Bulletin No. 2003-46November 17, 2003

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.

INCOME TAX

Rev. Rul. 2003–110, page 1083.Stocks and securities; distribution. This ruling concludes that,in determining whether a distribution of controlled corporationstock satisfies the business purpose requirement of regulationssection 1.355–2(b), the fact that the distribution avoids gainrecognition under section 311(b) of the Code does not presenta potential for avoidance of federal income tax.

Rev. Rul. 2003–115, page 1052.Gross income; compensation for injuries or sickness; disasterrelief payments. Taxpayers are informed of the tax treatmentunder sections 61, 104, 130, and 139 of the Code of periodicpayments to claimants of the September 11th Victim Compen-sation Fund.

Rev. Rul. 2003–116, page 1083.Helicopters. This ruling concludes that a helicopter is not anairplane for purposes of section 147(e) of the Code which pro-vides that a private activity bond is not a qualified bond if issuedas part of an issue and any portion of the proceeds of such is-sue is to be used to provide any airplane, skybox, or otherprivate luxury box, health club facility, facility primarily used forgambling, or store the principal business of which is the saleof alcoholic beverages for consumption off premises.

Rev. Rul. 2003–117, page 1051.Low-income housing credit; satisfactory bond; “bond factor”amounts for the period October through December 2003.This ruling announces the monthly bond factor amounts to beused by taxpayers who dispose of qualified low-income build-ings or interests therein during the period October through De-cember 2003. This ruling also provides a summary of the bond

factor amounts for dispositions occurring during the period Jan-uary through September 2003.

T.D. 9092, page 1055.Final regulations under section 61 of the Code provide compre-hensive guidance on the federal tax treatment of split-dollar lifeinsurance arrangements. The regulations provide two mutu-ally exclusive regimes to tax split-dollar life insurance arrange-ments for federal income, employment, and gift tax purposes.Under the economic benefit regime, the owner of the life insur-ance contract is treated as providing current life insurance pro-tection and other taxable economic benefits to the non-ownerof the contract. Under the loan regime, the non-owner of the lifeinsurance contract is treated as loaning premium payments tothe owner of the contract. If the loan from the non-owner doesnot provide for sufficient interest, the loan is a below-marketloan, and is subject to imputations under section 7872 as mod-ified by these final regulations.

Announcement 2003–70, page 1090.The Internal Revenue Service announces that it will resume rul-ing on the issue of significant chemical change for syntheticfuels for purposes of section 29 of the Code.

EXEMPT ORGANIZATIONS

Announcement 2003–69, page 1086.A list is provided of organizations now classified as private foun-dations.

(Continued on the next page)

Announcements of Disbarments and Suspensions begin on page 1090.Finding Lists begin on page ii.

EMPLOYMENT TAX

T.D. 9092, page 1055.Final regulations under section 61 of the Code provide compre-hensive guidance on the federal tax treatment of split-dollar lifeinsurance arrangements. The regulations provide two mutu-ally exclusive regimes to tax split-dollar life insurance arrange-ments for federal income, employment, and gift tax purposes.Under the economic benefit regime, the owner of the life insur-ance contract is treated as providing current life insurance pro-tection and other taxable economic benefits to the non-ownerof the contract. Under the loan regime, the non-owner of the lifeinsurance contract is treated as loaning premium payments tothe owner of the contract. If the loan from the non-owner doesnot provide for sufficient interest, the loan is a below-marketloan, and is subject to imputations under section 7872 as mod-ified by these final regulations.

November 17, 2003 2003-46 I.R.B.

The IRS MissionProvide AmericaÊs taxpayers top quality service by helpingthem understand and meet their tax responsibilities and byapplying the tax law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly and may be obtained from theSuperintendent of Documents on a subscription basis. Bul-letin contents are consolidated semiannually into CumulativeBulletins, which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayers are published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe 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 Other Related Items, and Subpart B, Leg-islation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the TreasuryÊs Office of the Assistant Sec-retary (Enforcement).

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

The last Bulletin for each month includes a cumulative indexfor the matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.*

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.

* Beginning with Internal Revenue Bulletin 2003–43, we are publishing the index at the end of the month, rather than at the beginning.

2003-46 I.R.B. November 17, 2003

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986Section 42.—Low-IncomeHousing Credit

Low-income housing credit; satisfac-tory bond; “bond factor” amounts forthe period October through December2003. This ruling announces the monthlybond factor amounts to be used by taxpay-ers who dispose of qualified low-incomebuildings or interests therein during theperiod October through December 2003.This ruling also provides a summary of thebond factor amounts for dispositions oc-curring during the period January throughSeptember 2003.

Rev. Rul. 2003–117

In Rev. Rul. 90–60, 1990–2 C.B. 3,the Internal Revenue Service provided

guidance to taxpayers concerning the gen-eral methodology used by the TreasuryDepartment in computing the bond factoramounts used in calculating the amountof bond considered satisfactory by theSecretary under § 42(j)(6) of the InternalRevenue Code. It further announced thatthe Secretary would publish in the InternalRevenue Bulletin a table of bond factoramounts for dispositions occurring duringeach calendar month.

Rev. Proc. 99–11, 1999–1 C.B. 275,established a collateral program as an al-ternative to providing a surety bond fortaxpayers to avoid or defer recapture ofthe low-income housing tax credits under§ 42(j)(6). Under this program, taxpayersmay establish a Treasury Direct Accountand pledge certain United States Treasury

securities to the Internal Revenue Serviceas security.

This revenue ruling provides in Table1 the bond factor amounts for calculat-ing the amount of bond considered satis-factory under § 42(j)(6) or the amount ofUnited States Treasury securities to pledgein a Treasury Direct Account under Rev.Proc. 99–11 for dispositions of qualifiedlow-income buildings or interests thereinduring the period October through Decem-ber 2003. Table 1 also provides a sum-mary of the bond factor amounts for dispo-sitions occurring during the period Januarythrough September 2003.

Table 1Rev. Rul. 2003–117

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

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

the Succeeding Calendar Year

Month ofDisposition 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Jan ’03 16.23 30.04 41.83 51.93 60.50 60.24 60.12 60.11 60.18 60.39 60.62

Feb ’03 16.23 30.04 41.83 51.93 60.50 60.09 59.97 59.96 60.03 60.24 60.47

Mar ’03 16.23 30.04 41.83 51.93 60.50 59.94 59.82 59.82 59.89 60.10 60.33

Apr ’03 16.23 30.04 41.83 51.93 60.50 59.79 59.68 59.68 59.75 59.96 60.20

May ’03 16.23 30.04 41.83 51.93 60.50 59.65 59.54 59.54 59.61 59.83 60.07

Jun ’03 16.23 30.04 41.83 51.93 60.50 59.51 59.40 59.40 59.48 59.70 59.95

Jul ’03 16.23 30.04 41.83 51.93 60.50 59.37 59.27 59.27 59.35 59.58 59.83

Aug ’03 16.23 30.04 41.83 51.93 60.50 59.24 59.14 59.14 59.23 59.45 59.72

Sep ’03 16.23 30.04 41.83 51.93 60.50 59.11 59.01 59.02 59.10 59.34 59.60

Oct ’03 15.43 28.55 39.76 49.36 57.50 55.51 54.87 54.34 53.89 53.57 53.29

Nov ’03 15.43 28.55 39.76 49.36 57.50 55.39 54.76 54.23 53.78 53.47 53.20

Dec ’03 15.43 28.55 39.76 49.36 57.50 55.28 54.64 54.12 53.68 53.38 53.12

2003-46 I.R.B. 1051 November 17, 2003

Table 1 (cont’d)Rev. Rul. 2003–117

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

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

the Succeeding Calendar Year

Month ofDisposition 2000 2001 2002 2003

Jan ’03 60.89 61.55 62.49 62.68

Feb ’03 60.75 61.41 62.33 62.68

Mar ’03 60.62 61.27 62.19 62.68

Apr ’03 60.49 61.15 62.06 62.68

May ’03 60.37 61.04 61.96 62.68

Jun ’03 60.26 60.93 61.86 62.68

Jul ’03 60.15 60.83 61.77 62.68

Aug ’03 60.05 60.74 61.70 62.68

Sep ’03 59.95 60.65 61.63 62.68

Oct ’03 53.09 53.21 53.58 54.15

Nov ’03 53.01 53.15 53.54 54.15

Dec ’03 52.94 53.09 53.50 54.15

For a list of bond factor amounts ap-plicable to dispositions occurring duringother calendar years, see: Rev. Rul. 98–3,1998–1 C.B. 248; Rev. Rul. 2001–2,2001–1 C.B. 255; Rev. Rul. 2001–53,2001–2 C.B. 488; and Rev. Rul. 2002–72,2002–2 C.B. 759.

DRAFTING INFORMATION

The principal author of this revenueruling is Gregory N. Doran of the Officeof Associate Chief Counsel (Passthroughsand Special Industries). For further in-formation regarding this revenue ruling,contact Mr. Doran at (202) 622–3040 (nota toll-free call).

Section 61.—Gross IncomeDefined26 CFR 1.61–1: Gross income.(Also § 104, 130, 139, 451; 1.451–2.)

Gross income; compensation for in-juries or sickness; disaster relief pay-ments. Taxpayers are informed of the taxtreatment under sections 61, 104, 130, and139 of the Code of periodic payments to

claimants of the September 11th VictimCompensation Fund.

Rev. Rul. 2003–115

ISSUES

(1) Are periodic payments made toa claimant of the September 11th Vic-tim Compensation Fund of 2001 (Fund)pursuant to an Award DeterminationAgreement among the claimant, the Spe-cial Master, and an assignment company(Agreement) excluded from the gross in-come of the claimant under §§ 139(f) and104(a)(2) of the Internal Revenue Code?

(2) Is the amount transferred by theUnited States to an assignment companypursuant to an Agreement and in exchangefor the assignment company’s assumingthe United States’ obligation to make peri-odic payments to a claimant excluded fromthe gross income of the assignment com-pany under § 130(a)?

FACTS

On September 11, 2001, terrorist-re-lated airline crashes occurred in New York,

Virginia, and Pennsylvania. Following theattacks, the United States Government,under Title IV of the Air TransportationSafety and System Stabilization Act (Act),Pub. L. No. 107–42, 115 Stat. 230 (2001),created the Fund. The Act authorizes anaward of compensation to any individualphysically injured and to the personalrepresentative of any individual killed asa result of the September 11th terrorist-re-lated airline crashes.

To receive an award, a claimant mustfile a claim with the Fund no later thanDecember 22, 2003. The Special Mas-ter, appointed under section 404 of theAct to administer the Fund, reviews theclaim and notifies the claimant of any ad-ditional information needed to process theclaim. Once the Special Master receivessufficient information to make an initialevaluation of the claim, the Special Mas-ter determines the claim to be substantiallycomplete and notifies the claimant by let-ter. When a claim is determined to be sub-stantially complete, the claimant is deemedto have waived any right to file a civil ac-tion or be a party to an action in any fed-eral or state court for damages sustained

November 17, 2003 1052 2003-46 I.R.B.

as a result of the September 11, 2001,airline crashes, except to recover collat-eral-source obligations or to recover froma person who is a knowing participant in aconspiracy to hijack an aircraft.

The Special Master, within 120 days ofhis determination that the claimant’s appli-cation is substantially complete, must de-termine (1) whether the claimant is enti-tled to an award and (2) the amount of theaward. Once the Special Master makes anaward determination, the claimant is noti-fied in writing. The claimant then has 21days to either accept the award determi-nation or appeal it by requesting a hear-ing before the Special Master. Alterna-tively, a claimant, following the submis-sion of a claim, may proceed directly to ahearing process for purposes of determin-ing the award amount.

The amount of an award is affected bya number of factors including whether theclaimant received an insurance or workers’compensation award as a result of either in-juries incurred by, or the death of, the vic-tim from the attack; the income of the vic-tim; the nature, severity and duration of thevictim’s injuries resulting from the attack;the size of the victim’s household, includ-ing the number of surviving dependents;and the victim’s age. The particular needsof a claimant also may be taken into ac-count in determining the award amount.

The Special Master allows a claimantto make an election to receive an award inthe form of periodic payments instead ofa lump sum payment. The claimant, how-ever, must elect periodic payments beforethe Special Master issues the letter noti-fying the claimant that his or her claim issubstantially complete. If a claimant whoapplies for advance benefits as providedby the Fund desires periodic payments,the claimant must elect periodic paymentswhen he or she files the form applying foradvance benefits. An election may not berevoked by the claimant.

When electing to receive periodic pay-ments, the claimant may choose to receivethe entire award in periodic payments, oronly a portion of the award in periodic pay-ments with the remainder to be receivedas a single payment. Further, at the timethe claimant elects periodic payments,the claimant must choose the period oftime over which the payments are to bemade and the frequency of payments dur-ing that period. For example, a claimant

may choose to receive his or her award inmonthly payments over twenty years orin monthly payments over the claimant’slifetime. Finally, all periodic paymentsmust be of an equal amount unless theclaimant specifies otherwise at the time heor she elects to receive periodic payments.

If a claimant chooses to receive all or aportion of the award in periodic payments,and if the Special Master determines thatthe claimant is entitled to an award, thenthe terms of the award are set forth in anAgreement. Each Agreement sets forth theamount to be paid and the frequency andduration of the payments. In addition, anAgreement may state that, if the claimantdies before the entire interest is distributed,the remaining payments are payable to theclaimant’s estate or to a secondary benefi-ciary duly designated by the claimant dur-ing the claimant’s lifetime. Each Agree-ment provides that no payee or beneficiaryshall have the right or power to transfer,mortgage, encumber or anticipate the pe-riodic payments, by assignment or other-wise.

Each Agreement also includes an as-signment by the Special Master of theUnited States’ periodic payment obli-gation to, and an assumption of thatobligation by, an assignment company inexchange for a payment from the UnitedStates to the assignment company. EachAgreement provides that the assignmentcompany’s periodic payment obligation isequal to the periodic payment obligation ofthe United States prior to the assignment,and that the periodic payments cannot beaccelerated, deferred, increased, or de-creased by the claimant or any beneficiaryor payee. Each Agreement allows the as-signment company to fund its obligation tomake periodic payments through the pur-chase of an annuity contract that complieswith the requirements set forth in § 130(d)for a qualified funding asset. Under anAgreement, the assignment company isthe owner of the annuity, which is subjectto claims of the general creditors of theassignment company.

LAW AND ANALYSIS

Issue 1

The first issue concerns whether pe-riodic payments made to a claimant ofthe Fund pursuant to an Agreement are

excluded from the gross income of theclaimant under § 139(f) and § 104(a)(2).

Section 61 provides that, except as oth-erwise provided by the Code, gross incomeincludes all income from whatever sourcederived.

Section 139(f) provides that gross in-come does not include “any amount re-ceived as payment under section 406 of theAir Transportation Safety and System Sta-bilization Act.” The § 139(f) exclusion ap-plies to amounts paid to claimants in theform of a lump sum or periodic payments.

Section 104(a)(2) provides that grossincome does not include the amount of anydamages (other than punitive damages) re-ceived (whether by suit or agreement andwhether as a lump sum or as periodic pay-ments) on account of personal physical in-juries or physical sickness.

Neither § 139(f) nor § 104(a)(2) ex-cludes from gross income amounts that areearned from the investment by the claimantof a lump sum amount received as eitherpayment under section 406 of the Act ordamages on account of personal physicalinjuries or physical sickness, respectively.If such a lump sum payment is invested forthe benefit of a claimant who has actual orconstructive receipt, or the economic ben-efit, of the lump sum payment, only thelump sum payment is excluded from grossincome, and none of the income from theinvestment of the lump sum payment is ex-cludable from the claimant’s gross income.Rev. Rul. 65–29, 1965–1 C.B. 59.

Section 1.451–2 of the Income TaxRegulations provides rules relating toconstructive receipt. Under § 1.451–2(a),an amount is constructively received inthe taxable year in which such amount iscredited to a taxpayer’s account, set apartfor the taxpayer, or otherwise made avail-able so that the taxpayer may draw upon itat any time if notice of intention is given.Income is not constructively received ifthe taxpayer’s control of receipt of theamount is subject to substantial limitationsor restrictions. Section 1.451–2(a).

The economic benefit doctrine, devel-oped in case law, provides that if a promiseto pay an amount is funded and secured bythe payor, and the payee is not required todo anything other than wait for the pay-ments, an economic benefit is consideredto have been conferred on the payee andthe amount of such benefit is considered to

2003-46 I.R.B. 1053 November 17, 2003

have been received. In Sproull v. Commis-sioner, 16 T.C. 244 (1951), aff’d., 194 F.2d541 (6th Cir. 1952), the court found thatan economic benefit had been conferred ona taxpayer when the taxpayer’s employerestablished a trust to compensate the tax-payer for past services. In 1945, the em-ployer transferred money to the trust to bepaid to the taxpayer in 1946 and 1947. Thetaxpayer was the trust’s sole beneficiary.The court held that the taxpayer receivedcompensation in 1945 in an amount equalto the value of the amount transferred tothe trust for the taxpayer’s benefit becausesuch transfer to the trust provided the tax-payer with an economic benefit.

Not all rights to receive periodic pay-ments, however, trigger application of theeconomic benefit doctrine. Rev. Rul.79–220, 1979–2 C.B. 74, concludes that aright to receive certain periodic paymentsunder the facts of the ruling does not con-fer an economic benefit on the recipient.In Rev. Rul. 79–220, a taxpayer enteredinto a settlement with an insurance com-pany for the periodic payment of nontax-able damages for an agreed period. Thetaxpayer was given no immediate right toa lump sum amount and no control of theinvestment of the amount set aside to fundthe insurance company’s obligation. Theinsurance company funded its obligationwith an annuity payable directly to the tax-payer. The insurance company, as ownerof the annuity, had all rights to the annuityand the annuity was subject to the claims ofthe general creditors of the insurance com-pany. The ruling concludes that all of theperiodic payments are excluded from thetaxpayer’s gross income under § 104(a)(2)because the taxpayer did not receive, orhave the economic benefit of, the lumpsum amount used to fund the annuity. Fur-ther, the ruling holds that if the taxpayerdies before the end of the agreed period,the payments made to the taxpayer’s estateunder the settlement agreement are also ex-cludable from the gross income of the es-tate under § 104(a)(2).

With respect to a claimant of the Fund,the award claim procedure requires theclaimant to make an irrevocable electionrelating to periodic payments while theclaimant’s control of receipt of paymentsis subject to substantial limitations orrestrictions. Consequently, the claimantis not in constructive receipt of a lump

sum amount. Further, no economic ben-efit of a lump sum has been conferredon the claimant by the Agreement. Theassignment company making the periodicpayments to the claimant may fund itsobligation with an annuity to which theassignment company has all rights andthat it continues to own. The periodic pay-ments under the Agreement are, therefore,amounts “received as payment under sec-tion 406 of the Air Transportation Safetyand System Stabilization Act” and thus ex-cluded from the claimant’s gross incomeunder § 139(f). Moreover, the paymentsare excluded from the claimant’s grossincome under § 104(a)(2) as damagesreceived on account of personal physicalinjuries or physical sickness. Finally,any payments to a successor beneficiarypursuant to the Agreement are excludablefrom the gross income of the successorbeneficiary under §§ 104(a)(2) and 139(f).

Issue 2

The second issue concerns whether theamount transferred by the United Statesto an assignment company in exchangefor the assignment company assuming theUnited States’ obligation to make periodicpayments to a claimant is excluded fromthe assignment company’s gross incomeunder § 130(a). Section 130 providestax-favored treatment to certain structuredsettlement arrangements. Under § 130(a),any amount received for agreeing to aqualified assignment is excluded fromthe gross income of the assignee to theextent such amount does not exceed theaggregate cost of any qualified fundingassets. Section 130(c) defines a qualifiedassignment as any assignment of a liabilityto make periodic payments as damages(whether by suit or agreement) on accountof personal injury or sickness (in a caseinvolving physical injury or physical sick-ness), provided the liability is assumedfrom a person who is a party to the suitor agreement, and the terms of the assign-ment satisfy the following requirements—

(1) the periodic payments must be fixedand determinable as to amount andtime of payment;

(2) the periodic payments cannot beaccelerated, deferred, increased, ordecreased by the recipient of suchpayments;

(3) the assignee’s obligation onaccount of the personal injuries orsickness must be no greater thanthe obligation of the person whoassigned the liability; and

(4) the periodic payments must beexcludable from the gross incomeof the recipient under § 104(a)(1)or (2).

Under § 130(d), a qualified fundingasset means any annuity contract issuedby an insurance company licensed in theUnited States, or any obligation of theUnited States, meeting the requirementsset forth in § 130(d)(1) through (4).

Each Agreement meets the require-ments set forth in § 130(c)(1) through (4).Moreover, the Special Master is consid-ered a person who is a party to a suit oragreement because the Fund was createdto compensate the victims of the terroristattack. Accordingly, any payment by theUnited States to the assignment companyfor agreeing to a qualified assignment isexcluded from the assignment company’sgross income under § 130 to the extentsuch amount does not exceed the aggre-gate cost of any qualified funding assetspurchased by the assignment company tofund the payment obligation assumed byit.

HOLDINGS

Under the facts of this revenue ruling:(1) Periodic payments made to a

claimant of the Fund pursuant to anAgreement are excluded from the grossincome of the claimant under §§ 139(f)and 104(a)(2). Similarly, any paymentsto an estate or secondary beneficiary pur-suant to an Agreement are excluded fromthe gross income of the successor benefi-ciary under §§ 104(a)(2) and 139(f).

(2) The amount transferred by theUnited States to an assignment companypursuant to an Agreement and in exchangefor the assignment company’s assumingthe United States’ obligation to make pe-riodic payments to a claimant is excludedfrom the gross income of the assignmentcompany under § 130(a) to the extent theamount transferred does not exceed theaggregate cost of any qualified funding as-set purchased by the assignment companyto fund the periodic payment obligation.

November 17, 2003 1054 2003-46 I.R.B.

GRACE PERIODS FOR CERTAINCLAIMANTS

Any claimant of the Fund who has beennotified by the Special Master that his orher claim is substantially complete (or whohas applied to receive advance benefits)but who has not made an election relat-ing to periodic payments (including spec-ifying the period of time over which thepayments are to be made, the frequency ofsuch payments, and, if the claimant so de-sires, a periodic-payment stream other thanequal payments) may make such electionand rely on this revenue ruling providedthe claimant makes his or her election be-fore the earlier of (1) December 17, 2003,or (2) the date the Special Master issues theclaimant’s award determination letter.

In addition, a claimant may rely on thisrevenue ruling if: (1) before issuance ofthe claimant’s award determination letter,the claimant informed the Special Mas-ter of the claimant’s wish to receive peri-odic payments but provided no informa-tion regarding the period or frequency ofsuch payments (and, if desired, a peri-odic-payment stream other than equal pay-ments); (2) before October 28, 2003, theSpecial Master confirmed in writing thatthe claimant so informed the Special Mas-ter; and (3) the claimant provides the ad-ditional information required to perfect hisor her election by December 2, 2003.

DRAFTING INFORMATION

The author of the revenue ruling isShareen S. Pflanz of the Office of As-sociate Chief Counsel (Income Tax andAccounting). For further informationregarding this revenue ruling, please callShareen Pflanz or Stephen Toomey at(202) 622–4920 (not a toll-free call).

26 CFR 1.61–22: Taxation of split-dollar life insur-ance arrangements.

T.D. 9092

DEPARTMENT OFTHE TREASURYInternal Revenue Service26 CFR Parts 1, 31, and 602

Split-Dollar Life InsuranceArrangements

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains finalregulations relating to the income, employ-ment, and gift taxation of split-dollar lifeinsurance arrangements. The final regula-tions provide needed guidance to personswho enter into split-dollar life insurancearrangements.

DATES: Effective Date: These regulationsare effective September 17, 2003.

Applicability Dates: For dates of ap-plicability of the final regulations, see§§1.61–22(j), 1.83–3(e), 1.83–6(a)(5)(ii),1.301–1(q)(4), and 1.7872–15(n).

FOR FURTHER INFORMATIONCONTACT: Concerning the section 61regulations, please contact Elizabeth Kayeat (202) 622–4920; concerning the sec-tion 83 regulations, please contact ErinnMadden at (202) 622–6030; concerningthe section 301 regulations, please contactKrishna Vallabhaneni at (202) 622–7550;concerning the section 7872 regulations,please contact Rebecca Asta at (202)622–3930; and concerning the applicationof these regulations to the Federal gifttax, please contact Lane Damazo at (202)622–3090.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information con-tained in these final regulations has beenreviewed and approved by the Officeof Management and Budget in accor-dance with the Paperwork Reduction Act(44 U.S.C. 3507) under control number

1545–1792. The collections of informa-tion are in §1.7872–15(d)(2) and (j)(3)(ii).Responses to these collections of infor-mation are required by the IRS to verifyconsistent treatment by the borrower andlender of split-dollar loans with nonre-course or contingent payments. In addi-tion, in the case of a split-dollar loan thatprovides for nonrecourse payments, thecollections of information are voluntaryand are required to obtain a benefit (that is,the treatment of a nonrecourse split-dollarloan as a noncontingent split-dollar loan).

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

The estimated annual burden per re-spondent varies from 15 minutes to 30minutes, depending on individual circum-stances, with an estimated average of 17minutes.

Comments concerning the accuracyof this burden estimate and sugges-tions for reducing this burden shouldbe sent to the Internal Revenue Service,Attn: IRS Reports Clearance Officer,W:CAR:MP:T:T:SP, Washington, DC20224, and to the Office of Manage-ment and Budget, Attn: Desk Officer forthe Department of the Treasury, Officeof Information and Regulatory Affairs,Washington, DC 20503.

Books or records relating to this col-lection of information must be retained aslong as their contents may become mate-rial in the administration of any internalrevenue law. Generally, tax returns and taxreturn information are confidential, as re-quired by 26 U.S.C. 6103.

BACKGROUND ANDEXPLANATION OF PROVISIONS

1. Summary of the Prior Notices ofProposed Rulemaking

On July 9, 2002, a notice of proposedrulemaking (REG–164754–01, 2002–2C.B. 212 [67 FR 45414]) was published inthe Federal Register proposing compre-hensive rules for the income, gift, employ-ment, and self-employment taxation ofequity and non-equity split-dollar life in-surance arrangements (the 2002 proposedregulations). In general, a split-dollar life

2003-46 I.R.B. 1055 November 17, 2003

insurance arrangement is an arrangementbetween two or more parties to allocatethe policy benefits and, in some cases, thecosts of a life insurance contract. Underan equity split-dollar life insurance ar-rangement, one party to the arrangementtypically receives an interest in the policycash value (or equity) of the life insurancecontract disproportionate to that party’sshare of policy premiums. That party alsotypically receives the benefit of current lifeinsurance protection under the arrange-ment. Under a non-equity split-dollar lifeinsurance arrangement, one party typicallyprovides the other party with current lifeinsurance protection but not any interestin the policy cash value.

The 2002 proposed regulations pro-vide two mutually exclusive regimesfor taxation of split-dollar life insurancearrangements—a loan regime and an eco-nomic benefit regime. Under the loanregime (which is set forth in §1.7872–15of the 2002 proposed regulations), thenon-owner of the life insurance con-tract is treated as loaning the amountof its premium payments to the ownerof the contract. The loan regime gen-erally governs the taxation of collateralassignment arrangements. Under the eco-nomic benefit regime (which is set forthin §1.61–22(d) through (g) of the 2002proposed regulations), the owner of thelife insurance contract is treated as provid-ing economic benefits to the non-ownerof the contract. The economic benefitregime generally governs the taxation ofendorsement arrangements. The 2002 pro-posed regulations reserved on the rules forvaluing economic benefits provided to thenon-owner under an equity split-dollar lifeinsurance arrangement governed by theeconomic benefit regime, pending receiptof comments from interested parties.

On May 9, 2003, a notice of proposedrulemaking (REG–164754–01, 2003–22I.R.B. 975 [68 FR 24898]) was publishedin the Federal Register proposing rulesfor the valuation of economic benefitsunder an equity split-dollar life insurancearrangement governed by the economicbenefit regime (the 2003 proposed regu-lations). The 2003 proposed regulationsprovide that, in the case of an equitysplit-dollar life insurance arrangement, thevalue of the economic benefits provided tothe non-owner under the arrangement for

a taxable year equals the cost of any cur-rent life insurance protection provided tothe non-owner, the amount of policy cashvalue to which the non-owner has currentaccess (to the extent that such amountwas not actually taken into account for aprior taxable year), and the value of anyother economic benefits provided to thenon-owner (to the extent not actually takeninto account for a prior taxable year).

A public hearing on the 2002 proposedregulations was held on October 23, 2002,and a public hearing on the 2003 proposedregulations was held on July 29, 2003. Inaddition, interested parties submitted com-ments on the 2002 proposed regulationsand on the 2003 proposed regulations.

2. Overview of the Final Regulations

These final regulations provide guid-ance on the taxation of split-dollar lifeinsurance arrangements and apply forpurposes of Federal income, employment,self-employment, and gift taxes. Afterconsideration of all comments, the 2002and 2003 proposed regulations are adoptedas amended by this Treasury decision. Ingeneral, the amendments are discussedbelow.

Definition of split-dollar life insurancearrangement

The final regulations generally define asplit-dollar life insurance arrangement asany arrangement between an owner of alife insurance contract and a non-owner ofthe contract under which either party to thearrangement pays all or part of the premi-ums, and one of the parties paying the pre-miums is entitled to recover (either condi-tionally or unconditionally) all or any por-tion of those premiums and such recoveryis to be made from, or is secured by, theproceeds of the contract. The definitiondoes not cover the purchase of an insur-ance contract in which the only parties tothe arrangement are the policy owner andthe life insurance company acting only inits capacity as issuer of the contract.

The final regulations also retain the spe-cial rules from the 2002 proposed regu-lations that treat certain arrangements en-tered into either in connection with the per-formance of services or between a corpo-ration and another person in that person’s

capacity as a shareholder in the corpora-tion as split-dollar life insurance arrange-ments regardless of whether the arrange-ments otherwise satisfy the general defi-nition of a split-dollar life insurance ar-rangement. Neither the general rule northe special rules cover so-called “key man”life insurance arrangements under which acompany purchases a life insurance con-tract to insure the life of a “key” employeeor shareholder but retains all the rightsand benefits of the contract (including therights to all death benefits and cash value).

The IRS and Treasury are concernedthat certain arrangements may be inappro-priately structured to avoid the applicationof these regulations (for example, by us-ing separate life insurance contracts thatare, in substance, one life insurance con-tract). The Commissioner will use exist-ing authority to challenge any such trans-action.

Mutually exclusive regimes

The final regulations retain the ap-proach of using two mutually exclusiveregimes — an economic benefit regimeand a loan regime — for determining thetax treatment of split-dollar life insur-ance arrangements. As under the 2002proposed regulations, ownership of thelife insurance contract determines whichregime applies. Several commentatorson both the 2002 and the 2003 proposedregulations argued that the use of the twomutually exclusive regimes is an artificialand rigid approach that fails to accountadequately for the economic reality of asplit-dollar life insurance arrangement.However, the IRS and Treasury believethat the final regulations, like the 2002and 2003 proposed regulations, properlyaccount for the division of the costs andbenefits of a split-dollar life insurancearrangement.

Several commentators asked that tax-payers be permitted to elect which regimewould apply to their split-dollar life insur-ance arrangements. However, in the viewof the IRS and the Treasury, taxpayers ef-fectively have the ability to elect whichregime will apply by designating one partyor the other as the owner of the life insur-ance contract.

One commentator asserted that there isno authority under section 7872 to treatpayments made pursuant to split-dollar life

November 17, 2003 1056 2003-46 I.R.B.

insurance arrangements as loans. There-fore, this commentator recommends thattaxation of split-dollar life insurance ar-rangements under section 7872 should oc-cur only if affirmatively elected by the par-ties to the arrangement. The IRS and Trea-sury believe there is sufficient authorityto require the application of section 7872to split-dollar life insurance arrangements.There is no legislative history indicatingthat Congress did not intend section 7872to apply to payments made pursuant tothese arrangements.

A number of commentators expressedconcern about the possible application ofsection 402 of the Sarbanes-Oxley Actof 2002 (Sarbanes-Oxley), Public Law107–204, to all or certain split-dollar lifeinsurance arrangements entered into bycompanies subject to Sarbanes-Oxley.These regulations do not address this is-sue, as interpretation and administrationof Sarbanes-Oxley fall within the juris-diction of the Securities and ExchangeCommission.

