rul. 99–5

INCOME TAX

Rev. Rul. 99–5, page 8.Disregarded entity to partnership. This ruling describesthe federal income tax consequences when a single memberlimited liability company that is disregarded as an entity sep-arate from its owner under section 301.7701–3 of the Pro-cedure and Administration Regulations becomes an entitywith more than one owner that is classified as a partnershipfor federal tax purposes.

Rev. Rul. 99–6, page 6.Partnership to disregarded entity. This ruling describesthe federal income tax consequences if one person pur-chases all of the ownership interests in a domestic limited li-ability company (LLC) that is classified as a partnershipunder section 301.7701–3 of the Procedure and Administra-tion Regulations, causing the LLC’s status as a partnershipto terminate under section 708(b)(1)(A) of the Code.

Rev. Rul. 99–8, page 10.Federal rates; adjusted federal rates; adjusted federallong-term rate, and the long-term exempt rate. Forpurposes of sections 1274, 1288, 382, and other sectionsof the Code, tables set forth the rates for February 1999.

T.D. 8799, page 12.Final regulations relate to the treatment of certain invest-ment income under the qualifying income provisions of sec-tion 7704 of the Code and the application of the passive ac-tivity loss rules to publicly traded partnerships.

EMPLOYEE PLANST.D. 8806, page 4.Final and temporary regulations provide changes to the rulesunder section 411 of the Code regarding qualified retire-ment plan benefits that are protected from reduction by planamendment. The changes were made necessary by the Tax-payer Relief Act of 1997.

EXEMPT ORGANIZATIONSAnnouncement 99–13, page 20.A list is given of organizations now classified as private foun-dations.

ESTATE TAXREG–114663–97, page 17.Proposed regulations under section 2056 of the Code relateto the effect of certain administration expenses on the valu-ation of property which qualifies for the estate tax marital orcharitable deduction. A public hearing will be held on April21, 1999.

ADMINISTRATIVE

Notice 99–10, page 16.Low-income housing tax credit. Resident population fig-ures for the various states for determining the 1999 calen-dar year (1) state housing credit ceiling under section 42(h)of the Code, and (2) private activity bond volume cap undersection 146 of the Code are reproduced.

Internal Revenue

bbuulllleettiinnBulletin No. 1999–6

February 8, 1999

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 24.

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Mission of the Service

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.

2

Statement of Principlesof Internal RevenueTax AdministrationThe function of the Internal Revenue Service is to adminis-ter the Internal Revenue Code. Tax policy for raising revenueis determined by Congress.

With this in mind, it is the duty of the Service to carry out thatpolicy by correctly applying the laws enacted by Congress;to determine the reasonable meaning of various Code provi-sions in light of the Congressional purpose in enacting them;and to perform this work in a fair and impartial manner, withneither a government nor a taxpayer point of view.

At the heart of administration is interpretation of the Code. Itis the responsibility of each person in the Service, chargedwith the duty of interpreting the law, to try to find the truemeaning of the statutory provision and not to adopt astrained construction in the belief that he or she is “protect-ing the revenue.” The revenue is properly protected onlywhen we ascertain and apply the true meaning of the statute.

The Service also has the responsibility of applying andadministering the law in a reasonable, practical manner.Issues should only be raised by examining officers whenthey have merit, never arbitrarily or for trading purposes.At the same time, the examining officer should never hesi-tate to raise a meritorious issue. It is also important thatcare be exercised not to raise an issue or to ask a court toadopt a position inconsistent with an established Serviceposition.

Administration should be both reasonable and vigorous. Itshould be conducted with as little delay as possible andwith great courtesy and considerateness. It should nevertry to overreach, and should be reasonable within thebounds of law and sound administration. It should, howev-er, be vigorous in requiring compliance with law and itshould be relentless in its attack on unreal tax devices andfraud.

IRB 1999-6 2/3/99 1:39 PM

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 of a permanent nature are consoli-dated semiannually into Cumulative Bulletins, which are soldon 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.With the exception of the Notice of Proposed Rulemakingand the disbarment and suspension list included in this part,none of these announcements are consolidated in the Cumu-lative Bulletins.

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

3

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.

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Section 42.—Low-IncomeHousing Credit

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof February 1999. See Rev. Rul. 99–8, page 10.

Section 280G.—GoldenParachute Payments

Federal short-term, mid-term, and long-termrates are set forth for the month of February 1999.See Rev. Rul. 99–8, page 10.

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

The adjusted federal long-term rate is set forthfor the month of February 1999. See Rev. Rul. 99–8,page 10.

Section 411.—Minimum VestingStandards

26 CFR 1.411(d)–4: Section 411(d)(6) protectedbenefits.

T.D. 8806

DEPARTMENT OF THE TREASURYInternal Revenue Service26 CFR Part 1

Employee Stock OwnershipPlans; Section 411(d)(6)Protected Benefits (TaxpayerRelief Act of 1997); QualifiedRetirement Plan Benefits

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final and temporary regula-tions.

SUMMARY: This document containsfinal and temporary regulations providingfor changes to the rules regarding quali-fied retirement plan benefits that are pro-tected from reduction by plan amend-ment, that have been made necessary bythe Taxpayer Relief Act of 1997 (TRA’97). The final regulations change the ex-

isting final regulations to conform withthe TRA ’97 rules regarding in-kind dis-tribution requirements for certain em-ployee stock ownership plans, and specifythe time period during which certain planamendments for which relief has beengranted by TRA ’97 may be made withoutviolating the prohibition against planamendments that reduce accrued benefits.These final regulations affect sponsors ofqualified retirement plans, employers thatmaintain qualified retirement plans, andqualified retirement plan participants.The amendments to the temporary regula-tions remove previously issued temporaryregulations on the same subject.

DATES: These regulations are effectiveJanuary 8, 1999.

FOR FURTHER INFORMATION CON-TACT: Linda S. F. Marshall, (202) 622-6030 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments tothe Income Tax Regulations (26 CFR part1) under section 411(d)(6). These regula-tions change the rules under section411(d)(6) regarding qualified retirementplan benefits that are protected from re-duction by plan amendment, to take intoaccount amendments made by the Tax-payer Relief Act of 1997 (TRA ’97), Pub-lic Law 105–34, 111 Stat. 788 (1997). OnSeptember 4, 1998, temporary regulations(T.D. 8781, 1998–40 I.R.B. 4) under sec-tion 411(d)(6) were published in the Fed-eral Register (63 F.R. 47172). A noticeof proposed rulemaking (REG–101363–98, 1998–40 I.R.B. 10), cross-referencingthe temporary regulations, was publishedin the Federal Register(63 F.R. 47214)on the same day. The temporary regula-tions conform the regulations to the TRA’97 amendments to section 409 regardingthe general requirement that employeestock ownership plans offer distributionsin the form of employer securities. In ad-dition, the temporary regulations specifythe time period during which certain planamendments for which relief has beengranted by TRA ’97 may be made withoutviolating section 411(d)(6).

One written comment responding to thenotice of proposed rulemaking was re-ceived. No public hearing was requestedor held. The proposed regulations undersection 411(d)(6) are adopted by thisTreasury decision, and the correspondingtemporary regulations are removed.

Explanation of Provisions

Section 411(d)(6) provides that a plan isnot treated as satisfying the requirementsof section 411 if the accrued benefit of aparticipant is decreased by a plan amend-ment. Under section 411(d)(6)(B), a planamendment that eliminates an optionalform of benefit is treated as reducing ac-crued benefits to the extent that the amend-ment applies to benefits accrued as of thelater of the adoption date or the effectivedate of the amendment. Sections1.411(d)–4, Q&A-1(b)(1) and 1.401(a)(4)–4(e) specify that different optional forms ofbenefit within the meaning of section411(d)(6)(B) result from differences in themedium of a distribution (e.g., cash or in-kind) from a plan. Section 411(d)(6)(C)provides that any tax credit employeestock ownership plan or any employeestock ownership plan is not treated as fail-ing to meet the requirements of section411(d)(6) merely because it modifies dis-tribution options in a nondiscriminatorymanner.

Special Rules Regarding Medium ofDistribution from ESOPs

Section 409(h) contains requirementsrelating to distributions from tax creditemployee stock ownership plans. Section4975(e)(7) extends the requirements ofsection 409(h) to other employee stockownership plans as well, and section401(a)(23) extends the requirements ofsection 409(h) to qualified plans that arestock bonus plans. Under section 409(h)-(1)(A), an employee stock ownership planor other stock bonus plan generally is re-quired to make distributions available inthe form of employer securities. Prior toits amendment by TRA ’97, section409(h)(2) provided an exception to thisrule in the case of an employer whosecharter or bylaws restrict the ownership ofsubstantially all outstanding employer se-

February 8, 1999 4 1999–6 I.R.B.

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

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curities to employees or to a trust de-scribed in section 401(a).

Under section 1361, certain small busi-ness corporations that do not have morethan 75 shareholders are eligible to electtreatment as S corporations whose tax at-tributes generally flow through to share-holders in accordance with the rules ofsubchapter S of chapter 1 of subtitle A ofthe Internal Revenue Code. Prior to theSmall Business Job Protection Act of1996 (SBJPA), Public Law 104-188, 110Stat. 1755 (1996), an S corporation couldnot maintain an employee stock owner-ship plan because an S corporation couldnot have a qualified trust described in sec-tion 401(a) as a shareholder. SBJPAamended the requirements for S corpora-tions, effective for tax years beginningafter December 31, 1996, to permit cer-tain tax-exempt organizations, includingqualified trusts described in section401(a), to be S corporation shareholders.

TRA ’97 made an additional change tothe rules governing qualified plans hold-ing securities of an S corporation em-ployer, to make it easier for S corporationemployers to facilitate employee owner-ship of employer securities through quali-fied plans. Section 1506 of TRA ’97 ex-tends the exception of section 409(h)(2)to cover S corporations, effective for tax-able years beginning after December 31,1997. Pursuant to this change, tax creditemployee stock ownership plans, em-ployee stock ownership plans, and otherstock bonus plans established and main-tained by S corporation employers are notrequired to offer distributions in the formof employer securities.

Section 1.411(d)–4, Q&A-2(d)(2)(ii)provides an exception from the require-ments of section 411(d)(6) for planamendments that eliminate optional formsof benefit from a tax credit employeestock ownership plan, an employee stockownership plan, or a stock bonus plan, forcertain employers. Section 1.411(d)–4,Q&A-2(d)(2)(ii) applies to employers thatbecome substantially employee-owned, ifthe employer otherwise meets the require-ments of section 409(h)(2) with respect torestrictions on the ownership of outstand-ing employer stock. These regulations re-tain the provision in the temporary regula-tions to expand the exception of§1.411(d)–4, Q&A-2(d)(2)(ii) from therequirements of section 411(d)(6) to

apply to S corporations as well, to reflectthe TRA ’97 changes to section 409(h).

Rules for Plan Amendments Pursuant toTRA ’97

Section 1541 of TRA ’97 contains pro-visions relating to plan amendments thatare adopted as a result of TRA ’97. If sec-tion 1541 applies to a plan amendment,section 1541(a) provides that the plan willbe treated as operated in accordance withits terms and will not fail to satisfy the re-quirements of section 411(d)(6) by reasonof the amendment. Section 1541 appliesto a plan amendment that is made pur-suant to a legislative change in the pen-sion and employee benefit provisions ofTRA ’97, provided the following condi-tions are satisfied. First, the plan amend-ment must be adopted before the first dayof the first plan year beginning on or afterJanuary 1, 1999 (2001, in the case of agovernmental plan, as defined in section414(d)). Second, the plan must be oper-ated in accordance with the terms of theplan amendment, beginning on the datethe legislative change takes effect, or, ifthe amendment is not required by the leg-islative change, the effective date of theamendment specified by the plan. Third,the plan amendment must be maderetroactively effective.

