

5. In paragraph (c), Example (3), theseventh sentence is amended by remov-ing “Z must” and adding “X must” in itsplace.

6. Paragraphs (e) and (f) are added.The revision and additions read as fol-

lows:

§1.1502–78 Tentative carrybackadjustments.

(a) General rule. If a group has a con-solidated net operating loss, a consoli-dated net capital loss, or a consolidatedunused business credit for any taxableyear, then any application under section6411 for a tentative carryback adjustmentof the taxes for a consolidated return yearor years preceding such year shall bemade by the common parent corporationfor the carryback year (or agent desig-nated under §1.1502–77(d) for the carry-back year) to the extent such loss or un-used business credit is not apportioned toa corporation for a separate return yearpursuant to §1.1502–21(b),1.1502–22(b), or 1.1502–79(c). In thecase of the portion of a consolidated netoperating loss or consolidated net capitalloss or consolidated unused businesscredit to which the preceding sentencedoes not apply and which is to be carriedback to a corporation that was not amember of a consolidated group in thecarryback year, the corporation to whichsuch loss or credit is attributable shallmake any application under section 6411.In the case of a net capital loss or net op-erating loss or unused business creditarising in a separate return year whichmay be carried back to a consolidated re-turn year, after taking into account theapplication of §1.1502–21(b)(3)(ii)(B)with respect to any net operating lossarising in another consolidated group, thecommon parent for the carryback year(or agent designated under§1.1502–77(d) for the carryback year)shall make any application under section6411. * * * * *

(e) Cross-reference. For further rulesapplicable to groups that include insol-

vent f inancial institutions, see§301.6402–7 of this chapter.

(f) Effective date—(1) In general.This section applies to taxable years towhich a loss or credit may be carriedback and for which the due date (withoutextensions) of the original return is afterthe date final regulations are published inthe Federal Register.

(2) Prior law. For taxable years towhich a loss or credit may be carriedback and for which the due date (withoutextensions) is on or before the date finalregulations are published in the FederalRegister, see §1.1502–78 in effect priorto the date final regulations are publishedin the Federal Register, as contained in26 CFR part 1 revised as of April 1,2000.

Robert E. Wenzel,Deputy Commissioner

of Internal Revenue.

(Filed by the Office of the Federal Register on Sep-tember 25, 2000, 8:45 a.m., and published in theissue of the Federal Register for September 26,2000, 65 F.R. 57755)

Form 8870, Information Returnfor Transfers Associated WithCertain Personal BenefitContracts

Announcement 2000–82

Notice 2000–24, 2000–17 I.R.B. 952,advises organizations that pay premiumson “personal benefit contracts,” as thatterm is used in section 170(f)(10) of theInternal Revenue Code, of the need tofile Form 8870, Information Return forTransfers Associated With Certain Per-sonal Benefit Contracts. For taxableyears beginning prior to January 1, 2000,such organizations must file Form 8870by the later of 90 days after the date ofthe Service’s announcement in the Inter-nal Revenue Bulletin of the availabilityof Form 8870, or the date the organiza-tion is required to file its annual informa-tion return.

This announcement advises organiza-tions of the availability of Form 8870.The 90-day period referred to in the No-tice begins on the date of publication ofthis announcement.

Request for CommentsRegarding Need for GuidanceClarifying Application of theInternal Revenue Code to Use ofthe Internet by ExemptOrganizations

Announcement 2000–84

The Internal Revenue Service is con-sidering the necessity of issuing guid-ance that would clarify the applicationof the Internal Revenue Code to use ofthe Internet by exempt organizations.Accordingly, the Service is solicitingpublic comment concerning the applica-tion of Code provisions governing ex-empt organizations to activities theyconduct on the Internet. The Service hasmade no final decision concerning theneed for additional guidance of generalapplicability and may conclude no fur-ther action is necessary.

BACKGROUND

Exempt organizations, like other orga-nizations, are increasingly turning to theInternet to carry on their activities. Bypublishing a webpage on the Internet, anexempt organization can provide thegeneral public with information aboutthe organization, its activities, and issuesof concern to the organization, as well asimmediate access to websites of other or-ganizations. An exempt organization canprovide information to subscribers aboutissues of concern to the organization aswell as enable people with common in-terests to share information via the Inter-net through a variety of methods (such asmailing lists, news groups, listserves,chat rooms, and forums).

General Issues

Exempt organizations use the Internetto carry on activities that otherwise canbe conducted through other media, suchas radio or television broadcasts, printpublications, or direct mailings. Thegrowing use of the Internet by exemptorganizations raises questions regardingwhether clarification is needed concern-ing the application of the Code to Inter-net activities. The questions include thefollowing:• Does a website constitute a single pub-

lication or communication? If not, howshould it be separated into distinct pub-

October 16, 2000 386 2000–42 I.R.B.

lications or communications?• When allocating expenses for a web-

site, what methodology is appropriate?For example, should allocations bebased on webpages (which, unlike printpublications, may not be of equal size)?