The final regulations adopt the generalrule in the 2002 proposed regulations fordetermining which regime applies to asplit-dollar life insurance arrangement.The 2002 proposed regulations provideda special rule that the economic benefitregime applied to a split-dollar life insur-ance arrangement if the arrangement isentered into in connection with the per-formance of services, and the employeeor service provider is not the owner of thelife insurance contract; or the arrangementis entered into between a donor and adonee (for example, a life insurance trust)and the donee is not the owner of the lifeinsurance contract. The final regulationsadopt this special rule, but provide that thisrule applies when the employer, servicerecipient or donor is the owner.

The final regulations add a rule re-garding the treatment of a transfer of alife insurance contract under a split-dol-lar life insurance arrangement from anowner to a non-owner when paymentsunder the arrangement had been treated,prior to transfer, as split-dollar loans under§1.7872–15. Under this rule, the economicbenefit regime applies to the split-dollarlife insurance arrangement from the dateof the transfer and the payments made(both before and after the transfer) arenot treated as split-dollar loans on or afterthe date of the transfer. The transferor of

the life insurance contract must fully takeinto account all economic benefits pro-vided under the split-dollar life insurancearrangement.

Owners and non-owners

The final regulations generally retainthe rules in the 2002 proposed regulationsfor determining the owner and the non-owner of the life insurance contract. Thus,the owner generally is the person namedas the policy owner. If two or more per-sons are designated as the policy owners,the first-named person generally is treatedas the owner of the entire contract.

Several commentators argued that de-termining tax ownership based on whomthe parties name as the policy owner of thelife insurance contract represents a depar-ture from general tax principles. Commen-tators suggested that a split-dollar life in-surance arrangement is like any co-owner-ship situation in which two or more partiesagree to share in the costs and benefits ofa policy such that each party will be enti-tled to exercise certain rights with respectto the underlying policy and will have cer-tain responsibilities.

The IRS and Treasury disagree withthat argument. Split-dollar life insurancearrangements are structured in myriadways, some formally as loans to theemployee (for example, collateral-assign-ment arrangements), some formally asco-ownership arrangements between theemployer and the employee, and someas arrangements in which the employeris, in form, the sole owner (for example,endorsement arrangements). In addition,split-dollar life insurance arrangementsordinarily involve division of the benefitsand costs of the life insurance contract,but the division of benefits ordinarily doesnot correspond to the division of costs.Because the division of the burdens andbenefits of the life insurance contract varywidely in split-dollar life insurance ar-rangements, and because title ownershipgenerally is a factor in determining taxownership, it is reasonable to determinetax ownership based on who is the namedowner of the policy. In addition, this ruleprovides a clear objective standard so thatboth taxpayers and the IRS can readilydetermine which regime applies under thefinal regulations.

If two or more persons are named aspolicy owners of a life insurance contractand each person has, at all times, all the in-cidents of ownership with respect to an un-divided interest in the contract, those per-sons are treated as owners of separate con-tracts for purposes of these regulations (al-though not for purposes of section 7702and other rules for the taxation of life in-surance contracts). An undivided interestin a life insurance contract consists of anidentical fractional or percentage interestor share in each right, benefit, and obliga-tion with respect to the contract. For exam-ple, if an employer and an employee owna life insurance contract and share equallyin all rights, benefits and obligations underthe contract, they are treated as owning twoseparate contracts; ordinarily neither con-tract would be treated as part of a split-dol-lar life insurance arrangement. However,if the employer and the employee agreeto enter into a split-dollar life insurancearrangement with respect to what other-wise would have been treated as the em-ployer’s (or the employee’s) separate con-tract, the purported undivided interests willbe disregarded, and the entire arrangementwill be treated as a split-dollar life insur-ance arrangement. The Commissioner willconsider all of the facts and circumstancesof an arrangement to determine whetherthe parties have appropriately character-ized the arrangement as one involving un-divided interests and, therefore, not subjectto these regulations.

The final regulations provide attributionrules for compensatory split-dollar life in-surance arrangements. Under these rules,the employer or service recipient will betreated as the owner of the life insurancecontract if the contract is owned by a mem-ber of the employer’s controlled group (de-termined under the rules of sections 414(b)and 414(c)), a trust described in section402(b) (sometimes referred to as a “seculartrust”), a grantor trust treated as owned bythe employer (including a rabbi trust), ora welfare benefit fund (within the meaningof section 419(e)(1)).

The final regulations retain the specialrule for non-equity split-dollar life insur-ance arrangements. Under this specialrule, non-equity arrangements entered intoin a compensatory context or a gift contextwill be subject to the economic benefitregime. The final regulations providerules for determining the tax treatment

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of the arrangement if the parties subse-quently modify the arrangement so thatit is no longer a non-equity arrangement.If, immediately after the modification, theemployer, service recipient, or donor isthe owner of the life insurance contract(determined without regard to the specialrule for non-equity arrangements), theemployer, service recipient, or donor con-tinues to be treated as the owner of the lifeinsurance contract (such that the normalrules of the economic benefit regime forequity split-dollar life insurance arrange-ments will apply). If, immediately afterthe modification, the employer, servicerecipient, or donor is not the owner, theemployer, service recipient, or donor istreated as having made a transfer of thecontract to the employee, service provider,or donee as of the date of the modification.For purposes of these rules, the replace-ment of a non-equity arrangement witha successor equity arrangement will betreated as a modification of the non-equityarrangement.

3. Taxation Under the Economic BenefitRegime

a. In general

The final regulations retain the basicrules for taxation under the economicbenefit regime that had been set forth inthe 2002 and 2003 proposed regulations.Thus, the final regulations provide that, forthese arrangements, the owner of the lifeinsurance contract is treated as providingeconomic benefits to the non-owner of thecontract, and those economic benefits mustbe accounted for fully and consistently byboth the owner and the non-owner. Thevalue of the economic benefits, reduced byany consideration paid by the non-ownerto the owner, is treated as provided fromthe owner to the non-owner.

The tax consequences of the provisionof economic benefits will depend on therelationship between the owner and thenon-owner. Thus, the provision of the ben-efit may constitute a payment of compen-sation, a distribution under section 301, acapital contribution, a gift, or a transferhaving a different tax character. The ben-efit must be taken into account based onits character. For example, in a split-dol-lar life insurance arrangement in which an

employer provides an employee with eco-nomic benefits, the employee would takethose economic benefits into account byreporting them as compensation on the em-ployee’s Federal income tax return for theyear in which the benefits are providedand the employer would take the economicbenefits into account by reporting them onthe appropriate employment tax and infor-mation returns. In a split-dollar life insur-ance arrangement in which a donor pro-vides economic benefits to an irrevocablelife insurance trust, the donor would takethose economic benefits into account byreporting them on the Federal gift tax re-turn required to be filed by the donor; thetrust, however, generally would not be re-quired to take any action to take the bene-fits into account because those economicbenefits would be excludable from grossincome under section 102.

Non-Equity Split-Dollar Life InsuranceArrangements

Under the final regulations, the taxtreatment of a non-equity split-dollararrangement generally follows the taxtreatment of a non-equity split-dollararrangement under Rev. Rul. 64–328,1964–2 C.B. 11, and its progeny. Theproposed regulations required that theaverage death benefit for the taxable yearbe used to compute current life insuranceprotection. Commentators objected to theuse of an “average” death benefit. Theyexplained that the computation of theaverage death benefit imposed additionaladministrative burdens on life insurancecompanies as well as both owners andnon-owners. In addition, the commenta-tors stated that the proposed regulationswere not clear on how the average deathbenefit for the taxable year was to bedetermined. As an alternative, the com-mentators suggested that the death benefitas of the policy anniversary date would bean appropriate measure of the death ben-efit for purposes of determining currentlife insurance protection. In response tothese commentators, the final regulationsprovide that, subject to an anti-abuse rule,current life insurance protection is deter-mined on the last day of the non-owner’staxable year unless the parties agree to usethe policy anniversary date. Taxpayersmay change the valuation date with theconsent of the Commissioner.

Equity Split-Dollar Life InsuranceArrangements

The final regulations generally retainthe rules set out in the 2002 and 2003proposed regulations for the taxation ofequity split-dollar life insurance arrange-ments. Therefore, the value of the eco-nomic benefits provided by the owner tothe non-owner for a taxable year equals thecost of any current life insurance protec-tion provided to the non-owner, the amountof policy cash value to which the non-owner has current access (to the extent thatsuch amount was not actually taken intoaccount for a prior taxable year), and thevalue of any other economic benefits pro-vided to the non-owner (to the extent notactually taken into account for a prior tax-able year). The owner and the non-owneralso must account fully and consistentlyfor any right in, or benefit of, a life insur-ance contract provided to the non-ownerunder an equity split-dollar life insurancearrangement.

The final regulations provide that thenon-owner has current access to any por-tion of the policy cash value to which thenon-owner has a current or future right andthat currently is directly or indirectly ac-cessible by the non-owner, inaccessible tothe owner, or inaccessible to the owner’sgeneral creditors. As indicated in the pre-amble of the 2003 proposed regulations,the IRS and Treasury intend that the con-cept of ‘‘access’’ be construed broadly toinclude any direct or indirect right underthe arrangement allowing the non-owner toobtain, use, or realize potential economicvalue from the policy cash value. Thus, forexample, a non-owner has access to policycash value if the non-owner can directly orindirectly make a withdrawal from the pol-icy, borrow from the policy, or effect a to-tal or partial surrender of the policy. Simi-larly, for example, the non-owner has ac-cess if the non-owner can anticipate, as-sign (either at law or in equity), alienate,pledge, or encumber the policy cash valueor if the policy cash value is available tothe non-owner’s creditors by attachment,garnishment, levy, execution, or other le-gal or equitable process. Policy cash valueis inaccessible to the owner if the ownerdoes not have the full rights to policy cashvalue normally held by an owner of a lifeinsurance contract. Policy cash value is

November 17, 2003 1058 2003-46 I.R.B.

inaccessible to the owner’s general cred-itors if, under the terms of the split-dol-lar life insurance arrangement or by oper-ation of law or any contractual undertak-ing, the creditors cannot, for any reason,effectively reach the policy cash value inthe event of the owner’s insolvency.

Commentators on the 2003 proposedregulations generally objected to the rulerequiring the non-owner under an equityarrangement to include in income theportion of the policy cash value to whichthe non-owner has current access. Severalcommentators argued that section 72(e)specifically provides for tax-free insidebuild-up under a life insurance contract,precluding any taxation of policy cashvalue to the non-owner prior to a “realiza-tion event” (such as rollout of the policy).That argument ignores the plain languageof section 72(e)(1), which states that therules of section 72(e) apply only if noother provision of subtitle A of the Inter-nal Revenue Code (Code) applies. In thecase of an equity arrangement subject tothe economic benefit regime, the relation-ship between the owner and the non-ownerand the terms of the arrangement betweenthem ordinarily make other provisionsof subtitle A applicable, such as section61(a)(1).

The tax-deferred inside build-up pro-vided by section 72(e) properly appliesonly to the taxpayer that owns the life in-surance contract. If the owner of the con-tract provides any of the rights or bene-fits under the contract to another taxpayer,that provision of rights and benefits is sub-ject to tax under the rules that otherwisefollow from the relationship between theparties. For example, this result applieswhenever an employer that owns a life in-surance contract compensates an employeeby giving the employee rights to the policycash value. In that case, the employer (asthe owner of the contract) enjoys tax-de-ferred inside build-up under section 72(e),but the employee has gross income undersection 61(a)(1) equal to the value of theeconomic benefit attributable to the em-ployee’s rights to the policy cash value.Thus, the regulations are consistent withsection 72(e).

Other commentators generally ac-knowledged that the 2003 proposedregulations properly tax the non-ownerwhenever the non-owner has “current ac-cess” to the policy cash value in an equity

arrangement but argued that the tax shouldbe imposed under section 83 rather thanunder section 61. In effect, these commen-tators argued that the employee’s currentaccess to policy cash value should giverise to transfers of property with respectto portions of the life insurance contract.The commentators argued that the pri-mary difference between this suggestedapproach and the approach set out in the2003 proposed regulations would be thetreatment of inside build-up on amountsalready taxed to the non-owner. Specifi-cally, the commentators argued that, underthe proposed section 83 approach, insidebuild-up on amounts already taxed tothe non-owner would be tax-free to thenon-owner under section 72(e); under theapproach of the 2003 proposed regula-tions, the subsequent inside build-up istax-deferred to the owner but not to thenon-owner.

The IRS and Treasury believe that theapproach set out in the 2003 proposed reg-ulations remains appropriate and so havenot followed the suggestion to adopt a sec-tion 83 approach. Section 83 applies onlyin connection with a transfer of property,but a non-owner may have currently in-cludible income by reason of another rule— such as the doctrines of constructive re-ceipt, cash equivalence, or economic ben-efit. It would be inappropriate to limit cur-rent taxation to circumstances that consti-tute transfers of property under section 83,and it would be inappropriate in this con-text to apply section 83 to circumstancesthat give rise to income under other Codeprovisions or judicial doctrines.

Several commentators raised questionsabout the effect of state law limitations onaccess to policy cash value by the owner’screditors. These commentators read Ex-ample 2 in the 2003 proposed regulationsas stating that any such state law restric-tion would in and of itself cause the non-owner to have current access to the pol-icy cash value. Thus, these commenta-tors argued, the 2003 regulations poten-tially imposed current tax on the policycash value of any non-equity arrangementwhere state law limited the rights of theowner’s creditors to reach the policy cashvalue. However, Example 2 indicated thatthe owner there had the right to receivethe lesser of the policy cash value or to-tal premiums; in other words, Example 2

indicated that the arrangement was an eq-uity arrangement. The final regulationsclarify that the non-owner has current ac-cess to policy cash value only if, underthe arrangement, the non-owner has a cur-rent or future right to policy cash value;the non-owner will not have any such rightin a true non-equity arrangement. If thenon-owner does have such a right, any re-striction on the owner’s creditors to reachpolicy cash value, whether established bycontract or by local law, results in an eco-nomic benefit to the non-owner.

Several commentators objected to therule in the 2003 proposed regulations thatthe non-owner has current access to anyportion of the policy cash value that cannotbe accessed by the owner. These com-mentators argued that as long as policycash value can be accessed by the owner’screditors in the event of insolvency, theowner should not be viewed as providingany economic benefit to the non-owner.That objection, however, overlooks theeconomic reality of an equity split-dollarlife insurance arrangement. If the ownercommits funds to a life insurance contractand undertakes that it will not withdrawthose funds from the insurance contract,the amounts so committed do not remaina general asset of the owner. The ownerof the life insurance contract in such anarrangement has parted with the owner-ship and use of the funds for the benefit ofthe non-owner. This contrasts with an ir-revocable rabbi trust, where the employereffectively remains the tax owner of theassets held by the trustee and the rabbitrust assets may still be (and very oftenare) invested in the employer’s business.

In response to the suggestions ofcommentators, the final regulations pro-vide that the policy cash value, like theamount of current life insurance protec-tion, is determined as of the last day ofthe non-owner’s taxable year unless theparties agree to use the policy anniver-sary date. The final regulations retainthe anti-abuse rule preventing the partiesfrom manipulating the policy cash valuefor purposes of determining the value ofthe economic benefit that the non-ownermust take into account and extend that ruleto the value of the current life insuranceprotection.

Taxpayers should note that, in certaincases, a separate tax rule may require anon-owner to include an amount in gross

2003-46 I.R.B. 1059 November 17, 2003

income under an equity split-dollar lifeinsurance arrangement at a time earlierthan would be required under these regu-lations. For example, section 457(f) gen-erally requires an employee of a tax-ex-empt organization (other than a church or-ganization under section 3121(w)(3)) or ofa state or local government to include de-ferred compensation in gross income whenthe employee’s rights to the deferred com-pensation are not subject to a substantialrisk of forfeiture. An equity split-dol-lar life insurance arrangement governed bythe economic benefit regime constitutes adeferred compensation arrangement. Ac-cordingly, an employee of a tax-exempt or-ganization or of a state or local governmentmay have to include an amount in gross in-come attributable to an equity split-dollarlife insurance arrangement even if the em-ployee does not have current access to thepolicy cash value under these regulations.

Other Tax Consequences

These final regulations retain the rule ofthe 2002 proposed regulations that the non-owner has no investment in the contractunder section 72(e) prior to a transfer ofthe contract. The final regulations alsoretain the rule that any amount paid by thenon-owner to the owner for any economicbenefit is included in the owner’s grossincome.

Several commentators objected to therule providing no investment in the con-tract to the non-owner for amounts paidto the owner. They argued that section72(e)(6) provides for such investment inthe contract. Commentators also objectedto the rule requiring that the owner includein gross income any amount paid by thenon-owner. These commentators arguedthat the owner does not have an accessionto wealth as a result of the non-owner’spayments because such payments ordinar-ily are made to fulfill the non-owner’s obli-gation under the split-dollar life insurancearrangement to pay part of the premiumsof the life insurance contract.

The regulations generally treat only oneperson as the owner of the life insurancecontract. Because only the owner of alife insurance contract can have an invest-ment in that contract, a non-owner em-ployee cannot have basis in the contractfor any of the costs of current life insur-ance protection. In addition, such costs

should not be included in the non-owner’sbasis or investment in the contract if andwhen the non-owner becomes the owner ofthe contract because those payments weremade for annual life insurance protection,which protection was exhausted prior tothe non-owner’s acquisition of the con-tract. Similarly, the fact that the split-dol-lar life insurance arrangement may requirethe non-owner to reimburse the owner forthe cost of the death benefit protection pro-vided to the non-owner does not mean thatsuch payment is not income to the owner.In these cases, the owner is “renting” outpart of the benefit of the life insurance con-tract to the non-owner for consideration;such consideration constitutes income tothe owner.

b. Taxation of amounts received under thelife insurance contract

The final regulations retain the rule inthe 2002 proposed regulations that anyamount received under the life insurancecontract (other than an amount receivedby reason of death) and provided, directlyor indirectly, to the non-owner is treatedas though paid by the insurance companyto the owner and then by the owner to thenon-owner. As under the 2002 proposedregulations, this rule applies to certain pol-icy loans (referred to in the regulations as“specified policy loans”). Although sev-eral commentators objected to this treat-ment of policy loans, the IRS and Treasurybelieve that the rule is necessary to ensurethat parties to a split-dollar life insurancearrangement do not avoid current taxationof the non-owner with respect to amountsprovided to the non-owner through thecontract.

The final regulations retain the rulethat section 101(a) applies to excludedeath benefit proceeds paid to a bene-ficiary (other than the owner of the lifeinsurance policy) from the gross incomeof the beneficiary only to the extent suchamount is allocable to current life insur-ance protection provided to the non-ownerunder the split-dollar life insurance ar-rangement, the cost of which was paid bythe non-owner, or the value of which thenon-owner actually took into account as aneconomic benefit provided by the ownerto the non-owner. Commentators objectedto this rule, arguing that the section 101(a)exclusion extends to the entire amount of

death benefit proceeds paid on the deathof the insured. They asserted that there isno authority to limit the exclusion to deathproceeds allocable to current life insur-ance protection provided to the non-ownerpursuant to the split-dollar life insurancearrangement, the cost of which was paidby the non-owner, or the value of whichthe non-owner actually took into account.

The IRS and Treasury disagree withthat argument. Under the regulations, theowner is treated as providing economicbenefits to the non-owner. Although thesection 101(a) exclusion extends to the en-tire amount of death benefit proceeds, theIRS and Treasury believe that only theamount of the death benefit proceeds at-tributable to the current life insurance pro-tection for which the non-owner paid orwhich the non-owner took into account un-der these regulations is excludable fromthe income of the non-owner’s estate ordesignated beneficiary.

To the extent the non-owner has nei-ther paid for nor taken into account thecurrent life insurance protection, the pro-ceeds paid to the estate or designated bene-ficiary of the non-owner is a separate trans-fer of cash that is not shielded from tax bythe section 101(a) exclusion. Specifically,those proceeds are deemed payable to theowner, and are excluded from the owner’sincome by reason of the section 101(a) ex-clusion, and then paid by the owner to thenon-owner’s beneficiary (whether or notpaid to the beneficiary directly by the in-surance company) in a transfer to be takeninto account under these regulations.

The character of death benefit proceedstransferred or deemed transferred by theowner to the non-owner is determinedby the relationship between the ownerand the non-owner. Thus, death benefitproceeds received by the beneficiary ofa shareholder who is a non-owner thatwere paid or payable to a corporation willbe treated as a taxable distribution to theshareholder. The same principle applieswhere death benefit proceeds under a lifeinsurance contract subject to a split-dollarlife insurance arrangement are payable toa beneficiary of a service provider who isa non-owner, except that the death benefitproceeds would constitute a compensationpayment to the service provider for pastservices rather than a corporate distri-bution. This treatment is similar to thesituation in Rev. Rul. 61–134, 1961–2

November 17, 2003 1060 2003-46 I.R.B.

C.B. 250, which also denied exclusionunder section 101(a) to death benefits paidunder a corporate-owned life insurancepolicy. In Rev. Rul. 61–134, variousshareholders were the beneficiaries of acorporate-owned life insurance policy byreason of their capacity as shareholders.The ruling concluded that the death bene-fit proceeds received by the shareholdersdirectly from the insurer constituted ataxable distribution of property from thecorporation to the shareholders, eventhough the proceeds would have beenexcludable from the corporation’s incomeif they had been paid directly to the cor-poration.

c. Transfer of life insurance contract tothe non-owner

The final regulations follow the 2002proposed regulations in determining thetax treatment of a transfer of the life in-surance contract from the owner to thenon-owner. Consistent with the generalrule for determining ownership, the finalregulations provide that a transfer of a lifeinsurance contract (or an undivided inter-est therein) underlying a split-dollar lifeinsurance arrangement occurs on the datethat the non-owner becomes the owner ofthe entire contract (or the undivided inter-est therein). Unless and until ownership ofthe contract is formally changed, the ownerwill continue to be treated as the owner forall Federal income, employment, and gifttax purposes. The fair market value of anundivided interest must be the proportion-ate share of the fair market value of theentire contract without regard to any dis-counts or other arrangements between theparties.

After a transfer of an entire life insur-ance contract, the transferee generally be-comes the owner for Federal income, em-ployment, and gift tax purposes, includ-ing for purposes of these final regulations.Thus, if the transferor pays premiums afterthe transfer, the payment of those premi-ums may be includible in the transferee’sgross income if the payments are not split-dollar loans under §1.7872–15. Alterna-tively, the arrangement will be subject tothe loan regime if the payments constitutesplit-dollar loans under §1.7872–15.

4. Taxation Under the Loan Regime

a. In general

The final regulations generally adoptthe rules of the 2002 proposed regulationsfor the loan regime. Under §1.7872–15,a payment made pursuant to a split-dol-lar life insurance arrangement is a split-dollar loan and the owner and non-ownerare treated, respectively, as borrower andlender if (i) the payment is made eitherdirectly or indirectly by the non-owner tothe owner; (ii) the payment is a loan undergeneral principles of Federal tax law or, ifnot a loan under general principles of Fed-eral tax law, a reasonable person would ex-pect the payment to be repaid in full to thenon-owner (whether with or without inter-est); and (iii) the repayment is to be madefrom, or is secured by, either the policy’sdeath benefit proceeds or its cash surren-der value, or both.

Commentators questioned whether theadditional standard (“if not a loan undergeneral principles of Federal tax law, areasonable person would expect the pay-ment to be repaid in full to the non-owner(whether with or without interest)”) isnecessary. The IRS and Treasury recog-nize that, in the earlier years during whicha split-dollar life insurance arrangementis in effect, policy surrender and loadcharges may significantly reduce the pol-icy’s cash surrender value, resulting inunder-collateralization of a non-owner’sright to be repaid its premium payments.Nevertheless, so long as a reasonable per-son would expect the payment to be repaidin full, the payment is a split-dollar loanunder §1.7872–15, rather than a trans-fer under §1.61–22(b)(5) on the date thepayment is made. However, the rules in§1.7872–15(a)(2) do not cause a paymentto be treated as a loan for Federal tax pur-poses if, because of an agreement betweenthe owner and non-owner, the arrangementdoes not provide for repayment by theowner to the non-owner. For example, if anon-owner makes a payment purported tobe a split-dollar loan to an owner, and thenon-owner and owner enter into a separateagreement providing that the non-ownerwill make a transfer to the owner in anamount sufficient to repay the purportedsplit-dollar loan, §1.7872–15(a)(2) willnot cause the payment to be treated as aloan. See §1.61–22(b)(5) for the treatment

of payments by a non-owner that are notsplit-dollar loans. The final regulations in-clude a new rule under §1.7872–15(a)(4)that disregards certain stated interest ifsuch interest is to be paid directly or indi-rectly by the lender (or person related tothe lender).

Under §1.7872–15, each payment un-der a split-dollar life insurance arrange-ment is treated as a separate loan for Fed-eral tax purposes. Commentators havesuggested that treating each payment as aseparate loan will be difficult to administerand overly burdensome for certain taxpay-ers and have suggested allowing an elec-tion to treat all payments made during asingle year (or single calendar quarter) asone loan (made on a specified date duringthe year). However, the final regulationsadopt the approach in the 2002 proposedregulations that each premium payment istreated as a separate loan. Treating sepa-rate extensions of credit as separate loansis consistent with the 1985 proposed reg-ulations under section 7872 and the leg-islative history of section 7872, and mostaccurately accounts for the benefits pro-vided by the lender to the borrower whenthe loans are below-market.

If a payment on a split-dollar loan isnonrecourse to the borrower and the loandoes not otherwise provide for contingentpayments, §1.7872–15 treats the loanas a split-dollar loan that provides forcontingent payments unless the partiesto the split-dollar life insurance arrange-ment provide a written representation withrespect to the loan. In response to a com-mentator, the final regulations delete therequirement in the proposed regulationsthat a nonrecourse split-dollar loan pro-vide for interest payable at a stated rate.

If a split-dollar loan does not providefor sufficient interest, the loan is a be-low-market split-dollar loan subject to sec-tion 7872 and §1.7872–15. If the split-dollar loan provides for sufficient interest,then, except as provided in §1.7872–15,the loan is subject to the general rules fordebt instruments (including the rules forOID). In general, interest on a split-dol-lar loan is not deductible by the borrowerunder sections 264 and 163(h). Section1.7872–15 provides special rules for split-dollar loans that provide for certain vari-able rates of interest, contingent interestpayments, and lender or borrower options.Section 1.7872–15 also provides rules for

2003-46 I.R.B. 1061 November 17, 2003

below-market split-dollar loans with indi-rect participants.

If a split-dollar loan is a below-marketloan, then, in general, the loan is recharac-terized as a loan with interest at the appli-cable Federal rate (AFR), coupled with animputed transfer by the lender to the bor-rower. The timing, amount, and charac-terization of the imputed transfers betweenthe lender and borrower of the loan willdepend upon the relationship between thelender and the borrower (for example, theimputed transfer is generally characterizedas a compensation payment if the lender isthe borrower’s employer), and whether theloan is a demand loan or a term loan.

b. Special rules for certain term loans

Special rules are provided for split-dol-lar term loans payable upon the death ofan individual, certain split-dollar termloans that are conditioned on the futureperformance of substantial services by anindividual, and gift split-dollar term loans.Under §1.7872–15, these split-dollar loansare split-dollar term loans for purposes ofdetermining whether the loan provides forsufficient interest. However, if the loandoes not provide for sufficient interestwhen the loan is made, forgone interest isdetermined on the loan annually similar toa split-dollar demand loan. Commentatorsrequested clarification on whether the rateused for purposes of imputation under§1.7872–15(e)(5) for these split-dollarloans is the AFR for the month in whichthe loan is made (redetermined annually)or the AFR as of the month in which theloan is made (determined on the date theloan is made). The rate used to determinethe amount of forgone interest each yearis the AFR based on the term of the loan,determined on the date the split-dollar loanis made, and the rate is not redeterminedannually.

c. Split-dollar loans with stated interestthat is subsequently waived, cancelled orforgiven

If a split-dollar loan provides for statedinterest that is subsequently waived, can-celled or forgiven, appropriate adjustmentsare required to be made by the partiesto reflect the difference between the in-terest payable at the stated rate and theinterest actually paid by the borrower atthat time. Further, the final regulations

provide that, if stated interest is subse-quently waived, cancelled or forgiven, anamount is treated as retransferred from thelender to the borrower. The final regu-lations add a new rule under which thisamount generally is increased by a de-ferral charge. The final regulations pro-vide a new rule that a payment by thelender to the borrower that, in substance,is a waiver, cancellation or forgiveness istreated as a waiver, cancellation, or for-giveness under the final regulations. Thefinal regulations also provide a new rulethat, if a split-dollar loan is nonrecourseand the parties to the split-dollar life insur-ance arrangement had made the represen-tation under §1.7872–15(d)(2), althoughadjustments are required to be made by theparties if the interest paid on the split-dol-lar loan is less than the interest paymentsrequired under the split-dollar loan if allpayments were made, a deferral charge isnot imposed.

d. Payment ordering rules

Payments made by a borrower to alender pursuant to a split-dollar life in-surance arrangement are applied in thefollowing order: to accrued but unpaidinterest (including any OID) on all out-standing split-dollar loans in the order theinterest accrued; to principal on the out-standing split-dollar loans in the order inwhich the loans were made; to paymentsof amounts previously paid by the lenderpursuant to the split-dollar life insurancearrangement that were not reasonablyexpected to be repaid; and to any otherpayment with respect to a split-dollar lifeinsurance arrangement. One commentatorsuggested limiting the payments to whichthe payment ordering rule applies to thosethat are made to or for the benefit of thelender. The final regulations adopt thissuggestion in the payment ordering rule in§1.7872–15(k).

e. Employment taxes and self-employmenttax

An imputed transfer under §1.7872–15that is treated as an imputed transfer ofcompensation will have consequences forthe Federal Insurance Contributions Act(FICA) and the Federal UnemploymentTax Act (FUTA) if the adjustment repre-sents wages to the borrower. In responseto questions regarding the consequences

of an imputed transfer for employment andself-employment tax purposes, the regu-lations under sections 1402(a), 3121(a),3231(e), and 3306(b) were clarified to ref-erence §1.7872–15 as well as §1.61–22.

5. Gift Tax Treatment of Split-Dollar LifeInsurance Arrangements

The final regulations apply for gift taxpurposes, including private split-dollar lifeinsurance arrangements. Thus, if an ir-revocable life insurance trust is the ownerof the life insurance contract underlyingthe split-dollar life insurance arrangement,and a reasonable person would expect thatthe donor, or the donor’s estate, will re-cover an amount equal to the donor’s pre-mium payments, those premium paymentsare treated as loans made by the donor tothe trust and are subject to §1.7872–15. Insuch a case, payment of a premium by thedonor is treated as a split-dollar loan to thetrust in the amount of the premium pay-ment. If the loan is repayable upon thedeath of the donor, the term of the loan isthe donor’s life expectancy determined un-der the appropriate table under §1.72–9 asof the date of the payment and the valueof the gift is the amount of the premiumpayment less the present value (determinedunder section 7872 and §1.7872–15) of thedonor’s right to receive repayment. If,however, the donor makes premium pay-ments that are not split-dollar loans, thenthe premium payments are governed bygeneral gift tax principles. In such a case,with each premium payment, the donor istreated as making a gift to the trust equalto the amount of that payment.

Different rules apply, however, if thedonor is treated under §1.61–22(c) as theowner of the life insurance contract un-derlying the split-dollar life insurance ar-rangement. Under these circumstances,the donor is treated as making a gift to thetrust. The value of the gift is the value ofthe economic benefits provided to the trust,less the amount of any premium paid bythe trustee. For example, assume that un-der the terms of the split-dollar life insur-ance arrangement, on termination of the ar-rangement or the donor’s death, the donoror donor’s estate is entitled to receive anamount equal to the greater of the aggre-gate premiums paid by the donor or thecash surrender value of the contract. In thiscase, the donor makes a gift to the trust

November 17, 2003 1062 2003-46 I.R.B.

equal to the cost of the current life insur-ance protection provided to the trust lessany premium amount paid by the trustee.(Thus, a payment by the donor will notconstitute a gift if the trust pays the portionof the premium equal to the cost of the cur-rent life insurance protection and the donorpays the balance of the premium.) On theother hand, if the donor or the donor’s es-tate is entitled to receive an amount equalto the lesser of the aggregate premiumspaid by the donor, or the cash surrendervalue of the contract, the amount of theeconomic benefits provided to the trust bythe donor equals the cost of any current lifeinsurance protection provided to the trust,the amount of policy cash value to whichthe trust has current access (to the extentthat such amount was not actually takeninto account for a prior taxable year), andthe value of any other economic benefitsprovided to the trust (to the extent not ac-tually taken into account for a prior taxableyear). The value of the donor’s gift of eco-nomic benefits equals the value of thoseeconomic benefits provided to the trust forthe year minus the amount of premiumspaid by the trustee.