The remedial amendment period foradopting plan amendments to which sec-tion 1541 of TRA ’97 applies was ex-tended pursuant to the rules of section401(b) in Rev. Proc. 98–14 (1998–4I.R.B. 22). To provide a uniform time forplan amendment, these regulations add anew §1.411(d)–4, Q&A-11 to retain therule of §1.411(d)–4T, Q&A-11 of thetemporary regulations extending the timefor the section 411(d)(6) relief providedby section 1541 of TRA ’97 to the end ofthe remedial amendment period for theseplan amendments.

The sole commentator raised a concernregarding whether this extension of thetime period for section 411(d)(6) relieforiginally provided under section 1541 ofTRA ’97 restricts the time during whichany plan amendment can be made to elim-inate in-kind distributions of employer se-curities from employee stock ownershipplans of S corporations. The extension ofthe time period for this section 1541 statu-tory relief pursuant to §1.411(d)–4, Q&A-11 does not restrict the time period during

which a plan amendment can be made toeliminate these in-kind distributions aspermitted under §1.411(d)–4, Q&A-2(d)(2)(ii); to the contrary, the §1.411(d)-4, Q&A-11 extension of this statutory re-lief period provides an additional timeperiod for the adoption of certain planamendments to eliminate these in-kinddistributions after these in-kind distribu-tions have been eliminated in operation.Under the ongoing rule of §1.411(d)–4,Q&A-2(d)(2)(ii), a plan amendment toeliminate these in-kind distributions thatis effective with respect to distributionspayable after the date the amendment isadopted can be made at any time duringtaxable years of the employer beginningafter December 31, 1997.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in EO 12866.Therefore, a regulatory assessment is notrequired. It also has been determined thatsection 553(b) of the Administrative Pro-cedure Act (5 U.S.C. chapter 5) does notapply to these regulations, and becausethe regulation does not impose a collec-tion of information on small entities, theRegulatory Flexibility Act (5 U.S.C.chapter 6) does not apply. Pursuant tosection 7805(f) of the Internal RevenueCode, the notice of proposed rulemakingpreceding these regulations was submit-ted to the Small Business Administrationfor comment on its impact on small busi-nesses.

Drafting Information

The principal author of these regula-tions is Linda S. F. Marshall, Office of theAssociate Chief Counsel (Employee Ben-efits and Exempt Organizations). How-ever, other personnel from the IRS andTreasury Department participated in theirdevelopment.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 is amendedas follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

1999–6 I.R.B 5 February 8, 1999

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part 1 is amended by adding an entry innumerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *§1.411(d)–4T also issued under 26

U.S.C. 411(d)(6). * * *Par. 2. Section 1.411(d)-4 is amended

by:1. Revising Q&A-2(d)(2)(ii).2. Removing the last sentence of

Q&A-2(d)(3).3. Adding Q&A-11.The additions and revisions read as fol-

lows:

§1.411(d)–4 Section 411(d)(6) protectedbenefits.

* * * * *

Q-2: * * *A-2: * * *(d) * * *(2) * * *(ii) Employer becomes substantially

employee-owned or is an S corporation.The employer eliminates, or retains thediscretion to eliminate, with respect to allparticipants, optional forms of benefit bysubstituting cash distributions for distrib-utions in the form of employer stock withrespect to benefits subject to section409(h) in the circumstances described inparagraph (d)(1)(ii)(A) or (B) of thisQ&A-2, but only if the employer other-wise meets the requirements of section409(h)(2)—

(A) The employer becomes substan-tially employee-owned; or

(B) For taxable years of the employerbeginning after December 31, 1997, theemployer is an S corporation as defined insection 1361.

* * * * *

Q-11: To what extent may a planamendment that is made pursuant to theTaxpayer Relief Act of 1997 (TRA ’97)(Public Law 105–34, 111 Stat. 788), re-duce or eliminate section 411(d)(6) pro-tected benefits?

A-11: A plan amendment does not vio-late the requirements of section 411(d)(6)merely because the plan amendment re-duces or eliminates section 411(d)(6) pro-tected benefits as of the effective date ofthe plan amendment, provided that—

(a) The plan amendment is made pur-suant to an amendment made by title XV,or subtitle H of title X, of TRA ’97; and

(b) The plan amendment is adopted nolater than the last day of any remedialamendment period that applies to the planpursuant to §§1.401(b)–1 and 1.401(b)–1T for changes under TRA ’97.

§1.411(d)–4T [Removed]

Par. 3. Section 1.411(d)–4T is re-moved.

Robert E. Wenzel,Deputy Commissioner of

Internal Revenue.

Approved January 7, 1999.

Donald C. Lubick,Assistant Secretary of

the Treasury.

(Filed by the Office of the Federal Register on Janu-ary 7, 1999, 8:45 a.m., and published in the issue ofthe Federal Register for January 8, 1999, 64 F.R.1125)

Section 412.—MinimumFunding Standards


Section 467.—CertainsPayments for the Use ofProperty or Services


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


Section 482.—Allocation ofIncome and Deductions AmongTaxpayers


Section 483.—Interest onCertain Deferred Payments


Section 642.—Special Rules forCredits and Deductions


Section 708.—Continuation ofPartnership26 CFR 1.708–1: Continuation of partnership.(Also sections 731, 732, 735, 741, 751, 1012; 1.741–1; 301.7701–2, 301.7701–3.)

Partnership to disregarded entity.This ruling describes the federal incometax consequences if one person purchasesall of the ownership interests in a domes-tic limited liability company (LLC) that isclassified as a partnership under section301.7701–3 of the Procedure and Admin-istration Regulations, causing the LLC’sstatus as a partnership to terminate undersection 708(b)(1)(A) of the Code.

Rev. Rul. 99–6

ISSUE

What are the federal income tax conse-quences if one person purchases all of theownership interests in a domestic limitedliability company (LLC) that is classifiedas a partnership under § 301.7701–3 ofthe Procedure and Administration Regula-tions, causing the LLC’s status as a part-nership to terminate under § 708(b)(1)(A)of the Internal Revenue Code?

FACTS

In each of the following situations, anLLC is formed and operates in a statewhich permits an LLC to have a singleowner. Each LLC is classified as a part-nership under § 301.7701–3. Neither ofthe LLCs holds any unrealized receiv-ables or substantially appreciated inven-tory for purposes of § 751(b). For thesake of simplicity, it is assumed that nei-ther LLC is liable for any indebtedness,nor are the assets of the LLCs subject toany indebtedness.

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1999–6 I.R.B 7 February 8, 1999

Situation 1. Aand B are equal partnersin AB, an LLC. A sells A’s entire interestin AB to B for $10,000. After the sale, thebusiness is continued by the LLC, whichis owned solely by B.

Situation 2. Cand D are equal partnersin CD, an LLC. C and D sell their entireinterests in CD to E, an unrelated person,in exchange for $10,000 each. After thesale, the business is continued by theLLC, which is owned solely by E.

After the sale, in both situations, no en-tity classification election is made under §301.7701–3(c) to treat the LLC as an as-sociation for federal tax purposes.

LAW

Section 708(b)(1)(A) and § 1.708–1(b)(1) of the Income Tax Regulationsprovide that a partnership shall terminatewhen the operations of the partnership arediscontinued and no part of any business,financial operation, or venture of the part-nership continues to be carried on by anyof its partners in a partnership.

Section 731(a)(1) provides that, in thecase of a distribution by a partnership to apartner, gain is not recognized to the part-ner except to the extent that any moneydistributed exceeds the adjusted basis ofthe partner’s interest in the partnershipimmediately before the distribution.

Section 731(a)(2) provides that, in thecase of a distribution by a partnership inliquidation of a partner’s interest in a part-nership where no property other thanmoney, unrealized receivables (as definedin § 751(c)), and inventory (as defined in§ 751(d)(2)) is distributed to the partner,loss is recognized to the extent of the ex-cess of the adjusted basis of the partner’sinterest in the partnership over the sum of(A) any money distributed, and (B) thebasis to the distributee, as determinedunder § 732, of any unrealized receiv-ables and inventory.

Section 732(b) provides that the basisof property (other than money) distributedby a partnership to a partner in liquidationof the partner ’s interest shall be anamount equal to the adjusted basis of thepartner’s interest in the partnership, re-duced by any money distributed in thesame transaction.

Section 735(b) provides that, in deter-mining the period for which a partner has

held property received in a distributionfrom a partnership (other than for pur-poses of § 735(a)(2)), there shall be in-cluded the holding period of the partner-ship, as determined under § 1223, withrespect to the property.

Section 741 provides that gain or lossresulting from the sale or exchange of aninterest in a partnership shall be recog-nized by the transferor partner, and thatthe gain or loss shall be considered asgain or loss from a capital asset, except asprovided in § 751 (relating to unrealizedreceivables and inventory items).

Section 1.741–1(b) provides that § 741applies to the transferor partner in a two-person partnership when one partner sellsa partnership interest to the other partner,and to all the members of a partnershipwhen they sell their interests to one ormore persons outside the partnership.

Section 301.7701–2(c)(1) providesthat, for federal tax purposes, the term“partnership” means a business entity (asthe term is defined in § 301.7701–2(a))that is not a corporation and that has atleast two members.

In Edwin E. McCauslen v. Commis-sioner,45 T.C. 588 (1966), one partner inan equal, two-person partnership died, andhis partnership interest was purchasedfrom his estate by the remaining partner.The purchase caused a termination of thepartnership under § 708(b)(1)(A). TheTax Court held that the surviving partnerdid not purchase the deceased partner’s in-terest in the partnership, but that the sur-viving partner purchased the partnershipassets attributable to the interest. As a re-sult, the surviving partner was not permit-ted to succeed to the partnership’s holdingperiod with respect to these assets.

Rev. Rul. 67–65, 1967–1 C.B. 168, alsoconsidered the purchase of a deceasedpartner’s interest by the other partner in atwo-person partnership. The Serviceruled that, for the purpose of determiningthe purchaser’s holding period in the as-sets attributable to the deceased partner’sinterest, the purchaser should treat thetransaction as a purchase of the assets at-tributable to the interest. Accordingly, thepurchaser was not permitted to succeed tothe partnership’s holding period with re-spect to these assets. See alsoRev. Rul.55–68, 1955–1 C.B. 372.

ANALYSIS AND HOLDINGS

Situation 1. The AB partnership termi-nates under § 708(b)(1)(A) when B pur-chases A’s entire interest in AB. Accord-ingly, A must treat the transaction as thesale of a partnership interest. Reg. § 1.741–1(b). A must report gain or loss,if any, resulting from the sale of A’s part-nership interest in accordance with § 741.

Under the analysis of McCauslenandRev. Rul. 67–65, for purposes of deter-mining the tax treatment of B, the ABpartnership is deemed to make a liquidat-ing distribution of all of its assets to A andB, and following this distribution, B istreated as acquiring the assets deemed tohave been distributed to A in liquidationof A’s partnership interest.

B’s basis in the assets attributable to A’sone-half interest in the partnership is$10,000, the purchase price for A’s part-nership interest. Section 1012. Section735(b) does not apply with respect to theassets B is deemed to have purchasedfrom A. Therefore, B’s holding period forthese assets begins on the day immedi-ately following the date of the sale. SeeRev. Rul. 66–7, 1966–1 C.B. 188, whichprovides that the holding period of anasset is computed by excluding the dateon which the asset is acquired.