• Unlike other publications of an ex-empt organization, a website may bemodified on a daily basis. To whatextent and by what means should anexempt organization maintain the in-formation from prior versions of theorganization’s website?

• To what extent are statements madeby subscribers to a forum, such as alistserv or newsgroup, attributable toan exempt organization that maintainsthe forum? Does attribution vary de-pending on the level of participationof the exempt organization in main-taining the forum (e.g., if the organi-zation moderates discussion, acts aseditor, etc.)?

Political and Lobbying Activities

Charitable organizations described insection 501(c)(3) may not intervene in po-litical campaigns and may only attempt toinfluence legislation as an insubstantialpart of their activities. If the charitableorganization makes an election under sec-tion 501(h), an expenditure test is appliedin determining whether the organizationhas engaged in substantial lobbying activ-ities, with different limits applicable fordirect and grassroots lobbying.

When a charitable organization en-gages in advocacy on the Internet, ques-tions arise as to whether it is conductingpolitical or lobbying activity, and if so, towhat extent. This situation is furthercomplicated by the affiliation of charita-ble organizations with other organizationsengaging in political or lobbying activi-ties on the Internet. The ease with whichdifferent websites may be linked electron-ically (through a “hyperlink”) raises aconcern about whether the message of alinked website is attributable to the chari-table organization. The Service is consid-ering whether clarification is needed onhow to apply the prohibition on politicalcampaign intervention and substantiallobbying activity for charitable organiza-tions engaging in activities on the Inter-net. Questions include the following:• What facts and circumstances are rele-

vant in determining whether informa-

tion on a charitable organization’s web-site about candidates for public officeconstitutes intervention in a politicalcampaign by the charitable organizationor is permissible charitable activity con-sistent with the principles set forth inRev. Rul. 78–248, 1978–1 C.B. 154,and Rev. Rul. 86–95, 1986–2 C.B. 73(dealing with voter guides and candi-date debates)?

• Does providing a hyperlink on a chari-table organization’s website to anotherorganization that engages in politicalcampaign intervention result in per seprohibited political intervention? Whatfacts and circumstances are relevant indetermining whether the hyperlink con-stitutes a political campaign interven-tion by the charitable organization?

• For charitable organizations that havenot made the election under section501(h), what facts and circumstancesare relevant in determining whetherlobbying communications made on theInternet are a substantial part of the or-ganization’s activities? For example,are location of the communication onthe website (main page or subsidiarypage) or number of hits relevant?

• Does providing a hyperlink to the web-site of another organization that en-gages in lobbying activity constitutelobbying by a charitable organization?What facts and circumstances are rele-vant in determining whether the charita-ble organization has engaged in lobby-ing activity (for example, does it makea difference if lobbying activity is onthe specific webpage to which the char-itable organization provides the hyper-link rather than elsewhere on the otherorganization’s website)?

• To determine whether a charitable orga-nization that has made the electionunder section 501(h) has engaged ingrass roots lobbying on the Internet,what facts and circumstances are rele-vant regarding whether the organizationmade a “call to action”?

• Does publication of a webpage on theInternet by a charitable organizationthat has made an election under section501(h) constitute an appearance in themass media? Does an email or listservcommunication by the organizationconstitute an appearance in mass mediaif it is sent to more than 100,000 peopleand fewer than half of those people are

members of the organization?• What facts and circumstances are rele-

vant in determining whether an Internetcommunication (either a limited accesswebsite or a listserv or email communi-cation) is a communication directly toor primarily with members of the orga-nization for a charitable organizationthat has made an election under section501(h)?

Advertising and Other Business Activities

Many exempt organizations receivepayment from companies to display ad-vertising messages on the organization’swebsite. Some exempt organizationshave banners on their websites containinginformation about and a link to other or-ganizations in exchange for a similar ban-ner on the other organizations’ website.

Exempt organizations may also providehyperlinks on their websites to companiesthat sponsor their activities. Some organi-zations receive payments based upon apercentage of sales for referring cus-tomers to another website, while othersreceive payments based upon the numberof persons who use the hyperlink to go tothe other webpage. In addition, a numberof exempt organizations use the Internetas another outlet for their own sales activ-ity.

Some organizations operate “virtualtrade shows,” an attempt to replicate tradeshows on the Internet. Some of these vir-tual trade shows simply consist of hyper-links to industry suppliers’ websites,while others also include displays witheducational information.