As discussed earlier, the final regula-tions treat the donor as the owner of alife insurance contract where the doneeis named as the policy owner if, underthe split-dollar life insurance arrangement,the only economic benefit provided to thedonee by the donor under the arrangementis the value of current life insurance protec-tion. Any amount paid by a donee, directlyor indirectly, to the donor for such currentlife insurance protection would generallybe included in the donor’s gross income.

Where the donor is the owner of thelife insurance contract that is part of thesplit-dollar life insurance arrangement,amounts received by the irrevocable in-surance trust (either directly or indirectly)under the contract (for example, as apolicy owner dividend or proceeds of aspecified policy loan) are treated as giftsby the donor to the irrevocable insurancetrust as provided in §1.61–22(e). Thedonor must also treat as a gift to the trustthe amount set forth in §1.61–22(g) uponthe transfer of the life insurance contract(or undivided interest therein) from thedonor to the trust.

The gift tax consequences of the trans-fer of an interest in a life insurance con-tract to a third party will continue to be de-termined under established gift tax princi-ples notwithstanding who is treated as theowner of the life insurance contract un-der the final regulations. See, for exam-ple, Rev. Rul. 81–198, 1981–2 C.B. 188.Similarly, for estate tax purposes, regard-less of who is treated as the owner of alife insurance contract under the final reg-ulations, the inclusion of the policy pro-ceeds in a decedent’s gross estate will con-tinue to be determined under section 2042.Thus, the policy proceeds will be includedin the decedent’s gross estate under section2042(1) if receivable by the decedent’s ex-ecutor, or under section 2042(2) if the pol-icy proceeds are receivable by a benefi-ciary other than the decedent’s estate andthe decedent possessed any incidents ofownership with respect to the policy. Onecommentator requested that these regula-tions address the extent to which a dece-dent’s interest in a co-owned policy is in-cluded in that decedent’s gross estate un-der section 2042, but the IRS and Treasurybelieve that issue is beyond the scope ofthese regulations and may be addressed infuture guidance.

6. Effective Date and Obsolescence ofPrior Guidance

These final regulations apply to anysplit-dollar life insurance arrangemententered into after September 17, 2003.Additionally, these final regulations applyto any split-dollar life insurance arrange-ment entered into on or before September17, 2003, if the arrangement is materi-ally modified after September 17, 2003.However, a split-dollar life insurance ar-rangement that is otherwise described inSection IV, Paragraph 4 of Notice 2002–8,2002–1 C.B. 398, will not be treated asmaterially modified for these purposes ifthe change in the split-dollar life insurancearrangement is made solely to complywith Section IV, Paragraph 4 of Notice2002–8.

These final regulations provide a non-exclusive list of changes that will not resultin a material modification for purposes ofthe effective date. For example, the finalregulations provide that a change solely inthe mode of premium payment or a change

solely in the interest rate payable on a pol-icy loan under the life insurance contractwill not be treated as a material modifica-tion.

The 2002 and 2003 proposed regula-tions provided rules under which taxpay-ers were permitted to rely on the 2002and 2003 proposed regulations for arrange-ments entered into on or before Septem-ber 17, 2003. This reliance also was in-tended to be available in circumstances un-der which taxpayers relied on the proposedregulations to determine that the arrange-ment would not be subject to the proposedregulations (for example, if the arrange-ment does not fall within the definition ofa split-dollar life insurance arrangement).

Concurrent with the publication ofthese final regulations in the Federal Reg-ister, the IRS and Treasury are issuingRev. Rul. 2003–105, 2003–40 I.R.B.696, to obsolete certain revenue rulingswith respect to split-dollar life insurancearrangements entered into or materiallymodified after September 17, 2003.

Special Analyses

It has been determined that this Treasurydecision is not a significant regulatory ac-tion as defined in Executive Order 12866.Therefore, a regulatory flexibility assess-ment is not required. It is hereby certi-fied that the collection of information re-quirements in these regulations will nothave a significant economic impact on asubstantial number of small entities. Thiscertification is based on the fact that theregulations merely require a taxpayer toprepare a written representation that con-tains minimal information (if the loan pro-vides for nonrecourse payments) or a pro-jected payment schedule (if the loan pro-vides for contingent payments). In addi-tion, the preparation of these documentsshould take no more than .28 hours per tax-payer. Therefore, a Regulatory FlexibilityAnalysis under the Regulatory FlexibilityAct (5 U.S.C. chapter 6) is not required.Pursuant to section 7805(f) of the Code,the notice of proposed rulemaking preced-ing this regulation was submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for comment onits impact on small business. The ChiefCounsel for Advocacy did not submit anycomments on the regulations.

2003-46 I.R.B. 1063 November 17, 2003

Drafting Information

The principal author of these final reg-ulations are Rebecca Asta of the Officeof Associate Chief Counsel (FinancialInstitutions and Products), Lane Damazoof the Office of Associate Chief Counsel(Passthroughs and Special Industries),Elizabeth Kaye of the Office of Asso-ciate Chief Counsel (Income Tax andAccounting), Erinn Madden of the Officeof Associate Chief Counsel (Tax-Exemptand Government Entities), and KrishnaVallabhaneni of the Office of AssociateChief Counsel (Corporate). However,other personnel from the IRS and Trea-sury Department participated in theirdevelopment.

* * * * *

Adoption of Amendments to theRegulations

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

PART 1—INCOME TAXES

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

Authority: 26 U.S.C. 7805 * * *Section 1.7872–15 also issued under 26

U.S.C. 1275 and 7872. * * *Par. 2. Section 1.61–2 is amended by:1. Redesignating paragraphs (d)(2)

(ii)(a) and (b) as paragraphs (d)(2)(ii)(A)and (B), respectively.

2. Adding two sentences immediatelyfollowing the second sentence in newlydesignated paragraph (d)(2)(ii)(A).

The additions read as follows:

§1.61–2 Compensation for services,including fees, commissions, and similaritems.

* * * * *(d) * * *(2) * * *(ii)(A) Cost of life insurance on the life

of the employee. * * * For example, ifan employee or independent contractor isthe owner (as defined in §1.61–22(c)(1))of a life insurance contract and the pay-ments with regard to such contract are notsplit-dollar loans under §1.7872–15(b)(1),the employee or independent contractormust include in income the amount ofany such payments by the employer or

service recipient with respect to such con-tract during any year to the extent that theemployee’s or independent contractor’srights to the life insurance contract aresubstantially vested (within the meaningof §1.83–3(b)). This result is the sameregardless of whether the employee or in-dependent contractor has at all times beenthe owner of the life insurance contract orthe contract previously has been owned bythe employer or service recipient as part ofa split-dollar life insurance arrangement(as defined in §1.61–22(b)(1) or (2)) andwas transferred by the employer or servicerecipient to the employee or independentcontractor under §1.61–22(g). * * *

* * * * *Par. 3. Section 1.61–22 is added to read

as follows:

§1.61–22 Taxation of split-dollar lifeinsurance arrangements.

(a) Scope—(1) In general. This sec-tion provides rules for the taxation of asplit-dollar life insurance arrangement forpurposes of the income tax, the gift tax,the Federal Insurance Contributions Act(FICA), the Federal Unemployment TaxAct (FUTA), the Railroad Retirement TaxAct (RRTA), and the Self-EmploymentContributions Act of 1954 (SECA). Forthe Collection of Income Tax at Sourceon Wages, this section also providesrules for the taxation of a split-dollar lifeinsurance arrangement, other than a pay-ment under a split-dollar life insurancearrangement that is a split-dollar loanunder §1.7872–15(b)(1). A split-dollarlife insurance arrangement (as defined inparagraph (b) of this section) is subjectto the rules of paragraphs (d) through (g)of this section, §1.7872–15, or generaltax rules. For rules to determine whichrules apply to a split-dollar life insurancearrangement, see paragraph (b)(3) of thissection.

(2) Overview. Paragraph (b) of this sec-tion defines a split-dollar life insurance ar-rangement and provides rules to determinewhether an arrangement is subject to therules of paragraphs (d) through (g) of thissection, §1.7872–15, or general tax rules.Paragraph (c) of this section defines cer-tain other terms. Paragraph (d) of this sec-tion sets forth rules for the taxation of eco-nomic benefits provided under a split-dol-lar life insurance arrangement. Paragraph

(e) of this section sets forth rules for thetaxation of amounts received under a lifeinsurance contract that is part of a split-dollar life insurance arrangement. Para-graph (f) of this section provides rules foradditional tax consequences of a split-dol-lar life insurance arrangement, includingthe treatment of death benefit proceeds.Paragraph (g) of this section provides rulesfor the transfer of a life insurance contract(or an undivided interest in the contract)that is part of a split-dollar life insurancearrangement. Paragraph (h) of this sectionprovides examples illustrating the applica-tion of this section. Paragraph (j) of thissection provides the effective date of thissection.

(b) Split-dollar life insurance arrange-ment—(1) In general. A split-dollar lifeinsurance arrangement is any arrangementbetween an owner and a non-owner of alife insurance contract that satisfies the fol-lowing criteria—

(i) Either party to the arrangement pays,directly or indirectly, all or any portion ofthe premiums on the life insurance con-tract, including a payment by means of aloan to the other party that is secured bythe life insurance contract;

(ii) At least one of the parties to the ar-rangement paying premiums under para-graph (b)(1)(i) of this section is entitled torecover (either conditionally or uncondi-tionally) all or any portion of those premi-ums and such recovery is to be made from,or is secured by, the proceeds of the life in-surance contract; and

(iii) The arrangement is not part of agroup-term life insurance plan described insection 79 unless the group-term life insur-ance plan provides permanent benefits toemployees (as defined in §1.79–0).

(2) Special rule—(i) In general. Anyarrangement between an owner and a non-owner of a life insurance contract is treatedas a split-dollar life insurance arrangement(regardless of whether the criteria of para-graph (b)(1) of this section are satisfied) ifthe arrangement is described in paragraph(b)(2)(ii) or (iii) of this section.

(ii) Compensatory arrangements. Anarrangement is described in this paragraph(b)(2)(ii) if the following criteria are satis-fied—

(A) The arrangement is entered into inconnection with the performance of ser-vices and is not part of a group-term lifeinsurance plan described in section 79;

November 17, 2003 1064 2003-46 I.R.B.

(B) The employer or service recipientpays, directly or indirectly, all or any por-tion of the premiums; and

(C) Either—(1) The beneficiary of all or any portion

of the death benefit is designated by theemployee or service provider or is anyperson whom the employee or serviceprovider would reasonably be expected todesignate as the beneficiary; or

(2) The employee or service providerhas any interest in the policy cash value ofthe life insurance contract.

(iii) Shareholder arrangements. An ar-rangement is described in this paragraph(b)(2)(iii) if the following criteria are sat-isfied—

(A) The arrangement is entered into be-tween a corporation and another person inthat person’s capacity as a shareholder inthe corporation;

(B) The corporation pays, directly or in-directly, all or any portion of the premi-ums; and

(C) Either—(1) The beneficiary of all or any por-

tion of the death benefit is designated bythe shareholder or is any person whom theshareholder would reasonably be expectedto designate as the beneficiary; or

(2) The shareholder has any interest inthe policy cash value of the life insurancecontract.

(3) Determination of whether this sec-tion or §1.7872–15 applies to a split-dollarlife insurance arrangement—(i) Split-dol-lar life insurance arrangements involvingsplit-dollar loans under §1.7872–15. Ex-cept as provided in paragraph (b)(3)(ii) ofthis section, paragraphs (d) through (g) ofthis section do not apply to any split-dollarloan as defined in §1.7872–15(b)(1). Sec-tion 1.7872–15 applies to any such loan.See paragraph (b)(5) of this section forthe treatment of a payment made by anon-owner under a split-dollar life insur-ance arrangement if the payment is not asplit-dollar loan.

(ii) Exceptions. Paragraphs (d) through(g) of this section apply (and §1.7872–15does not apply) to any split-dollar life in-surance arrangement if—

(A) The arrangement is entered into inconnection with the performance of ser-vices, and the employer or service recip-ient is the owner of the life insurance con-tract (or is treated as the owner of the con-tract under paragraph (c)(1)(ii)(A)(1) ofthis section); or

(B) The arrangement is entered into be-tween a donor and a donee (for example,a life insurance trust) and the donor is theowner of the life insurance contract (or istreated as the owner of the contract underparagraph (c)(1)(ii)(A)(2) of this section).

(4) Consistency requirement. Asplit-dollar life insurance arrangementdescribed in paragraph (b)(1) or (2) ofthis section must be treated in the samemanner by the owner and the non-ownerof the life insurance contract under eitherthe rules of this section or §1.7872–15. Inaddition, the owner and non-owner mustfully account for all amounts under thearrangement under paragraph (b)(5) ofthis section, paragraphs (d) through (g) ofthis section, or §1.7872–15.

(5) Non-owner payments that are notsplit-dollar loans. If a non-owner of alife insurance contract makes premiumpayments (directly or indirectly) undera split-dollar life insurance arrangement,and the payments are neither split-dol-lar loans nor consideration for economicbenefits described in paragraph (d) ofthis section, then neither the rules ofparagraphs (d) through (g) of this sec-tion nor the rules in §1.7872–15 apply tosuch payments. Instead, general incometax, employment tax, self-employmenttax, and gift tax principles apply to thepremium payments. See, for example,§1.61–2(d)(2)(ii)(A).

(6) Waiver, cancellation, or forgive-ness. If a repayment obligation describedin §1.7872–15(a)(2) is waived, cancelled,or forgiven at any time, then the partiesmust take the amount waived, cancelled,or forgiven into account in accordancewith the relationships between the parties(for example, as compensation in the caseof an employee-employer relationship).

(7) Change in the owner. If pay-ments made by a non-owner to an ownerwere treated as split-dollar loans under§1.7872–15 and the split-dollar life insur-ance arrangement is modified such that,after the modification, the non-owner isthe owner (within the meaning of para-graph (c)(1) of this section) of the life

insurance contract under the arrangement,paragraphs (d) through (g) of this sectionapply to the split-dollar life insurancearrangement from the date of the modifi-cation. The payments made (both beforeand after the modification) are not treatedas split-dollar loans under §1.7872–15 onor after the date of the modification. Thenon-owner of the life insurance contractunder the modified split-dollar life in-surance arrangement must fully take intoaccount all economic benefits providedunder the arrangement under paragraph(d) of this section on or after the dateof the modification. For the treatmentof a transfer of the contract when theunmodified arrangement is governed byparagraphs (d) through (g) of this section,see paragraph (g) of this section.

(c) Definitions. The following defini-tions apply for purposes of this section:

(1) Owner—(i) In general. With re-spect to a life insurance contract, the per-son named as the policy owner of such con-tract generally is the owner of such con-tract. If two or more persons are namedas policy owners of a life insurance con-tract and each person has, at all times, allthe incidents of ownership with respect toan undivided interest in the contract, eachperson is treated as the owner of a sepa-rate contract to the extent of such person’sundivided interest. If two or more personsare named as policy owners of a life in-surance contract but each person does nothave, at all times, all the incidents of own-ership with respect to an undivided inter-est in the contract, the person who is thefirst-named policy owner is treated as theowner of the entire contract.

(ii) Special rule for certain arrange-ments—(A) In general. Notwithstandingparagraph (c)(1)(i) of this section—

(1) An employer or service recipient istreated as the owner of a life insurance con-tract under a split-dollar life insurance ar-rangement that is entered into in connec-tion with the performance of services if, atall times, the only economic benefit thatwill be provided under the arrangementis current life insurance protection as de-scribed in paragraph (d)(3) of this section;and

(2) A donor is treated as the owner of alife insurance contract under a split-dollarlife insurance arrangement that is enteredinto between a donor and a donee (for ex-ample, a life insurance trust) if, at all times,

2003-46 I.R.B. 1065 November 17, 2003

the only economic benefit that will be pro-vided under the arrangement is current lifeinsurance protection as described in para-graph (d)(3) of this section.

(B) Modifications. If an arrangementdescribed in paragraph (c)(1)(ii)(A) of thissection is modified such that the arrange-ment is no longer described in paragraph(c)(1)(ii)(A) of this section, the followingrules apply:

(1) If, immediately after such modifi-cation, the employer, service recipient, ordonor is the owner of the life insurancecontract under the split-dollar life insur-ance arrangement (determined without re-gard to paragraph (c)(1)(ii)(A) of this sec-tion), the employer, service recipient, ordonor continues to be treated as the ownerof the life insurance contract.

(2) If, immediately after such modifi-cation, the employer, service recipient, ordonor is not the owner of the life insurancecontract under the split-dollar life insur-ance arrangement (determined without re-gard to paragraph (c)(1)(ii)(A) of this sec-tion), the employer, service recipient, ordonor is treated as having made a transferof the entire life insurance contract to theemployee, service provider, or donee un-der the rules of paragraph (g) of this sec-tion as of the date of such modification.

(3) For purposes of this paragraph(c)(1)(ii)(B), entering into a successorsplit-dollar life insurance arrangementthat has the effect of providing any eco-nomic benefit in addition to that describedin paragraph (d)(3) of this section is treatedas a modification of the prior split-dollarlife insurance arrangement.

(iii) Attribution rules for compensatoryarrangements. For purposes of this sec-tion, if a split-dollar life insurance arrange-ment is entered into in connection with theperformance of services, the employer orservice recipient is treated as the ownerof the life insurance contract if the owner(within the meaning of paragraph (c)(1)(i)of this section) of the life insurance con-tract under the split-dollar life insurancearrangement is—

(A) A trust described in section 402(b);(B) A trust that is treated as owned

(within the meaning of sections 671through 677) by the employer or the ser-vice recipient;

(C) A welfare benefit fund within themeaning of section 419(e)(1); or

(D) A member of the employer or ser-vice recipient’s controlled group (withinthe meaning of section 414(b)) or a tradeor business that is under common con-trol with the employer or service recipient(within the meaning of section 414(c)).

(iv) Life insurance contracts owned bypartnerships. [Reserved]

(2) Non-owner—(i) Definition. Withrespect to a life insurance contract, a non-owner is any person (other than the ownerof such contract under paragraph (c)(1) ofthis section) that has any direct or indirectinterest in such contract (but not includinga life insurance company acting only in itscapacity as the issuer of a life insurancecontract).

(ii) Example. The following exampleillustrates the provisions of this paragraph(c)(2):

Example. (i) On January 1, 2009, Employer Rand Trust T, an irrevocable life insurance trust that isnot treated under sections 671 through 677 as ownedby a grantor or other person, enter into a split-dol-lar life insurance arrangement in connection with theperformance of services under which R will pay allthe premiums on the life insurance contract until thetermination of the arrangement or the death of E, anemployee of R. C, the beneficiary of T, is E’s child. Ris the owner of the contract under paragraph (c)(1)(i)of this section. E is the insured under the life insur-ance contract. Upon termination of the arrangementor E’s death, R is entitled to receive the lesser of theaggregate premiums or the policy cash value of thecontract and T will be entitled to receive any remain-ing amounts. Under the terms of the arrangement andapplicable state law, the policy cash value is fully ac-cessible by R and R’s creditors but T has the right toborrow or withdraw at any time the portion of the pol-icy cash value exceeding the amount payable to R.

(ii) Because E and T each have an indirect in-terest in the life insurance contract that is part ofthe split-dollar life insurance arrangement, each is anon-owner under paragraph (c)(2)(i) of this section.E and T each are provided economic benefits de-scribed in paragraph (d)(2) of this section pursuant tothe split-dollar life insurance arrangement. Economicbenefits are provided by owner R to E as a paymentof compensation, and separately provided by E to Tas a gift.

(3) Transfer of entire contract or un-divided interest therein. A transfer of theownership of a life insurance contract (oran undivided interest in such contract)that is part of a split-dollar life insurancearrangement occurs on the date that anon-owner becomes the owner (withinthe meaning of paragraph (c)(1) of thissection) of the entire contract or of anundivided interest in the contract.

(4) Undivided interest. An undividedinterest in a life insurance contract consists

of an identical fractional or percentage in-terest or share in each right, benefit, andobligation with respect to the contract. Inthe case of any arrangement purporting tocreate undivided interests where, in sub-stance, the rights, benefits or obligationsare shared to any extent among the hold-ers of such interests, the arrangement willbe treated as a split-dollar life insurance ar-rangement.

(5) Employment tax. The term employ-ment tax means any tax imposed by, or col-lected under, the Federal Insurance Con-tributions Act (FICA), the Federal Unem-ployment Tax Act (FUTA), the RailroadRetirement Tax Act (RRTA), and the Col-lection of Income Tax at Source on Wages.

(6) Self-employment tax. The term self-employment tax means the tax imposed bythe Self-Employment Contributions Act of1954 (SECA).

(d) Economic benefits provided undera split-dollar life insurance arrange-ment—(1) In general. In the case of asplit-dollar life insurance arrangementsubject to the rules of paragraphs (d)through (g) of this section, economicbenefits are treated as being providedto the non-owner of the life insurancecontract. The non-owner (and the ownerfor gift and employment tax purposes)must take into account the full value ofall economic benefits described in para-graph (d)(2) of this section, reduced by theconsideration paid directly or indirectlyby the non-owner to the owner for thoseeconomic benefits. Depending on therelationship between the owner and thenon-owner, the economic benefits mayconstitute a payment of compensation,a distribution under section 301, a con-tribution to capital, a gift, or a transferhaving a different tax character. Further,depending on the relationship betweenor among a non-owner and one or moreother persons (including a non-owner ornon-owners), the economic benefits maybe treated as provided from the owner tothe non-owner and as separately providedfrom the non-owner to such other personor persons (for example, as a paymentof compensation from an employer to anemployee and as a gift from the employeeto the employee’s child).

(2) Value of economic benefits. Thevalue of the economic benefits provided toa non-owner for a taxable year under thearrangement equals—

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(i) The cost of current life insuranceprotection provided to the non-owner asdetermined under paragraph (d)(3) of thissection;

(ii) The amount of policy cash value towhich the non-owner has current accesswithin the meaning of paragraph (d)(4)(ii)of this section (to the extent that suchamount was not actually taken into ac-count for a prior taxable year); and

(iii) The value of any economic benefitsnot described in paragraph (d)(2)(i) or (ii)of this section provided to the non-owner(to the extent not actually taken into ac-count for a prior taxable year).

(3) Current life insurance protec-tion—(i) Amount of current life insuranceprotection. In the case of a split-dollar lifeinsurance arrangement described in para-graph (d)(1) of this section, the amountof the current life insurance protectionprovided to the non-owner for a taxableyear (or any portion thereof in the caseof the first year or the last year of thearrangement) equals the excess of thedeath benefit of the life insurance contract(including paid-up additions thereto) overthe total amount payable to the owner(including any outstanding policy loansthat offset amounts otherwise payableto the owner) under the split-dollar lifeinsurance arrangement, less the portion ofthe policy cash value actually taken intoaccount under paragraph (d)(1) of thissection or paid for by the non-owner underparagraph (d)(1) of this section for thecurrent taxable year or any prior taxableyear.

(ii) Cost of current life insurance pro-tection. The cost of current life insur-ance protection provided to the non-ownerfor any year (or any portion thereof inthe case of the first year or the last yearof the arrangement) equals the amount ofthe current life insurance protection pro-vided to the non-owner (determined underparagraph (d)(3)(i) of this section) multi-plied by the life insurance premium factordesignated or permitted in guidance pub-lished in the Internal Revenue Bulletin (see§601.601(d)(2)(ii) of this chapter).

(4) Policy cash value—(i) In general.For purposes of this paragraph (d), policycash value is determined disregarding sur-render charges or other similar charges orreductions. Policy cash value includes pol-icy cash value attributable to paid-up addi-tions.

(ii) Current access. For purposes ofthis paragraph (d), a non-owner has currentaccess to that portion of the policy cashvalue—

(A) To which, under the arrangement,the non-owner has a current or future right;and

(B) That currently is directly or indi-rectly accessible by the non-owner, inac-cessible to the owner, or inaccessible to theowner’s general creditors.

(5) Valuation date—(i) General rules.For purposes of this paragraph (d), theamount of the current life insurance pro-tection and the policy cash value shallbe determined on the same valuationdate. The valuation date is the last day ofthe non-owner’s taxable year, unless theowner and non-owner agree to instead usethe policy anniversary date as the valua-tion date. Notwithstanding the previoussentence, if the split-dollar life insurancearrangement terminates during the taxableyear of the non-owner, the value of sucheconomic benefits is determined on theday that the arrangement terminates.

(ii) Consistency requirement. Theowner and non-owner of the split-dollarlife insurance arrangement must use thesame valuation date. In addition, the samevaluation date must be used for all yearsprior to termination of the split-dollar lifeinsurance arrangement unless the partiesreceive consent of the Commissioner tochange the valuation date.

(iii) Artifice or device. Notwithstand-ing paragraph (d)(5)(i) of this section, ifany artifice or device is used to understatethe amount of any economic benefit on thevaluation date in paragraph (d)(5)(i) of thissection, then, for purposes of this para-graph (d), the date on which the amount ofthe economic benefit is determined is thedate on which the amount of the economicbenefit is greatest during that taxable year.

(iv) Special rule for certain taxes. Forpurposes of employment tax (as definedin paragraph (c)(5) of this section), self-employment tax (as defined in paragraph(c)(6) of this section), and sections 6654and 6655 (relating to the failure to pay esti-mated income tax), the portions of the cur-rent life insurance protection and the pol-icy cash value that are treated as providedby the owner to the non-owner shall betreated as so provided on the last day ofthe taxable year of the non-owner. Not-withstanding the previous sentence, if the

split-dollar life insurance arrangement ter-minates during the taxable year of the non-owner, such portions of the current lifeinsurance protection and the policy cashvalue shall be treated as so provided on theday that the arrangement terminates.

(6) Examples. The following examplesillustrate the rules of this paragraph (d).Except as otherwise provided, both exam-ples assume the following facts: employer(R) is the owner (as defined in paragraph(c)(1)(i) of this section) and employee (E)is the non-owner (as defined in paragraph(c)(2)(i) of this section) of a life insurancecontract that is part of a split-dollar life in-surance arrangement that is subject to theprovisions of paragraphs (d) through (g) ofthis section; the contract is a life insurancecontract as defined in section 7702 and nota modified endowment contract as definedin section 7702A; R does not withdraw orobtain a loan of any portion of the policycash value and does not surrender any por-tion of the life insurance contract; the com-pensation paid to E is reasonable; E is notprovided any economic benefits describedin paragraph (d)(2)(iii) of this section; Edoes not make any premium payments; E’staxable year is the calendar year; the valueof the economic benefits is determined onthe last day of E’s taxable year; and E re-ports on E’s Federal income tax return foreach year that the split-dollar life insurancearrangement is in effect the amount of in-come required to be reported under para-graph (d) of this section. The examples areas follows:

Example 1. (i) Facts. On January 1 of year 1, Rand E enter into the split-dollar life insurance arrange-ment. Under the arrangement, R pays all of the pre-miums on the life insurance contract until the termi-nation of the arrangement or E’s death. The arrange-ment provides that upon termination of the arrange-ment or E’s death, R is entitled to receive the lesser ofthe aggregate premiums paid or the policy cash valueof the contract and E is entitled to receive any remain-ing amounts. Under the terms of the arrangement andapplicable state law, the policy cash value is fully ac-cessible by R and R’s creditors but E has the rightto borrow or withdraw at any time the portion of thepolicy cash value exceeding the amount payable to R.To fund the arrangement, R purchases a life insurancecontract with constant death benefit protection equalto $1,500,000. R makes premium payments on thelife insurance contract of $60,000 in each of years 1,2, and 3. The policy cash value equals $55,000 as ofDecember 31 of year 1, $140,000 as of December 31of year 2, and $240,000 as of December 31 of year 3.

(ii) Analysis. Under the terms of the split-dollarlife insurance arrangement, E has the right for year1 and all subsequent years to borrow or withdraw theportion of the policy cash value exceeding the amount

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payable to R. Thus, under paragraph (d)(4)(ii) of thissection, E has current access to such portion of thepolicy cash value for each year that the arrangement isin effect. In addition, because R pays all of the premi-ums on the life insurance contract, R provides to E allof the economic benefits that E receives under the ar-rangement. Therefore, under paragraph (d)(1) of thissection, E includes in gross income the value of alleconomic benefits described in paragraphs (d)(2)(i)and (ii) of this section provided to E under the ar-rangement.

(iii) Results for year 1. For year 1, E is provided,under paragraph (d)(2)(ii) of this section, $0 of policycash value (excess of $55,000 policy cash value de-termined as of December 31 of year 1 over $55,000payable to R). For year 1, E is also provided, un-der paragraph (d)(2)(i) of this section, current life in-surance protection of $1,445,000 ($1,500,000 minus$55,000 payable to R). Thus, E includes in gross in-come for year 1 the cost of $1,445,000 of current lifeinsurance protection.

(iv) Results for year 2. For year 2, E is provided,under paragraph (d)(2)(ii) of this section, $20,000 ofpolicy cash value ($140,000 policy cash value deter-mined as of December 31 of year 2 minus $120,000payable to R). For year 2, E is also provided, underparagraph (d)(2)(i) of this section, current life insur-ance protection of $1,360,000 ($1,500,000 minus thesum of $120,000 payable to R and the aggregate of$20,000 of policy cash value that E actually includesin income on E’s year 1 and year 2 federal income taxreturns). Thus, E includes in gross income for year 2the sum of $20,000 of policy cash value and the costof $1,360,000 of current life insurance protection.

(v) Results for year 3. For year 3, E is provided,under paragraph (d)(2)(ii) of this section, $40,000 ofpolicy cash value ($240,000 policy cash value deter-mined as of December 31 of year 3 minus the sumof $180,000 payable to R and $20,000 of aggregatepolicy cash value that E actually included in grossincome on E’s year 1 and year 2 federal income taxreturns). For year 3, E is also provided, under para-graph (d)(2)(i) of this section, current life insuranceprotection of $1,260,000 ($1,500,000 minus the sumof $180,000 payable to R and $60,000 of aggregatepolicy cash value that E actually includes in gross in-come on E’s year 1, year 2, and year 3 federal incometax returns). Thus, E includes in gross income foryear 3 the sum of $40,000 of policy cash value andthe cost of $1,260,000 of current life insurance pro-tection.

Example 2. (i) Facts. The facts are the same as inExample 1 except that E cannot directly or indirectlyaccess any portion of the policy cash value, but theterms of the split-dollar life insurance arrangement orapplicable state law provide that the policy cash valuein excess of the amount payable to R is inaccessibleto R’s general creditors.

(ii) Analysis. Under the terms of the split-dollarlife insurance arrangement or applicable state law, theportion of the policy cash value exceeding the amountpayable to R is inaccessible to R’s general creditorsand E has a current or future right to that portion of thecash value. Thus, under paragraph (d)(4)(ii) of thissection, E has current access to such portion of thepolicy cash value for each year that the arrangement isin effect. In addition, because R pays all of the premi-ums on the life insurance contract, R provides to E all

of the economic benefits that E receives under the ar-rangement. Therefore, under paragraph (d)(1) of thissection, E includes in gross income the value of alleconomic benefits described in paragraphs (d)(2)(i)and (ii) of this section provided to E under the ar-rangement.

(iii) Results for years 1, 2 and 3. The results forthis example are the same as the results in Example 1.

(e) Amounts received under the con-tract—(1) In general. Except as otherwiseprovided in paragraph (f)(3) of this section,any amount received under a life insurancecontract that is part of a split-dollar life in-surance arrangement subject to the rulesof paragraphs (d) through (g) of this sec-tion (including, but not limited to, a pol-icy owner dividend, proceeds of a spec-ified policy loan described in paragraph(e)(2) of this section, or the proceeds ofa withdrawal from or partial surrender ofthe life insurance contract) is treated, tothe extent provided directly or indirectlyto a non-owner of the life insurance con-tract, as though such amount had been paidto the owner of the life insurance con-tract and then paid by the owner to thenon-owner. The amount received is tax-able to the owner in accordance with therules of section 72. The non-owner (andthe owner for gift tax and employment taxpurposes) must take the amount describedin paragraph (e)(3) of this section into ac-count as a payment of compensation, a dis-tribution under section 301, a contributionto capital, a gift, or other transfer depend-ing on the relationship between the ownerand the non-owner.