Upon the termination of AB, B is con-sidered to receive a distribution of thoseassets attributable to B’s former interest inAB. Bmust recognize gain or loss, if any,on the deemed distribution of the assets tothe extent required by § 731(a). B’s basisin the assets received in the deemed liqui-dation of B’s partnership interest is deter-mined under § 732(b). Under § 735(b),B’s holding period for the assets attribut-able to B’s one-half interest in AB in-cludes the partnership’s holding periodfor such assets (except for purposes of § 735(a)(2)).

Situation 2. The CD partnership termi-nates under § 708(b)(1)(A) when E pur-chases the entire interests of C and D inCD. Cand D must report gain or loss, ifany, resulting from the sale of their part-nership interests in accordance with § 741.

For purposes of classifying the acquisi-tion by E, the CD partnership is deemedto make a liquidating distribution of itsassets to C and D. Immediately following

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this distribution, E is deemed to acquire,by purchase, all of the former partner-ship’s assets. Compare Rev. Rul. 84–111,1984–2 C.B. 88 (Situation 3), which de-termines the tax consequences to a corpo-rate transferee of all interests in a partner-ship in a manner consistent with McCauslen, and holds that the trans-feree’s basis in the assets received equalsthe basis of the partnership interests, allo-cated among the assets in accordance with§ 732(c).

E’s basis in the assets is $20,000 under§ 1012. E’s holding period for the assetsbegins on the day immediately followingthe date of sale.

DRAFTING INFORMATION

The principal author of this revenueruling is Matthew Lay of the Office of As-sistant Chief Counsel (Passthroughs andSpecial Industries). For further informa-tion regarding this revenue ruling contactMr. Lay at (202) 622-3050 (not a toll-freecall).

Section 721.—Nonrecognitionof Gain or Loss on Contribution

26 CFR 1.721–1: Nonrecognition of gain or loss oncontribution.(Also sections 722, 723, 1001, 1012, 1223, 7701;1.1223–1, 301.7701–3.)

Disregarded entity to partnership.This ruling describes the federal incometax consequences when a single memberlimited liability company that is disre-garded as an entity separate from itsowner under section 301.7701–3 of theProcedure and Administration Regula-tions becomes an entity with more thanone owner that is classified as a partner-ship for federal tax purposes.

Rev. Rul. 99–5ISSUE

What are the federal income tax conse-quences when a single member domesticlimited liability company (LLC) that isdisregarded for federal tax purposes as anentity separate from its owner under § 301.7701–3 of the Procedure and Ad-ministration Regulations becomes an en-tity with more than one owner that is clas-sified as a partnership for federal taxpurposes?

FACTS

In each of the following two situations,an LLC is formed and operates in a statewhich permits an LLC to have a singleowner. Each LLC has a single owner, A,and is disregarded as an entity separatefrom its owner for federal tax purposesunder § 301.7701–3. In both situations,the LLC would not be treated as an in-vestment company (within the meaning of§ 351) if it were incorporated. All of theassets held by each LLC are capital assetsor property described in § 1231. For thesake of simplicity, it is assumed that nei-ther LLC is liable for any indebtedness,nor are the assets of the LLCs subject toany indebtedness.

Situation 1. B,who is not related to A,purchases 50% of A’s ownership interestin the LLC for $5,000. A does not con-tribute any portion of the $5,000 to theLLC. A and B continue to operate thebusiness of the LLC as co-owners of theLLC.

Situation 2. B, who is not related to A,contributes $10,000 to the LLC in ex-change for a 50% ownership interest inthe LLC. The LLC uses all of the con-tributed cash in its business. A and B con-tinue to operate the business of the LLCas co-owners of the LLC.

After the sale, in both situations, no en-tity classification election is made under § 301.7701–3(c) to treat the LLC as an as-sociation for federal tax purposes.

LAW AND ANALYSIS

Section 721(a) generally provides thatno gain or less shall be recognized to apartnership or to any of its partners in thecase of a contribution of property to thepartnership in exchange for an interest inthe partnership.

Section 722 provides that the basis ofan interest in a partnership acquired by acontribution of property, includingmoney, to the partnership shall be theamount of the money and the adjustedbasis of the property to the contributingpartner at the time of the contribution in-creased by the amount (if any) of gainrecognized under § 721(b) to the con-tributing partner at such time.

Section 723 provides that the basis ofproperty contributed to a partnership by apartner shall be the adjusted basis of theproperty to the contributing partner at the

time of the contribution increased by theamount (if any) of gain recognized under§ 721(b) to the contributing partner atsuch time.

Section 1001(a) provides that the gainor loss from the sale or other dispositionof property shall be the difference be-tween the amount realized therefrom andthe adjusted basis provided in § 1011.

Section 1223(1) provides that, in deter-mining the holding period of a taxpayerwho receives property in an exchange,there shall be included the period forwhich the taxpayer held the property ex-changed if the property has the same basisin whole or in part in the taxpayer’s handsas the property exchanged, and the prop-erty exchanged at the time of the ex-change was a capital asset or property de-scribed in § 1231.

Section 1223(2) provides that, regard-less of how a property is acquired, in de-termining the holding period of a taxpayerwho holds the property, there shall be in-cluded the period for which such propertywas held by any other person if the prop-erty has the same basis in whole or in partin the taxpayer’s hands as it would havein the hands of such other person.

HOLDING(S)

Situation 1.In this situation, the LLC,which, for federal tax purposes, in disre-garded as an entity separate from itsowner, is converted to a partnership whenthe new member, B, purchases an interestin the disregarded entity from the owner,A. B’s purchase of 50% of A’s ownershipinterest in the LLC is treated as the pur-chase of a 50% interest in each of theLLC’s assets, which are treated as held di-rectly by A for federal tax purposes. Im-mediately thereafter, A and B are treatedas contributing their respective interestsin those assets to a partnership in ex-change for ownership interests in the part-nership.

Under § 1001, A recognizes gain orloss from the deemed sale of the 50% in-terest in each asset of the LLC to B.

Under § 721(a), no gain or loss is rec-ognized by A or B as a result of the con-version of the disregarded entity to a part-nership.

Under § 722, B’s basis in the partner-ship interest is equal to $5,000, theamount paid by B to A for the assets

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which B is deemed to contribute to thenewly-created partnership. A’s basis inthe partnership interest is equal to A’sbasis in A’s 50% share of the assets of theLLC.

Under § 723, the basis of the propertytreated as contributed to the partnershipby A and B is the adjusted basis of thatproperty in A’s and B’s hands immedi-ately after the deemed sale.

Under § 1223(1), A’s holding periodfor the partnership interest received in-cludes A’s holding period in the capitalassets and property described in § 1231held by the LLC when it converted froman entity that was disregarded as an entityseparate from A to a partnership. B’s hold-ing period for the partnership interest be-gins on the day following the date of B’spurchase of the LLC interest from A. SeeRev. Rul. 66–7, 1966–1 C.B. 188, whichprovides that the holding period of a pur-chased asset is computed by excluding thedate on which the asset is acquired. Under§ 1223(2), the partnership’s holding pe-riod for the assets deemed transferred to itincludes A’s and B’s holding periods forsuch assets.

Situation 2.In this situation, the LLC isconverted from an entity that is disre-garded as an entity separate from itsowner to a partnership when a new mem-ber, B, contributes cash to the LLC. B’scontribution is treated as a contribution toa partnership in exchange for an owner-ship interest in the partnership. A istreated as contributing all of the assets ofthe LLC to the partnership in exchangefor a partnership interest.

Under § 721(a), no gain or loss is rec-ognized by A or B as a result of the con-version of the disregarded entity to a part-nership.

Under § 722, B’s basis in the partner-ship interest is equal to $10,000, theamount of cash contributed to the partner-ship. A’s basis in the partnership interestis equal to A’s basis in the assets of theLLC which A was treated as contributingto the newly-created partnership.

Under § 723, the basis of the propertycontributed to the partnership by A is theadjusted basis of that property in A’shands. The basis of the property con-tributed to the partnership by B is$10,000, the amount of cash contributedto the partnership.

Under § 1223(1), A’s holding period forthe partnership interest received includesA’s holding period in the capital and § 1231 assets deemed contributed whenthe disregarded entity converted to a part-nership. B’s holding period for the partner-ship interest begins on the day followingthe date of B’s contribution of money tothe LLC. Under § 1223(2), the partner-ship’s holding period for the assets trans-ferred to it includes A’s holding period.

DRAFTING INFORMATION

The principal authors of this revenueruling are Matthew Lay of the Office ofAssistant Chief Counsel (Passthroughsand Special Industries) and Mark D. Har-ris of the Office of Associate Chief Coun-sel (International). For further informa-tion regarding this revenue ruling contactMr. Lay at 202-622-3050 (not a toll-freecall).

Section 722.—Basis ofContributing Partner’s Interest

26 CFR 1.722–1: Basis of contributing partner’sinterest.

Tax consequences when a single member domes-tic limited liability company that is disregarded asan entity separate from its owner becomes an entitywith more than one owner that is classified as a part-nership. See Rev. Rul. 99–5, page 8.

Section 723.—Basis of PropertyContributed to Partnership

26 CFR 1.723–1: Basis of property contributed topartnership.


Section 731.—Extent ofRecognition of Gain or Loss onDistribution

26 CFR 1.731–1: Extent of recognition of gain orloss on distribution.

Tax consequences if one person purchases all ofthe ownership interests in a domestic limited liabil-ity company that is classified as a partnership. SeeRev. Rul. 99–6, page 6.

Section 732.—Basis ofDistributed Property Other ThanMoney

26 CFR 1.732–1: Basis of distributed propertyother than money.


Section 735.—Character ofGain or Loss on Disposition ofDistributed Property

26 CFR 1.735–1: Character of gain or loss ondisposition of distributed property.


Section 741.—Recognition andCharacter of Gain or Loss onSale or Exchange

26 CFR 1.741–1: Recognition and character of gainor loss on sale or exchange.


Section 751.—UnrealizedReceivables and Inventory Items

26 CFR 1.751–1: Unrealized receivables andinventory items.


Section 807.—Rules for CertainReserves


Section 846.—DiscountedUnpaid Losses Defined

The adjusted applicable federal short-term, mid-

1999–6 I.R.B 9 February 8, 1999

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REV. RUL. 99–8 TABLE 1

Applicable Federal Rates (AFR) for February 1999

Period for Compounding

Annual Semiannual Quarterly MonthlyShort-Term

AFR 4.62% 4.57% 4.54% 4.53%110% AFR 5.09% 5.03% 5.00% 4.98%120% AFR 5.56% 5.48% 5.44% 5.42%

130% AFR 6.03% 5.94% 5.90% 5.87%

Mid-TermAFR 4.71% 4.66% 4.63% 4.62%

110% AFR 5.20% 5.13% 5.10% 5.08%120% AFR 5.67% 5.59% 5.55% 5.53%130% AFR 6.15% 6.06% 6.01% 5.98%150% AFR 7.11% 6.99% 6.93% 6.89%175% AFR 8.33% 8.16% 8.08% 8.02%

Long-TermAFR 5.24% 5.17% 5.14% 5.12%

110% AFR 5.77% 5.69% 5.65% 5.62%120% AFR 6.30% 6.20% 6.15% 6.12%130% AFR 6.83% 6.72% 6.66% 6.63%

term, and long-term rates are set forth for the monthof February 1999. See Rev. Rul. 99–8, page 10.

Section 1001.—Determinationof Amount of and Recognition ofGain or Loss

26 CFR 1.1001–1: Computation of gain or loss.


Section 1012.—Basis ofProperty—Cost

26 CFR 1.1012–1: Basis of property.


Tax consequences if one person purchases all ofthe ownership interests in a domestic limited liabil-

ity company that is classified as a partnership. SeeRev. Rul. 99–6, page 6.