The Service is considering whetherclarification is needed regarding whetherthe income received from these activitiesis subject to the unrelated business in-come tax, and if so, how the income andexpenses related to the activity are calcu-lated. Questions include the following:• To what extent are business activities

conducted on the Internet regularly car-ried on under section 512? What factsand circumstances are relevant in deter-mining whether these activities on theInternet are regularly carried on?

• Are there any circumstances underwhich the payment of a percentage ofsales from customers referred by the ex-empt organization to another websitewould be substantially related undersection 513?

2000–42 I.R.B. 387 October 16, 2000

• Are there any circumstances underwhich an online “virtual trade show”qualifies as an activity of a kind “tradi-tionally conducted” at trade showsunder section 513(d)?Comments concerning the application

of section 513(i), which governs the treat-ment of qualified sponsorship payments,to Internet activities were requested inconnection with the Notice of ProposedRulemaking (REG–209601–92) publishedin the Federal Register on March 1, 2000.

Solicitation of Contributions

There are numerous Code provisionsregulating the solicitation and receipt ofcharitable contributions. For example, ex-empt organizations not eligible to receivetax-deductible charitable contributions arerequired under section 6113 to disclose incertain solicitations for contributions thatsuch contributions are not deductible forfederal income tax purposes as charitablecontributions. Charitable organizationsthat receive certain “quid pro quo” contri-butions in excess of $75 are requiredunder section 6115 to provide a writtenstatement to the donor that indicates thatthe charitable deduction is limited to theamount paid by the donor in excess of thevalue of the goods or services provided bythe organization and that provides a goodfaith estimate of that value. Under section170(f)(8), donors making contributions of$250 or more to a charitable organizationmust substantiate the contribution with a

contemporaneous written acknowledge-ment from the charitable organization inorder for the deduction to be allowed.

An increasing number of exempt orga-nizations solicit contributions on the Inter-net. In some instances, the organization’swebsite merely indicates where to sendcontributions to the organization. In othercases, the organization is able to acceptcontributions on the Internet, either di-rectly or through a third party that pro-vides a secure connection for credit cardtransactions. The Service is consideringthe need for clarification regarding suchactivities, including the following:• Are solicitations for contributions made

on the Internet (either on an organiza-tion’s website or by email) in “written orprinted form” for purposes of section6113? If so, what facts and circum-stances are relevant in determiningwhether a disclosure is in a “conspicu-ous and easily recognizable format”?

• Does an organization meet the require-ments of section 6115 for “quid proquo” contributions with a webpage con-firmation that may be printed out by thecontributor or by sending a confirmationemail to the donor?

• Does a donor satisfy the requirementunder section 170(f)(8) for a written ac-knowledgment of a contribution of $250or more with a printed webpage confir-mation or copy of a confirmation emailfrom the donee organization?

REQUEST FOR PUBLIC COMMENT

The Service is soliciting public com-ment regarding the need for additionalguidance clarifying the application of theCode to exempt organizations’ Internet ac-tivities. The Service requests commentsnot only on the situations described above,but also on any other issues concerningapplication of provisions of the Code in afair and neutral manner to exempt organi-zations’ Internet activities.

Public comments should be submittedin writing on or before February 13, 2001.Comments should be sent to the followingaddress:

Internal Revenue Service1111 Constitution Ave, NWWashington, DC 20224Attn: Judith E. KindellT:EO

Comments may also be sent electroni-cally via the Internet to *TE/GE-Exempt-2@irs.gov.

DRAFTING INFORMATION

The principal author of this announce-ment is Judith E. Kindell of Exempt Orga-nizations. For further information regard-ing this announcement contact Judith E.Kindell at (202) 622-6494 (not a toll-freecall).

October 16, 2000 i 2000–42 I.R.B.

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

2000–42 I.R.B. ii October 16, 2000

Numerical Finding List1

Bulletins 2000–27 through 2000–41

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. 3202000–81, 2000–41 I.R.B. 3482000–83, 2000–41 I.R.B. 348

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. 1132000–30, 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. 3102000–39, 2000–41 I.R.B. 340

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. 2972000–43, 2000–41 I.R.B. 3332000–44, 2000–41 I.R.B. 3362000–45, 2000–41 I.R.B. 3372000–46, 2000–41 I.R.B. 3342000–47, 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. 2728902, 2000–41 I.R.B. 323

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.

October 16, 2000 iii 2000–42 I.R.B.

Finding List of Current Actions onPreviously Published Items1

Bulletins 2000–27 through 2000–41

Notices:

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

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

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

2000–48Superseded by Rev. Proc. 2000–39, 2000–41 I.R.B. 340

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

2000–9Superseded byRev. Proc. 2000–39, 2000–41 I.R.B. 340

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

Treasury Decisions—Continued

8892Corrected by Announcement 2000–81, 2000–41 I.R.B. 348

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.

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