(2) Specified policy loan. A policy loanis a specified policy loan to the extent—

(i) The proceeds of the loan are dis-tributed directly from the insurance com-pany to the non-owner;

(ii) A reasonable person would not ex-pect that the loan will be repaid by thenon-owner; or

(iii) The non-owner’s obligation to re-pay the loan to the owner is satisfied or iscapable of being satisfied upon repaymentby either party to the insurance company.

(3) Amount required to be taken into ac-count. With respect to a non-owner (andthe owner for gift tax and employment taxpurposes), the amount described in thisparagraph (e)(3) is equal to the excess of—

(i) The amount treated as received bythe owner under paragraph (e)(1) of thissection; over

(ii) The amount of all economic bene-fits described in paragraphs (d)(2)(ii) and

(iii) of this section actually taken into ac-count by the non-owner (and the ownerfor gift tax and employment tax purposes)plus any consideration described in para-graph (d)(1) of this section paid by thenon-owner for such economic benefits de-scribed in paragraphs (d)(2)(ii) and (iii) ofthis section. The amount determined underthe preceding sentence applies only to theextent that neither this paragraph (e)(3)(ii)nor paragraph (g)(1)(ii) of this section pre-viously has applied to such economic ben-efits.

(f) Other tax consequences—(1) Intro-duction. In the case of a split-dollar lifeinsurance arrangement subject to the rulesof paragraphs (d) through (g) of this sec-tion, this paragraph (f) sets forth other taxconsequences to the owner and non-ownerof a life insurance contract that is part ofthe arrangement for the period prior to thetransfer (as defined in paragraph (c)(3) ofthis section) of the contract (or an undi-vided interest therein) from the owner tothe non-owner. See paragraph (g) of thissection and §1.83–6(a)(5) for tax conse-quences upon the transfer of the contract(or an undivided interest therein).

(2) Investment in the contract—(i) Tothe non-owner. A non-owner does not re-ceive any investment in the contract undersection 72(e)(6) with respect to a life insur-ance contract that is part of a split-dollarlife insurance arrangement subject to therules of paragraphs (d) through (g) of thissection.

(ii) To owner. Any premium paid byan owner under a split-dollar life insur-ance arrangement subject to the rules ofparagraphs (d) through (g) of this sectionis included in the owner’s investment inthe contract under section 72(e)(6). Nopremium or amount described in para-graph (d) of this section is deductible bythe owner (except as otherwise providedin §1.83–6(a)(5)). Any amount paid bya non-owner, directly or indirectly, tothe owner of the life insurance contractfor current life insurance protection orfor any other economic benefit under thelife insurance contract is included in theowner’s gross income and is includedin the owner’s investment in the life in-surance contract for purposes of section72(e)(6) (but only to the extent not other-wise so included by reason of having beenpaid by the owner as a premium or otherconsideration for the contract).

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(3) Treatment of death benefit pro-ceeds—(i) Death benefit proceeds tobeneficiary (other than the owner). Anyamount paid to a beneficiary (other thanthe owner) by reason of the death of theinsured is excluded from gross income bysuch beneficiary under section 101(a) asan amount received under a life insurancecontract to the extent such amount is allo-cable to current life insurance protectionprovided to the non-owner pursuant to thesplit-dollar life insurance arrangement, thecost of which was paid by the non-owner,or the value of which the non-owneractually took into account pursuant toparagraph (d)(1) of this section.

(ii) Death benefit proceeds to owner asbeneficiary. Any amount paid or payableto an owner in its capacity as a beneficiaryby reason of the death of the insured is ex-cluded from gross income of the owner un-der section 101(a) as an amount receivedunder a life insurance contract to the ex-tent such amount is not allocable to currentlife insurance protection provided to thenon-owner pursuant to the split-dollar lifeinsurance arrangement, the cost of whichwas paid by the non-owner, or the value ofwhich the non-owner actually took into ac-count pursuant to paragraph (d)(1) of thissection.

(iii) Transfers of death benefit proceeds.Death benefit proceeds paid to a party toa split-dollar life insurance arrangement(or the estate or beneficiary of that party)that are not excludable from that party’sincome under section 101(a) to the extentprovided in paragraph (f)(3)(i) or (ii) ofthis section, are treated as transferred tothat party in a separate transaction. Thedeath benefit proceeds treated as so trans-ferred will be taxed in a manner similarto other transfers. For example, if deathbenefit proceeds paid to an employee,the employee’s estate, or the employee’sbeneficiary are not excludable from theemployee’s gross income under section101(a) to the extent provided in paragraph(f)(3)(i) of this section, then such paymentis treated as a payment of compensationby the employer to the employee.

(g) Transfer of entire contract or un-divided interest therein—(1) In general.Upon a transfer within the meaning ofparagraph (c)(3) of this section of a lifeinsurance contract (or an undivided inter-est therein) to a non-owner (transferee),the transferee (and the owner (transferor)

for gift tax and employment tax purposes)takes into account the excess of the fairmarket value of the life insurance contract(or the undivided interest therein) trans-ferred to the transferee at that time overthe sum of—

(i) The amount the transferee pays tothe transferor to obtain the contract (or theundivided interest therein); and

(ii) The amount of all economic ben-efits described in paragraph (d)(2)(ii) and(iii) of this section actually taken into ac-count by the transferee (and the transferorfor gift tax and employment tax purposes),plus any consideration described in para-graph (d)(1) of this section paid by thetransferee for such economic benefits de-scribed in paragraphs (d)(2)(ii) and (iii) ofthis section. The amount determined underthe preceding sentence applies only to theextent that neither this paragraph (g)(1)(ii)nor paragraph (e)(3)(ii) of this section pre-viously has applied to such economic ben-efits.

(2) Determination of fair market value.For purposes of paragraph (g)(1) of thissection, the fair market value of a lifeinsurance contract is the policy cash valueand the value of all other rights undersuch contract (including any supplemen-tal agreements thereto and whether ornot guaranteed), other than the value ofcurrent life insurance protection. Notwith-standing the preceding sentence, the fairmarket value of a life insurance contractfor gift tax purposes is determined under§25.2512–6(a) of this chapter.

(3) Exception for certain transfers inconnection with the performance of ser-vices. To the extent the ownership of a lifeinsurance contract (or undivided interest insuch contract) is transferred in connectionwith the performance of services, para-graph (g)(1) of this section does not ap-ply until such contract (or undivided inter-est in such contract) is taxable under sec-tion 83. For purposes of paragraph (g)(1)of this section, fair market value is deter-mined disregarding any lapse restrictionsand at the time the transfer of such contract(or undivided interest in such contract) istaxable under section 83.

(4) Treatment of non-owner after trans-fer—(i) In general. After a transfer ofan entire life insurance contract (exceptwhen such transfer is in connection withthe performance of services and the trans-fer is not yet taxable under section 83),

the person who previously had been thenon-owner is treated as the owner of suchcontract for all purposes, including for pur-poses of paragraph (b) of this section andfor purposes of §1.61–2(d)(2)(ii)(A). Af-ter the transfer of an undivided interest ina life insurance contract (or, if later, at thetime such transfer is taxable under section83), the person who previously had beenthe non-owner is treated as the owner of aseparate contract consisting of that interestfor all purposes, including for purposes ofparagraph (b) of this section and for pur-poses of §1.61–2(d)(2)(ii)(A).

(ii) Investment in the contract aftertransfer—(A) In general. The amounttreated as consideration paid to acquire thecontract under section 72(g)(1), in orderto determine the aggregate premiums paidby the transferee for purposes of section72(e)(6)(A) after the transfer (or, if later,at the time such transfer is taxable undersection 83), equals the greater of the fairmarket value of the contract or the sum ofthe amounts determined under paragraphs(g)(1)(i) and (ii) of this section.

(B) Transfers between a donor and adonee. In the case of a transfer of a con-tract between a donor and a donee, theamount treated as consideration paid bythe transferee to acquire the contract undersection 72(g)(1), in order to determine theaggregate premiums paid by the transfereefor purposes of section 72(e)(6)(A) afterthe transfer, equals the sum of the amountsdetermined under paragraphs (g)(1)(i) and(ii) of this section except that—

(1) The amount determined under para-graph (g)(1)(i) of this section includes theaggregate of premiums or other considera-tion paid or deemed to have been paid bythe transferor; and

(2) The amount of all economic benefitsdetermined under paragraph (g)(1)(ii) ofthis section actually taken into account bythe transferee does not include such bene-fits to the extent such benefits were exclud-able from the transferee’s gross income atthe time of receipt.

(C) Transfers of an undivided interestin a contract. If a portion of a contractis transferred to the transferee, then theamount to be included as considerationpaid to acquire the contract is determinedby multiplying the amount determined un-der paragraph (g)(4)(ii)(A) of this section(as modified by paragraph (g)(4)(ii)(B) ofthis section, if the transfer is between a

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donor and a donee) by a fraction, the nu-merator of which is the fair market valueof the portion transferred and the denom-inator of which is the fair market value ofthe entire contract.

(D) Example. The following exam-ple illustrates the rules of this paragraph(g)(4)(ii):

Example. (i) In year 1, donor D and donee E en-ter into a split-dollar life insurance arrangement asdefined in paragraph (b)(1) of this section. D is theowner of the life insurance contract under paragraph(c)(1) of this section. The life insurance contract isnot a modified endowment contract as defined in sec-tion 7702A. In year 5, D gratuitously transfers thecontract, within the meaning of paragraph (c)(3) ofthis section, to E. At the time of the transfer, the fairmarket value of the contract is $200,000 and D hadpaid $50,000 in premiums under the arrangement. Inaddition, by the time of the transfer, E had currentaccess to $80,000 of policy cash value which was ex-cludable from E’s gross income under section 102.

(ii) E’s investment in the contract is $50,000, con-sisting of the $50,000 of premiums paid by D. The$80,000 of policy cash value to which E had currentaccess is not included in E’s investment in the con-tract because such amount was excludable from E’sgross income when E had current access to that pol-icy cash value.

(iii) No investment in the contract forcurrent life insurance protection. Exceptas provided in paragraph (g)(4)(ii)(B) ofthis section, no amount allocable to cur-rent life insurance protection provided tothe transferee (the cost of which was paidby the transferee or the value of which wasprovided to the transferee) is treated asconsideration paid to acquire the contractunder section 72(g)(1) to determine theaggregate premiums paid by the transfereefor purposes of determining the trans-feree’s investment in the contract undersection 72(e) after the transfer.

(h) Examples. The following examplesillustrate the rules of this section. Ex-cept as otherwise provided, each of the ex-amples assumes that the employer (R) isthe owner (as defined in paragraph (c)(1)of this section) of a life insurance con-tract that is part of a split-dollar life in-surance arrangement subject to the rules ofparagraphs (d) through (g) of this section,that the employee (E) is not provided anyeconomic benefits described in paragraph(d)(2)(iii) of this section, that the life in-surance contract is not a modified endow-ment contract under section 7702A, thatthe compensation paid to E is reasonable,and that E makes no premium payments.The examples are as follows:

Example 1. (i) In year 1, R purchases a life in-surance contract on the life of E. R is named as thepolicy owner of the contract. R and E enter into an ar-rangement under which R will pay all the premiumson the life insurance contract until the termination ofthe arrangement or E’s death. Upon termination ofthe arrangement or E’s death, R is entitled to receivethe greater of the aggregate premiums or the policycash value of the contract. The balance of the deathbenefit will be paid to a beneficiary designated by E.

(ii) Because R is designated as the policy ownerof the contract, R is the owner of the contract un-der paragraph (c)(1)(i) of this section. In addition,R would be treated as the owner of the contract re-gardless of whether R were designated as the policyowner under paragraph (c)(1)(i) of this section be-cause the split-dollar life insurance arrangement isdescribed in paragraph (c)(1)(ii)(A)(1) of this section.E is a non-owner of the contract. Under the arrange-ment between R and E, a portion of the death bene-fit is payable to a beneficiary designated by E. Thearrangement is a split-dollar life insurance arrange-ment under paragraph (b)(1) or (2) of this section.Because R pays all the premiums on the life insur-ance contract, R provides to E the entire amount ofthe current life insurance protection E receives un-der the arrangement. Therefore, for each year that thesplit-dollar life insurance arrangement is in effect, Emust include in gross income under paragraph (d)(1)of this section the value of current life insurance pro-tection described in paragraph (d)(2)(i) of this sectionprovided to E in each year.

Example 2. (i) The facts are the same as in Ex-ample 1 except that, upon termination of the arrange-ment or E’s death, R is entitled to receive the lesserof the aggregate premiums or the policy cash valueof the contract. Under the terms of the arrangementand applicable state law, the policy cash value is fullyaccessible by R and R’s creditors but E has the rightto borrow or withdraw at any time the portion of thepolicy cash value exceeding the amount payable to R.

(ii) Because R is designated as the policy owner, Ris the owner of the contract under paragraph (c)(1)(i)of this section. E is a non-owner of the contract. Foreach year that the split-dollar life insurance arrange-ment is in effect, E has the right to borrow or with-draw at any time the portion of the policy cash valueexceeding the amount payable to R. Thus, under para-graph (d)(4)(ii) of this section, E has current accessto such portion of the policy cash value for each yearthat the arrangement is in effect. In addition, becauseR pays all the premiums on the life insurance con-tract, R provides to E all the economic benefits that Ereceives under the arrangement. Therefore, for eachyear that the split-dollar life insurance arrangement isin effect, E must include in gross income under para-graph (d)(1) of this section, the value of all economicbenefits described in paragraph (d)(2)(i) and (ii) ofthis section provided to E in each year.

Example 3. (i) The facts are the same as inExample 1 except that in year 5, R and E modifythe split-dollar life insurance arrangement to providethat, upon termination of the arrangement or E’sdeath, R is entitled to receive the greater of the ag-gregate premiums or one-half the policy cash valueof the contract. Under the terms of the modifiedarrangement and applicable state law, the policy cashvalue is fully accessible by R and R’s creditors butE has the right to borrow or withdraw at any time

the portion of the policy cash value exceeding theamount payable to R.

(ii) For each year that the split-dollar life in-surance arrangement is in effect, E must include ingross income under paragraph (d)(1) of this sectionthe value of the economic benefits described inparagraph (d)(2)(i) of this section provided to Eunder the arrangement during that year. In year 5(and subsequent years), E has the right to borrow orwithdraw at any time the portion of the policy cashvalue exceeding the amount payable to R. Thus, un-der paragraph (d)(4)(ii) of this section, E has currentaccess to such portion of the policy cash value. Thus,in year 5 (and each subsequent year), E must also in-clude in gross income under paragraph (d)(1) of thissection the value of the economic benefits describedin paragraph (d)(2)(ii) of this section provided to Ein each year.

(iii) The arrangement is not described in para-graph (c)(1)(ii)(A)(1) of this section after it ismodified in year 5. Because R is the designatedowner of the life insurance contract, R continuesto be treated as the owner of the contract underparagraph (c)(1)(ii)(B)(1) of this section after thearrangement is modified. In addition, because themodification made by R and E in year 5 does notinvolve the transfer (within the meaning of paragraph(c)(3) of this section) of an undivided interest in thelife insurance contract from R to E, the modificationis not a transfer for purposes of paragraph (g) of thissection.

Example 4. (i) The facts are the same as inExample 2 except that in year 7, R and E modifythe split-dollar life insurance arrangement to providethat, upon termination of the arrangement or E’sdeath, R will be paid the lesser of 80 percent ofthe aggregate premiums or the policy cash valueof the contract. Under the terms of the modifiedarrangement and applicable state law, the policy cashvalue is fully accessible by R and R’s creditors but Ehas the right to borrow or withdraw at any time theportion of the policy cash value exceeding the lesserof 80 percent of the aggregate premiums paid by Ror the policy cash value of the contract.

(ii) Commencing in year 7 (and in each subse-quent year), E must include in gross income the eco-nomic benefits described in paragraph (d)(2)(ii) ofthis section as provided in this Example 4(ii) ratherthan as provided in Example 2(ii). Thus, in year 7(and in each subsequent year) E must include in grossincome under paragraph (d) of this section, the excessof the policy cash value over the lesser of 80 percentof the aggregate premiums paid by R or the policycash value of the contract (to the extent E did not actu-ally include such amounts in gross income for a priortaxable year). In addition, in year 7 (and each subse-quent year) E must also include in gross income thevalue of the economic benefits described in paragraph(d)(2)(i) of this section provided to E under the ar-rangement in each such year.

Example 5. (i) The facts are the same as in Ex-ample 3 except that in year 7, E is designated as thepolicy owner. At that time, E’s rights to the contractare substantially vested as defined in §1.83–3(b).

(ii) In year 7, R is treated as having made a trans-fer (within the meaning of paragraph (c)(3) of thissection) of the life insurance contract to E. E must in-clude in gross income the amount determined underparagraph (g)(1) of this section.

November 17, 2003 1070 2003-46 I.R.B.

(iii) After the transfer of the contract to E, E isthe owner of the contract and any premium paymentsby R will be included in E’s income under paragraph(b)(5) of this section and §1.61–2(d)(2)(ii)(A) (un-less R’s payments are split-dollar loans as defined in§1.7872–15(b)(1)).

Example 6. (i) In year 1, E and R enter into asplit-dollar life insurance arrangement as defined inparagraph (b)(2) of this section. Under the arrange-ment, R is required to make annual premium pay-ments of $10,000 and E is required to make annualpremium payments of $500. In year 5, a $500 policyowner dividend payable to E is declared by the insur-ance company. E directs the insurance company touse the $500 as E’s premium payment for year 5.

(ii) For each year the arrangement is in effect, Emust include in gross income the value of the eco-nomic benefits provided during the year, as requiredby paragraph (d)(2) of this section, over the $500 pre-mium payments paid by E. In year 5, E must also in-clude in gross income as compensation the excess, ifany, of the $500 distributed to E from the proceedsof the policy owner dividend over the amount deter-mined under paragraph (e)(3)(ii) of this section.

(iii) R must include in income the premiums paidby E during the years the split-dollar life insurancearrangement is in effect, including the $500 of thepremium E paid in year 5 with proceeds of the pol-icy owner dividend. R’s investment in the contract isincreased in an amount equal to the premiums paidby E, including the $500 of the premium paid by Ein year 5 from the proceeds of the policy owner divi-dend. In year 5, R is treated as receiving a $500 dis-tribution under the contract, which is taxed pursuantto section 72.

Example 7. (i) The facts are the same as in Exam-ple 2 except that in year 10, E withdraws $100,000from the cash value of the contract.

(ii) In year 10, R is treated as receiving a$100,000 distribution from the insurance company.This amount is treated as an amount received by Runder the contract and taxed pursuant to section 72.This amount reduces R’s investment in the contractunder section 72(e). R is treated as paying the$100,000 to E as cash compensation, and E must in-clude that amount in gross income less any amountsdetermined under paragraph (e)(3)(ii) of this section.

Example 8. (i) The facts are the same as in Ex-ample 7 except E receives the proceeds of a $100,000specified policy loan directly from the insurance com-pany.

(ii) The transfer of the proceeds of the specifiedpolicy loan to E is treated as a loan by the insurancecompany to R. Under the rules of section 72(e), the$100,000 loan is not included in R’s income and doesnot reduce R’s investment in the contract. R is treatedas paying the $100,000 of loan proceeds to E as cashcompensation. E must include that amount in grossincome less any amounts determined under paragraph(e)(3)(ii) of this section.

(i) [Reserved](j) Effective date—(1) General

rule—(i) In general. This section ap-plies to any split-dollar life insurancearrangement (as defined in paragraph(b)(1) or (2) of this section) entered intoafter September 17, 2003.

(ii) Determination of when an arrange-ment is entered into. For purposes of para-graph (j) of this section, a split-dollar lifeinsurance arrangement is entered into onthe latest of the following dates:

(A) The date on which the life insurancecontract under the arrangement is issued;

(B) The effective date of the life insur-ance contract under the arrangement;

(C) The date on which the first premiumon the life insurance contract under the ar-rangement is paid;

(D) The date on which the parties to thearrangement enter into an agreement withregard to the policy; or

(E) The date on which the arrangementsatisfies the definition of a split-dollar lifeinsurance arrangement (as defined in para-graph (b)(1) or (2) of this section).

(2) Modified arrangements treated asnew arrangements—(i) In general. Forpurposes of paragraph (j)(1) of this sec-tion, if an arrangement entered into on orbefore September 17, 2003, is materiallymodified after September 17, 2003, the ar-rangement is treated as a new arrangemententered into on the date of the modifica-tion.

(ii) Non-material modifications. Thefollowing is a non-exclusive list of changesthat are not material modifications underparagraph (j)(2)(i) of this section (eitheralone or in conjunction with other changeslisted in paragraphs (j)(2)(ii)(A) through(I) of this section)—

(A) A change solely in the mode ofpremium payment (for example, a changefrom monthly to quarterly premiums);

(B) A change solely in the beneficiaryof the life insurance contract, unless thebeneficiary is a party to the arrangement;

(C) A change solely in the interest ratepayable under the life insurance contracton a policy loan;

(D) A change solely necessary to pre-serve the status of the life insurance con-tract under section 7702;

(E) A change solely to the ministerialprovisions of the life insurance contract(for example, a change in the address tosend payment);

(F) A change made solely under theterms of any agreement (other than the lifeinsurance contract) that is a part of thesplit-dollar life insurance arrangement if

the change is non-discretionary by the par-ties and is made pursuant to a binding com-mitment (whether set forth in the agree-ment or otherwise) in effect on or beforeSeptember 17, 2003;

(G) A change solely in the owner ofthe life insurance contract as a result of atransaction to which section 381(a) appliesand in which substantially all of the formerowner’s assets are transferred to the newowner of the policy;

(H) A change to the policy solely if suchchange is required by a court or a stateinsurance commissioner as a result of theinsolvency of the insurance company thatissued the policy; or

(I) A change solely in the insurancecompany that administers the policy as aresult of an assumption reinsurance trans-action between the issuing insurance com-pany and the new insurance company towhich the owner and the non-owner werenot a party.

(iii) Delegation to Commissioner. TheCommissioner, in revenue rulings, notices,and other guidance published in the Inter-nal Revenue Bulletin, may provide addi-tional guidance with respect to other mod-ifications that are not material for purposesof paragraph (j)(2)(i) of this section. See§601.601(d)(2)(ii) of this chapter.

Par. 4. Section 1.83–1 is amended by:1. Removing the second sentence of

paragraph (a)(2).2. Adding a sentence at the end of para-

graph (a)(2).The addition reads as follows:

§1.83–1 Property transferred inconnection with the performance ofservices.

(a) * * *(2) Life insurance. * * * For the tax-

ation of life insurance protection undera split-dollar life insurance arrangement(as defined in §1.61–22(b)(1) or (2)), see§1.61–22.

* * * * *Par. 5. Section 1.83–3 is amended by:1. Adding a sentence at the end of para-

graph (a)(1).2. Adding a sentence immediately prior

to the last sentence in paragraph (e).The additions read as follows:

2003-46 I.R.B. 1071 November 17, 2003

§1.83–3 Meaning and use of certainterms.

(a) * * * (1) * * * For special rulesapplying to the transfer of a life insurancecontract (or an undivided interest therein)that is part of a split-dollar life insurancearrangement (as defined in §1.61–22(b)(1)or (2)), see §1.61–22(g).

* * * * *(e) * * * Notwithstanding the previous

sentence, in the case of a transfer of a lifeinsurance contract, retirement income con-tract, endowment contract, or other con-tract providing life insurance protection,or any undivided interest therein, that ispart of a split-dollar life insurance arrange-ment (as defined in §1.61–22(b)(1) or (2))that is entered into, or materially modified(within the meaning of §1.61–22(j)(2)), af-ter September 17, 2003, the policy cashvalue and all other rights under such con-tract (including any supplemental agree-ments thereto and whether or not guaran-teed), other than current life insurance pro-tection, are treated as property for purposesof this section. * * *

* * * * *Par. 6. Section 1.83–6 is amended as

follows:1. Redesignating paragraph (a)(5) as

paragraph (a)(6).2. Adding a new paragraph (a)(5).The addition reads as follows:

§1.83–6 Deduction by employer.

(a) * * *(5) Transfer of life insurance contract

(or an undivided interest therein)—(i)General rule. In the case of a transfer of alife insurance contract (or an undivided in-terest therein) described in §1.61–22(c)(3)in connection with the performance ofservices, a deduction is allowable underparagraph (a)(1) of this section to theperson for whom the services were per-formed. The amount of the deduction,if allowable, is equal to the sum of theamount included as compensation in thegross income of the service provider under§1.61–22(g)(1) and the amount deter-mined under §1.61–22(g)(1)(ii).

(ii) Effective date—(A) Generalrule—Paragraph (a)(5)(i) of this sectionapplies to any split-dollar life insurancearrangement (as defined in §1.61–22(b)(1)

or (2)) entered into after September 17,2003. For purposes of this paragraph(a)(5), an arrangement is entered into asdetermined under §1.61–22(j)(1)(ii).

(B) Modified arrangements treated asnew arrangements. If an arrangemententered into on or before September 17,2003, is materially modified (within themeaning of §1.61–22(j)(2)) after Septem-ber 17, 2003, the arrangement is treatedas a new arrangement entered into on thedate of the modification.

* * * * *Par. 7. In §1.301–1, paragraph (q) is

added to read as follows:

§1.301–1 Rules applicable with respect todistributions of money and other property.

* * * * *(q) Split-dollar and other life insur-

ance arrangements—(1) Split-dollar lifeinsurance arrangements—(i) Distributionof economic benefits. The provision by acorporation to its shareholder pursuant to asplit-dollar life insurance arrangement, asdefined in §1.61–22(b)(1) or (2), of eco-nomic benefits described in §1.61–22(d)or of amounts described in §1.61–22(e)is treated as a distribution of property,the amount of which is determined under§1.61–22(d) and (e), respectively.

(ii) Distribution of entire contract orundivided interest therein. A transfer(within the meaning of §1.61–22(c)(3)) ofthe ownership of a life insurance contract(or an undivided interest therein) that ispart of a split-dollar life insurance ar-rangement is a distribution of property, theamount of which is determined pursuantto §1.61–22(g)(1) and (2).

(2) Other life insurance arrangements.A payment by a corporation on behalfof a shareholder of premiums on a lifeinsurance contract or an undivided interesttherein that is owned by the shareholderconstitutes a distribution of property,even if such payment is not part of asplit-dollar life insurance arrangementunder §1.61–22(b).

(3) When distribution is made—(i) Ingeneral. Except as provided in paragraph(q)(3)(ii) of this section, paragraph (b) ofthis section shall apply to determine whena distribution described in paragraph (q)(1)or (2) of this section is taken into accountby a shareholder.

(ii) Exception. Notwithstanding para-graph (b) of this section, a distribution de-scribed in paragraph (q)(1)(ii) of this sec-tion shall be treated as made by a corpo-ration to its shareholder at the time thatthe life insurance contract, or an undividedinterest therein, is transferred (within themeaning of §1.61–22(c)(3)) to the share-holder.

(4) Effective date—(i) General rule.This paragraph (q) applies to split-dollarand other life insurance arrangementsentered into after September 17, 2003.For purposes of this paragraph (q)(4),a split-dollar life insurance arrange-ment is entered into as determined under§1.61–22(j)(1)(ii).

(ii) Modified arrangements treated asnew arrangements. If a split-dollar lifeinsurance arrangement entered into onor before September 17, 2003, is mate-rially modified (within the meaning of§1.61–22(j)(2)) after September 17, 2003,the arrangement is treated as a new ar-rangement entered into on the date of themodification.

Par. 8. Section 1.1402(a)–18 is addedto read as follows:

§1.1402(a)–18 Split-dollar life insurancearrangements.

See §§1.61–22 and 1.7872–15 for rulesrelating to the treatment of split-dollar lifeinsurance arrangements.

Par. 9. Section 1.7872–15 is added toread as follows:

§1.7872–15 Split-dollar loans.

(a) General rules—(1) Introduction.This section applies to split-dollar loans asdefined in paragraph (b)(1) of this section.If a split-dollar loan is not a below-marketloan, then, except as provided in this sec-tion, the loan is governed by the generalrules for debt instruments (including therules for original issue discount (OID)under sections 1271 through 1275 and theregulations thereunder). If a split-dollarloan is a below-market loan, then, exceptas provided in this section, the loan isgoverned by section 7872. The timing,amount, and characterization of the im-puted transfers between the lender andborrower of a below-market split-dollarloan depend upon the relationship betweenthe parties and upon whether the loan is

November 17, 2003 1072 2003-46 I.R.B.

a demand loan or a term loan. For ad-ditional rules relating to the treatment ofsplit-dollar life insurance arrangements,see §1.61–22.

(2) Loan treatment—(i) General rule.A payment made pursuant to a split-dol-lar life insurance arrangement is treated asa loan for Federal tax purposes, and theowner and non-owner are treated, respec-tively, as the borrower and the lender, if—

(A) The payment is made either directlyor indirectly by the non-owner to the owner(including a premium payment made bythe non-owner directly or indirectly to theinsurance company with respect to the pol-icy held by the owner);

(B) The payment is a loan under gen-eral principles of Federal tax law or, if itis not a loan under general principles ofFederal tax law (for example, because ofthe nonrecourse nature of the obligation orotherwise), a reasonable person neverthe-less would expect the payment to be repaidin full to the non-owner (whether with orwithout interest); and

(C) The repayment is to be made from,or is secured by, the policy’s death ben-efit proceeds, the policy’s cash surrendervalue, or both.

(ii) Payments that are only partially re-payable. For purposes of §1.61–22 andthis section, if a non-owner makes a pay-ment pursuant to a split-dollar life insur-ance arrangement and the non-owner is en-titled to repayment of some but not all ofthe payment, the payment is treated as twopayments: one that is repayable and onethat is not. Thus, paragraph (a)(2)(i) of thissection refers to the repayable payment.

(iii) Treatment of payments that are notsplit-dollar loans. See §1.61–22(b)(5) forthe treatment of payments by a non-ownerthat are not split-dollar loans.

(iv) Examples. The provisions of thisparagraph (a)(2) are illustrated by the fol-lowing examples:

Example 1. Assume an employee owns a life in-surance policy under a split-dollar life insurance ar-rangement, the employer makes premium paymentson this policy, there is a reasonable expectation thatthe payments will be repaid, and the repayments aresecured by the policy. Under paragraph (a)(2)(i) ofthis section, each premium payment is a loan for Fed-eral tax purposes.

Example 2. (i) Assume an employee owns a lifeinsurance policy under a split-dollar life insurance ar-rangement and the employer makes premium pay-ments on this policy. The employer is entitled tobe repaid 80 percent of each premium payment, and

the repayments are secured by the policy. Underparagraph (a)(2)(ii) of this section, the taxation of20 percent of each premium payment is governed by§1.61–22(b)(5). If there is a reasonable expectationthat the remaining 80 percent of a payment will berepaid in full, then, under paragraph (a)(2)(i) of thissection, the 80 percent is a loan for Federal tax pur-poses.

(ii) If less than 80 percent of a premium paymentis reasonably expected to be repaid, then this para-graph (a)(2) does not cause any of the payment to bea loan for Federal tax purposes. If the payment is nota loan under general principles of Federal tax law, thetaxation of the entire premium payment is governedby §1.61–22(b)(5).

(3) No de minimis exceptions. For pur-poses of this section, section 7872 is ap-plied to a split-dollar loan without regardto the de minimis exceptions in section7872(c)(2) and (3).

(4) Certain interest provisions disre-garded—(i) In general. If a split-dollarloan provides for the payment of interestand all or a portion of the interest is to bepaid directly or indirectly by the lender(or a person related to the lender), then therequirement to pay the interest (or portionthereof) is disregarded for purposes of thissection. All of the facts and circumstancesdetermine whether a payment to be madeby the lender (or a person related to thelender) is sufficiently independent fromthe split-dollar loan for the payment to notbe an indirect payment of the interest (or aportion thereof) by the lender (or a personrelated to the lender).

(ii) Examples. The provisions of thisparagraph (a)(4) are illustrated by the fol-lowing examples:

Example 1—(i) On January 1, 2009, EmployeeB issues a split-dollar term loan to Employer Y. Thesplit-dollar term loan provides for five percent in-terest, compounded annually. Interest and principalon the split-dollar term loan are due at maturity. OnJanuary 1, 2009, B and Y also enter into a fully vestednon-qualified deferred compensation arrangementthat will provide a payment to B in an amount equalto the accrued but unpaid interest due at the maturityof the split-dollar term loan.