Section 1223.—Basis Period ofProperty

26 CFR 1.1223–1: Determination of period forwhich capital assets are held.


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

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

Federal rates; adjusted federal rates;adjusted federal long-term rate, andthe long-term exempt rate.For purposesof sections 1274, 1288, 382, and other

sections of the Code, tables set forth therates for February 1999.

Rev. Rul. 99–8This revenue ruling provides various

prescribed rates for federal income taxpurposes for February 1999 (the currentmonth.) Table 1 contains the short-term,mid-term, and long-term applicable fed-eral rates (AFR) for the current month forpurposes of section 1274(d) of the Inter-nal Revenue Code. Table 2 contains theshort-term, mid-term, and long-term ad-justed applicable federal rates (adjustedAFR) for the current month for purposesof section 1288(b). Table 3 sets forth theadjusted federal long-term rate and thelong-term tax-exempt rate described insection 382(f). Table 4 contains the ap-propriate percentages for determining thelow-income housing credit described insection 42(b)(2) for buildings placed inservice during the current month. Finally,Table 5 contains the federal rate for deter-mining the present value of an annuity, aninterest for life or for a term of years, or aremainder or a reversionary interest forpurposes of section 7520.

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1999–6 I.R.B 11 February 8, 1999


Adjusted AFR for February 1999

Period for Compounding

Annual Semiannual Quarterly Monthly Short-termadjusted AFR 3.13% 3.11% 3.10% 3.09%

Mid-termadjusted AFR 3.87% 3.83% 3.81% 3.80%

Long-termadjusted AFR 4.71% 4.66% 4.63% 4.62%


Rates Under Section 382 for February 1999

Adjusted federal long-term rate for the current month 4.71%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal long-term rates for the current month and the prior two months.) 4.71%


Appropriate Percentages Under Section 42(b)(2) for February 1999

Appropriate percentage for the 70% present value low-income housing credit 8.16%

Appropriate percentage for the 30% present value low-income housing credit 3.50%


Rate Under Section 7520 for February 1999

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest 5.6%

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February 8, 1999 12 1999–6 I.R.B.

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


Section 7520.—Valuation Tables


Section 7701.—Definitions

26 CFR 7701–3: Classification of certain businessentities.



Section 7704.—Certain PubliclyTraded Partnerships Treated asCorporations

26 CFR 1.7704–3: Qualifying income.

T.D. 8799

DEPARTMENT OF THE TREASURYInternal Revenue Service26 CFR Part 1

Certain Investment IncomeUnder the Qualifying IncomeProvisions of Section 7704 andthe Application of the PassiveActivity Loss Rules to PubliclyTraded Partnerships


ACTION: Final regulations.

SUMMARY: This document containsfinal regulations relating to the treatmentof certain investment income under thequalifying income provisions of section

7704 and the application of the passiveactivity loss rules to publicly traded part-nerships. These regulations provide guid-ance on calculating a publicly traded part-nership’s qualifying income under section7704. The regulations will affect the clas-sification of certain partnerships for fed-eral tax purposes and also will affect thepassive activity loss limitations with re-spect to items attributable to publiclytraded partnerships.

DATES: Effective Date: These regula-tions are effective, December 17, 1998.

Applicability Dates: See EffectiveDates under SUPPLEMENTARY IN-FORMATION of the preamble.

FOR FURTHER INFORMATION CON-TACT: Christopher Kelley or Terri Be-langer at (202) 622-3080 (not a toll-freenumber).


Background

The final regulations add §1.7704–3 tothe Income Tax Regulations (26 CFR part1) relating to the definition of qualifyingincome for publicly traded partnershipsunder section 7704(d) of the Internal Rev-enue Code (Code). The final regulationsalso amend §1.469-10 of the Income TaxRegulations relating to the application ofsection 469 to publicly traded partnerships.

On December 19, 1997, proposed regu-lations (REG–105163–97, 1998–8 I.R.B.31) were published in the Federal Register(62 F.R. 66575). A number of writtencomments were received on the proposedregulations under section 7704(d). Twospeakers provided testimony at a publichearing held on April 28, 1998. After con-sideration of all the comments, the pro-posed regulations under section 7704 areadopted, as revised by this Treasury deci-sion.

No comments were received on theproposed regulations under section 469.The proposed regulations under section469 are adopted without revision by thisTreasury decision.

Explanation of Revisions and Summaryof Comments

1. Determination of Gross Income forPurposes of Section 7704(c)(2)

a. Capital LossesSection 7704(d)(1)(F) provides that,

except as otherwise provided, the termqualifying incomeincludes any gain fromthe sale or disposition of a capital asset(or property described in section1231(b)) held for the production of in-come described in section 7704(d). Sev-eral commentators requested clarificationas to how capital losses incurred by thepartnership are treated in determininggross income of the partnership for pur-poses of section 7704(c)(2). The finalregulations clarify that, in general, alllosses are ignored in the computation ofgross income.

b. StraddlesThe proposed regulations requested

comments on the appropriate way to com-pute the gross income for a partnershipthat makes a mixed straddle account elec-tion under §1.1092(b)–4T. The final reg-ulations provide that, for purposes of ap-plying the general rule that a capital gainon an investment is taken into account buta capital loss is not, certain rules shallapply that generally net capital gains andlosses recognized in a taxable year withrespect to a straddle. This treatment ap-plies to all straddles, not just mixed strad-dle accounts, and to other interests inproperty that produce a substantialdiminution of the partnership’s risk ofloss similar to that of straddles. In addi-tion, the final regulations contain a washsale rule for gains in certain straddle andstraddle-like transactions. This rule pro-vides that, for purposes of section7704(c)(2), if a partnership recognizesgain with respect to the disposition of oneor more positions of a straddle or similararrangement, and the partnership acquiresa substantially similar position or posi-tions within a period beginning 30 daysbefore and ending 30 days after the dateof the disposition, then the gain shall notbe taken into account to the extent of theamount of unrecognized loss (as of theclose of the taxable year) in one or moreoffsetting positions of the straddle or sim-ilar arrangement.

c. Mark-to-Market The proposed regulations provide that

qualifying income includes capital gainfrom the sale of stock. The final regula-tions clarify that gain recognized with re-

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1999–6 I.R.B 13 February 8, 1999

spect to a position that is marked to mar-ket (for example, under section 475(f),section 1256, section 1259, or section1296) will not fail to be qualifying in-come solely because there is no sale ordisposition.

d. Certain Ordinary IncomeUnder certain provisions of the Code,

capital gain or loss with respect to certaintransactions is recharacterized as ordinaryincome or loss. However, such gain orloss may be recognized with respect to acapital asset in a manner that is consistentwith section 7704(d)(1)(F). Accordingly,the final regulations provide that gain willnot fail to be qualifying income solely be-cause it is characterized as ordinary in-come under section 475(f), section 988,section 1258, or section 1296.

2. Income Derived from SecuritiesLending Activities

Several commentators requested thatthe final regulations clarify that incomefrom securities lending activities of atrader is qualifying income. Section7704(d)(4) provides that qualifying in-come includes income that qualifies undersection 851(b)(2). Section 851(b)(2),which includes income from securityloans, does not specifically state that it ap-plies to the business of trading, as opposedto the business of investing. Thus, com-mentators have suggested that there is un-certainty under section 7704 as to whetherincome from security loans from the busi-ness of trading is qualifying income.

The IRS and Treasury Department be-lieve that section 851(b)(2) generally en-compasses income from the business oftrading as well as investing. Thus, in-come from the securities lending activi-ties of a trader will be qualifying incomeunder section 7704. A special provisionin these final regulations for this incomeis not necessary and could create a nega-tive implication as to the qualification oftrading income under section 851(b)(2)generally. Accordingly, the final regula-tions do not adopt this comment.

3. Income Derived from Investments inForeign Corporations

One commentator requested that thefinal regulations clarify that income frominvestments in foreign corporations isqualifying income. Because taxable in-

come may arise with respect to an invest-ment in a foreign corporation that may notliterally constitute a dividend, the com-mentator suggested that it is unclearwhether these investments generate quali-fying income under section 7704(d).Specifically, the commentator requestedclarification regarding whether a U.S.shareholder would have qualifying in-come from an inclusion under (1) section551 (foreign personal holding companyincome); (2) section 951(a)(1)(A) or(B)(subpart F income or a section 956amount); (3) section 1291 (excess distrib-utions of a passive foreign investmentcompany (PFIC)); and (4) section 1293(earnings of a PFIC that is a qualifiedelecting fund). The commentator re-quested that the final regulations clarifythat income realized under these taxregimes with respect to stock ownershipin a foreign corporation is included in thedefinition of qualifying income under sec-tion 7704(d).

Section 551(b) characterizes amountsincluded in gross income under section551(a) as dividends for federal tax pur-poses. Thus, an inclusion under section551 is qualifying income under section7704(d)(1)(B). No clarification is neces-sary in the final regulations.

Section 851(b)(2), which is cross-refer-enced in section 7704(d), provides ruleson the extent to which certain inclusionsof subpart F income under section951(a)(1)(A)(i) and certain inclusionsunder section 1293(a) are treated as divi-dends and, thus, qualifying income forpurposes of section 851(b)(2). Any ex-pansion of qualifying income with respectto investments in foreign corporationsshould be addressed under section851(b)(2) and the regulations thereunder.Accordingly, the final regulations do notadopt this comment.

4. Limitation on the Definition ofQualifying Income

The proposed regulations provide thatqualifying income includes capital gainfrom the sale of stock, income from hold-ing annuities, income from notional prin-cipal contracts, and other substantiallysimilar income from ordinary and routineinvestments to the extent determined bythe Commissioner. Several commenta-tors stated that partnerships must knowthat an investment generates qualifying

income before entering into the transac-tion. Because passive-type investmentsevolve constantly and rapidly, the com-mentators suggested that a requirementthat a type of investment generates quali-fying income only to the extent deter-mined by the Commissioner creates un-certainty for partnerships considering newinvestments. Thus, these commentatorsrequested that the final regulations not in-clude this restriction in the definition ofqualifying income.

The IRS and Treasury Department donot believe that the language in the pro-posed regulations creates significant un-certainty in the definition of qualifying in-come. Instead, the standard in theproposed regulations provides necessaryflexibility to consider the effect of newtypes of financial investments as such in-vestments evolve. The IRS and TreasuryDepartment do not believe that it wouldbe appropriate to create a broader andmore generic rule that would allow tax-payers to determine for themselveswhether new types of investments gener-ate qualifying income. Thus, the finalregulations do not adopt this comment.

5. List of Specific Items GeneratingQualifying Income

Several commentators requested thatthe final regulations expand the list ofspecific investments that generate quali-fying income. The IRS and Treasury De-partment do not believe that it is appropri-ate to expand the list of specificinvestments enumerated in the proposedregulations. Therefore, the final regula-tions do not adopt this comment.

6. Partnership Reporting Requirements

Several commentators indicated that thecurrent reporting requirements for partner-ships do not specifically compel a lower-tier partnership to provide the data neces-sary for an upper-tier partnership todetermine whether it meets the gross in-come requirement of section 7704(c)(2).These commentators requested that thefinal regulations specifically require alower-tier partnership to report in a level ofdetail that would permit an upper-tier part-nership to make the necessary calculations.