(ii) Under paragraph (a)(4)(i) of this section, B’srequirement to pay interest on the split-dollar termloan is disregarded for purposes of this section, andthe split-dollar term loan is treated as a loan that doesnot provide for interest for purposes of this section.

Example 2—(i) On January 1, 2004, Employee Band Employer Y enter into a fully vested non-qualifieddeferred compensation arrangement that will providea payment to B equal to B’s salary in the three yearspreceding the retirement of B. On January 1, 2009,B and Y enter into a split-dollar life insurance ar-rangement and, under the arrangement, B issues asplit-dollar term loan to Y on that date. The split-dol-lar term loan provides for five percent interest, com-pounded annually. Interest and principal on the split-

dollar term loan are due at maturity. Over the pe-riod in which the non-qualified deferred compensa-tion arrangement is effective, the terms and condi-tions of B’s non-qualified deferred compensation ar-rangement do not change in a way that indicates thatthe payment of the non-qualified deferred compen-sation is related to B’s requirement to pay intereston the split-dollar term loan. No other facts and cir-cumstances exist to indicate that the payment of thenon-qualified deferred compensation is related to B’srequirement to pay interest on the split-dollar termloan.

(ii) The facts and circumstances indicate that thepayment by Y of non-qualified deferred compensa-tion is independent from B’s requirement to pay inter-est under the split-dollar term loan. Under paragraph(a)(4)(i) of this section, the fully vested non-qualifieddeferred compensation does not cause B’s require-ment to pay interest on the split-dollar term loan to bedisregarded for purposes of this section. For purposesof this section, the split-dollar term loan is treated asa loan that provides for stated interest of five percent,compounded annually.

(b) Definitions. For purposes of thissection, the terms split-dollar life insur-ance arrangement, owner, and non-ownerhave the same meanings as provided in§1.61–22(b) and (c). In addition, the fol-lowing definitions apply for purposes ofthis section:

(1) A split-dollar loan is a loan de-scribed in paragraph (a)(2)(i) of this sec-tion.

(2) A split-dollar demand loan is anysplit-dollar loan that is payable in full atany time on the demand of the lender (orwithin a reasonable time after the lender’sdemand).

(3) A split-dollar term loan is anysplit-dollar loan other than a split-dollardemand loan. See paragraph (e)(5) of thissection for special rules regarding certainsplit-dollar term loans payable on thedeath of an individual, certain split-dol-lar term loans conditioned on the futureperformance of substantial services by anindividual, and gift split-dollar term loans.

(c) Interest deductions for split-dollarloans. The borrower may not deduct anyqualified stated interest, OID, or imputedinterest on a split-dollar loan. See sec-tions 163(h) and 264(a). In certain circum-stances, an indirect participant may be al-lowed to deduct qualified stated interest,OID, or imputed interest on a deemed loan.See paragraph (e)(2)(iii) of this section (re-lating to indirect loans).

(d) Treatment of split-dollar loans pro-viding for nonrecourse payments—(1) Ingeneral. Except as provided in paragraph(d)(2) of this section, if a payment on a

2003-46 I.R.B. 1073 November 17, 2003

split-dollar loan is nonrecourse to the bor-rower, the payment is a contingent pay-ment for purposes of this section. Seeparagraph (j) of this section for the treat-ment of a split-dollar loan that provides forone or more contingent payments.

(2) Exception for certain loans with re-spect to which the parties to the split-dollarlife insurance arrangement make a repre-sentation—(i) Requirement. An otherwisenoncontingent payment on a split-dollarloan that is nonrecourse to the borrower isnot a contingent payment under this sec-tion if the parties to the split-dollar life in-surance arrangement represent in writingthat a reasonable person would expect thatall payments under the loan will be made.

(ii) Time and manner for providingwritten representation. The Commis-sioner may prescribe the time and mannerfor providing the written representationrequired by paragraph (d)(2)(i) of this sec-tion. Until the Commissioner prescribesotherwise, the written representationthat is required by paragraph (d)(2)(i) ofthis section must meet the requirementsof this paragraph (d)(2)(ii). Both theborrower and the lender must sign therepresentation not later than the last day(including extensions) for filing the Fed-eral income tax return of the borrower orlender, whichever is earlier, for the taxableyear in which the lender makes the firstsplit-dollar loan under the split-dollar lifeinsurance arrangement. This representa-tion must include the names, addresses,and taxpayer identification numbers of theborrower, lender, and any indirect partic-ipants. Unless otherwise stated therein,this representation applies to all subse-quent split-dollar loans made pursuant tothe split-dollar life insurance arrangement.Each party should retain an original ofthe representation as part of its books andrecords and should attach a copy of thisrepresentation to its Federal income taxreturn for any taxable year in which thelender makes a loan to which the repre-sentation applies.

(e) Below-market split-dollarloans—(1) Scope—(i) In general. Thisparagraph (e) applies to below-mar-ket split-dollar loans enumerated undersection 7872(c)(1), which include giftloans, compensation-related loans, andcorporation-shareholder loans. The char-acterization of a split-dollar loan under

section 7872(c)(1) and of the imputedtransfers under section 7872(a)(1) and(b)(1) depends upon the relationship be-tween the lender and the borrower or thelender, borrower, and any indirect partic-ipant. For example, if the lender is theborrower’s employer, the split-dollar loanis generally a compensation-related loan,and any imputed transfer from the lenderto the borrower is generally a paymentof compensation. The loans covered bythis paragraph (e) include indirect loansbetween the parties. See paragraph (e)(2)of this section for the treatment of certainindirect split-dollar loans. See paragraph(f) of this section for the treatment of anystated interest or OID on split-dollar loans.See paragraph (j) of this section for addi-tional rules that apply to a split-dollar loanthat provides for one or more contingentpayments.

(ii) Significant-effect split-dollar loans.If a direct or indirect below-marketsplit-dollar loan is not enumerated insection 7872(c)(1)(A), (B), or (C), theloan is a significant-effect loan under sec-tion 7872(c)(1)(E).

(2) Indirect split-dollar loans—(i) Ingeneral. If, based on all the facts and cir-cumstances, including the relationship be-tween the borrower or lender and somethird person (the indirect participant), theeffect of a below-market split-dollar loanis to transfer value from the lender to theindirect participant and from the indirectparticipant to the borrower, then the be-low-market split-dollar loan is restructuredas two or more successive below-marketloans (the deemed loans) as provided inthis paragraph (e)(2). The transfers ofvalue described in the preceding sentenceinclude (but are not limited to) a gift, com-pensation, a capital contribution, and a dis-tribution under section 301 (or, in the caseof an S corporation, under section 1368).The deemed loans are—

(A) A deemed below-market split-dol-lar loan made by the lender to the indirectparticipant; and

(B) A deemed below-market split-dol-lar loan made by the indirect participant tothe borrower.

(ii) Application. Each deemed loan istreated as having the same provisions asthe original loan between the lender andborrower, and section 7872 is applied toeach deemed loan. Thus, for example, if,

under a split-dollar life insurance arrange-ment, an employer (lender) makes an inter-est-free split-dollar loan to an employee’schild (borrower), the loan is restructuredas a deemed compensation-related below-market split-dollar loan from the lenderto the employee (the indirect participant)and a second deemed gift below-marketsplit-dollar loan from the employee to theemployee’s child. In appropriate circum-stances, section 7872(d)(1) may limit theinterest that accrues on a deemed loan forFederal income tax purposes. For loan ar-rangements between husband and wife, seesection 7872(f)(7).

(iii) Limitations on investment interestfor purposes of section 163(d). For pur-poses of section 163(d), the imputed in-terest from the indirect participant to thelender that is taken into account by theindirect participant under this paragraph(e)(2) is not investment interest to the ex-tent of the excess, if any, of—

(A) The imputed interest from the indi-rect participant to the lender that is takeninto account by the indirect participant;over

(B) The imputed interest to the indirectparticipant from the borrower that is rec-ognized by the indirect participant.

(iv) Examples. The provisions of thisparagraph (e)(2) are illustrated by the fol-lowing examples:

Example 1. (i) On January 1, 2009, Employer Xand Individual A enter into a split-dollar life insurancearrangement under which A is named as the policyowner. A is the child of B, an employee of X. On Jan-uary 1, 2009, X makes a $30,000 premium payment,repayable upon demand without interest. Repaymentof the premium payment is fully recourse to A. Thepayment is a below-market split-dollar demand loan.A’s net investment income for 2009 is $1,100, andthere are no other outstanding loans between A andB. Assume that the blended annual rate for 2009 is 5percent, compounded annually.

(ii) Based on the relationships among the par-ties, the effect of the below-market split-dollar loanfrom X to A is to transfer value from X to B andthen to transfer value from B to A. Under paragraph(e)(2) of this section, the below-market split-dollarloan from X to A is restructured as two deemed be-low-market split-dollar demand loans: a compensa-tion-related below-market split-dollar loan betweenX and B and a gift below-market split-dollar loan be-tween B and A. Each of the deemed loans has the sameterms and conditions as the original loan.

(iii) Under paragraph (e)(3) of this section, theamount of forgone interest deemed paid to B by A in2009 is $1,500 ([$30,000 x 0.05] - 0). Under section7872(d)(1), however, the amount of forgone interestdeemed paid to B by A is limited to $1,100 (A’s netinvestment income for the year). Under paragraph

November 17, 2003 1074 2003-46 I.R.B.

(e)(2)(iii) of this section, B’s deduction under sec-tion 163(d) in 2009 for interest deemed paid on B’sdeemed loan from X is limited to $1,100 (the interestdeemed received from A).

Example 2. (i) The facts are the same as the factsin Example 1, except that T, an irrevocable life insur-ance trust established for the benefit of A (B’s child),is named as the policy owner. T is not a grantor trust.

(ii) Based on the relationships among the parties,the effect of the below-market split-dollar loan from Xto T is to transfer value from X to B and then to transfervalue from B to T. Under paragraph (e)(2) of this sec-tion, the below-market split-dollar loan from X to T isrestructured as two deemed below-market split-dollardemand loans: a compensation-related below-mar-ket split-dollar loan between X and B and a gift be-low-market split-dollar loan between B and T. Eachof the deemed loans has the same terms and condi-tions as the original loan.

(iii) Under paragraph (e)(3) of this section, theamount of forgone interest deemed paid to B by Tin 2009 is $1,500 ([$30,000 x 0.05] - 0). Section7872(d)(1) does not apply because T is not an indi-vidual. The amount of forgone interest deemed paidto B by T is $1,500. Under paragraph (e)(2)(iii) of thissection, B’s deduction under section 163(d) in 2009for interest deemed paid on B’s deemed loan from Xis $1,500 (the interest deemed received from T).

(3) Split-dollar demand loans—(i) Ingeneral. This paragraph (e)(3) providesrules for testing split-dollar demand loansfor sufficient interest, and, if the loans donot provide for sufficient interest, rules forthe calculation and treatment of forgone in-terest on these loans. See paragraph (g) ofthis section for additional rules that applyto a split-dollar loan providing for certainvariable rates of interest.

(ii) Testing for sufficient interest. Eachcalendar year that a split-dollar demandloan is outstanding, the loan is tested to de-termine if the loan provides for sufficientinterest. A split-dollar demand loan pro-vides for sufficient interest for the calen-dar year if the rate (based on annual com-pounding) at which interest accrues on theloan’s adjusted issue price during the yearis no lower than the blended annual rate forthe year. (The Internal Revenue Servicepublishes the blended annual rate in theInternal Revenue Bulletin in July of eachyear (see §601.601(d)(2)(ii) of this chap-ter).) If the loan does not provide for suf-ficient interest, the loan is a below-marketsplit-dollar demand loan for that calendaryear. See paragraph (e)(3)(iii) of this sec-tion to determine the amount and treatmentof forgone interest for each calendar yearthe loan is below-market.

(iii) Imputations—(A) Amount of for-gone interest. For each calendar year, theamount of forgone interest on a split-dollar

demand loan is treated as transferred by thelender to the borrower and as retransferredas interest by the borrower to the lender.This amount is the excess of—

(1) The amount of interest that wouldhave been payable on the loan for the cal-endar year if interest accrued on the loan’sadjusted issue price at the blended annualrate (determined in paragraph (e)(3)(ii)of this section) and were payable annu-ally on the day referred to in paragraph(e)(3)(iii)(B) of this section; over

(2) Any interest that accrues on the loanduring the year.

(B) Timing of transfers of forgone inter-est—(1) In general. Except as provided inparagraphs (e)(3)(iii)(B)(2) and (3) of thissection, the forgone interest (as determinedunder paragraph (e)(3)(iii)(A) of this sec-tion) that is attributable to a calendar yearis treated as transferred by the lender to theborrower (and retransferred as interest bythe borrower to the lender) on the last dayof the calendar year and is accounted for byeach party to the split-dollar loan in a man-ner consistent with that party’s method ofaccounting.

(2) Exception for death, liquidation, ortermination of the borrower. In the tax-able year in which the borrower dies (in thecase of a borrower who is a natural person)or is liquidated or otherwise terminated (inthe case of a borrower other than a naturalperson), any forgone interest is treated, forboth the lender and the borrower, as trans-ferred and retransferred on the last day ofthe borrower’s final taxable year.

(3) Exception for repayment of below-market split-dollar loan. Any forgone in-terest is treated, for both the lender and theborrower, as transferred and retransferredon the day the split-dollar loan is repaid infull.

(4) Split-dollar term loans—(i) In gen-eral. Except as provided in paragraph(e)(5) of this section, this paragraph (e)(4)provides rules for testing split-dollar termloans for sufficient interest and, if the loansdo not provide for sufficient interest, rulesfor imputing payments on these loans. Seeparagraph (g) of this section for additionalrules that apply to a split-dollar loan pro-viding for certain variable rates of interest.

(ii) Testing a split-dollar term loan forsufficient interest. A split-dollar term loanis tested on the day the loan is made to

determine if the loan provides for suffi-cient interest. A split-dollar term loan pro-vides for sufficient interest if the imputedloan amount equals or exceeds the amountloaned. The imputed loan amount is thepresent value of all payments due underthe loan, determined as of the date theloan is made, using a discount rate equalto the AFR in effect on that date. TheAFR used for purposes of the precedingsentence must be appropriate for the loan’sterm (short-term, mid-term, or long-term)and for the compounding period used incomputing the present value. See section1274(d)(1). If the split-dollar loan does notprovide for sufficient interest, the loan isa below-market split-dollar term loan sub-ject to paragraph (e)(4)(iv) of this section.

(iii) Determining loan term. This para-graph (e)(4)(iii) provides rules to deter-mine the term of a split-dollar term loanfor purposes of paragraph (e)(4)(ii) of thissection. The term of the loan determinedunder this paragraph (e)(4)(iii) (other thanparagraph (e)(4)(iii)(C) of this section) ap-plies to determine the split-dollar loan’sterm, payment schedule, and yield for allpurposes of this section.

(A) In general. Except as provided inparagraph (e)(4)(iii)(B), (C), (D) or (E) ofthis section, the term of a split-dollar termloan is based on the period from the datethe loan is made until the loan’s stated ma-turity date.

(B) Special rules for certain op-tions—(1) Payment schedule that min-imizes yield. If a split-dollar term loanis subject to one or more unconditionaloptions that are exercisable at one ormore times during the term of the loanand that, if exercised, require paymentsto be made on the split-dollar loan onan alternative payment schedule (for ex-ample, an option to extend or an optionto call a split-dollar loan), then the rulesof this paragraph (e)(4)(iii)(B)(1) deter-mine the term of the loan. However, thisparagraph (e)(4)(iii)(B)(1) applies only ifthe timing and amounts of the paymentsthat comprise each payment schedule areknown as of the issue date. For purposesof determining a split-dollar loan’s term,the borrower is projected to exercise ornot exercise an option or combination ofoptions in a manner that minimizes theloan’s overall yield. Similarly, the lenderis projected to exercise or not exercisean option or combination of options in a

2003-46 I.R.B. 1075 November 17, 2003

manner that minimizes the loan’s overallyield. If different projected patterns ofexercise or non-exercise produce the sameminimum yield, the parties are projectedto exercise or not exercise an option orcombination of options in a manner thatproduces the longest term.

(2) Change in circumstances. If the bor-rower (or lender) does or does not exer-cise the option as projected under para-graph (e)(4)(iii)(B)(1) of this section, thesplit-dollar loan is treated for purposes ofthis section as retired and reissued on thedate the option is or is not exercised foran amount of cash equal to the loan’s ad-justed issue price on that date. The reis-sued loan must be retested using the ap-propriate AFR in effect on the date of reis-suance to determine whether it is a be-low-market loan.

(3) Examples. The following exam-ples illustrate the rules of this paragraph(e)(4)(iii)(B):

Example 1. Employee B issues a 10-year split-dollar term loan to Employer Y. B has the right to pre-pay the loan at the end of year 5. Interest is payableon the split-dollar loan at 1 percent for the first 5years and at 10 percent for the remaining 5 years. Un-der paragraph (e)(4)(iii)(B)(1) of this section, this ar-rangement is treated as a 5-year split-dollar term loanfrom Y to B, with interest payable at 1 percent.

Example 2. The facts are the same as the facts inExample 1, except that B does not in fact prepay thesplit-dollar loan at the end of year 5. Under paragraph(e)(4)(iii)(B)(2) of this section, the first loan is treatedas retired at the end of year 5 and a new 5-year split-dollar term loan is issued at that time, with interestpayable at 10 percent.

Example 3. Employee A issues a 10-year split-dollar term loan on which the lender, Employer X, hasthe right to demand payment at the end of year 2. In-terest is payable on the split-dollar loan at 7 percenteach year that the loan is outstanding. Under para-graph (e)(4)(iii)(B)(1) of this section, this arrange-ment is treated as a 10-year split-dollar term loan be-cause the exercise of X’s put option would not re-duce the yield of the loan (the yield of the loan is 7percent, compounded annually, whether or not X de-mands payment).

(C) Split-dollar term loans providingfor certain variable rates of interest. Ifa split-dollar term loan is subject to para-graph (g) of this section (a split-dollar loanthat provides for certain variable rates ofinterest), the term of the loan for purposesof paragraph (e)(4)(ii) of this section is de-termined under paragraph (g)(3)(ii) of thissection.

(D) Split-dollar loans payable uponthe death of an individual. If a split-dol-lar term loan is described in paragraph(e)(5)(ii)(A) or (v)(A) of this section, the

term of the loan for purposes of paragraph(e)(4)(ii) of this section is determinedunder paragraph (e)(5)(ii)(C) or (v)(B)(2)of this section, whichever is applicable.

(E) Split-dollar loans conditioned onthe future performance of substantialservices by an individual. If a split-dol-lar term loan is described in paragraph(e)(5)(iii)(A)(1) or (v)(A) of this sec-tion, the term of the loan for purposesof paragraph (e)(4)(ii) of this section isdetermined under paragraph (e)(5)(iii)(C)or (v)(B)(2) of this section, whichever isapplicable.

(iv) Timing and amount of imputedtransfer in connection with below-marketsplit-dollar term loans. If a split-dollarterm loan is a below-market loan, thenthe rules applicable to below-market termloans under section 7872 apply. In general,the loan is recharacterized as consistingof two portions: an imputed loan amount(as defined in paragraph (e)(4)(ii) of thissection) and an imputed transfer from thelender to the borrower. The imputed trans-fer occurs at the time the loan is made (forexample, when the lender makes a pre-mium payment on a life insurance policy)and is equal to the excess of the amountloaned over the imputed loan amount.

(v) Amount treated as OID. In the caseof any below-market split-dollar term loandescribed in this paragraph (e)(4), for pur-poses of applying sections 1271 through1275 and the regulations thereunder, theissue price of the loan is the amount de-termined under §1.1273–2, reduced by theamount of the imputed transfer describedin paragraph (e)(4)(iv) of this section.Thus, the loan is generally treated as hav-ing OID in an amount equal to the amountof the imputed transfer described in para-graph (e)(4)(iv) of this section, in additionto any other OID on the loan (determinedwithout regard to section 7872(b)(2)(A) orthis paragraph (e)(4)).

(vi) Example. The provisions of thisparagraph (e)(4) are illustrated by the fol-lowing example:

Example. (i) On July 1, 2009, Corporation Zand Shareholder A enter into a split-dollar life insur-ance arrangement under which A is named as the pol-icy owner. On July 1, 2009, Z makes a $100,000premium payment, repayable without interest in 15years. Repayment of the premium payment is fullyrecourse to A. The premium payment is a split-dollarterm loan. Assume the long-term AFR (based on an-nual compounding) at the time the loan is made is 7percent.

(ii) Based on a 15-year term and a discount rateof 7 percent, compounded annually (the long-termAFR), the present value of the payments underthe loan is $36,244.60, determined as follows:$100,000/[1+(0.07/1)]15. This loan is a below-mar-ket split-dollar term loan because the imputed loanamount of $36,244.60 (the present value of theamount required to be repaid to Z) is less than theamount loaned ($100,000).

(iii) In accordance with section 7872(b)(1) andparagraph (e)(4)(iv) of this section, on the date thatthe loan is made, Z is treated as transferring to A$63,755.40 (the excess of $100,000 (amount loaned)over $36,244.60 (imputed loan amount)). Under sec-tion 7872 and paragraph (e)(1)(i) of this section, Z istreated as making a section 301 distribution to A onJuly 1, 2009, of $63,755.40. Z must take into accountas OID an amount equal to the imputed transfer. See§1.1272–1 for the treatment of OID.

(5) Special rules for certain split-dollarterm loans—(i) In general. This paragraph(e)(5) provides rules for split-dollar loanspayable on the death of an individual, split-dollar loans conditioned on the future per-formance of substantial services by an in-dividual, and gift term loans. These split-dollar loans are split-dollar term loans forpurposes of determining whether the loanprovides for sufficient interest. If, how-ever, the loan is a below-market split-dollarloan, then, except as provided in paragraph(e)(5)(v) of this section, forgone interest isdetermined annually, similar to a demandloan, but using an AFR that is appropriatefor the loan’s term and that is determinedwhen the loan is issued.

(ii) Split-dollar loans payable not laterthan the death of an individual—(A) Ap-plicability. This paragraph (e)(5)(ii) ap-plies to a split-dollar term loan payable notlater than the death of an individual.

(B) Treatment of loan. A split-dollarloan described in paragraph (e)(5)(ii)(A)of this section is tested under paragraph(e)(4)(ii) of this section to determine if theloan provides for sufficient interest. If theloan provides for sufficient interest, thensection 7872 does not apply to the loan,and the interest on the loan is taken intoaccount under paragraph (f) of this sec-tion. If the loan does not provide for suf-ficient interest, then section 7872 appliesto the loan, and the loan is treated as a be-low-market demand loan subject to para-graph (e)(3)(iii) of this section. For eachyear that the loan is outstanding, however,the rate used in the determination of for-gone interest under paragraph (e)(3)(iii) ofthis section is not the blended annual ratebut rather is the AFR (based on annualcompounding) appropriate for the loan’s

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term as of the month in which the loan ismade. See paragraph (e)(5)(ii)(C) of thissection to determine the loan’s term.

(C) Term of loan. For purposes of para-graph (e)(5)(ii)(B) of this section, the termof a split-dollar loan payable on the deathof an individual (including the death ofthe last survivor of a group of individu-als) is the individual’s life expectancy asdetermined under the appropriate table in§1.72–9 on the day the loan is made. If asplit-dollar loan is payable on the earlier ofthe individual’s death or another term de-termined under paragraph (e)(4)(iii) of thissection, the term of the loan is whicheverterm is shorter.

(D) Retirement and reissuance of loan.If a split-dollar loan described in paragraph(e)(5)(ii)(A) of this section remains out-standing longer than the term determinedunder paragraph (e)(5)(ii)(C) of this sec-tion because the individual outlived his orher life expectancy, the split-dollar loan istreated for purposes of this section as re-tired and reissued as a split-dollar demandloan at that time for an amount of cashequal to the loan’s adjusted issue price onthat date. However, the loan is not retestedat that time to determine whether the loanprovides for sufficient interest. For pur-poses of determining forgone interest un-der paragraph (e)(5)(ii)(B) of this section,the appropriate AFR for the reissued loanis the AFR determined under paragraph(e)(5)(ii)(B) of this section on the day theloan was originally made.

(iii) Split-dollar loans conditionedon the future performance of substantialservices by an individual—(A) Applica-bility—(1) In general. This paragraph(e)(5)(iii) applies to a split-dollar termloan if the benefits of the interest arrange-ments of the loan are not transferable andare conditioned on the future performanceof substantial services (within the meaningof section 83) by an individual.

(2) Exception. Notwithstanding para-graph (e)(5)(iii)(A)(1) of this section, thisparagraph (e)(5)(iii) does not apply to asplit-dollar loan described in paragraph(e)(5)(v)(A) of this section (regarding asplit-dollar loan that is payable on the laterof a term certain and the date on whichthe condition to perform substantial futureservices by an individual ends).

(B) Treatment of loan. A split-dol-lar loan described in paragraph(e)(5)(iii)(A)(1) of this section is tested

under paragraph (e)(4)(ii) of this sectionto determine if the loan provides for suf-ficient interest. Except as provided inparagraph (e)(5)(iii)(D) of this section, ifthe loan provides for sufficient interest,then section 7872 does not apply to theloan and the interest on the loan is takeninto account under paragraph (f) of thissection. If the loan does not provide forsufficient interest, then section 7872 ap-plies to the loan and the loan is treated asa below-market demand loan subject toparagraph (e)(3)(iii) of this section. Foreach year that the loan is outstanding,however, the rate used in the determina-tion of forgone interest under paragraph(e)(3)(iii) of this section is not the blendedannual rate but rather is the AFR (based onannual compounding) appropriate for theloan’s term as of the month in which theloan is made. See paragraph (e)(5)(iii)(C)of this section to determine the loan’sterm.

(C) Term of loan. The term of asplit-dollar loan described in paragraph(e)(5)(iii)(A)(1) of this section is basedon the period from the date the loan ismade until the loan’s stated maturity date.However, if a split-dollar loan described inparagraph (e)(5)(iii)(A)(1) of this sectiondoes not have a stated maturity date, theterm of the loan is presumed to be sevenyears.

(D) Retirement and reissuance of loan.If a split-dollar loan described in para-graph (e)(5)(iii)(A)(1) of this section re-mains outstanding longer than the termdetermined under paragraph (e)(5)(iii)(C)of this section because of the continuedperformance of substantial services, thesplit-dollar loan is treated for purposes ofthis section as retired and reissued as asplit-dollar demand loan at that time foran amount of cash equal to the loan’s ad-justed issue price on that date. The loan isretested at that time to determine whetherthe loan provides for sufficient interest.

(iv) Gift split-dollar term loans—(A)Applicability. This paragraph (e)(5)(iv)applies to gift split-dollar term loans.

(B) Treatment of loan. A split-dollarloan described in paragraph (e)(5)(iv)(A)of this section is tested under paragraph(e)(4)(ii) of this section to determine if theloan provides for sufficient interest. If theloan provides for sufficient interest, thensection 7872 does not apply to the loanand the interest on the loan is taken into

account under paragraph (f) of this sec-tion. If the loan does not provide for suf-ficient interest, then section 7872 appliesto the loan and the loan is treated as a be-low-market demand loan subject to para-graph (e)(3)(iii) of this section. For eachyear that the loan is outstanding, however,the rate used in the determination of for-gone interest under paragraph (e)(3)(iii) ofthis section is not the blended annual ratebut rather is the AFR (based on annualcompounding) appropriate for the loan’sterm as of the month in which the loan ismade. See paragraph (e)(5)(iv)(C) of thissection to determine the loan’s term.

(C) Term of loan. For purposes of para-graph (e)(5)(iv)(B) of this section, the termof a gift split-dollar term loan is the termdetermined under paragraph (e)(4)(iii) ofthis section.

(D) Limited application for gift split-dollar term loans. The rules of paragraph(e)(5)(iv)(B) of this section apply to a giftsplit-dollar term loan only for Federal in-come tax purposes. For purposes of Chap-ter 12 of the Internal Revenue Code (relat-ing to the gift tax), gift below-market split-dollar term loans are treated as term loansunder section 7872(b) and paragraph (e)(4)of this section. See section 7872(d)(2).

(v) Split-dollar loans payable on thelater of a term certain and another spec-ified date—(A) Applicability. This para-graph (e)(5)(v) applies to any split-dollarterm loan payable upon the later of a termcertain or—

(1) The death of an individual; or(2) For a loan described in paragraph

(e)(5)(iii)(A)(1) of this section, the date onwhich the condition to perform substantialfuture services by an individual ends.

(B) Treatment of loan—(1) In general.A split-dollar loan described in paragraph(e)(5)(v)(A) of this section is a split-dollarterm loan, subject to paragraph (e)(4) ofthis section.

(2) Term of the loan. The term of asplit-dollar loan described in paragraph(e)(5)(v)(A) of this section is the termcertain.

(3) Appropriate AFR. The appropriateAFR for a split-dollar loan described inparagraph (e)(5)(v)(A) of this section isbased on a term of the longer of the termcertain or the loan’s expected term as de-termined under either paragraph (e)(5)(ii)or (iii) of this section, whichever is appli-cable.

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(C) Retirement and reissuance. If asplit-dollar loan described in paragraph(e)(5)(v)(A) of this section remains out-standing longer than the term certain, thesplit-dollar loan is treated for purposesof this section as retired and reissued atthe end of the term certain for an amountof cash equal to the loan’s adjusted is-sue price on that date. The reissued loanis subject to paragraph (e)(5)(ii) or (iii)of this section, whichever is applicable.However, the loan is not retested at thattime to determine whether the loan pro-vides for sufficient interest. For purposesof paragraph (e)(3)(iii) of this section,the appropriate AFR for the reissued loanis the AFR determined under paragraph(e)(5)(v)(B)(3) of this section on the daythe loan was originally made.

(vi) Example. The provisions of thisparagraph (e)(5) are illustrated by the fol-lowing example:

Example. (i) On January 1, 2009, Corporation Yand Shareholder B, a 65 year-old male, enter into asplit-dollar life insurance arrangement under whichB is named as the policy owner. On January 1, 2009,Y makes a $100,000 premium payment, repayable,without interest, from the death benefits of the under-lying contract upon B’s death. The premium paymentis a split-dollar term loan. Repayment of the premiumpayment is fully recourse to B. Assume the long-termAFR (based on annual compounding) at the time ofthe loan is 7 percent. Both Y and B use the calendaryear as their taxable years.

(ii) Based on Table 1 in §1.72–9, the expectedterm of the loan is 15 years. Under paragraph(e)(5)(ii)(C) of this section, the long-term AFR(based on annual compounding) is the appropriatetest rate. Based on a 15-year term and a dis-count rate of 7 percent, compounded annually (thelong-term AFR), the present value of the paymentsunder the loan is $36,244.60, determined as fol-lows: $100,000/[1+(0.07/1)]15. Under paragraph(e)(5)(ii)(B) of this section, this loan is a below-mar-ket split-dollar term loan because the imputed loanamount of $36,244.60 (the present value of theamount required to be repaid to Y) is less than theamount loaned ($100,000).

(iii) Under paragraph (e)(5)(ii)(B) of this section,the amount of forgone interest for 2009 (and each sub-sequent full calendar year that the loan remains out-standing) is $7,000, which is the amount of interestthat would have been payable on the loan for the cal-endar year if interest accrued on the loan’s adjustedissue price ($100,000) at the long-term AFR (7 per-cent, compounded annually). Under section 7872 andparagraph (e)(1)(i) of this section, on December 31,2009, Y is treated as making a section 301 distributionto B of $7,000. In addition, Y has $7,000 of imputedinterest income for 2009.

(f) Treatment of stated interest and OIDfor split-dollar loans—(1) In general. Ifa split-dollar loan provides for stated in-terest or OID, the loan is subject to this

paragraph (f), regardless of whether thesplit-dollar loan has sufficient interest. Ex-cept as otherwise provided in this section,split-dollar loans are subject to the sameInternal Revenue Code and regulatory pro-visions for stated interest and OID as otherloans. For example, the lender of a split-dollar loan that provides for stated inter-est must account for any qualified statedinterest (as defined in §1.1273–1(c)) un-der its regular method of accounting (forexample, an accrual method or the cashreceipts and disbursements method). See§1.446–2 to determine the amount of qual-ified stated interest that accrues during anaccrual period. In addition, the lender mustaccount under §1.1272–1 for any OID ona split-dollar loan. However, §1.1272–1(c)does not apply to any split-dollar loan. Seeparagraph (h) of this section for a subse-quent waiver, cancellation, or forgivenessof stated interest on a split-dollar loan.

(2) Term, payment schedule, and yield.The term of a split-dollar term loan deter-mined under paragraph (e)(4)(iii) of thissection (other than paragraph (e)(4)(iii)(C)of this section) applies to determine thesplit-dollar loan’s term, payment schedule,and yield for all purposes of this section.

(g) Certain variable rates of inter-est—(1) In general. This paragraph (g)provides rules for a split-dollar loan thatprovides for certain variable rates of inter-est. If this paragraph (g) does not apply toa variable rate split-dollar loan, the loan issubject to the rules in paragraph (j) of thissection for split-dollar loans that providefor one or more contingent payments.

(2) Applicability—(i) In general. Ex-cept as provided in paragraph (g)(2)(ii) ofthis section, this paragraph (g) applies toa split-dollar loan that is a variable ratedebt instrument (within the meaning of§1.1275–5) and that provides for stated in-terest at a qualified floating rate (or rates).

(ii) Interest rate restrictions. This para-graph (g) does not apply to a split-dollarloan if, as a result of interest rate restric-tions (such as an interest rate cap), the ex-pected yield of the loan taking the restric-tions into account is significantly less thanthe expected yield of the loan without re-gard to the restrictions. Conversely, if rea-sonably symmetric interest rate caps andfloors or reasonably symmetric governorsare fixed throughout the term of the loan,these restrictions generally do not prevent

this paragraph (g) from applying to theloan.

(3) Testing for sufficient interest—(i)Demand loan. For purposes of paragraph(e)(3)(ii) of this section (regarding testinga split-dollar demand loan for sufficient in-terest), a split-dollar demand loan is treatedas if it provided for a fixed rate of interestfor each accrual period to which a qualifiedfloating rate applies. The projected fixedrate for each accrual period is the value ofthe qualified floating rate as of the begin-ning of the calendar year that contains thelast day of the accrual period.

(ii) Term loan. For purposes of para-graph (e)(4)(ii) of this section (regardingtesting a split-dollar term loan for suffi-cient interest), a split-dollar term loan sub-ject to this paragraph (g) is treated as ifit provided for a fixed rate of interest foreach accrual period to which a qualifiedfloating rate applies. The projected fixedrate for each accrual period is the valueof the qualified floating rate on the datethe split-dollar term loan is made. Theterm of a split-dollar loan that is subject tothis paragraph (g)(3)(ii) is determined us-ing the rules in §1.1274–4(c)(2). For ex-ample, if the loan provides for interest at aqualified floating rate that adjusts at vary-ing intervals, the term of the loan is de-termined by reference to the longest in-terval between interest adjustment dates.See paragraph (e)(5) of this section forspecial rules relating to certain split-dollarterm loans, such as a split-dollar term loanpayable not later than the death of an indi-vidual.

(4) Interest accruals and imputed trans-fers. For purposes of paragraphs (e) and(f) of this section, the projected fixed rateor rates determined under paragraph (g)(3)of this section are used for purposes of de-termining the accrual of interest each pe-riod and the amount of any imputed trans-fers. Appropriate adjustments are made tothe interest accruals and any imputed trans-fers to take into account any difference be-tween the projected fixed rate and the ac-tual rate.

(5) Example. The provisions of thisparagraph (g) are illustrated by the follow-ing example:

Example. (i) On January 1, 2010, Employer Vand Employee F enter into a split-dollar life insur-ance arrangement under which F is named as the pol-icy owner. On January 1, 2010, V makes a $100,000premium payment, repayable in 15 years. The pre-mium payment is a split-dollar term loan. Under the

November 17, 2003 1078 2003-46 I.R.B.

arrangement between the parties, interest is payableon the split-dollar loan each year on January 1, start-ing January 1, 2011, at a rate equal to the value of1-year LIBOR as of the payment date. The short-termAFR (based on annual compounding) at the time ofthe loan is 7 percent. Repayment of both the premiumpayment and the interest due thereon is nonrecourseto F. However, the parties made a representation un-der paragraph (d)(2) of this section. Assume that thevalue of 1-year LIBOR on January 1, 2010, is 8 per-cent, compounded annually.

(ii) The loan is subject to this paragraph (g) be-cause the loan is a variable rate debt instrument thatbears interest at a qualified floating rate. Becausethe interest rate is reset each year, under paragraph(g)(3)(ii) of this section, the short-term AFR (basedon annual compounding) is the appropriate test rateused to determine whether the loan provides for suf-ficient interest. Moreover, under paragraph (g)(3)(ii)of this section, to determine whether the loan pro-vides for sufficient interest, the loan is treated as ifit provided for a fixed rate of interest equal to 8 per-cent, compounded annually. Based on a discount rateof 7 percent, compounded annually (the short-termAFR), the present value of the payments under theloan is $109,107.91. The loan provides for sufficientinterest because the loan’s imputed loan amount of$109,107.91 (the present value of the payments) ismore than the amount loaned of $100,000. Therefore,the loan is not a below-market split-dollar term loan,and interest on the loan is taken into account underparagraph (f) of this section.

(h) Adjustments for interest paid at lessthan the stated rate—(1) Application—(i)In general. To the extent required by thisparagraph (h), if accrued but unpaid inter-est on a split-dollar loan is subsequentlywaived, cancelled, or forgiven by thelender, then the waiver, cancellation, orforgiveness is treated as if, on that date, theinterest had in fact been paid to the lenderand retransferred by the lender to the bor-rower. The amount deemed transferredand retransferred is determined underparagraph (h)(2) or (3) of this section. Ex-cept as provided in paragraph (h)(1)(iv) ofthis section, the amount treated as retrans-ferred by the lender to the borrower underparagraph (h)(2) or (3) of this section is in-creased by the deferral charge determinedunder paragraph (h)(4) of this section. Todetermine the character of any retrans-ferred amount, see paragraph (e)(1)(i) ofthis section. See §1.61–22(b)(6) for thetreatment of amounts other than intereston a split-dollar loan that are waived,cancelled, or forgiven by the lender.

(ii) Certain split-dollar term loans. Forpurposes of this paragraph (h), a split-dol-lar term loan described in paragraph (e)(5)of this section (for example, a split-dollarterm loan payable not later than the death

of an individual) is subject to the rules ofparagraph (h)(3) of this section.

(iii) Payments treated as a waiver, can-cellation, or forgiveness. For purposes ofthis paragraph (h), if a payment by thelender (or a person related to the lender)to the borrower is, in substance, a waiver,cancellation, or forgiveness of accrued butunpaid interest, the payment by the lender(or person related to the lender) is treatedas an amount retransferred to the borrowerby the lender under this paragraph (h) andis subject to the deferral charge in para-graph (h)(4) of this section to the extentthat the payment is, in substance, a waiver,cancellation, or forgiveness of accrued butunpaid interest.

(iv) Treatment of certain nonrecoursesplit-dollar loans. For purposes of thisparagraph (h), if the parties to a split-dollarlife insurance arrangement make the rep-resentation described in paragraph (d)(2)of this section and the interest actuallypaid on the split-dollar loan is less thanthe interest required to be accrued on thesplit-dollar loan, the excess of the interestrequired to be accrued over the interest ac-tually paid is treated as waived, cancelled,or forgiven by the lender under this para-graph (h). However, the amount treated asretransferred under paragraph (h)(1)(i) ofthis section is not increased by the deferralcharge in paragraph (h)(4) of this section.

(2) Split-dollar term loans. In the caseof a split-dollar term loan, the amount ofinterest deemed transferred and retrans-ferred for purposes of paragraph (h)(1) ofthis section is determined as follows:

(i) If the loan’s stated rate is less thanor equal to the appropriate AFR (the AFRused to test the loan for sufficient inter-est under paragraph (e) of this section), theamount of interest deemed transferred andretransferred pursuant to this paragraph (h)is the excess of the amount of interestpayable at the stated rate over the interestactually paid.

(ii) If the loan’s stated rate is greaterthan the appropriate AFR (the AFR usedto test the loan for sufficient interest underparagraph (e) of this section), the amountof interest deemed transferred and retrans-ferred pursuant to this paragraph (h) is theexcess, if any, of the amount of interestpayable at the AFR over the interest actu-ally paid.

(3) Split-dollar demand loans. In thecase of a split-dollar demand loan, the

amount of interest deemed transferred andretransferred for purposes of paragraph(h)(1) of this section is equal to the aggre-gate of—

(i) For each year that the split-dollar de-mand loan was outstanding in which theloan was a below-market split-dollar de-mand loan, the excess of the amount of in-terest payable at the stated rate over the in-terest actually paid allocable to that year;plus

(ii) For each year that the split-dollardemand loan was outstanding in which theloan was not a below-market split-dollardemand loan, the excess, if any, of theamount of interest payable at the appropri-ate rate used for purposes of imputation forthat year over the interest actually paid al-locable to that year.

(4) Deferral charge. The Commis-sioner may prescribe the method fordetermining the deferral charge treated asretransferred by the lender to the borrowerunder paragraph (h)(1) of this section. Un-til the Commissioner prescribes otherwise,the deferral charge is determined underparagraph (h)(4)(i) of this section for asplit-dollar term loan subject to paragraph(h)(2) of this section and under paragraph(h)(4)(ii) of this section for a split-dollardemand loan subject to paragraph (h)(3)of this section.

(i) Split-dollar term loan. The defer-ral charge for a split-dollar term loan sub-ject to paragraph (h)(2) of this section isdetermined by multiplying the hypothet-ical underpayment by the applicable un-derpayment rate, compounded daily, forthe period from the date the split-dollarloan was made to the date the interest iswaived, cancelled, or forgiven. The hy-pothetical underpayment is equal to theamount determined under paragraph (h)(2)of this section, multiplied by the highestrate of income tax applicable to the bor-rower (for example, the highest rate in ef-fect under section 1 for individuals) for thetaxable year in which the split-dollar termloan was made. The applicable underpay-ment rate is the average of the quarterlyunderpayment rates in effect under section6621(a)(2) for the period from the date thesplit-dollar loan was made to the date theinterest is waived, cancelled, or forgiven.

(ii) Split-dollar demand loan. Thedeferral charge for a split-dollar demandloan subject to paragraph (h)(3) of this sec-tion is the sum of the following amounts

2003-46 I.R.B. 1079 November 17, 2003

determined for each year the loan wasoutstanding (other than the year in whichthe waiver, cancellation, or forgivenessoccurs): For each year the loan wasoutstanding, multiply the hypothetical un-derpayment for the year by the applicableunderpayment rate, compounded daily,for the applicable period. The hypotheti-cal underpayment is equal to the amountdetermined under paragraph (h)(3) of thissection for each year, multiplied by thehighest rate of income tax applicable tothe borrower for that year (for example,the highest rate in effect under section 1for individuals). The applicable underpay-ment rate is the average of the quarterlyunderpayment rates in effect under section6621(a)(2) for the applicable period. Theapplicable period for a year is the periodof time from the last day of that year untilthe date the interest is waived, cancelled,or forgiven.

(5) Examples. The provisions of thisparagraph (h) are illustrated by the follow-ing examples:

Example 1. (i) On January 1, 2009, Employer Yand Employee B entered into a split-dollar life insur-ance arrangement under which B is named as the pol-icy owner. On January 1, 2009, Y made a $100,000premium payment, repayable on December 31, 2011,with interest of 5 percent, compounded annually. Thepremium payment is a split-dollar term loan. Assumethe short-term AFR (based on annual compounding)at the time the loan was made was 5 percent. Repay-ment of both the premium payment and the interestdue thereon was fully recourse to B. On December31, 2011, Y is repaid $100,000 but Y waives the re-mainder due on the loan ($15,762.50). Both Y and Buse the calendar year as their taxable years.

(ii) When the split-dollar term loan was made, theloan was not a below-market loan under paragraph(e)(4)(ii) of this section. Under paragraph (f) of thissection, Y was required to accrue compound interestof 5 percent each year the loan remained outstanding.B, however, was not entitled to any deduction for thisinterest under paragraph (c) of this section.

(iii) Under paragraph (h)(1) of this section, thewaived amount is treated as if, on December 31, 2011,it had in fact been paid to Y and was then retransferredby Y to B. The amount deemed transferred to Y and re-transferred to B equals the excess of the amount of in-terest payable at the stated rate ($15,762.50) over theinterest actually paid ($0), or $15,762.50. In addition,the amount deemed retransferred to B is increased bythe deferral charge determined under paragraph (h)(4)of this section. Because of the employment relation-ship between Y and B, the total retransferred amountis treated as compensation paid by Y to B.

Example 2. (i) On January 1, 2009, Employer Yand Employee B entered into a split-dollar life insur-ance arrangement under which B is named as the pol-icy owner. On January 1, 2009, Y made a $100,000premium payment, repayable on the demand of Y,with interest of 7 percent, compounded annually. The

premium payment is a split-dollar demand loan. As-sume the blended annual rate (based on annual com-pounding) in 2009 was 5 percent and in 2010 was 6percent. Repayment of both the premium paymentand the interest due thereon was fully recourse to B.On December 31, 2010, Y demands repayment andis repaid its $100,000 premium payment in full; how-ever, Y waives all interest due on the loan. Both Y andB use the calendar year as their taxable years.

(ii) For each year that the split-dollar demand loanwas outstanding, the loan was not a below-marketloan under paragraph (e)(3)(ii) of this section. Underparagraph (f) of this section, Y was required to accruecompound interest of 7 percent each year the loan re-mained outstanding. B, however, was not entitled toany deduction for this interest under paragraph (c) ofthis section.

(iii) Under paragraph (h)(1) of this section, a por-tion of the waived interest is treated as if, on Decem-ber 31, 2010, it had in fact been paid to Y and wasthen retransferred by Y to B. The amount of interestdeemed transferred to Y and retransferred to B equalsthe excess, if any, of the amount of interest payableat the blended annual rate for each year the loan isoutstanding over the interest actually paid with re-spect to that year. For 2009, the interest payable at theblended annual rate is $5,000 ($100,000 x 0.05). For2010, the interest payable at the blended annual rate is$6,000 ($100,000 x 0.06). Therefore, the amount ofinterest deemed transferred to Y and retransferred toB equals $11,000. In addition, the amount deemed re-transferred to B is increased by the deferral charge de-termined under paragraph (h)(4) of this section. Be-cause of the employment relationship between Y andB, the total retransferred amount is treated as com-pensation paid by Y to B.

(i) [Reserved](j) Split-dollar loans that provide for

contingent payments—(1) In general. Ex-cept as provided in paragraph (j)(2) of thissection, this paragraph (j) provides rulesfor a split-dollar loan that provides for oneor more contingent payments. This para-graph (j), rather than §1.1275–4, appliesto split-dollar loans that provide for one ormore contingent payments.

(2) Exceptions—(i) Certain contingen-cies. For purposes of this section, a split-dollar loan does not provide for contingentpayments merely because—

(A) The loan provides for options de-scribed in paragraph (e)(4)(iii)(B) of thissection (for example, certain call options,put options, and options to extend); or

(B) The loan is described in paragraph(e)(5) of this section (relating to certainsplit-dollar term loans, such as a split-dol-lar term loan payable not later than thedeath of an individual).

(ii) Insolvency and default. For pur-poses of this section, a payment is not con-tingent merely because of the possibility of

impairment by insolvency, default, or sim-ilar circumstances. However, if any pay-ment on a split-dollar loan is nonrecourseto the borrower, the payment is a contin-gent payment for purposes of this para-graph (j) unless the parties to the arrange-ment make the written representation pro-vided for in paragraph (d)(2) of this sec-tion.

(iii) Remote and incidental contingen-cies. For purposes of this section, a pay-ment is not a contingent payment merelybecause of a contingency that, as of thedate the split-dollar loan is made, is eitherremote or incidental (within the meaningof §1.1275–2(h)).

(iv) Exceptions for certain split-dol-lar loans. This paragraph (j) does notapply to a split-dollar loan describedin §1.1272–1(d) (certain debt instru-ments that provide for a fixed yield) or asplit-dollar loan described in paragraph(g) of this section (relating to split-dollarloans providing for certain variable ratesof interest).

(3) Contingent split-dollar method—(i)In general. If a split-dollar loan providesfor one or more contingent payments,then the parties account for the loan underthe contingent split-dollar method. Ingeneral, except as provided in this para-graph (j), this method is the same as thenoncontingent bond method described in§1.1275–4(b).

(ii) Projected payment schedule—(A)Determination of schedule. No compa-rable yield is required to be determined.The projected payment schedule for theloan includes all noncontingent paymentsand a projected payment for each contin-gent payment. The projected payment fora contingent payment is the lowest possi-ble value of the payment. The projectedpayment schedule, however, must producea yield that is not less than zero. If the pro-jected payment schedule produces a nega-tive yield, the schedule must be reasonablyadjusted to produce a yield of zero.

(B) Split-dollar term loans payableupon the death of an individual. If asplit-dollar term loan described in para-graph (e)(5)(ii)(A) or (v)(A)(1) of thissection provides for one or more contin-gent payments, the projected paymentschedule is determined based on the termof the loan as determined under paragraph(e)(5)(ii)(C) or (v)(B)(2) of this section,whichever is applicable.

November 17, 2003 1080 2003-46 I.R.B.

(C) Certain split-dollar term loansconditioned on the future performanceof substantial services by an individual.If a split-dollar term loan described inparagraph (e)(5)(iii)(A)(1) or (v)(A)(2) ofthis section provides for one or more con-tingent payments, the projected paymentschedule is determined based on the termof the loan as determined under paragraph(e)(5)(iii)(C) or (v)(B)(2) of this section,whichever is applicable.

(D) Demand loans. If a split-dollar de-mand loan provides for one or more con-tingent payments, the projected paymentschedule is determined based on a reason-able assumption as to when the lender willdemand repayment.

(E) Borrower/lender consistency. Con-trary to §1.1275–4(b)(4)(iv), the lenderrather than the borrower is required todetermine the projected payment scheduleand to provide the schedule to the borrowerand to any indirect participant as describedin paragraph (e)(2) of this section. Thelender’s projected payment schedule isused by the lender, the borrower, and anyindirect participant to compute interestaccruals and adjustments.

(iii) Negative adjustments. If the is-suer of a split-dollar loan is not allowed todeduct interest or OID (for example, be-cause of section 163(h) or 264), then theissuer is not required to include in incomeany negative adjustment carryforward de-termined under §1.1275–4(b)(6)(iii)(C) onthe loan, except to the extent that at matu-rity the total payments made over the lifeof the loan are less than the issue price ofthe loan.

(4) Application of section 7872—(i)Determination of below-market status.The yield based on the projected paymentschedule determined under paragraph(j)(3) of this section is used to deter-mine whether the loan is a below-marketsplit-dollar loan under paragraph (e) ofthis section.

(ii) Adjustment upon the resolution of acontingent payment. To the extent that in-terest has accrued under section 7872 ona split-dollar loan and the interest wouldnot have accrued under this paragraph (j)in the absence of section 7872, the lenderis not required to recognize income under§1.1275–4(b) for a positive adjustment andthe borrower is not treated as having in-terest expense for a positive adjustment.To the same extent, there is a reversal of

the tax consequences imposed under para-graph (e) of this section for the prior im-puted transfer from the lender to the bor-rower. This reversal is taken into accountin determining adjusted gross income.

(5) Examples. The following examplesillustrate the rules of this paragraph (j). Forpurposes of this paragraph (j)(5), assumethat the contingent payments are neitherremote nor incidental. The examples areas follows:

Example 1. (i) On January 1, 2010, Employer Tand Employee G enter into a split-dollar life insur-ance arrangement under which G is named as the pol-icy owner. On January 1, 2010, T makes a $100,000premium payment. On December 31, 2013, T will berepaid an amount equal to the premium payment plusan amount based on the increase, if any, in the priceof a specified commodity for the period the loan isoutstanding. The premium payment is a split-dollarterm loan. Repayment of both the premium paymentand the interest due thereon is recourse to G. Assumethat the appropriate AFR for this loan, based on an-nual compounding, is 7 percent. Both T and G usethe calendar year as their taxable years.

(ii) Under this paragraph (j), the split-dollar termloan between T and G provides for a contingent pay-ment. Therefore, the loan is subject to the contingentsplit-dollar method. Under this method, the projectedpayment schedule for the loan provides for a noncon-tingent payment of $100,000 and a projected paymentof $0 for the contingent payment (because it is thelowest possible value of the payment) on December31, 2013.

(iii) Based on the projected payment scheduleand a discount rate of 7 percent, compounded an-nually (the appropriate AFR), the present value ofthe payments under the loan is $76,289.52. Underparagraphs (e)(4) and (j)(4)(i) of this section, theloan does not provide for sufficient interest becausethe loan’s imputed loan amount of $76,289.52 (thepresent value of the payments) is less than theamount loaned of $100,000. Therefore, the loan isa below-market split-dollar term loan and the loanis recharacterized as consisting of two portions: animputed loan amount of $76,289.52 and an imputedtransfer of $23,710.48 (amount loaned of $100,000minus the imputed loan amount of $76,289.52).

(iv) In accordance with section 7872(b)(1) andparagraph (e)(4)(iv) of this section, on the datethe loan is made, T is treated as transferring to G$23,710.48 (the imputed transfer) as compensation.In addition, T must take into account as OID anamount equal to the imputed transfer. See §1.1272–1for the treatment of OID.

Example 2. (i) Assume, in addition to the factsin Example 1, that on December 31, 2013, T receives$115,000 (its premium payment of $100,000 plus$15,000).

(ii) Under the contingent split-dollar method,when the loan is repaid, there is a $15,000 posi-tive adjustment ($15,000 actual payment minus $0projected payment). Under paragraph (j)(4) of thissection, because T accrued imputed interest undersection 7872 on this split-dollar loan to G and thisinterest would not have accrued in the absence ofsection 7872, T is not required to include the positive

adjustment in income, and G is not treated as havinginterest expense for the positive adjustment. To thesame extent, T must include in income, and G isentitled to deduct, $15,000 to reverse their respectiveprior tax consequences imposed under paragraph (e)of this section (T’s prior deduction for imputed com-pensation deemed paid to G and G’s prior inclusionof this amount). G takes the reversal into accountin determining adjusted gross income. That is, the$15,000 is an “above-the-line” deduction, whetheror not G itemizes deductions.

Example 3. (i) Assume the same facts as in Ex-ample 2, except that on December 31, 2013, T re-ceives $127,000 (its premium payment of $100,000plus $27,000).

(ii) Under the contingent split-dollar method,when the loan is repaid, there is a $27,000 pos-itive adjustment ($27,000 actual payment minus$0 projected payment). Under paragraph (j)(4) ofthis section, because T accrued imputed interest of$23,710.48 under section 7872 on this split-dollarloan to G and this interest would not have accruedin the absence of section 7872, T is not requiredto include $23,710.48 of the positive adjustmentin income, and G is not treated as having interestexpense for the positive adjustment. To the sameextent, in 2013, T must include in income, and Gis entitled to deduct, $23,710.48 to reverse theirrespective prior tax consequences imposed underparagraph (e) of this section (T’s prior deduction forimputed compensation deemed paid to G and G’sprior inclusion of this amount). G and T take thesereversals into account in determining adjusted grossincome. Under the contingent split-dollar method, Tmust include in income $3,289.52 upon resolution ofthe contingency ($27,000 positive adjustment minus$23,710.48).

(k) Payment ordering rule. For pur-poses of this section, a payment made bythe borrower to or for the benefit of thelender pursuant to a split-dollar life insur-ance arrangement is applied to all directand indirect split-dollar loans in the fol-lowing order—

(1) A payment of interest to the extentof accrued but unpaid interest (includingany OID) on all outstanding split-dollarloans in the order the interest accrued;

(2) A payment of principal on the out-standing split-dollar loans in the order inwhich the loans were made;

(3) A payment of amounts previouslypaid by a non-owner pursuant to a split-dollar life insurance arrangement that werenot reasonably expected to be repaid by theowner; and

(4) Any other payment with respect toa split-dollar life insurance arrangement,other than a payment taken into accountunder paragraphs (k)(1), (2), and (3) of thissection.

(l) [Reserved](m) Repayments received by a lender.

Any amount received by a lender under a

2003-46 I.R.B. 1081 November 17, 2003

life insurance contract that is part of a split-dollar life insurance arrangement is treatedas though the amount had been paid to theborrower and then paid by the borrower tothe lender. Any amount treated as receivedby the borrower under this paragraph (m)is subject to other provisions of the InternalRevenue Code as applicable (for example,sections 72 and 101(a)). The lender musttake the amount into account as a paymentreceived with respect to a split-dollar loan,in accordance with paragraph (k) of thissection. No amount received by a lenderwith respect to a split-dollar loan is treatedas an amount received by reason of thedeath of the insured.

(n) Effective date—(1) General rule.This section applies to any split-dollar lifeinsurance arrangement entered into afterSeptember 17, 2003. For purposes of thissection, an arrangement is entered into asdetermined under §1.61–22(j)(1)(ii).

(2) Modified arrangements treated asnew arrangements. If an arrangemententered into on or before September 17,2003, is materially modified (within themeaning of §1.61–22(j)(2)) after Septem-ber 17, 2003, the arrangement is treatedas a new arrangement entered into on thedate of the modification.

PART 31—EMPLOYMENT TAXESAND COLLECTION OF INCOME TAXAT SOURCE

Par. 10. The authority citation for part31 continues to read in part as follows:

Authority: 26 U.S.C. 7805. * * *Par. 11. In §31.3121(a)–1, paragraph

(k) is added to read as follows:

§31.3121(a)–1 Wages.

* * * * *(k) Split-dollar life insurance arrange-

ments. Except as otherwise provided un-der section 3121(v), see §§1.61–22 and1.7872–15 of this chapter for rules relat-ing to the treatment of split-dollar life in-surance arrangements.

Par. 12. In §31.3231(e)–1, paragraph(a)(6) is added to read as follows:

§31.3231(e)–1 Compensation.

(a) * * *(6) Split-dollar life insurance arrange-

ments. See §§1.61–22 and 1.7872–15 ofthis chapter for rules relating to the treat-ment of split-dollar life insurance arrange-ments.

* * * * *Par. 13. In §31.3306(b)–1, paragraph

(l) is added to read as follows:

§31.3306(b)–1 Wages.

* * * * *

(l) Split-dollar life insurance arrange-ments. Except as otherwise provided un-der section 3306(r), see §§1.61–22 and1.7872–15 of this chapter for rules relat-ing to the treatment of split-dollar life in-surance arrangements.

Par. 14. In §31.3401(a)–1, paragraph(b)(15) is added to read as follows:

§31.3401(a)–1 Wages.

* * * * *(b) * * *(15) Split-dollar life insurance ar-

rangements. See §1.61–22 of this chapterfor rules relating to the treatment ofsplit-dollar life insurance arrangements.

* * * * *

PART 602—OMB CONTROLNUMBERS UNDER THE PAPERWORKREDUCTION ACT

Par. 15. The authority citation for part602 continues to read as follows:

Authority: 26 U.S.C. 7805. * * *Par. 16. In section 602.101, paragraph

(b) is amended by adding an entry in nu-merical order for §1.7872–15 to read asfollows:

§602.101 OMB Control numbers.

* * * * *(b) * * *

CFR part or section whereidentified and described

Current OMBcontrol No.

* * * * *

1.7872–15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–1792

* * * * *

Robert E. Wenzel,Deputy Commissioner forServices and Enforcement.

Approved September 11, 2003.

Pamela F. Olson,Assistant Secretary of the Treasury .

(Filed by the Office of the Federal Register on September 11,2003, 4:13 p.m., and published in the issue of the FederalRegister for September 17, 2003, 68 F.R. 54336)

Section 104.—Compensationfor Injuries or Sickness

Taxpayers are informed of the tax treatment undersections 61, 104, 130, and 139 of periodic paymentsto claimants of the September 11th Victim Compen-sation Fund. See Rev. Rul. 2003-115, page 1052.

Section 130.—CertainPersonal Injury LiabilityAssignments

Taxpayers are informed of the tax treatment undersections 61, 104, 130, and 139 of periodic payments

to claimants of the September 11th Victim Compen-sation Fund. See Rev. Rul. 2003-115, page 1052.

Section 139.—DisasterRelief Payments

Taxpayers are informed of the tax treatment undersections 61, 104, 130, and 139 of periodic paymentsto claimants of the September 11th Victim Compen-sation Fund. See Rev. Rul. 2003-115, page 1052.

November 17, 2003 1082 2003-46 I.R.B.

Section 147.—No Portionof Bonds May Be Issuedfor Skyboxes, Airplanes,Gambling Establishments,etc.

Helicopters. This ruling concludes thata helicopter is not an airplane for purposesof section 147(e) of the Code which pro-vides that a private activity bond is not aqualified bond if issued as part of an is-sue and any portion of the proceeds ofsuch issue is to be used to provide any air-plane, skybox, or other private luxury box,health club facility, facility primarily usedfor gambling, or store the principal busi-ness of which is the sale of alcoholic bev-erages for consumption off premises.

Rev. Rul. 2003–116

ISSUE

Whether a helicopter is an “airplane”within the meaning of § 147(e) of the In-ternal Revenue Code of 1986.

FACTS

Entity is an organization exempt fromFederal income tax under § 501(a) as anorganization described in § 501(c)(3). En-tity owns and operates certain hospital fa-cilities that include a trauma center. En-tity provides emergency medical care andtreatment in its trauma center. Entity pro-poses to expand the trauma center to addadditional emergency rooms. As part ofthe expansion, Entity intends to purchase ahelicopter to provide helicopter ambulanceservice to the trauma center for accidentvictims and other medical emergencies.

Issuer will issue bonds (Bonds) as qual-ified 501(c)(3) bonds under § 145 and loanthe proceeds to Entity to finance the expan-sion of the trauma center and the purchaseof the helicopter.

LAW AND ANALYSIS

Section 103(a) provides that, except asprovided in § 103(b), gross income doesnot include interest on any State or localbond. Section 103(b) provides, in part, that§ 103 (a) shall not apply to any privateactivity bond that is not a qualified bond(within the meaning of § 141).

Section 141 provides, in part, that abond is a private activity bond if the bondis issued as part of an issue that meetsthe private business use test of § 141(b)(1)and the private security or payment test of§ 141(b)(2). The private business use testis met if more than 10 percent of the pro-ceeds of an issue are to be used for any pri-vate business use. The private security orpayment test is met if the payment of theprincipal of, or the interest on, more than10 percent of the proceeds of an issue isdirectly or indirectly (1) secured by an in-terest in property used or to be used for aprivate business use, (2) secured by an in-terest in payments in respect of such prop-erty, or (3) to be derived from payments,whether or not to the issuer, in respect ofproperty, or borrowed money, used or to beused for a private business use.

Section 141(e) provides, in part, thatthe term “qualified bond” includes any pri-vate activity bond that (1) is a qualified501(c)(3) bond; (2) meets the applicablerequirements of § 146; and (3) meets theapplicable requirements of each subsec-tion of § 147.

Section 145(a) provides, in general, thatthe term “qualified 501(c)(3) bond” meansany private activity bond issued as part ofan issue if (1) all property which is to beprovided by the net proceeds of the issueis to be owned by a 501(c)(3) organiza-tion or a governmental unit, and (2) suchbond would not be a private activity bondif (A) 501(c)(3) organizations were treatedas governmental units with respect to theiractivities which do not constitute unrelatedtrades or businesses, determined by apply-ing § 513(a), and (B) §§ 141(b)(1) and (2)were applied by substituting “5 percent”for “10 percent” each place it appears andby substituting “net proceeds” for “pro-ceeds” each place it appears.

Section 147(e) provides that a privateactivity bond shall not be a qualified bondif issued as part of an issue and any portionof the proceeds of such issue is to be usedto provide any airplane, skybox, or otherprivate luxury box, health club facility, fa-cility primarily used for gambling, or storethe principal business of which is the saleof alcoholic beverages for consumption offpremises.

Section 147(e) does not define the term“airplane.” When a word is not defined by

statute, it is construed in accord with its or-dinary and common meaning. See Carlsonv. Commissioner, 116 T.C. 87, 93 (2001).In this regard, Webster’s Collegiate Dic-tionary (11th Ed. 2003), defines the term“airplane” as a “powered heavier-than-airaircraft that has fixed wings from which itderives most of its lift.”