The final regulations do not adopt thiscomment. The current reporting require-ments for a partnership in §1.6031(b)–

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1T(a)(3)(ii) require a partnership to fur-nish its partners with statements that in-clude, to the extent provided by form orthe accompanying instructions, any addi-tional information that a partner may needto apply particular provisions of the Codewith respect to items related to the part-nership. The instructions to Form 1065,“U.S. Partnership Return of Income,”specifically require a partnership to in-clude on a Schedule K-1 any informationa partner may need to file its return that isnot shown anywhere else on the schedule.The information that an upper-tier part-nership needs to make its gross incomecalculations must be provided by thelower-tier partnership under the currentreporting requirements. An additional re-porting requirement in these final regula-tions is not necessary.

7. Private Placement Safe Harbor under§1.7704–1(h)(1)(ii)

Several commentators requested thatthe final regulations amend the require-ments of the private placement safe har-bor under §1.7704–1(h)(1) to reflect theadoption of new rules by the Securitiesand Exchange Commission regardingknowledgeable employees. Specifically,the commentators requested that the pri-vate placement safe harbor be amended toprovide that knowledgeable employeesare not counted for purposes of the 100partner limitation. This issue is beyondthe scope of these final regulations.Therefore, the final regulations do notadopt this comment.

8. Effective Dates

The proposed regulations provide thatthe regulations will be effective for tax-able years of a partnership beginning onor after the date final regulations are pub-lished in the Federal Register.Commen-tators stated that this effective date wouldpreclude taxpayers from relying upon therevised definition of qualifying income inthe proposed regulations until the regula-tions are final. These commentators re-quested that the effective date of the regu-lations be changed so that a partnershipmay rely upon the revised definition ofqualifying income for taxable years be-ginning on or after the date the regula-tions were published as proposed regula-tions in the Federal Register.

The final regulations provide that theseregulations apply to taxable years of apartnership beginning on or after, Decem-ber 17, 1998. However, in response to thecomments, the final regulations also in-clude a provision that allows a partnershipto apply the regulations retroactively.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in EO 12866.Therefore, a regulatory assessment is notrequired. It also has been determined thatsection 553(b) of the Administrative Pro-cedure Act (5 U.S.C. chapter 5) does notapply to these regulations, and becausethe regulations do not impose a collectionof information on small entities, a Regu-latory Flexibility Analysis is not required.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 Admin-istration for comment on its impact onsmall business.


The principal authors of these regula-tions are Christopher Kelley and Terri Be-langer, Office of Chief Counsel(Passthroughs and Special Industries).However, other personnel from the IRSand Treasury Department participated intheir development.

* * * * *

Amendments to the Regulations

Accordingly, 26 CFR part 1 is amendedas follows:

Paragraph 1. The authority citation forpart 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *.Par. 2. Section 1.469–10 is revised to

read as follows:

§1.469–10 Application of section 469 topublicly traded partnerships.

(a) [Reserved].(b) Publicly traded partnership—(1) In

general. For purposes of section 469(k), apartnership is a publicly traded partnershiponly if the partnership is a publicly tradedpartnership as defined in §1.7704–1.

(2) Effective date.This section applies

for taxable years of a partnership begin-ning on or after, December 17, 1998.

Par. 3. Section 1.7704–3 is added toread as follows:

§1.7704–3 Qualifying income.

(a) Certain investment income—(1) Ingeneral. For purposes of section7704(d)(1), qualifying income includescapital gain from the sale of stock, in-come from holding annuities, incomefrom notional principal contracts (as de-fined in §1.446–3), and other substan-tially similar income from ordinary androutine investments to the extent deter-mined by the Commissioner. Incomefrom a notional principal contract is in-cluded in qualifying income only if theproperty, income, or cash flow that mea-sures the amounts to which the partner-ship is entitled under the contract wouldgive rise to qualifying income if held orreceived directly by the partnership.

(2) Limitations. Qualifying income de-scribed in paragraph (a)(1) of this sectiondoes not include income derived in the or-dinary course of a trade or business. Forpurposes of the preceding sentence, in-come derived from an asset with respectto which the partnership is a broker, mar-ket maker, or dealer is income derived inthe ordinary course of a trade or business;income derived from an asset with respectto which the taxpayer is a trader or in-vestor is not income derived in the ordi-nary course of a trade or business.

(b) Calculation of gross income andqualifying income—(1) Treatment oflosses. Except as otherwise provided inthis section, in computing the gross in-come and qualifying income of a partner-ship for purposes of section 7704(c)(2)and this section, losses do not enter intothe computation.

(2) Certain positions that are markedto market. Gain recognized with respectto a position that is marked to market (forexample, under section 475(f), 1256,1259, or 1296) shall not fail to be qualify-ing income solely because there is no saleor disposition of the position.

(3) Certain items of ordinary income.Gain recognized with respect to a capitalasset shall not fail to be qualifying incomesolely because it is characterized as ordi-nary income under section 475(f), 988,1258, or 1296.

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(4) Straddles. In computing the grossincome and qualifying income of a part-nership for purposes of section 7704(c)(2)and this section, a straddle (as defined insection 1092(c)) shall be treated as setforth in this paragraph (b)(4). For pur-poses of the preceding sentence, two ormore straddles that are part of a largerstraddle shall be treated as a single strad-dle. The amount of the gain from anystraddle to be taken into account shall becomputed as follows:

(i) Straddles other than mixed straddleaccounts. With respect to each straddle(whether or not a straddle during the tax-able year) other than a mixed straddle ac-count, the amount of gain taken into ac-count shall be the excess, if any, of gainrecognized during the taxable year withrespect to property that was at any time aposition in that straddle over any loss rec-ognized during the taxable year with re-spect to property that was at any time aposition in that straddle (including loss re-alized in an earlier taxable year).

(ii) Mixed straddle accounts.With re-spect to each mixed straddle account (asdefined in §1.1092(b)–4T(b)), theamount of gain taken into account shallbe the annual account gain for that mixedstraddle account, computed pursuant to§1.1092(b)–4T(c)(2).

(5) Certain transactions similar tostraddles. In computing the gross incomeand qualifying income of a partnership forpurposes of section 7704(c)(2) and this

section, related interests in property(whether or not personal property as de-fined in section 1092(d)(1)) that producea substantial diminution of the partner-ship’s risk of loss similar to that of astraddle (as defined in section 1092(c))shall be combined so that the amount ofgain taken into account by the partnershipin computing its gross income shall be theexcess, if any, of gain recognized duringthe taxable year with respect to such inter-ests over any loss recognized during thetaxable year with respect to such interests.

(6) Wash sale rule—(i) Gain not takeninto account. Solely for purposes of sec-tion 7704(c)(2) and this section, if a part-nership recognizes gain in a section 7704wash sale transaction with respect to oneor more positions in either a straddle (asdefined in section 1092(c)) or an arrange-ment described in paragraph (b)(5) of thissection, then the gain shall not be takeninto account to the extent of the amount ofunrecognized loss (as of the close of thetaxable year) in one or more offsetting po-sitions of the straddle or arrangement de-scribed in paragraph (b)(5) of this section.

(ii) Section 7704 wash sale transaction.For purposes of this paragraph (b)(6), asection 7704 wash sale transaction is atransaction in which—

(A) A partnership disposes of one ormore positions of a straddle (as defined insection 1092(c)) or one or more relatedpositions described in paragraph (b)(5) ofthis section; and

(B) The partnership acquires a substan-tially similar position or positions withina period beginning 30 days before thedate of the disposition and ending 30 daysafter such date.

(c) Effective date. This section appliesto taxable years of a partnership begin-ning on or after, December 17, 1998.However, a partnership may apply thissection in its entirety for all of the partner-ship’s open taxable years beginning afterany earlier date selected by the partner-ship.


Internal Revenue.

Approved December 7, 1998.

Donald C. Lubick,Assistant Secretary of

the Treasury,(Tax Policy).

(Filed by the Office of the Federal Register on De-cember 16, 1998, 8:45 a.m., and published in theissue of the Federal Register for December 17, 1998,63 F.R. 69551)

Section 7872.—Treatment ofLoans with Below-MarketInterest Rates


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February 8, 1999 16 1999–6 I.R.B.

Low-Income Housing TaxCredit—1999 Calendar YearResident Population Estimates

Notice 99–10

This notice informs (1) state and localhousing credit agencies that allocate low-income housing tax credits under § 42 ofthe Internal Revenue Code and (2) statesand other issuers of tax-exempt privateactivity bonds under § 141, of the properpopulation figures to be used for calculat-ing the 1999 calendar year population-based component of the state housingcredit ceiling (Credit Ceiling) under § 42(h)(3)(C)(i) and the 1999 calendaryear volume cap (Volume Cap) under § 146.

The population figures both for thepopulation-based component of the CreditCeiling and for the Volume Cap are deter-mined by reference to § 146(j). That sec-tion provides generally that determina-tions of population for any calendar yearare made on the basis of the most recentcensus estimate of the resident populationof a state (or issuing authority) releasedby the Bureau of the Census before thebeginning of such calendar year.

The proper population figures for cal-culating the Credit Ceiling and the Vol-ume Cap for the 1999 calendar year arethe estimates of the resident population ofstates for July 1, 1998, released by the

Bureau of the Census on December 31,1998, in press release CB98–242. Forconvenience, these estimates are reprintedbelow.

Resident Population Estimates for July 1, 1998

State Population

Alabama 4,351,999Alaska 614,010Arizona 4,668,631Arkansas 2,538,303California 32,666,550Colorado 3,970,971Connecticut 3,274,069Delaware 743,603D.C. 523,124Florida 14,915,980Georgia 7,642,207Hawaii 1,193,001Idaho 1,228,684Illinois 12,045,326Indiana 5,899,195Iowa 2,862,447Kansas 2,629,067Kentucky 3,936,499Louisiana 4,368,967Maine 1,244,250Maryland 5,134,808Massachusetts 6,147,132Michigan 9,817,242Minnesota 4,725,419Mississippi 2,752,092Missouri 5,438,559

Montana 880,453Nebraska 1,662,719Nevada 1,746,898New Hampshire 1,185,048New Jersey 8,115,011New Mexico 1,736,931New York 18,175,301North Carolina 7,546,493North Dakota 638,244Ohio 11,209,493Oklahoma 3,346,713Oregon 3,281,974Pennsylvania 12,001,451Rhode Island 988,480South Carolina 3,835,962South Dakota 738,171Tennessee 5,430,621Texas 19,759,614Utah 2,099,758Vermont 590,883Virginia 6,791,345Washington 5,689,263West Virginia 1,811,156Wisconsin 5,223,500Wyoming 480,907

The principal authors of this notice areChristopher J. Wilson of the Office of As-sistant Chief Counsel (Passthroughs andSpecial Industries) and Timothy L. Jonesof the Office of Assistant Chief Counsel(Financial Institutions and Products). Forfurther information regarding this noticecontact Mr. Wilson on (202) 622-3040(not a toll-free call).

Part III. Administrative, Procedural, and Miscellaneous

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1999–6 I.R.B 17 February 8, 1999

Notice of Proposed Rulemakingand Notice of Public Hearing

Marital Deduction; Valuation ofInterest Passing to SurvivingSpouse

REG–114663–97


ACTION: Notice of proposed rulemak-ing and notice of public hearing.

SUMMARY: This document containsproposed regulations relating to the effectof certain administration expenses on thevaluation of property which qualifies forthe estate tax marital or charitable deduc-tion. The proposed regulations define es-tate transmission expenses and estatemanagement expenses and provide thatestate transmission expenses, but not es-tate management expenses, reduce thevalue of property for marital and charita-ble deduction purposes. This documentalso provides notice of a public hearingon these proposed regulations.

DATES: Written comments must be re-ceived by February 16, 1999. Outlines oftopics to be discussed at the public hear-ing scheduled for April 21, 1999, at 10a.m., must be received by March 31,1999.