Here, Entity will use a portion of theproceeds of the Bonds to finance the pur-chase of a helicopter. Webster’s CollegiateDictionary defines the term “helicopter” as“an aircraft whose lift is derived from theaerodynamic forces acting on one or morepowered rotors turning about substantiallyvertical axes.” It defines the term “aircraft”as “a vehicle (as an airplane or balloon) fortraveling through the air.” Thus, airplanesand helicopters are types of aircraft, but ahelicopter is not an airplane. Accordingly,the helicopter to be purchased by Entitywith proceeds of the Bonds is not an “air-plane” for purposes of § 147(e).

HOLDING

A helicopter is not an “airplane” withinthe meaning of § 147(e).

DRAFTING INFORMATION

The principal authors of this revenueruling are Vicky Tsilas and JohannaSom de Cerff of the Office of the DivisionCounsel/Associate Chief Counsel (TaxExempt and Government Entities). Forfurther information regarding this rev-enue ruling, contact Vicky Tsilas at (202)622–3980 (not a toll-free call).

Section 355.—Distributionof Stock and Securities of aControlled Corporation

26 CFR 1.355–2: Business purpose.

Stocks and securities; distribution.This ruling concludes that, in determiningwhether a distribution of controlled cor-poration stock satisfies the business pur-pose requirement of regulations section1.355–2(b), the fact that the distributionavoids gain recognition under section311(b) of the Code does not present apotential for avoidance of federal incometax.

2003-46 I.R.B. 1083 November 17, 2003

Rev. Rul. 2003–110

ISSUE

In determining whether a distribution ofthe stock of a controlled corporation sat-isfies the business purpose requirement of§ 1.355–2(b) of the Income Tax Regula-tions that the distribution be motivated, inwhole or substantial part, by one or morecorporate business purposes, does the factthat § 355 of the Internal Revenue Codepermits a distributing corporation to dis-tribute the stock of a controlled corpora-tion without recognition of gain present apotential for the avoidance of Federal taxesunder § 1.355–2(b)?

FACTS

Distributing is a publicly traded corpo-ration that conducts a pesticides business.Controlled, a wholly owned subsidiary ofDistributing, conducts a baby foods busi-ness. The pesticides business formulates,manufactures, and markets pesticides foragricultural use. The baby foods businessprocesses and markets baby foods.

A significant number of potential cus-tomers of the baby foods business refuseto buy from Controlled because of its affil-iation with Distributing and its pesticidesbusiness. Distributing’s management con-sultant has advised Distributing that sepa-rating Controlled from Distributing wouldrelieve the baby foods business of the ad-verse market perception caused by its as-sociation with the pesticides business.

To solve the market perception prob-lem, Distributing distributes the Con-trolled stock to Distributing’s sharehold-ers, pro rata. There is no other nontaxablesolution to the problem. Sale of the Con-trolled stock by Distributing would haveresulted in recognition of gain. Distribut-ing’s directors expect that the baby foodsbusiness will benefit in a real and sub-stantial way from the improved marketperception produced by the separation.

Apart from the issue of whetherthe business purpose requirement of§ 1.355–2(b) is satisfied, the distributionof the Controlled stock meets all the re-quirements of § 355.

LAW

Section 355 provides that if certain re-quirements are met, a corporation may dis-tribute stock and securities in a controlledcorporation to its shareholders and secu-rity holders without causing the distribut-ing corporation or the distributees to rec-ognize gain or loss or include any amountin income.

To qualify as a distribution describedin § 355, a distribution must, in additionto satisfying the statutory requirements of§ 355, satisfy certain requirements in theregulations, including the business pur-pose requirement. Section 1.355–2(b)(1)provides that a distribution must be mo-tivated, in whole or substantial part, byone or more corporate business purposes.A corporate business purpose is a realand substantial non-Federal tax purposegermane to the business of the distributingcorporation, the controlled corporation,or the affiliated group to which the dis-tributing corporation belongs. Section1.355–2(b)(2). The potential for the avoid-ance of Federal taxes by the distributingor controlled corporation (or a corporationcontrolled by either) is relevant in deter-mining the extent to which an existingcorporate business purpose motivated thedistribution. Section 1.355–2(b)(1). Theprincipal reason for the business purposerequirement is to provide nonrecognitiontreatment only to distributions that areincident to readjustments of corporatestructures required by business exigen-cies and that effect only readjustmentsof continuing interests in property un-der modified corporate forms. Section1.355–2(b)(1). If a corporate businesspurpose can be achieved through a nontax-able transaction that does not involve thedistribution of stock of a controlled corpo-ration and that is neither impractical norunduly expensive, then the separation isnot carried out for that corporate businesspurpose. Section 1.355–2(b)(3).

Section 355(c) provides that no gain orloss will be recognized by a corporation onany distribution to which § 355 (or so muchof § 356 as relates to § 355) applies. Seealso § 361(c) (to the same effect if the dis-tribution is pursuant to a plan of reorgani-zation). Absent § 355, such a distributionwould be subject to § 311(b), which pro-vides that, if the fair market value of thedistributed property exceeds its adjusted

basis, then gain will be recognized by thedistributing corporation as if the propertyhad been sold to the distributee at its fairmarket value. Section 355(c)(3).

ANALYSIS

To satisfy the business purpose require-ment, a distribution must be motivated,in whole or substantial part, by one ormore corporate business purposes. Sec-tion 1.355–2(b)(1). The market perceptionbusiness purpose motivates Distribut-ing’s directors to approve the distribution,there is no other nontaxable transactionthat would solve the market perceptionproblem, and it is expected that the babyfoods business will benefit in a real andsubstantial way from the improved marketperception produced by the separation.

Except as provided in § 355(d) and (e),the application of § 355(c) or § 361(c)to distributions that qualify under § 355is part of the statutory scheme of § 355and implicit in all such distributions. Ac-cordingly, the fact that § 355 permits adistributing corporation to distribute thestock of a controlled corporation withoutthe recognition of gain does not present apotential for the avoidance of Federal taxesunder § 1.355–2(b). This is further im-plied by § 1.355–2(b)(3), which providesthat the business purpose requirement isnot satisfied if the purpose can be achievedthrough a nontaxable alternative transac-tion. That is, the distributing corporationis entitled to reject a taxable disposition infavor of a tax-free distribution.

Therefore, although the distribution ofControlled stock results in the nonrecogni-tion of gain that otherwise would be recog-nized under § 311(b) if § 355(c) did not ap-ply, the distribution is motivated in wholeby a real and substantial non-Federal taxpurpose germane to the business of Dis-tributing. Hence, the business purpose re-quirement of § 1.355–2(b) is satisfied.

HOLDING

In determining whether a distributionof the stock of a controlled corporationsatisfies the business purpose requirementof § 1.355–2(b) that the distribution bemotivated, in whole or substantial part,by one or more corporate business pur-poses, the fact that § 355 permits a dis-tributing corporation to distribute the stock

November 17, 2003 1084 2003-46 I.R.B.

of a controlled corporation without recog-nition of gain does not present a potentialfor the avoidance of Federal taxes under§ 1.355–2(b).

DRAFTING INFORMATION

The principal author of this revenueruling is Wayne T. Murray of the Office

of Associate Chief Counsel (Corporate).For further information regarding this rev-enue ruling, contact Mr. Murray at (202)622–7700 (not a toll-free call).

Section 451.—General Rulefor Taxable Year of Inclusion

26 CFR 1.451–2: Constructive receipt of income.

Taxpayers are informed of the tax treatment undersections 61, 104, 130, and 139 of periodic paymentsto claimants of the September 11th Victim Compen-sation Fund. See Rev. Rul. 2003-115, page 1052.

2003-46 I.R.B. 1085 November 17, 2003

Part IV. Items of General InterestFoundations Status of CertainOrganizations

Announcement 2002–69

The following organizations have failedto establish or have been unable to main-tain their status as public charities or as op-erating foundations. Accordingly, grantorsand contributors may not, after this date,rely on previous rulings or designationsin the Cumulative List of Organizations(Publication 78), or on the presumptionarising from the filing of notices under sec-tion 508(b) of the Code. This listing doesnot indicate that the organizations have losttheir status as organizations described insection 501(c)(3), eligible to receive de-ductible contributions.

Former Public Charities. The follow-ing organizations (which have been treatedas organizations that are not private foun-dations described in section 509(a) of theCode) are now classified as private foun-dations:

Acts of Praise, Inc., Norcross, GAAdullam Services, Olympic, WAAgency Niagara, Inc., Tonawanda, NYAkan Studies Institute, Washington, DCAll Nations Fund, Woodland Hills, CAAllegiance Ministries, Inc.,

Pickerington, OHAlpha Watch Family Counceling, Inc.,

Staten Island, NYAlternatives for Youth, Cleveland, OHAlumnae Association St. Elizabeth

Hospital School of Nursing,Lafayette, IN

American Alliance for Charity, Inc.,Bronx, NY

American Association of Artists, Inc.,Venice, CA

American Friends of Aphrodisias,New York, NY

American Gospel Music HeritageFoundation, Inc., Baltimore, MD

American Housing Foundation,Schaumberg, IL

Americans for a Better America, Inc.,White Plains, NY

AnCam Antique Airfield Museum,West Burlington, IA

Angels Touch Foundation, Clovis, CAAnthony Kincade Scholarship Foundation,

Inc., Crown Point, IN

Archipelagos Regeneration & RestorationGroup, Honolulu, HI

Art of Living, Inc., Ft. Lauderdale, FLArt Rod Foundation, Inc., Metamora, FLAsamang Relief Donation,

Delray Beach, FLAurora Puerto Rican Cultural Council,

Inc., Aurora, INAutumn Hills Health Foundation,

Kansas City, MOAzusa Pacific University Foundation,

Azusa, CAB C Inspiration, Inc., West Hollywood, FLBasin Educational Excelence Foundation,

Burton, TXBelding Housing Development and

Services Corporation, Belding, MIBen Benavidez Advocacy Center,

Fontana, CABethlehem Babe Ruth, Inc., Delmar, NYBirthright of Aurora, Aurora, MNBig Island Residential, Inc., Honolulu, HIBlessed Brotherhood of the Ancient

Church — Minnesota, St. Paul, MNBooker T. Washington Education Training

& Community Development, Inc.,Fresno, CA

Books to Read, Murrieta, CABrave New World, Inc., Washington, DCBread of Life Community Development

Corporation, Detroit, MIBreaking Chains, Inc., Philadelphia, PABusiness and Economic Access,

Incorporated, Whittier, CACalifornia Womens Basketball Academy,

Newport Beach, CACapistrano Charitable Foundation,

San Juan Capo, CACaritas Traditionalis — The Institute of

Biomedicine and Sciences, Tucson, AZCars for Charities, Inc., Texarkana, TXCelestial Flight Nonprofit Housing

Corporation, Detroit, MICenter for National Software Studies,

Reston, VACenter for Strategic Economic Studies and

Institutional Dvlp., Inc., Baltimore, MDCenter for Teacher Professionalism,

Grass Valley, CACenter for Teaching Learning and Culture,

Inc., Landover Hills, MDChaplain Services, Inc., Sandy, ORCharitable Religious Organization,

Boston, MACharles E. Beard Memorial School

Corporation, Knightstown, IN

Cherish the Children Foundation-LuwannYouth Center, Inglewood, CA

Chicago Health Initiative CHI,Chicago, IL

Chicago Juvenile Advisory Council,Chicago, IL

Chicago Printing Ink Production Club,Inc., Hickory Hills, IL

Chice, Inc., Omaha, NEChildhood Incontinence Institute,

Austin, TXChildren 2000, Inc., New York, NYChildren Oncology Cycling of America,

Clifton Park, NYChildren’s 2000 Foundation, Justin, TXChildren’s Depot, Calumet Park, ILChildrens Empowerment Fund,

Huntsville, TXChrist Is First Productions, Chicago, ILChristian Children Complete Camping,

Philadelphia, PAChristian Faith Outreach Community

Development Corporation, Inc.,Ft. Lauderdale, FL

Christian Mission Learning Foundation,Jackson, MS

Christian Voices in Unity, Inc.,Baltimore, MD

City of Ardmore Cemetery Trust Fund,Inc., Ardmore, OK

Coalition for Alcohol-Free Kids, Inc.,Natick, MA

Coalition for Corrections Reform,Jackson, MI

Coitsville Historical Society, Inc.,Lowellville, OH

Columbia Research Institute,Olympia, WA

Community Caring Centers of NewOrleans, Inc., New Orleans, LA

Community Church of Christ of ColoradoSprings, Colorado Springs, CO

Community Connections, Inc.,Buchanan, MI

Community Empowerment Organization,Inc., Yorktown, VA

Community Hope Foundation,Long Beach, CA

Community Media Services, Fairfax, VACompassionate Hearts & Hands

International, Columbia, SCCo-Operative Opportunity for Online

Learning, Tiburon, CACopper Basin Lady Cougar Tip-Off Club,

Inc., Copperhill, TNCreatures Great & Small, Davis, OK

November 17, 2003 1086 2003-46 I.R.B.

David Yaghoubi Foundation, Inc.,Secaucus, NJ

Developmental Resource Corporation,Shreveport, LA

Doggone Dogs of South Florida, Inc.,Hollywood, FL

Dogwood Springs Outreach, Inc.,Richmond Hill, GA

Don Smith Ministries, Aurora, CODream Camps of Cary, Inc., Cary, NCDzilth Na Odilth Ne Resident

Organization, Bloomfield, NMEagles Nest Ranch of North Carolina,

Randleman, NCEast African Refugees in North America,

Minneapolis, MNEco Balance, La Mesa, CAEco Impact, La Mesa, CAEco-Watch, Inc., Bettendorf, IAEdge Jumper Children’s Foundation,

Sonoma, CAEducation Project Foundation, Detroit, MIEducational and Group Support Found.

for Epilepsy and Asthma, Ventura, CAEl Paso Association of Adult Educators,

El Paso, TXEmerald Therapeutic Riding Academy,

Westlake, OHEmergency Transportation Team or Iron

Posse, Michigan City, INEmployment Action Resource Network,

Inc., New York, NYEmpowerment Through Perserverance,

Inc., Saint Albans, NYEnabling Sport Foundation, Franklin, NHEndangered Species Arts Alliance,

Denver, COEnvironmentally Correct, Inc., Reno, NVEqual Employment Opportunity Network,

Bel Air, MDEqual Partners, Inc., Southhampton, NJEsti Topfer Foundation, Miami, FLEvery-Day Angels Foundation,

Beverly Hills, CAExcell Clinical Laboratories, Inc.,

Brighton, MAFaith Tabernacle Community

Development Corporation, Inc.,Chicago, IL

Fellowship Deliverance Ministries, Inc.,Lagrange, GA

First Congregational Christian UnitedChurch of Christ, Irvington, NJ

First Night Gloucester, Inc.,Gloucester, MA

First Page New Chapter & Peer AdviserLearning Skills FPNC & PAL,Castro Valley, CA

First Tee of Howard County, Inc.,Columbia, MD

Florida Institute of Research Science &Technology, Inc., Jacksonville, FL

Forensis, Inc., San Diego, CAFoundation for Entrepreneurship, Inc.,

New York, NYFreedom Farm, Cary, ILFreeport Community Services Center,

Inc., Freeport, NYFriends of Arborough Games, Inc.,

Ann Arbor, MIFriends of Callithea Farm, Inc.,

Potomac, MDFriends of Santa, Inc., Sicklerville, NJFriends of the Elderly, Inc.,

Lincolndale, NYFriends of West Portland, Inc.,

Springfield Gardens, NYGabryelski Film Art Foundation,

New York, NYGeorgia Sulprizio Scholarship Fund,

Danville, CAGesher L. Kehillatenu Foundation,

Cambridge, MAGirls Unlimited, Inc., Decatur, GAGiving Tree Foundation, Inc.,

Agoura Hills, CAGlobal Education Development, Inc.,

Albuquerque, NMGlobal Foundation, Woburn, MAGlobal Imperative, La Mesa, CAGod’s People, Incorporated, Atlanta, GAGoddard Foundation, Cordova, TNGold Coast Shakespeare Festival, Inc.,

New York, NYGrayson’s Awareness Outreach,

Los Angeles, CAGreater Flint RC IMAA Chapter 365,

Flint, MIGreater New Jericho Bible College,

Rosewood, CAGuardian Angel Foundation for Homeless

Children, Lumberton, NCHaitian American Community

Broadcasting Association, Inc.,Miami, FL

Hammond Babe Ruth League,Hammond, IN

Hawkins Village Resident Council,Pittsburgh, PA

Heartland Railroad Historical Society,Council Bluff, IA

Hearts Hands Center for Mental Health,Inc., Platteville, WI

Helping Home of America,Los Angeles, CA

Home for Every Child Foundation,Sharpsville, IN

Homes for Families, Inc., New York, NYHomesteade Assist Living, Inc.,

West Friendship, MDHoop City Foundation, Wichita, KSHope of North Carolina, Zebulon, NCH.O.P.E. Vocational Services, Ltd.,

Walnut Creek, CAHouse of Prayer Economic Development,

Inc., Lakeland, FLHouse of Reuben, Andover, MAIdaho Celebrity Classics, Inc., Boise, IDIndia for Jesus, Colleyville, TXIndiana Consortium on Professional Dev.

for Educ. of Young Children, Inc.,Indianapolis, IN

Indy Jazz Fest, Inc., Indianapolis, INInner City Development Foundation,

Los Angeles, CAInternational Center for Education About

Aging, Inc., Auburndale, MAInternational College of Psychology

Foundation, Carlsbad, NMInternational Health Resources, Pryor, OKInternational Sailing Hall of Fame,

Jensen Beach, FLIrene E. Boothe Book Review Club,

Fort Worth, TXIsland Business Connection, Inc.,

Pawtucket, RIIvie Carter Home, Inc., Lithonia, GAJade Art Foundation, New York, NYJefferson 21st Century Institute,

Centerville, UTJefferson Park Housing Development

Fund Company, Inc., Rochester, NYJermiah Restoration Ministry, Inc.,

Elgin, ILJesus Loves You, Inc., Colleyville, TXJoes Good Samaritan Soup Kitchen,

Prichard, ALJohn and Mildred Medic Wuchenich

Foundation, Redlands, CAJohn Campbell Ministries,

Youngstown, OHJones Community Support Center,

Clarksdale, MSJourney With Jesus, Dyersburg, TNK A S T, Inc., Springfield, MOKevin Ghelli Celebration Fund, Inc.,

Holliston, MAKhan Universal Foundation, Inc.,

Armonk, NYKids Land Daycare and Teenage

Mentoring Service, Inc.,Kansas City, KS

Kinship of Monticello, Monticello, MN

2003-46 I.R.B. 1087 November 17, 2003

Kiwanis Club of Concord NH CharitableFoundation, Concord, NH

Kiwanis Club of Covington Foundation,Covington, WA

Koda Foundation, Peever, SDLadies Health Foundation, Cerritos, CALancaster Community Housing

Corporation, Lancaster, OHLandhealers Ministries, Kalamazoo, MILearning Disabilities Association

for Nassau Suffolk Counties, Inc.,Massapequa Park, NY

Leon and Ollie Craig Foundation, Inc.,Visalia, CA

Let’s Grow, Inc., Silver Spring, MDLighted Candle Society, Bountiful, UTLiving With Lupus Foundation, Inc.,

Jacksonville, ARLondonderry Basketball Club,

Londonderry, NHLong Beach Air Museum, Lawndale, CALong View Learning, Inc., Raleigh, NCLoveforce Ministries, Inc., Atlanta, GALynnhaven Kiwanis Charity Foundation,

Norfolk, VAM. B. Peterson Ministries, Inc., Miami, FLMajestic Wildlife Rehabilitation &

Education Center, Inc., Bethlehem, PAMaloney Group, Florissant, MOMaloney Group II, Florissant, MOMaloney Group III, Florissant, MOMaloney Group IV, Hazelwood, MOMarriage & Family Success Center, Inc.,

Mission Viejo, CAMartina Starke Foundation, Incorporated,

Whitakers, NCMcCloud Memorial Foundation,

Elmendorf AFB, AKMedical Center Resident Advisory Group,

San Bernardino, CAMemphis Community Development

Partnership, Inc., Memphis, TNMen-N-Effect Civic Sports,

Chesapeake, VAMeriden Community Action Agency, Inc.,

Meriden, CTMetro Ferals, Inc., Arlington, VAMidwest Care Centers, Inc.,

Kansas City, MOMidwest Care Center II, Inc.,

Kansas City, MOMidwest Care Center III, Inc.,

Kansas City, MOMidwest Care Center IV, Inc.,

Kansas City, MOMidwest Care Center V, Inc.,

Kansas City, MO

Midwest Care Center VI, Inc.,Kansas City, MO

Midwest Care Center VII, Inc.,Kansas City, MO

Midwest Care Center VIII, Inc.,Kansas City, MO

Midwest Care Center IX, Inc.,Kansas City, MO

Ministry Resources, Inc., Charlotte, NCMinnesota Attainable Housing

Corporation I, Minneapolis, MNMission of Light, Inc., Sherwood, MIMixed Pickles Vintage Dance Company,

Philadelphia, PAMoon School Parents Club, Waterford, CAMothers Dream, Lexington, SCMountain Empire Athletic League,

Campo, CAMt. Olive Community Development

Ministries, Inc., Jacksonville, FLMulti-Cultural Center of Southeast Texas,

Beaumont, TXMy Brothers Helper, Inc., Oakland, CANashua Downtown Development

Corporation, Nashua, NHNational Alliance for the Protection of

Our Children, Salt Lake City, UTNational Association of Federal Law

Enforcement Assistance Group, Ltd.,New York, NY

National Baptist Convention HousingBoard, Inc., Newark, OH

Natural High Adventures,Los Angeles, CA

Natures Neighbors, Jemul, CANeighborhood Educational Empowerment

Development Services, Joliet, ILNever Again Treatment Facility,

Chicago, ILNew Dawn Foundation, Palmdale, CANew Dawn Residential Facility,

Youngstown, OHNew Jersey Community Development

Enterprises, Inc., Orange, NJNew Light Consultants, Millington, MINew Priorities Child Refuge, Bend, ORNew Ventures Community Development

Corporation, Inc., Bridgeport, CTNew World Youth Center, Gardena, CANew York Metro American Studies

Association, Inc., Brooklyn, NYNiche Ministries, Inc., Sonora, CANigerian Peoples Forum NPF,

Rockville, MDNineteenth Street Baptist Church

Community Development Corporation,Washington, DC

NISAA, Inc., Syracuse, NY

Northwest Colorectal Foundation,Seattle, WA

Ogden Business Development Committee,Ogden, IL

Olive Branch Early Learning &Enrichment Center, Inc., Atlanta, GA

Omonoia Cretan Charitable Foundation,Inc., Hauppauge, NY

Open Arms Outreach, Inc., Valdosta, GAOpen Mind Foundation,

Salt Lake City, UTOrder of Ahepa District 17 Scholarship,

Belen, NMOrdinary Theater, New York, NYOrlando Branches Steel Orchestra, Inc.,

Orlando, FLOutreach Needs Effort, Seattle, WAOverton Park SDA Church Community

Center, Memphis, TNOwensboro Family YMCA Endowment

Fund, Inc., Owensboro, KYPalm Reef, Inc., Thayne, WYPan American Institute for Medical

Education and Research, Inc.,Houston, TX

Parama Retreat Center, Inc., Elmore, VTParental Guidance Associates,

Wallingford, PAPark Flava Foundation,

Stone Mountain, GAPartners in Art, Inc., Sheldonville, MAPartnership for Sri Lanku-USA,

West Springfield, MAPaw Patch, Ltd., Pawling, NYPawnee Pioneer Trails Scenic and

Historical Byway Council, Inc.,Sterling, CO

Penn North Revitalize Corporation,Baltimore, MD

Pens Across the Metroplex,Kansas City, MO

People Aiding Feral Cats, Ventura, CAPerry County Community Association,

Newbern, ALPersonal Touch Incentive Center, Inc.,

Los Angeles, CAPHA Development Corporation,

Miami, OKPhiladelphia Scholastic Rowing

Association, Philadelphia, PAPhoenix Project, Inc., Baltimore, MDPodiatry Research & Educational

Foundation, Inc., Belleville, NJPossibilities for Youth, Divide, COPower of Tehillum, Brooklyn, NYPrairie Health Services, Inc., Hopedale, ILPraxis Youth Development Corp.,

Layton, UT

November 17, 2003 1088 2003-46 I.R.B.

Presbyterian Homes Mill Pond CareCenter, Inc., Roseville, MN

Professional Education and TrainingAssociation of Alaska, Inc., Juneau, AK

Progressive Housing Solutions of Florida,Inc., St. Petersburg, FL

Promise, Incorporated, Toledo, OHQuality Childcare Center, Kenner, LAQuantize Records, Inc., McCormick, SCRainbow Club, Inc., Old Greenwich, CTRammoth Deliverance Ministries,

Raymond, MSRanch, Inc., Menomonee Falls, WIReading Education for Adults, Inc.,

Lake Jackson, TXRecap Development, Inc., Houston, TXRed River Place Housing, Inc.,

Houston, TXReligious Times, Philadelphia, PARemembrance Society, Alameda, CAResident’s Council of Brevard Housing

Authority, Inc., Brevard, NCRock, Tampa, FLRodney McBride Arts Society,

Palo Alto, CAS A C, Inc., Washington, DCSan Angelo Chamber of Commerce

Development Organization,San Angelo, TX

Santa Barbara Jazz Hall, Inc.,Santa Barbara, CA

Save a Life 2000 Coalition, Bronx, NYSchool Bus Drug Prevention, Inc.,

Aventura, FLScope USA, Inc., Wauseon, OHSeafood Producers Cooperative

Foundation, Bellingham, WAShare a Suit Foundation, Chicago, ILSharetech, Inc., Chubbuck, IDShelton Youth Programs, Shelton, WAShepherd Ministries, Columbia, SCSirenia Center, Inc., Sunrise, FLSimon Peter Ministries, Yamika, WASister Cities Foundation, Tempe, AZSister Niguma Productions, Inc.,

Boulder, COSisters Striving for Entrepreneurship, Inc.,

Decatur, GASociety for the Prevention of Domestic

Violence, Inc., New York, NYSoutheast Corner Alliance of

Neighborhoods, Austin, TXSoutheast Texas Girls Softball

Association, Inc., Beaumont, TXSpine & Scoliosis Research Associates,

Inc., Summit, NJSpirit Word Teaching Ministries and Bible

Training Center Intl., Inc., Barstow, CA

Spur on Ministries, Inc., Okeechobee, FLSt. Ephrem Foundation, Inc.,

Kiennelon, NJS.T.E.P., Compton, CAStep Up Community Partnership for Good

Parenting, Cleveland, MSStepfamily Network, Palo Alto, CAStill Water Area Baseball Boosters,

Still Water, MNStudents at Risk, Inc., Prospect, KYSummit of Fairfield County, Incorporated,

Fairfield, CTSure Foundation, Inc., Baltimore, MDSurrogate Father Program, Inc.,

Martinsburg, WVSurvivor Fund, New York, NYS V U Outreach Programs, Inc.,

Detroit, MITask of Rome GA, Inc., Rome, GATejano Policy Institute, Houston, TXTexas Volunteer, Mission, TXThapar Institute of Engineering and

Technology Patiala Ed Tr Ltd.,Iowa City, IA

Third Millenium Catholic Artists,Miami, FL

Third Wave Institute, Inc.,Bloomington, IN

Thomas Alva Edison Foundation,Washington, DC

Thunder Fastpitch, Inc., Eagle, IDTiger Baseball Association, Inc.,

Lees Summit, MOTobey Homestead Restoration Trust, Inc.,

Wareham, MATodd Theatre Troupe, New York, NYTorat Hayim, Los Angeles, CATrainease International, Inc.,

Middletown, NYTransform and Transcend, Inc., Salem, ORTransformation Retreats, Incorporated,

Richmond, VATri State Animal Rescue Services, Inc.,

Mineola, NYTri State Urban Renewal, East Orange, NJTrigg Hospital Foundation,

Tucumcari, NMTrinity Alliance, Inc., N. Miami Beach, FLTroy Local Development Corporation,

Troy, NYTyn, Inc., Santa Barbara, CAUltimate Vision Ministries, Inc.,

Arnold, MOUniversal Divine Saviors, Chicago, ILUtah Woodcarvers Guild, Sandy, UTVeterans Memorial of Alto Pass Area,

Alto Pass, IL

Virginia Skeet Shooting Association, Inc.,Annandale, VA

Virtual Diagnostic and RehabilitationScenarios, Inc., Newton, MA

Volleyball Development Corp.,Saint Louis, MO

Wang Yun-Wu Foundation, Inc.,Redwood City, CA

Warwick Revitalization, Inc.,Warwick, GA

Wasco County Historical Museum,The Dalles, OR

Watchkeepers, Inc., Middleboro, MAWayne Morse Youth Program,

Eugene, ORWaynoka Ministries, Inc.,

Oklahoma City, OKWe Share, Inc., Atlanta, GAWestern Health Foundation, Arcadia, CAWilliamsburg Basketball League, Inc.,

Brooklyn, NYWillits Senior Housing Corporation,

Ukiah, CAWilling Hearts, Inc., San Antonio, TXWind Symphony of Corpus Christi,

Alice, TXWindsor Repertory Theater Co., Inc.,

Mineola, NYWomen’s Day USA, Santa Monica, CAWomen’s Institute for Personal and

Political Justice, Santa Barbara, CAWorcester Area Dual Diagnosis Task

Force, Inc., Worcester, MAWord & Praise Ministries International,

Inc., Tulsa, OKWorld Center for Clinical Research,

Reno, NVWorld Foundation for Smart

Communities, La Jolla, CAWorld Species List-Natural Features

Registry Institute, Savannah, GAWounded Healers, Miami, FLWyoming Press Association Foundation,

Cheyenne, WYYankton Swim Team, Yankton, SDYesterday, Today, Tomorrow, Inc.,

Lake Charles, LAYou Belong, Inc., Fontana, CAYoung Eagles, Inc., Los Angeles, CAYuba Volunteer Fire Dept., Hendrix, OKZanadu Performing Arts Centre,

Newport News, VA

If an organization listed above submitsinformation that warrants the renewal ofits classification as a public charity or asa private operating foundation, the Inter-nal Revenue Service will issue a ruling or

2003-46 I.R.B. 1089 November 17, 2003

determination letter with the revised clas-sification 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.

Section 29—Test Proceduresand Significant Chemical Change

Announcement 2003–70

Section 29 of the Internal RevenueCode provides a tax credit for the pro-duction and sale of solid synthetic fuelsproduced from coal. Rev. Rul. 86–100,1986–2 C.B. 3, adopts for purposes of§ 29(c)(1)(C) the definition of syntheticfuel in § 1.48–9(c)(5) of the Income TaxRegulations. Section 1.48–9(c)(5)(ii) pro-vides that, to be “synthetic,” a fuel mustdiffer significantly in chemical composi-tion, as opposed to physical composition,from the substance used to produce it.Rev. Rul. 86–100 describes favorablyprocesses such as gasification, liquefac-tion, and production of solvent refinedcoal that result in substantial chemicalchanges to the entire coal feedstock ratherthan changes that affect only the surfaceof the coal.

Consistent with its ruling practice thatbegan in the mid 1990’s, the Internal Rev-enue Service, in Rev. Proc. 2001–30,2001–1 C.B.1163, provided that taxpay-ers must satisfy certain conditions in or-der to obtain a letter ruling that a solid fuel(other than coke) produced from coal isa qualified fuel under § 29(c)(1)(C). Rev.Proc. 2001–30, as modified by Rev. Proc.2001–34, 2001–1 C.B. 1293. The revenueprocedure requires taxpayers to present ev-idence that all, or substantially all, of the

coal used as feedstock undergoes a signif-icant chemical change. To meet this re-quirement and obtain favorable private let-ter rulings, taxpayers have provided ex-pert reports asserting that their processesresulted in a significant chemical change.

In Announcement 2003–46, 2003–30I.R.B. 222, the Service stated that it wouldreview the scientific validity of test proce-dures and results presented as evidence ofsignificant chemical change. The Servicealso stated that no additional rulings on thequestion of significant chemical changewould be issued until the completion of thereview.

The principal tests used to determinethat chemical changes to coal have oc-curred involve sophisticated technologyand a large number of complex steps toprepare samples for testing as well as toanalyze and interpret results. In reviewingthese tests, the Service has consulted withexperts and has considered the views oftaxpayers in the synthetic fuels industryand their experts and advisers.