ADDRESSES: Send submissions toCC:DOM:CORP:R (REG–114663–97),room 5226, Internal Revenue Service,POB 7604, Ben Franklin Station, Wash-ington, DC 20044. Submissions may behand delivered Monday through Fridaybetween the hours of 8 a.m. and 5 p.m. to:CC:DOM:CORP:R (REG–114663–97),Courier’s Desk, Internal Revenue Ser-vice, 1111 Constitution Avenue, NW,Washington, DC. Alternatively, taxpay-ers may submit comments electronicallyvia the Internet by selecting the “TaxRegs” option on the IRS Home Page, orby submitting comments directly to theIRS Internet site at http://www.irs.ustreas.gov/prod/tax_regs/comments.html. Thepublic hearing will be held in Room 2615,Internal Revenue Building, 1111 Consti-tution Avenue, NW, Washington, DC.

FOR FURTHER INFORMATION CON-TACT: Concerning the proposed regula-tions, Deborah Ryan (202) 622-3090;concerning submissions of comments, thehearing, and/or to be placed on the build-ing access list to attend the hearing,LaNita Van Dyke (202) 622-7190 (nottoll-free numbers).


Background

On March 18, 1997, the Supreme Courtof the United States issued its decision inCommissioner v. Estate of Hubert, 520U.S. 93 (1997) (1997–32 I.R.B. 8), inwhich it considered the proper interpreta-tion of §20.2056(b)–4(a) of the Estate TaxRegulations. On November 24, 1997, theIRS issued Notice 97–63 (1997–47 I.R.B.6), requesting comments on alternativesfor amending §20.2056(b)–4(a) in light ofthe Supreme Court’s Estate of Hubertdecision.

Section 2056(b)(4) provides that, in de-termining the value of an interest in prop-erty which passes from the decedent tothe surviving spouse for purposes of themarital deduction, account must be takenof any encumbrance on the property orany obligation imposed on the survivingspouse by the decedent with respect to theproperty. Section 20.2056(b)–4(a) of theEstate Tax Regulations amplifies this ruleby providing that account must be takenof the effect of any material limitations onthe surviving spouse’s right to the incomefrom the property. The regulation pro-vides, for example, that there may be amaterial limitation on the survivingspouse’s right to the income from maritaltrust property where the income is used topay administration expenses during theperiod between the date of the decedent’sdeath and the date of distribution of theassets to the trustee.

The facts in Estate of Hubertare simi-lar to a common fact pattern wherein thedecedent’s will provides for a residuarybequest to a marital trust which qualifiesfor the marital deduction and also pro-vides that estate administration expensesare to be paid from the residuary estate.Further, the will (or state law) permits theexecutor to use the income generated bythe residuary estate (otherwise payable to

the marital trust) to pay administration ex-penses, and the executor does so. Theissue before the Supreme Court in Estateof Hubertwas whether the executor’s useof the income to pay estate administrationexpenses was a material limitation on thesurviving spouse’s right to the incomewhich would reduce the marital deductionunder §20.2056(b)–4(a).

The issue in Estate of Hubertalso in-volved the estate tax charitable deduction,and the proposed regulations relate to thevaluation of property for both marital andcharitable deduction purposes. However,for simplicity and clarity, this discussionfocuses on the provisions of the estate taxmarital deduction.

In Estate of Hubert, the Commissionerargued that the payment of administrationexpenses from income is, per se, a mater-ial limitation on the surviving spouse’sright to income for purposes of§20.2056(b)–4(a), and, therefore, thevalue of the marital bequest should be re-duced dollar for dollar by the amount ofincome used to pay administration ex-penses. The Court agreed that the valueof the marital bequest should be reducedif the use of income to pay administrationexpenses is a material limitation on thespouse’s right to income. The Courtfound, however, that the regulation doesnot define material limitation and that theCommissioner had not argued that the useof income in this case was a material limi-tation. Thus, the Court held for the tax-payer.

In Notice 97–63 (November 24, 1997),the IRS requested comments on possibleapproaches for proposed regulations inlight of the Estate of Hubertdecision.Notice 97–63 suggested three alternativeapproaches for determining when the useof income to pay administration expensesconstitutes a material limitation on thesurviving spouse’s right to income. Oneapproach distinguished between adminis-tration expenses that are properly chargedto principal and those that are properlycharged to income and provided that thereis a material limitation on the survivingspouse’s right to income if income is usedto pay an estate administration expensethat is properly charged to principal. Asecond approach provided a de minimissafe harbor amount of income that may be

Part IV. Items of General Interest

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February 8, 1999 18 1999–6 I.R.B.

used to pay administration expenses with-out constituting a material limitation onthe surviving’s spouse’s right to income.A third approach provided that any chargeto income for the payment of administra-tion expenses constitutes a material limi-tation on the spouse’s right to income.

Notice 97–63 also asked for commentson whether the test for materiality shouldbe based on a comparison of the relativeamounts of the income and the expensescharged to the income; whether material-ity should be based on projections as ofthe date of death rather than on the factsthat develop afterwards; and whether pre-sent value principles should be applied.

In response to Notice 97–63, severalcommentators suggested that local lawshould be determinative of whether an ex-pense is a proper charge to income orprincipal. If the testamentary documentdirects the executor to charge expenses toincome, and the charge is allowed underapplicable local law, then the charge to in-come should not be treated as a materiallimitation on the spouse’s right to income.

This approach was not adopted becausestatutory provisions relating to incomeand principal may vary from state to state,and this would result in disparate treat-ment of estates that are similarly situatedbut governed by different state law.Moreover, in states that have adoptedsome form of the Uniform Principal andIncome Act, the definitions of principaland income, and the allocation of ex-penses thereto, can be specified in the willor trust instrument and given the effect ofstate law. Thus, simply following statelaw was thought to be too malleable toprotect the policies underlying the maritaland charitable deductions.

Several commentators agreed with thede minimissafe harbor approach wherebya certain amount of income could be usedto pay administration expenses withoutmaterially limiting the surviving spouse’sright to the income. Under this approach,the safe harbor amount is determined intwo steps: first, the present value of thesurviving spouse’s income interest for lifeis determined using actuarial principlesand, second, the resulting amount is mul-tiplied by a percentage, for example, 5percent.

The proposed regulations do not adoptthis approach. Although a de minimissafe harbor approach would provide a

bright line test for determining materialityin the context of the marital deduction, itis unclear how this approach would applyfor charitable deduction purposes becausethere is no measuring life for valuing theincome interest.

One commentator suggested that, con-sistent with the plurality opinion in Estateof Hubert,the test for materiality should bequantitative, based upon a comparison be-tween the amount of income charged withadministration expenses and the total in-come earned during administration. Thecommentator, however, considered the re-quirement that projected income and ex-penses be presently valued to be im-practical, complex, and uncertain. Anothercommentator considered a quantitative testto be impractical. A third commentatorsuggested that a quantitative test would re-quire a factual determination in each caseand, as a result, the period of estate admin-istration would be greatly prolonged.

Because these tests for materiality ap-pear to be complex and difficult to admin-ister, the proposed regulations adopt nei-ther a quantitative test nor a test based onpresent values of projected income andexpenses.

Many commentators opposed an ap-proach in which every charge to income isa material limitation on the spouse’s rightto income. Two commentators contendedthat adoption of this approach would ef-fectively overrule the result in Estate ofHubert.

One commentator suggested the ap-proach adopted in the proposed regula-tions, a description of which follows, andtwo commentators suggested similar ap-proaches.

Explanation of Provisions

After carefully considering the com-ments, the Treasury and the Internal Rev-enue Service have determined that a testbased on what constitutes a material limi-tation would prove too complex andwould be administratively burdensome.For this reason, the proposed regulationseliminate the concept of materiality and,instead, establish rules providing thatonly administration expenses of a certaincharacter which are charged to the maritalproperty will reduce the value of the prop-erty for marital deduction purposes. It isanticipated that these rules will have uni-

form application to all estates, will besimple to administer, and will reflect theeconomic realities of estate administra-tion. These same rules will also apply forpurposes of the estate tax charitable de-duction.

Under the proposed regulations, a re-duction is made to the date of death valueof the property interest which passes fromthe decedent to the surviving spouse (or toa charitable organization described in sec-tion 2055) for the dollar amount of anyestate transmission expenses incurredduring the administration of the dece-dent’s estate and charged to the propertyinterest. Such a reduction is proper be-cause these expenses would not have beenincurred but for the decedent’s death. Noreduction is made for estate managementexpenses incurred with respect to theproperty and charged to the property be-cause these expenses would have been in-curred even if the death had not occurred.However, a reduction is made for estatemanagement expenses charged to themarital property interest passing to thesurviving spouse if the expenses were in-curred in connection with property pass-ing to someone other than the survivingspouse and a person other than the surviv-ing spouse is entitled to the income fromthat property. Estate transmission ex-penses are all estate administration ex-penses that are not estate management ex-penses and include expenses incurred incollecting estate assets, paying debts, es-tate and inheritance taxes, and distribut-ing the decedent’s property. Estate man-agement expenses are expenses incurredin connection with the investment of theestate assets and with their preservationand maintenance during the period of ad-ministration.

Proposed Effective Date

These regulations are proposed to beeffective for estates of decedents dying onor after the date the regulations are pub-lished in the Federal Registeras finalregulations.

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 also

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1999–6 I.R.B 19 February 8, 1999

has been determined that section 553(b)of the Administrative Procedure Act (5U.S.C. chapter 5) does not apply to theseregulations, and, because the regulationsdo not impose a collection of informationon small entities, the Regulatory Flexibil-ity Act (5 U.S.C. chapter 6) does notapply. Pursuant to section 7805(f) of theInternal Revenue Code, this notice of pro-posed rulemaking will be submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for comment onits impact on small business.

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) that are submitted timely to theIRS. All comments will be available forpublic inspection and copying.

A public hearing has been scheduled forApril 21, 1999, beginning at 10 a.m. inRoom 2615 of the Internal RevenueBuilding, 1111 Constitution Avenue, NW,Washington, DC. Due to building securityprocedures, visitors must enter at the 10thStreet entrance, located between Constitu-tion and Pennsylvania Avenues, NW. Inaddition, all visitors must present photoidentification to enter the building. Be-cause of access restrictions, visitors willnot be admitted beyond the immediate en-trance area more than 15 minutes beforethe hearing starts. For information abouthaving your name placed on the buildingaccess list to attend the hearing, see the“FOR FURTHER INFORMATION CON-TACT” section of this preamble.

The rules of 26 CFR 601.601(a)(3)apply to the hearing. Persons who wish topresent oral comments at the hearing mustsubmit written comments and an outlineof the topics to be discussed and the timeto be devoted to each topic (signed origi-nal and eight (8) copies) by March 31,1999. A period of 10 minutes will be al-lotted 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.


The principal author of these proposedregulations is Deborah Ryan, Office of

the Assistant Chief Counsel (Pass-throughs and Special Industries). How-ever, other personnel from the IRS andTreasury Department participated in theirdevelopment.

* * * * *

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 20 is pro-posed to be amended as follows:

PART 20—ESTATE TAX; ESTATES OFDECEDENTS DYING AFTERAUGUST 16, 1954

Paragraph 1. The authority citation forpart 20 continues to read in part as fol-lows:

Authority: 26 U.S.C. 7805 * * *Par. 2. In §20.2055–1, paragraph (d)(6)

is added to read as follows:

§20.2055–1 Deduction for transfers forpublic, charitable, and religious uses; ingeneral.

* * * * *

(d) * * *(6) For the effect of certain administra-

tion expenses on the valuation of transfersfor charitable deduction purposes, see§20.2056(b)–4(e). The rules provided inthat section apply for purposes of both themarital and charitable deductions. Thisparagraph (d)(6) is effective for estates ofdecedents dying on or after the date theseregulations are published in the FederalRegisteras final regulations.