The Service has finished the reviewstarted with Announcement 2003–46. Asa result of this review, the Service hasdetermined that the test procedures andresults used by taxpayers are scientificallyvalid if the procedures are applied in aconsistent and unbiased manner. TheService believes, however, that the pro-cesses approved under its long standingruling practice and as set forth in Rev.Proc. 2001–30 do not produce the levelof chemical change required by § 29(c)(1)(C) and Rev. Rul. 86–100. Never-theless, the Service continues to recognizethat many taxpayers and their investorshave relied on its long standing rulingpractice to make investments. Therefore,the Service will continue to issue rulingson significant chemical change but onlyunder the guidelines set forth in Rev.Proc. 2001–30, as modified by Rev. Proc.2001–34.

Although the Service will resume itsruling practice, the Service has continu-ing concerns regarding the sampling anddata/record retention practices prevalent inthe synthetic fuels industry. Accordingly,in order to receive future rulings, taxpay-ers will be required to (i) maintain sam-pling and quality control procedures thatconform to ASTM or other appropriateindustry guidelines at their synthetic fuelproduction facilities, (ii) obtain regular re-ports from independent laboratories thathave analyzed the synthetic fuel producedin such facilities to verify that the coal usedto produce the fuel undergoes a significantchemical change, consistent with prior rul-ing practice, and (iii) maintain records anddata underlying the reports that taxpay-ers obtain from independent laboratoriesincluding raw FTIR data, and processedFTIR data sufficient to document the se-lection of absorption peaks and integrationpoints. The Service also plans to issueguidance extending these requirements totaxpayers already holding rulings on the is-sue of significant chemical change. In ad-dition to these requirements, the Serviceis considering whether to impose certainrequirements on laboratories used by tax-payers to demonstrate significant chemicalchange, consistent with prior ruling prac-tice, such as requiring that the laboratoriesbe accredited by the NIST National Volun-tary Laboratory Accreditation Program.

DRAFTING INFORMATION

The principal author of this announce-ment is Joseph H. Makurath of the Officeof Associate Chief Counsel (Passthroughs& Special Industries). For further informa-tion regarding this announcement, contactJaime C. Park at (202) 622–3120 (not atoll-free call).

Announcement of Disciplinary Actions Involving Attorneys,Certified Public Accountants, Enrolled Agents, and EnrolledActuaries — Suspensions, Censures, Disbarments, andResignations

November 17, 2003 1090 2003-46 I.R.B.

Announcement 2003-71

Under Title 31, Code of Federal Regu-lations, Part 10, attorneys, certified publicaccountants, enrolled agents, and enrolledactuaries may not accept assistance from,or assist, any person who is under disbar-ment or suspension from practice beforethe Internal Revenue Service if the assis-tance relates to a matter constituting prac-tice before the Internal Revenue Serviceand may not knowingly aid or abet another

person to practice before the Internal Rev-enue Service during a period of suspen-sion, disbarment, or ineligibility of suchother person.

To enable attorneys, certified publicaccountants, enrolled agents, and enrolledactuaries to identify persons to whomthese restrictions apply, the Director, Of-fice of Professional Responsibility willannounce in the Internal Revenue Bulletin

their names, their city and state, their pro-fessional designation, the effective dateof disciplinary action, and the period ofsuspension. This announcement will ap-pear in the weekly Bulletin at the earliestpracticable date after such action and willcontinue to appear in the weekly Bulletinsfor five successive weeks.

Disbarments From Practice Before the Internal RevenueService After Notice and an Opportunity for a Proceeding

Under Title 31, Code of Federal Regu-lations, Part 10, after notice and an oppor-tunity for a proceeding before an adminis-trative law judge, the following individuals

have been disbarred from practice beforethe Internal Revenue Service:

Name Address Designation Effective Date

Loy, Michael F. Pittsburgh, KS CPA July 23, 2003

Consent Suspensions From Practice Before the InternalRevenue Service

Under Title 31, Code of Federal Regu-lations, Part 10, an attorney, certified pub-lic accountant, enrolled agent, or enrolledactuary, in order to avoid institution or con-clusion of a proceeding for his or her dis-barment or suspension from practice be-fore the Internal Revenue Service, may of-fer his or her consent to suspension from

such practice. The Director, Office of Pro-fessional Responsibility, in his discretion,may suspend an attorney, certified publicaccountant, enrolled agent or enrolled ac-tuary in accordance with the consent of-fered.

The following individuals have beenplaced under consent suspension from

practice before the Internal Revenue Ser-vice:

Name Address Designation Date of Suspension

Gillis, Robert F. Jacksonville, FL Enrolled Agent July 1, 2003toJanuary 31, 2004

Ziedins, Aivars Castle Rock, CO Enrolled Agent IndefinitefromJuly 1, 2003

A. N. Hebesha Visalia, CA Enrolled Agent IndefinitefromJuly 11, 2003

Stafford, Robert M. Allston, MA CPA IndefinitefromJuly 14, 2003

2003-46 I.R.B. 1091 November 17, 2003

Name Address Designation Date of Suspension

Carnahan, Larry K. Ashland, KY Attorney IndefinitefromJuly 18, 2003

McAlarney, Nancy A. Kissimmee, FL Enrolled Agent IndefinitefromJuly 24, 2003

Rahman, Ernest Melville, NY Enrolled Agent IndefinitefromJuly 31, 2003

Oleksy, Dennis L. Cary, IL Enrolled Agent IndefinitefromAugust 12, 2003

Witti, Mary E. Boulder City, NV Enrolled Agent IndefinitefromSeptember 1, 2003

Lau, Willie Howell, NJ Enrolled Agent IndefinitefromSeptember 1, 2003

Couch, Leslie L. Kihei, HI Enrolled Agent IndefinitefromSeptember 5, 2003

Khoudary, Nicholas East Brunswick, NJ Enrolled Agent IndefinitefromSeptember 15, 2003.

Solomon, Dorothy Los Angeles, CA Enrolled Agent IndefinitefromOctober, 6, 2003

McMahon, Angela Toms River, NJ Enrolled Agent IndefinitefromOctober 20, 2003

Lee, Chun Hyong Lakewood, WA CPA IndefinitefromOctober 22, 2003

Expedited Suspensions From Practice Before the InternalRevenue Service

Under Title 31, Code of Federal Regu-lations, Part 10, the Director, Office of Pro-fessional Responsibility, is authorized toimmediately suspend from practice beforethe Internal Revenue Service any practi-tioner who, within five years from the date

the expedited proceeding is instituted (1)has had a license to practice as an attorney,certified public accountant, or actuary sus-pended or revoked for cause or (2) has beenconvicted of certain crimes.

The following individuals have beenplaced under suspension from practicebefore the Internal Revenue Service byvirtue of the expedited proceeding provi-sions:

November 17, 2003 1092 2003-46 I.R.B.

Name Address Designation Date of Suspension

Daniels, Mario Flint, MI CPA IndefinitefromSeptember 4, 2003

Hertz, Kevin McAllen, TX CPA IndefinitefromOctober 1, 2003

Roselli, Antonio Topsfield, MA CPA IndefinitefromOctober 17, 2003

Moran, Maxine C. San Clemente, CA CPA IndefinitefromOctober 17, 2003

Muscio, Richard J. Solana Beach, CA CPA IndefinitefromOctober 17, 2003

Yates, James L. LaPlata, MD CPA IndefinitefromOctober 21, 2003

Censure Issued by ConsentUnder Title 31, Code of Federal Reg-

ulations, Part 10, in lieu of a proceedingbeing instituted or continued, an attorney,certified public accountant, enrolled agent,or enrolled actuary, may offer his or her

consent to the issuance of a censure. Cen-sure is a public reprimand.

The following individuals have con-sented to the issuance of a Censure:

Name Address Designation Date of Censure

Haynes, Gwenivar L. Ellenwood, GA Enrolled Agent August 1, 2003

Ritchie, Donald Milton, MA Enrolled Agent September 3, 2003

Bagley, Haywood Vista, CA Enrolled Agent September 4, 2003

Book, Robert L. Plymouth, MN Enrolled Agent September 15, 2003

2003-46 I.R.B. 1093 November 17, 2003

Definition of TermsRevenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe the ef-fect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position is be-ing extended to apply to a variation of thefact situation set forth therein. Thus, ifan earlier ruling held that a principle ap-plied to A, and the new ruling holds that thesame principle also applies to B, the earlierruling is amplified. (Compare with modi-fied, below).

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

Distinguished describes a situationwhere a ruling mentions a previously pub-lished ruling and points out an essentialdifference between them.

Modified is used where the substanceof a previously published position is beingchanged. Thus, if a prior ruling held that aprinciple applied to A but not to B, and thenew ruling holds that it applies to both A

and B, the prior ruling is modified becauseit corrects a published position. (Comparewith amplified and clarified, 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 used ina ruling that lists previously published rul-ings that are obsoleted because of changesin laws or regulations. A ruling may alsobe obsoleted because the substance hasbeen included in regulations subsequentlyadopted.

Revoked describes situations where theposition in the previously published rulingis not correct and the correct position isbeing stated in a new ruling.

Superseded describes a situation wherethe new ruling does nothing more than re-state the substance and situation of a previ-ously published ruling (or rulings). Thus,the term is used to republish under the1986 Code and regulations the same po-sition published under the 1939 Code andregulations. The term is also used whenit is desired to republish in a single rul-ing a series of situations, names, etc., thatwere previously published over a period oftime in separate rulings. If the new rul-ing does more than restate the substance

of a prior ruling, a combination of termsis used. For example, modified and su-perseded describes a situation where thesubstance of a previously published rulingis being changed in part and is continuedwithout change in part and it is desired torestate the valid portion of the previouslypublished ruling in a new ruling that is selfcontained. In this case, the previously pub-lished ruling is first modified and then, asmodified, is superseded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further names insubsequent rulings. After the original rul-ing has been supplemented several times, anew ruling may be published that includesthe list in the original ruling and the ad-ditions, and supersedes all prior rulings inthe series.

Suspended is used in rare situationsto show that the previous published rul-ings will not be applied pending somefuture action such as the issuance of newor amended regulations, the outcome ofcases in litigation, or the outcome of aService study.

AbbreviationsThe following abbreviations in current useand formerly used will appear in materialpublished in the Bulletin.

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

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

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

November 17, 2003 i 2003-46 I.R.B.

Numerical Finding List1

Bulletins 2003–27 through 2003–46

Announcements:

2003-45, 2003-28 I.R.B. 73

2003-46, 2003-30 I.R.B. 222

2003-47, 2003-29 I.R.B. 124

2003-48, 2003-28 I.R.B. 73

2003-49, 2003-32 I.R.B. 339

2003-50, 2003-30 I.R.B. 222

2003-51, 2003-37 I.R.B. 555

2003-52, 2003-32 I.R.B. 345

2003-53, 2003-32 I.R.B. 345

2003-54, 2003-40 I.R.B. 762

2003-55, 2003-38 I.R.B. 597

2003-56, 2003-39 I.R.B. 694

2003-57, 2003-37 I.R.B. 555

2003-58, 2003-40 I.R.B. 746

2003-59, 2003-40 I.R.B. 746

2003-60, 2003-45 I.R.B. 1049

2003-61, 2003-42 I.R.B. 890

2003-62, 2003-41 I.R.B. 821

2003-63, 2003-45 I.R.B. 1015

2003-64, 2003-43 I.R.B. 934

2003-65, 2003-43 I.R.B. 935

2003-66, 2003-45 I.R.B. 1049

2003-67, 2003-44 I.R.B. 1005

2003-68, 2003-45 I.R.B. 1050

2003-69, 2003-46 I.R.B. 1086

2003-70, 2003-46 I.R.B. 1090

2003-71, 2003-46 I.R.B. 1090

Notices:

2003-38, 2003-27 I.R.B. 9

2003-39, 2003-27 I.R.B. 10

2003-40, 2003-27 I.R.B. 10

2003-41, 2003-28 I.R.B. 49

2003-42, 2003-28 I.R.B. 49

2003-43, 2003-28 I.R.B. 50

2003-44, 2003-28 I.R.B. 52

2003-45, 2003-29 I.R.B. 86

2003-46, 2003-28 I.R.B. 53

2003-47, 2003-30 I.R.B. 132

2003-48, 2003-30 I.R.B. 133

2003-49, 2003-32 I.R.B. 294

2003-50, 2003-32 I.R.B. 295

2003-51, 2003-33 I.R.B. 361

2003-52, 2003-32 I.R.B. 296

2003-53, 2003-33 I.R.B. 362

2003-54, 2003-33 I.R.B. 363

2003-55, 2003-34 I.R.B. 395

2003-56, 2003-34 I.R.B. 396

2003-57, 2003-34 I.R.B. 397

2003-58, 2003-35 I.R.B. 429

2003-59, 2003-35 I.R.B. 429

Notices— Continued:

2003-60, 2003-39 I.R.B. 643

2003-61, 2003-42 I.R.B. 851

2003-62, 2003-38 I.R.B. 576

2003-63, 2003-38 I.R.B. 577

2003-64, 2003-39 I.R.B. 646

2003-65, 2003-40 I.R.B. 748

2003-67, 2003-40 I.R.B. 753

2003-68, 2003-41 I.R.B. 824

2003-69, 2003-42 I.R.B. 851

2003-70, 2003-43 I.R.B. 916

2003-71, 2003-43 I.R.B. 922

2003-72, 2003-44 I.R.B. 964

2003-73, 2003-45 I.R.B.

Proposed Regulations:

REG-209377-89, 2003-36 I.R.B. 521

REG-208199-91, 2003-40 I.R.B. 757

REG-106486-98, 2003-42 I.R.B. 853

REG-108639-99, 2003-35 I.R.B. 431

REG-106736-00, 2003-28 I.R.B. 60

REG-108524-00, 2003-42 I.R.B. 869

REG-115037-00, 2003-44 I.R.B. 967

REG-140378-01, 2003-41 I.R.B. 825

REG-107618-02, 2003-27 I.R.B. 13

REG-122917-02, 2003-27 I.R.B. 15

REG-128203-02, 2003-41 I.R.B. 828

REG-131997-02, 2003-33 I.R.B. 366

REG-133791-02, 2003-35 I.R.B. 493

REG-138495-02, 2003-37 I.R.B. 541

REG-138499-02, 2003-37 I.R.B. 541

REG-140808-02, 2003-38 I.R.B. 582

REG-140930-02, 2003-38 I.R.B. 583

REG-141402-02, 2003-43 I.R.B. 932

REG-141669-02, 2003-34 I.R.B. 408

REG-142538-02, 2003-38 I.R.B. 590

REG-143679-02, 2003-38 I.R.B. 592

REG-144908-02, 2003-38 I.R.B. 593

REG-146893-02, 2003-44 I.R.B. 967

REG-157164-02, 2003-44 I.R.B. 1004

REG-162625-02, 2003-35 I.R.B. 500

REG-163974-02, 2003-38 I.R.B. 595

REG-108676-03, 2003-36 I.R.B. 523

REG-112039-03, 2003-35 I.R.B. 504

REG-113112-03, 2003-40 I.R.B. 761

REG-116914-03, 2003-32 I.R.B. 338

REG-121122-03, 2003-37 I.R.B. 550

REG-129709-03, 2003-35 I.R.B. 506

REG-130262-03, 2003-37 I.R.B. 553

REG-132483-03, 2003-34 I.R.B. 410

REG-132760-03, 2003-43 I.R.B. 933

Revenue Procedures:

2003-45, 2003-27 I.R.B. 11

2003-46, 2003-28 I.R.B. 54

Revenue Procedures— Continued:

2003-47, 2003-28 I.R.B. 55

2003-48, 2003-29 I.R.B. 86

2003-49, 2003-29 I.R.B. 89

2003-50, 2003-29 I.R.B. 119

2003-51, 2003-29 I.R.B. 121

2003-52, 2003-30 I.R.B. 134

2003-53, 2003-31 I.R.B. 230

2003-54, 2003-31 I.R.B. 236

2003-55, 2003-31 I.R.B. 242

2003-56, 2003-31 I.R.B. 249

2003-57, 2003-31 I.R.B. 257

2003-58, 2003-31 I.R.B. 262

2003-59, 2003-31 I.R.B. 268

2003-60, 2003-31 I.R.B. 274

2003-61, 2003-32 I.R.B. 296

2003-62, 2003-32 I.R.B. 299

2003-63, 2003-32 I.R.B. 304

2003-64, 2003-32 I.R.B. 306

2003-65, 2003-32 I.R.B. 336

2003-66, 2003-33 I.R.B. 364

2003-67, 2003-34 I.R.B. 397

2003-68, 2003-34 I.R.B. 398

2003-69, 2003-34 I.R.B. 403

2003-70, 2003-34 I.R.B. 406

2003-71, 2003-36 I.R.B. 517

2003-72, 2003-38 I.R.B. 578

2003-73, 2003-39 I.R.B. 647

2003-74, 2003-43 I.R.B. 923

2003-75, 2003-45 I.R.B. 1018

2003-76, 2003-43 I.R.B. 924

2003-77, 2003-44 I.R.B. 964

2003-78, 2003-45 I.R.B. 1029

2003-79, 2003-45 I.R.B. 1036

2003-80, 2003-45 I.R.B. 1037

2003-81, 2003-45 I.R.B. 1046

Revenue Rulings:

2003-70, 2003-27 I.R.B. 3

2003-71, 2003-27 I.R.B. 1

2003-72, 2003-33 I.R.B. 346

2003-73, 2003-28 I.R.B. 44

2003-74, 2003-29 I.R.B. 77

2003-75, 2003-29 I.R.B. 79

2003-76, 2003-33 I.R.B. 355

2003-77, 2003-29 I.R.B. 75

2003-78, 2003-29 I.R.B. 76

2003-79, 2003-29 I.R.B. 80

2003-80, 2003-29 I.R.B. 83

2003-81, 2003-30 I.R.B. 126

2003-82, 2003-30 I.R.B. 125

2003-83, 2003-30 I.R.B. 128

2003-84, 2003-32 I.R.B. 289

2003-85, 2003-32 I.R.B. 291

2003-86, 2003-32 I.R.B. 290

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2003-1 through 2003-26 is in Internal Revenue Bulletin 2003-27,dated July 7, 2003.

2003-46 I.R.B. ii November 17, 2003

Revenue Rulings— Continued:

2003-87, 2003-29 I.R.B. 82

2003-88, 2003-32 I.R.B. 292

2003-89, 2003-37 I.R.B. 525

2003-90, 2003-33 I.R.B. 353

2003-91, 2003-33 I.R.B. 347

2003-92, 2003-33 I.R.B. 350

2003-93, 2003-33 I.R.B. 346

2003-94, 2003-33 I.R.B. 357

2003-95, 2003-33 I.R.B. 358

2003-96, 2003-34 I.R.B. 386

2003-97, 2003-34 I.R.B. 380

2003-98, 2003-34 I.R.B. 378

2003-99, 2003-34 I.R.B. 388

2003-100, 2003-34 I.R.B. 385

2003-101, 2003-36 I.R.B. 513

2003-102, 2003-38 I.R.B. 559

2003-103, 2003-38 I.R.B. 568

2003-104, 2003-39 I.R.B. 636

2003-105, 2003-40 I.R.B. 696

2003-106, 2003-44 I.R.B. 936

2003-107, 2003-41 I.R.B. 815

2003-108, 2003-44 I.R.B. 963

2003-109, 2003-42 I.R.B. 839

2003-110, 2003-46 I.R.B. 1083

2003-111, 2003-45 I.R.B. 1009

2003-112, 2003-45 I.R.B. 1007

2003-113, 2003-44 I.R.B. 962

2003-114, 2003-45 I.R.B. 1012

2003-115, 2003-46 I.R.B. 1052

2003-116, 2003-46 I.R.B. 1083

2003-117, 2003-46 I.R.B. 1051

Tax Conventions:

2003-58, 2003-40 I.R.B. 746

2003-59, 2003-40 I.R.B. 746

2003-62, 2003-41 I.R.B. 821

2003-63, 2003-45 I.R.B.

Treasury Decisions:

9061, 2003-27 I.R.B. 5

9062, 2003-28 I.R.B. 46

9063, 2003-36 I.R.B. 510

9064, 2003-36 I.R.B. 508

9065, 2003-36 I.R.B. 515

9066, 2003-36 I.R.B. 509

9067, 2003-32 I.R.B. 287

9068, 2003-37 I.R.B. 538

9069, 2003-37 I.R.B. 525

9070, 2003-38 I.R.B. 574

9071, 2003-38 I.R.B. 560

9072, 2003-37 I.R.B. 527

9073, 2003-38 I.R.B. 570

9074, 2003-39 I.R.B. 601

9075, 2003-39 I.R.B. 608

9076, 2003-38 I.R.B. 562

9077, 2003-39 I.R.B. 634

9078, 2003-39 I.R.B. 630

Treasury Decisions— Continued:

9079, 2003-40 I.R.B. 729

9080, 2003-40 I.R.B. 696

9081, 2003-35 I.R.B. 420

9082, 2003-41 I.R.B. 807

9083, 2003-40 I.R.B. 700

9084, 2003-40 I.R.B. 742

9085, 2003-41 I.R.B. 775

9086, 2003-41 I.R.B. 817

9087, 2003-41 I.R.B. 781

9088, 2003-42 I.R.B. 841

9089, 2003-43 I.R.B. 906

9090, 2003-43 I.R.B. 891

9091, 2003-44 I.R.B. 939

9092, 2003-46 I.R.B. 1055

November 17, 2003 iii 2003-46 I.R.B.

Findings List of Current Actions onPreviously Published Items1

Bulletins 2003-27 through 2003-46

Notices:

87-5

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

87-66

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

87-79

Modified by

Notice 2003-65, 2003-40 I.R.B. 748

89-79

Modified and superseded by

Rev. Proc. 2003-47, 2003-28 I.R.B. 55

89-94

Modified by

Notice 2003-50, 2003-32 I.R.B. 295

94-46

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

95-18

Modified by

Notice 2003-70, 2003-43 I.R.B. 916

95-50

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

95-53

Modified and superseded by

Notice 2003-55, 2003-34 I.R.B. 395

2001-4

Section III.C. superseded for 2004 and subsequent

calendar years by

Rev. Proc. 2003-64, 2003-32 I.R.B. 306

2001-70

Amplified by

Notice 2003-45, 2003-29 I.R.B. 86

2001-74

Amplified by

Notice 2003-45, 2003-29 I.R.B. 86

2002-1

Amplified by

Notice 2003-49, 2003-32 I.R.B. 294

2003-12

Obsoleted by

T.D. 9090, 2003-43 I.R.B. 891

REG-141402-02, 2003-43 I.R.B. 932

Notices— Continued:

2003-36

Modified by

Notice 2003-59, 2003-35 I.R.B. 429

Proposed Regulations:

REG-EE-86-88 (LR-279-81)

Withdrawn by

REG-122917-02, 2003-27 I.R.B. 15

REG-105606-99

Withdrawn by

REG-133791-02, 2003-35 I.R.B. 493

Revenue Procedures:

66-3

Revoked by

Rev. Proc. 2003-74, 2003-43 I.R.B. 923

66-50

Modified, amplified, and superseded by

Rev. Proc. 2003-62, 2003-32 I.R.B. 299

68-23

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

68-41

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

70-6

Modified and superseded, in part by

Notice 2003-70, 2003-43 I.R.B. 916

77-12

Amplified, modified, and superseded by

Rev. Proc. 2003-51, 2003-29 I.R.B. 121

80-4

Modified and amplified by

Notice 2003-70, 2003-43 I.R.B. 916

81-40

Modified and superseded by

Rev. Proc. 2003-62, 2003-32 I.R.B. 299

84-71

Revoked by

Rev. Proc. 2003-74, 2003-43 I.R.B. 923

85–56

Revoked by

Rev. Proc. 2003-74, 2003-43 I.R.B. 923

87–21

Revoked by

Rev. Proc. 2003-74, 2003-43 I.R.B. 923

89-12

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

Revenue Procedures— Continued:

89-21

Superseded by

Rev. Proc. 2003-53, 2003-31 I.R.B. 230

89-31

Obsoleted by

REG-108524-00, 2003-42 I.R.B. 869

90-19

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

90-32

Section 4 superseded by

Rev. Proc. 2003-55, 2003-31 I.R.B. 242

Section 5 superseded by

Rev. Proc. 2003-56, 2003-31 I.R.B. 249

Section 6 superseded by

Rev. Proc. 2003-57, 2003-31 I.R.B. 257

Section 7 superseded by

Rev. Proc. 2003-59, 2003-31 I.R.B. 268

Section 8 superseded by

Rev. Proc. 2003-60, 2003-31 I.R.B. 274

91-11

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

91-13

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

91-39

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

92-33

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

92-35

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

92–39

Superseded in part by

Rev. Proc. 2003-78, 2003-43 I.R.B. 1029

92-66

Obsoleted by

REG-108524-00, 2003-42 I.R.B. 869

92-88

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

93-17

Obsoleted by

REG-132483-03, 2003-34 I.R.B. 408

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2003-1 through 2003-26 is in Internal Revenue Bulletin 2003-27, dated July 7, 2003.

2003-46 I.R.B. iv November 17, 2003

Revenue Procedures— Continued:

94-46

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

94-52

Revoked by

Rev. Proc. 2003-74, 2003-43 I.R.B. 923

95-10

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

95-11

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

95-39

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

96-17

Modified and superseded by

Rev. Proc. 2003-69, 2003-34 I.R.B. 402

96-30

Modified and amplified by

Rev. Proc. 2003-48, 2003-29 I.R.B. 86

96-38

Obsoleted by

Rev. Proc. 2003-71, 2003-36 I.R.B. 517

97-11

Revoked by

Rev. Proc. 2003-74, 2003-43 I.R.B. 923

2000-12

Modified by

Rev. Proc. 2003-64, 2003-32 I.R.B. 306

2000-15

Superseded by

Rev. Proc. 2003-61, 2003-32 I.R.B. 296

2000-20

Modified by

Rev. Proc. 2003-72, 2003-38 I.R.B. 578

2001-19

Amplified by

Rev. Proc. 2003-75, 2003-45 I.R.B. 1018

2002-9

Modified by

T.D. 9090, 2003-43 I.R.B. 891REG-141402-02, 2003-43 I.R.B. 932Rev. Proc. 2003-45, 2003-27 I.R.B. 11

Amplified and modified by

Rev. Proc. 2003-50, 2003-29 I.R.B. 119

Modified and amplified by

Rev. Proc. 2003-63, 2003-32 I.R.B. 304

Rev. Rul. 2003-81, 2003-30 I.R.B. 126

2002-13

Revoked by

Rev. Proc. 2003-68, 2003-34 I.R.B. 398

Revenue Procedures— Continued:

2002-14

Amplified by

Rev. Proc. 2003-75, 2003-45 I.R.B. 1018

2002-29

Modified by

Rev. Proc. 2003-72, 2003-38 I.R.B. 578

2002-33

Amplified and modified by

Rev. Proc. 2003-50, 2003-29 I.R.B. 119

2002-34

Superseded by

Rev. Proc. 2003-52, 2003-30 I.R.B. 134

2002-38

Modified by

Rev. Proc. 2003-79, 2003-45 I.R.B. 45 1036

2002-39

Modified by

Rev. Proc. 2003-79, 2003-45 I.R.B. 45 1036

2002-45

Revoked by

Rev. Proc. 2003-68, 2003-34 I.R.B. 398

2002-60

Superseded by

Rev. Proc. 2003-73, 2003-39 I.R.B. 647

2002-61

Superseded by

Rev. Proc. 2003-76, 2003-43 I.R.B. 924

2002-63

Superseded by

Rev. Proc. 2003-80, 2003-45 I.R.B. 1037

2003-3

Modified by

Rev. Proc. 2003-48, 2003-29 I.R.B. 86

2003-15

Modified and superseded by

Rev. Proc. 2003-49, 2003-29 I.R.B. 89

2003-28

Modified by

Ann. 2003-35, 2003-38 I.R.B. 597

2003-44

Modified by

Rev. Proc. 2003-72, 2003-38 I.R.B. 578

2003-49

Supplemented by

Rev. Proc. 2003-81, 2003-45 I.R.B. 1046

Revenue Rulings:

53-56

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

Revenue Rulings— Continued:

54-139

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

54-396

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

55-105

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

55-372

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

56-128

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

56-160

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

56-212

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

56-220

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

56-271

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

56-344

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

56-448

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

56-451

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

56-586

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

56-680

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

56-681

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

57-116

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

57-296

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

November 17, 2003 v 2003-46 I.R.B.

Revenue Rulings— Continued:

57-542

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

58-92

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

58-618

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

59-108

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

59-120

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

59-122

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

59-233

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

59-326

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

59-356

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

59-400

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

59-412

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

60-49

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

60-246

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

60-262

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

60-307

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

61-96

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

63-157

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

Revenue Rulings— Continued:

63-224

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

63-248

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

64-147

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

64-177

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

64-285

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

65-110

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

65-260

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

65-273

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

66-4

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

66-23

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

66-610

Partially obsoleted by

Rev. Rul. 2003-105, 2003-40 I.R.B. 696

66-290

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

67-186

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

67-189

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

67-326

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

68-309

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

68-388

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

Revenue Rulings— Continued:

68-434

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

68-477

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

68-522

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

68-608

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

68-640

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

68-641

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

69-18

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

69-20

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

69-241

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

69-361

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

69-426

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

69-485

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

69-517

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

70-6

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

70-111

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

70-229

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

70-230

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

2003-46 I.R.B. vi November 17, 2003

Revenue Rulings— Continued:

70-264

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

70-286

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

70-378

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

70-409

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

70-496

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

71-13

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

71-384

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

71-440

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

71-453

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

71-454

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

71-495

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

71-518

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

71-565

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

71-582

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

72-61

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

72-116

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

72-212

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

Revenue Rulings— Continued:

72-357

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

72-472

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

72-526

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

72-599

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

72-603

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

73-46

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

73-119

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

73-182

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

73-257

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

73-277

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

73-473

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

73-490

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

73-498

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

74-6

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

74-59

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

74-73

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

74-83

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

Revenue Rulings— Continued:

74-87

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

74-211

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

74-376

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

74-476

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

74-521

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

74-610

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

75-53

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

75-54

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

75-105

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

75-106

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

75-107

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

75-111

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

75-134

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

75-160

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

75-174

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

75-179

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

75-212

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

November 17, 2003 vii 2003-46 I.R.B.

Revenue Rulings— Continued:

75-248

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

75-298

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

75-341

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

75-426

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

75-468

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

75-515

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

75-561

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

76-44

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

76-67

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

76-90

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

76-225

Revoked by

T.D. 9068, 2003–37 538

76-239

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

76-329

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

76-347

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

76-535

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

77-41

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

77-81

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

Revenue Rulings— Continued:

77-150

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

77-256

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

77-284

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

77-321

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

77-343

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

77-405

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

77-456

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

77-482

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

77-483

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

78-89

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

78-287

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

78-420

Obsoleted by

Rev. Rul. 2003-105, 2003-40 I.R.B. 696

78-441

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

79-29

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

79-50

Obsoleted by

Rev. Rul. 2003-105, 2003-40 I.R.B. 696

79-71

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

79-82

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

Revenue Rulings— Continued:

79-104

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

79-116

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

79-314

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

79-410

Amplified by

Rev. Rul. 2003-90, 2003-33 I.R.B. 353

79-424

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

80-78

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

80-79

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

80-101

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

80-167

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

80-170

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

80-358

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

81-190

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

81-225

Clarified and amplified by

Rev. Rul. 2003-92, 2003-33 I.R.B. 350

81-247

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

82-164

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

82-226

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

83-101

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

2003-46 I.R.B. viii November 17, 2003

Revenue Rulings— Continued:

83-119

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

84-28

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

84-30

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

85-55

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

85-136

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

86-52

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

87-1

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

87-95

Superseded by

Rev. Rul. 2003-109, 2003-42 I.R.B. 839

88-7

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

89-72

Obsoleted by

Rev. Rul. 2003-99, 2003-34 I.R.B. 388

94-56

Superseded by

Rev. Rul. 2003-109, 2003-42 I.R.B. 839

2003-58

Distinguished by

Rev. Rul. 2003-102, 2003-38 I.R.B. 559

Treasury Decisions:

9033

Removed by

T.D. 9065, 2003-36 I.R.B. 515

9083

Corrected by

Ann. 2003-60, 2003-45 I.R.B. 1049

November 17, 2003 ix 2003-46 I.R.B.*U.S. Government Printing Office: 2003—304–774/60109