Par. 3. Section 20.2056(b)-4 isamended by:

1. Removing the last two sentences ofparagraph (a).

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

§20.2056(b)–4 Marital deduction;valuation of interest passing to survivingspouse.

* * * * *

(e) Effect of certain administration ex-penses—(1) Estate transmission ex-penses. For purposes of determining themarital deduction, the value of any de-ductible property interest which passedfrom the decedent to the surviving spouseshall be reduced by the amount of estatetransmission expenses incurred during the

administration of the decedent’s estateand paid from the principal of the prop-erty interest or the income produced bythe property interest. For purposes of thissubsection, the term estate transmissionexpenses means all estate administrationexpenses that are not estate managementexpenses (as defined in paragraph (e)(2)of this section). Estate transmission ex-penses include expenses incurred in thecollection of the decedent’s assets, thepayment of the decedent’s debts and deathtaxes, and the distribution of the dece-dent’s property to those who are entitledto receive it. Examples of these expensesinclude executor commissions and attor-ney fees (except to the extent specificallyrelated to investment, preservation, andmaintenance of the assets), probate fees,expenses incurred in construction pro-ceedings and defending against will con-tests, and appraisal fees.

(2) Estate management expenses—(i)In general. For purposes of determiningthe marital deduction, the value of any de-ductible property interest which passedfrom the decedent to the surviving spouseshall not be reduced by the amount of es-tate management expenses incurred inconnection with the property interest dur-ing the administration of the decedent’sestate and paid from the principal of theproperty interest or the income producedby the property interest. For marital de-duction purposes, the value of any de-ductible property interest which passedfrom the decedent to the surviving spouseshall be reduced by the amount of any es-tate management expenses incurred inconnection with property that passed to abeneficiary other than the survivingspouse if a beneficiary other than the sur-viving spouse is entitled to the incomefrom the property and the expenses arecharged to the deductible property interestwhich passed to the surviving spouse.For purposes of this subsection, the termestate management expenses means ex-penses incurred in connection with the in-vestment of the estate assets and withtheir preservation and maintenance duringthe period of administration. Examples ofthese expenses include investment advi-sory fees, stock brokerage commissions,custodial fees, and interest.

(ii) Special rule where estate manage-ment expenses are deducted on the fed-eral estate tax return.For purposes of de-

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February 8, 1999 20 1999–6 I.R.B.

termining the marital deduction, the valueof the deductible property interest whichpassed from the decedent to the survivingspouse is not increased as a result of thedecrease in the federal estate tax liabilityattributable to any estate management ex-penses that are deducted as expenses ofadministration under section 2053 on thefederal estate tax return.

(3) Examples.The following examplesillustrate the application of this paragraph(e). In each example, the decedent, whodies after 2006, makes a bequest of sharesof ABC Corporation stock to the dece-dent’s child. The bequest provides thatthe child is to receive the income from theshares from the date of the decedent’sdeath. The value of the bequeathedshares, on the decedent’s date of death, is$3,000,000. The residue of the estate isbequeathed to a trust which satisfies therequirements of section 2056(b)(7) asqualified terminable interest property.The value of the residue, on the dece-dent’s date of death, before the paymentof administration expenses and estatetaxes, is $6,000,000. Under applicablelocal law, the executor has the discretionto pay administration expenses from theincome or principal of the residuary es-tate. All estate taxes are to be paid fromthe residue. The state estate tax equalsthe state tax credit available under section2011. The examples are as follows:

Example 1. During the period of administration,the estate incurs estate transmission expenses of$400,000, which the executor charges to the residue.For purposes of determining the marital deduction,the value of the residue is reduced by the federal andstate estate taxes and by the estate transmission ex-penses. If the transmission expenses are deductedon the federal estate tax return, the marital deductionis $3,500,000 ($6,000,000 minus $400,000 trans-mission expenses and minus $2,100,000 federal andstate estate taxes). If the transmission expenses arededucted on the estate’s income tax return ratherthan on the estate tax return, the marital deduction is$3,011,111 ($6,000,000 minus $400,000 transmis-sion expenses and minus $2,588,889 federal andstate estate taxes).

Example 2.During the period of administration,the estate incurs estate management expenses of$400,000 in connection with the residue propertypassing for the benefit of the spouse. The executorcharges these management expenses to the residue.For purposes of determining the marital deduction,the value of the residue is reduced by the federal andstate estate taxes but is not reduced by the estatemanagement expenses. If the management expensesare deducted on the estate’s income tax return, themarital deduction is $3,900,000 ($6,000,000 minus$2,100,000 federal and state estate taxes). If the

management expenses are deducted on the estate taxreturn rather than on the estate’s income tax return,the marital deduction remains $3,900,000, eventhough the federal and state estate taxes now totalonly $1,880,000. The marital deduction is not in-creased by the reduction in estate taxes attributableto deducting the management expenses on the fed-eral estate tax return.

Example 3. During the period of administration,the estate incurs estate management expenses of$400,000 in connection with the bequest of ABCCorporation stock to the decedent’s child. The ex-ecutor charges these management expenses to theresidue. For purposes of determining the marital de-duction, the value of the residue is reduced by thefederal and state estate taxes and by the managementexpenses. The management expenses reduce thevalue of the residue because they are charged to theproperty passing to the spouse even though they wereincurred with respect to stock passing to the childand the spouse is not entitled to the income from thestock during the period of estate administration. Ifthe management expenses are deducted on the es-tate’s income tax return, the marital deduction is$3,011,111 ($6,000,000 minus $400,000 manage-ment expenses and minus $2,588,889 federal andstate estate taxes). If the management expenses arededucted on the estate tax return rather than on theestate’s income tax return, the marital deduction re-mains $3,011,111, even though the federal and stateestate taxes now total only $2,368,889. The maritaldeduction is not increased by the reduction in estatetaxes attributable to deducting the management ex-penses on the federal estate tax return.

(4) Effective date. This paragraph (e) iseffective on the date these regulations arepublished in the Federal Register as finalregulations.


Internal Revenue.

(Filed by the Office of the Federal Register on De-cember 15, 1998, 8:45 a.m., and published in theissue of the Federal Register for December 16, 199863 F.R. 69248)

Foundations Status of CertainOrganizations

Announcement 99–13The following organizations have

failed to establish or have been unable tomaintain their status as public charities oras operating foundations. Accordingly,grantors and contributors may not, afterthis date, rely on previous rulings or des-ignations in the Cumulative List of Orga-nizations (Publication 78), or on the pre-sumption arising from the filing of noticesunder section 508(b) of the Code. Thislisting does not indicate that the organiza-

tions have lost their status as organiza-tions described in section 501(c)(3), eligi-ble to receive deductible contributions.

Former Public Charities.The followingorganizations (which have been treated asorganizations that are not private founda-tions described in section 509(a) of theCode) are now classified as private foun-dations:Community Housing Corporation of

Arkansas Inc., Little Rock, ARCommunity Learning Information

Network of Arizona Inc., Phoenix, AZ

Community Learning Services Inc., East Point, GA

Community Legal Service Corporation,Ponchatoula, LA

Community Partnership of Santa ClaraCounty, San Jose, CA

Community Peace, Las Vegas, NVCommunity Services Institute of Virginia,

Richmond, VACommunity Shares of Idaho Inc., Boise,

IDCommunity Works Inc., Atlanta, GACompass Players Inc., Valrico, FLCompassion Community Living Home

Inc., New Orleans, LAComprehensive AIDS Resource and

Educational Services Inc., DelrayBeach, FL

Compulsive Gambling Therapy CenterInc., Worcester, MA

Computer and Multimedia EducationCorporation, Williamsburg, VA

Computer Education ManagementAssociation, American Fork, UT

Concerned About You Committee Inc.,Denver, CO

Concerned African American MenWomen, Chicago, IL

Concerned Black Men of New York CityIncorporated, New York, NY

Concerned Christians for America,Catharpin, VA

Concerned Citizens for Public Education,Gastonia, NC

Concord Village Resident ManagementCorporation, Indianapolis, IN

Concordia Neighborhood Association,Portland, OR

Congregations United for CommunityAction Inc., St. Petersburg, FL

Connecticut Sober Sports League Inc.,Waterbury, CT

Conservatory of Performing Arts Inc.,Boynton Beach, FL

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1999–6 I.R.B 21 February 8, 1999

Consumer Council a Non-Profit SocialService Corporation, Scottsdale, AZ

Consumer Credit Counseling Service ofMid Missouri, Colombia, MO

Consumer Financial EducationFoundation, Buffalo Grove, IL

Contemporary Home Health Services aNew Jersey Nonprofit Corporation,Woodbury, NJ

Conway P C User Group Inc., Conway,AR

Coon Rapids Lions Foundation, CoonRapids, MN

Cooperative Planning Coalition,Kalispell, MT

Coordinating Committee in Support ofthe All Amhara Peoples, Boston, MA

Cops Cons and Kids Inc., Newark, NJCops for Christ Mohoning Valley Ohio,

Youngstown, OHCorey Lewis Foundation Inc., Boca

Raton, FLCornerstone Childrens Home Inc.,

Nederland, TXCornerstone Development Center Inc.,

Birmingham, ALCornerstone Prison Ministries Inc.,

Garland, TXCornerstone Steppington Inc., Columbia,

MDCornerstone Windridge Inc., Columbia,

MDCorporation for Public Education in

American Popular Music, Bethesda,MD

Corpus Christi Wheelchair Tennis Club,Corpus Christi, TX

Cotter-Lane Active Parent Support GroupInc., Louisville, KY

Cottondale Dixie Youth BaseballIncorporated, Cottondale, AL

Counsel for Property Rights FoundationInc., Washington, DC

Council for Rural Health ClinicResources and Education, Cuero, TX

Council of Baptist Pastors CommunityDevelopment Corporation, Detroit, MI

Council of United Jewish OrthodoxOrganization of Rockland County NY,Monsey, NY

Court Appointed Special Advocates ofHill County Inc., Hillsboro, TX

Courthouse Restoration 3-28-93 Inc.,Hillsboro, TX

Courtland Historical Foundation,Courtland, AL

CPAA Concerned Parents for Academics-Athletics, Waddell, AZ

Crater AIDS Action Program, Petersburg,VA

Created Families Inc., Denver, COCreative Educational Concepts, Denver,

COCreative Maintenance Emergency Shelter

& Affordable Housing, Long Beach,CA

Creative Outreach Inc., Conroe, TXCreative Youth Incorporated, Atlanta, GACreek County Civil Emergency

Management Volunteers, Sapulpa, OKCreekside Community Development

Corporation, Detroit, MICrestwood Education Foundation,

Mantua, OHCreswell Athletic Association Inc.,

Creswell, NCCrime Control Education Foundation,

Palm Springs, CACrises Press Inc., Gainesville, FLCrisis Pregnancy Center Inc., Springfield,

MACross Management Properties,

Columbus, OHCrosscreek Apartments Inc., Whitfield,

MSCrosslinks Ministries, Strongsville, OHCrossroads Pregnancy Resource Center

of Gunnison Valley a Nonpro,Gunnison, CO

Crosswalk Ministries Inc., Ocala, FLCubbs Citizens United for a Better Balch

Springs, Balch Springs, TXCulinary Arts Plus, Plano, TXCultural Alliance Through Art Inc.,

Montvale, NJCultural Diversity Educational

Association, Detroit, MICultural Initiatives Inc., Eagan, MNCulture Awareness Inc., Philadelphia, PACulture Kids Project Inc., Adelphi, MDCulture Without Borders Inc., New York,

NYCumberland Plateau Services Inc.,

Sewanee, TNCuney Homes Management Corporation,

Houston, TXCy-Fair Preservation Society

Incorporated, Houston, TXCzech American Summer Music Institute

Inc., Tallahassee, FLM & M Community Development Inc.,

Columbus, OHM C Escher Museum Foundation, Santa

Cruz, CAM C H Inc., Naperville, ILM O S A I C, Roseville, MI

M Power Inc., Minneapolis, MNMaaleh Adumim Foundation Inc., New

York, NYMacArthur Blue Guard Alumni

Association, San Antonio, TXMacon County Education Support

System Inc., Tuskegee, ALMadison Community Free Clinic Inc.,

Marshall, NCMadison Avenue Development

Corporation, Baltimore, MDM & M Ministries, Presque Isle, MEMadison Lions Foundation Inc.,

Madison, CTMagdalena School Parent Group,

Magdalena, NMMagellan Theatre, Chicago, ILMagellan University, Tucson, AZMagnolia Heritage Charities Inc., Green

Cove Springs, FLMahogany House for Young Women Inc.,

Phoenix, AZMain Street Business Resource &

Development Inc., Hartford, CTMain Street Gym Inc., Salisbury, MDMain Street Kids Inc., Canton, KSMaine Studies Foundation Inc., Standish,

MEMainstreet Seymour Indiana Inc.,

Seymour, INMakah Resident Initiatives Program,

Neah Bay, WAMake a Dent Foundation Inc., Chicago,

ILMake It Home, Houston, TXMaking a Better Tomorrow Inc., Wichita,

KSMaking a Difference Ministries, Temple,

TXMaking Good Foundation Inc., Marietta,

GAMaking Life Easier Inc., Tigard, ORMalemte Football Booster Club,

Fairbanks, AKMaloney-Wilding Foundation for

Children & Teens, Escondido, CAManagement Research Foundation Inc.,

Boca Raton, FLManahata Pan American Indian Arts

Council Inc., New York, NYManatee Catholic School Foundation,

Bradenton, FLManchester High School Alumni

Association, Manchester, CTManchester Summerstage Incorporated,

Manchester, MAManitowoc County Ice Center Inc.,

Manitowoc, WI

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February 8, 1999 22 1999–6 I.R.B.

Manjiro Society for InternationalExchange Inc., McLean, VA

Many Are Called-Few Are ChosenMinistries Inc MAC-FACMINISTRIES, Houston, TX

Maple Valley Child Care Center,Vermontville, MI

Marguerite Rawalt Legal Defense Fund,Washington, DC

Maricopa Foundation for AffordableHousing, Phoenix, AZ

Mark Evans Production Group Inc.,Winooski, VT

Mark Fuqua Ministries Inc., Fort Worth,TX

Marketplace Ministry, Grand Rapids, MIMarmet Soccer Association Inc.,

Charleston, WVMarrero Community Development

Corporation, Marrero, LAMars Hill Ministries Inc., Miami Beach,

FLMartin de Porres Foundation, Aurora, ILMartin Luther King Drive Resident

Organization, Chicago, ILMartin Luther Memorial Homes

Foundation, Holt, MIMartin Youth Foundation, Joliet, ILMartinsville-Henry County Music

Association Inc., Martinsville, VAMary I Minor Scholarship Fund,

Washington, DCMaryiann Sitton Ministries Inc.,

Hamilton, MTMarys Love Kingdom Inc., Philadelphia,

PAMason County Little League Football

Inc., Maysville, KYMassachusetts Guongdong Committee

Inc., Boston, MAMassachusetts Save James Bay

Foundation Inc., Boston, MAMasters Review Inc., New York, NYMasters Touch, Vacaville, CAMattoon Youth Sports League Inc.,

Mattoon, ILMaude Ellen Coats Armstrong MECA

Foundation, Norfolk, VAMayors Youth Center Inc., Granite City,

ILMaysville Better Community Action Org

Inc., Maysville, NCMB Educational Programs Inc.,

Chippewa Falls, WI

McBride Volunteer Fire DepartmentLadies Auxiliary, Kingston, OK

McConnells Mill PreservationAssociation, Portersville, PA

McCook Legion Baseball Boosters Inc.,McCook, NE

McCoy Center for the Arts Inc.,Birmingham, AL

McDonalds Avail, Poway, CAMcDowell County Animal Aid Inc.,

Marion, NCMcHenry County Gang Drug Task Force,

Woodstock, ILMcMillan Ministries, Homerville, GANcNair Group Home Inc., Modesto, CAMcRae Berry Youth Camp Inc.,

Hampton, ARMeacham Park Resident Council,

St. Louis, MOMedassist International, Buffalo, NYMedia Partnership for Jobs, Detroit, MIMedica International Inc., McKinney, TXMedical Airlift Volunteers Inc., Clayton,

MOMedjugorje Appeal Inc., Cranston, RIMelissa Segars Foundation, Fayetteville,

GAMelody Music Education Listening and

Outreach for District Youth,Washington, DC

Men Against Creating Hostilities andAppression Macho, Denver, CO

Men of Action Inc., Washington, DCMens Council of Austin, Austin, TXMens Grief Support Group, Salt Lake

City, UTMental Health Association in Putnam

County II Inc., Brewster, NYMental Health Association of Clayton

County, Morrow, GAMercy & Truth Prison Ministry Inc.,

Carbon Hill, ALMercy International America Inc., New

York, NYMeridzo Center, Franklin, OHMerriday Center for Inclusion in the

Classroom Inc., Orlando, FLMerry Thought Foundation Inc.,

Annapolis, MDMessengers of Mary Inc., Lexington, KYMetro Atlanta Stroke Council, Atlanta,

GAMetro Magazine on WNYE-TV Inc.,

Long Island City, NY

Metropolitan Contributions for Life Inc.,Houston, TX

Mexican American CommunityDevelopment Organization, Dallas, TX

Mexican Cultural Center of NorthernCalifornia, Rancho Cordova, CA

Meyir America Inc., Wall, NJMiami Valley Housing Association I Inc.,

Dayton, OHMiami Valley Tree Source Inc.,

Miamisburg, OHMicheaux Foundation, Washington, DCMichigan Hemingway Society, Petoskey,

MIMid-America Cancer Rehabilitation

Organization Inc., Evansville, INMid-Atlantic Youth Sports and

Educational Expo Inc., East Orange,NJ

Mid-Coast Compeer Inc., Rockland, MEMid-County Teachers Credit Union

Scholarship Foundation Inc., PortNeches, TX

Mid-Houston Valley Chapter of the SpinaBifida Assoc. of America Inc.,Newburgh, NY

Mid-Ohio Resource Center Inc., GroveCity, OH

Mid-South Mens Council Inc., Memphis,TN

Middle Path Foundation Inc., New York,NY

Middle Tennessee Grand ChampionshipInc., Nashville, TN

Midnight Basketball of Northeast Ohio,Canton, OH

Midway Club of Kansas, Great Bend, KSIf an organization listed above submits

information that warrants the renewal ofits classification as a public charity or as aprivate operating foundation, the InternalRevenue Service will issue a ruling or de-termination letter with the revised classi-fication as to foundation status. Grantorsand contributors may thereafter rely uponsuch ruling or determination letter as pro-vided in section 1.509(a)–7 of the IncomeTax Regulations. It is not the practice ofthe Service to announce such revised clas-sification of foundation status in the Inter-nal Revenue Bulletin.

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1999–6 I.R.B 23 February 8, 1999

Revenue rulings and revenue procedures(hereinafter referred to as “rulings”)that have an effect on previous rulingsuse the following defined terms to de-scribe the effect:

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 Contribution Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—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. Proc..—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statements of Procedral 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

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February 8, 1999 24 1999–6 I.R.B.

1 A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., published inInternal Revenue Bulletins 1998–1 through 1998–52will be found in Internal Revenue Bulletin 1999–1,dated January 4, 1999.

Numerical Finding List1

Bulletins 1999–1 through 1999–5

Announcements:

99–1, 1999–2 I.R.B. 4199–2, 1999–2 I.R.B. 4499–3, 1999–3 I.R.B. 1599–4, 1999–3 I.R.B. 1599–5, 1999–3 I.R.B. 1699–6, 1999–4 I.R.B.2499–7, 1999–2 I.R.B. 4599–8, 1999–4 I.R.B.2499–9, 1999–4 I.R.B. 2499–10, 1999–5 I.R.B. 6399–11, 1999–5 I.R.B. 6499–12, 1999–5 I.R.B. 65

Notices:

99–1, 1999–2 I.R.B. 899–2, 1999–2 I.R.B. 899–3, 1999–2 I.R.B. 1099–4, 1999–3 I.R.B. 999–5, 1999–3 I.R.B. 1099–6, 1999–3 I.R.B. 1299–7, 1999–4 I.R.B.2399–8, 1999–5 I.R.B. 2699–9, 1999–4 I.R.B. 23

Revenue Procedures:

99–1, 1999–1 I.R.B. 699–2, 1999–1 I.R.B. 7399–3, 1999–1 I.R.B. 10399–4, 1999–1 I.R.B. 11599–5, 1999–1 I.R.B. 15899–6, 1999–1 I.R.B. 18799–7, 1999–1 I.R.B. 22699–8, 1999–1 I.R.B. 22999–9, 1999–2 I.R.B. 1799–10, 1999–2 I.R.B. 1199–11, 1999–2 I.R.B. 1499–12, 1999–3 I.R.B. 1399–13, 1999–5 I.R.B. 5299–14, 1999–5 I.R.B. 56

Revenue Rulings:

99–1, 1999–2 I.R.B. 499–2, 1999–2 I.R.B. 599–3, 1999–3 I.R.B. 499–4, 1999–4 I.R.B.1999–7, 1999–5 I.R.B. 4

Treasury Decisions:

8789, 1999–3 I.R.B. 58791, 1999–5 I.R.B. 78796, 1999–4 I.R.B. 168797, 1999–5 I.R.B. 58800, 1999–4 I.R.B. 208801, 1999–4 I.R.B. 58802, 1999–4 I.R.B. 108805, 1999–5 I.R.B. 14

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1999–6 I.R.B 25 February 8, 1999

Finding List of Current Action onPreviously Published Items1

Bulletins 1999–1 through 1999–5

Revenue Procedures:

78–10Obsoleted by99–12, 1999–3 I.R.B. 13

94–56Superseded by99–9, 1999–2 I.R.B. 17










98–22Modified and amplified by99–13, 1999–5 I.R.B. 52


98–63Modified by announcement99–7, 1999–2 I.R.B. 45

1 A cumulative finding list for previously publisheditems mentioned in Internal Revenue Bulletins1998–1 through 1998–52 will be found in InternalRevenue Bulletin 1999–1, dated January 4, 1999.

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February 8, 1999 26 1999–6 I.R.B.

NOTES

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INTERNAL REVENUE BULLETINThe Introduction on page 3 describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold

on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superintendent ofDocuments when their subscriptions must be renewed.

CUMULATIVE BULLETINSThe contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are

sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the week-ly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of printand are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from theSuperintendent of Documents.

HOW TO ORDERCheck the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,

detach entire page, and mail to the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. Pleaseallow two to six weeks, plus mailing time, for delivery.

WE WELCOME COMMENTS ABOUT THEINTERNAL REVENUE BULLETIN

If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, wewould be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page(www.irs.ustreas.gov) or write to the IRS Bulletin Unit, OP:FS:FP:P:1, Room 5617, 1111 Constitution Avenue NW, Washington, DC 20224.

IRB 1999-6 2/3/99 1:40 PM