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. 2003–43, page 935.Health plans. This ruling sets forth the rules regarding the useof debit and credit cards to reimburse participants in self-insuredmedical reimbursement plans. Rev. Rul. 2002–80 distinguished.

Rev. Rul. 2003–50, page 944.LIFO; price indexes; department stores. The March 2003 Bu-reau of Labor Statistics price indexes are accepted for use bydepartment stores employing the retail inventory and last-in, first-out inventory methods for valuing inventories for tax years endedon, or with reference to, March 31, 2003.

Rev. Rul. 2003–51, page 938.Transfer to corporation. This ruling provides guidance regard-ing the control requirement under section 351 of the Code in-volving successive transfers of property and stock. Rev. Ruls.70–140, 70–522, 79–70, and 79–194 distinguished.

T.D. 9055, page 945.Final regulations under section 3406 of the Code clarify themethod of determining whether a payer has received two IRS no-tices that a payee’s taxpayer identification number (TIN) is in-correct, for purposes of backup withholding. This document alsocontains regulations under section 6724 which clarify when aninformation return filer must solicit a payee’s TIN in response toa penalty notice based on an incorrect TIN if a notice under sec-tion 3406(a)(1)(B) was already received with respect to the sametax year.

Announcement 2003–35, page 956.This document sets forth an advance notice of proposed rule-making (REG–100420–03) and asks for comments on a pos-sible safe harbor the IRS and the Treasury Department areconsidering that would allow a financial statement-tax confor-mity approach to valuation of certain securities and commodi-ties for purposes of section 475 of the Code. This approachwould be elective and would have certain requirements that mustbe met before the safe harbor could be used, including record-keeping and record production requirements. The ANPRM alsoseeks comments on any other alternative valuation methodol-ogy.

EMPLOYEE PLANS

T.D. 9056, page 940.Final regulations under section 408 of the Code provide a newmethod to be used for calculating the net income attributable toan IRA contribution that is distributed as a returned contribu-tion pursuant to section 408(d)(4) or recharacterized pursuantto section 408A(d)(6). These regulations will affect IRA ownersand IRA trustees, custodians, and issuers.

Notice 2003–32, page 949.Weighted average interest rate update. The weighted aver-age interest rate for May 2003 and the resulting permissiblerange of interest rates used to calculate current liability for pur-poses of the full funding limitation of section 412(c)(7) of the Codeare set forth.

(Continued on the next page)

Bulletin No. 2003–21May 27, 2003

Finding Lists begin on page ii.

EXEMPT ORGANIZATIONS

Notice 2003–31, page 948.This notice announces that the Treasury Department and the Ser-vice intend to propose regulations providing guidance under sec-tion 501(m) of the Code, which will define the term “commercial-type insurance” and address how section 501(m) applies toorganizations described in sections 501(c)(3) and 501(c)(4), in-cluding health maintenance organizations. This notice also re-quests comments on the content of the regulations to beproposed. Finally, this notice announces that, in light of the regu-lations project, the Service is withdrawing from the Internal Rev-enue Manual the sections of Part 7.8.1, Chapter 27, ExemptOrganizations Examination Guidelines Handbook, Health Main-tenance Organizations that relate to section 501(m) of theCode.

Announcement 2003–34, page 953.A list is provided of organizations now classified as private foun-dations.

EXCISE TAX

Announcement 2003–33, page 953.The Service announces the availability of new Form 8876, Ex-cise Tax on Structured Settlement Factoring Transactions.Use this form to report and pay the 40% excise tax imposed un-der section 5891 of the Code on the factoring discount of a struc-tured settlement factoring transaction.

ADMINISTRATIVE

Rev. Proc. 2003–37, page 950.This procedure describes documentation and information a tax-payer that uses the fair market value method of apportionmentof interest expense may prepare and make available to the Ser-vice upon request in order to establish the fair market value ofthe taxpayer’s assets to the satisfaction of the Commissioner asrequired by section 1.861–9T(g)(1)(iii) of the regulations. It alsosets forth the procedure to be followed in the case of elec-tions to use the fair market value method.

May 27, 2003 2003–21 I.R.B.

The IRS MissionProvide America’s taxpayers top quality service by helping themunderstand and meet their tax responsibilities and by applyingthe tax law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument of theCommissioner of Internal Revenue for announcing official rul-ings and procedures of the Internal Revenue Service and for pub-lishing Treasury Decisions, Executive Orders, Tax Conventions,legislation, court decisions, and other items of general inter-est. It is published weekly and may be obtained from the Super-intendent of Documents on a subscription basis. Bulletin contentsare consolidated semiannually into Cumulative Bulletins, whichare 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, modify,or amend any of those previously published in the Bulletin. All pub-lished rulings apply retroactively unless otherwise indicated. Pro-cedures relating solely to matters of internal management arenot published; however, statements of internal practices and pro-cedures that affect the rights and duties of taxpayers are pub-lished.

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 taxpay-ers or technical advice to Service field offices, identifying de-tails and 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 be re-lied on, used, or cited as precedents by Service personnel in thedisposition of other cases. In applying published rulings and pro-cedures, the effect of subsequent legislation, regulations, court

decisions, rulings, and procedures must be considered, and Ser-vice personnel and others concerned are cautioned against reach-ing the same conclusions in other cases unless the facts andcircumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based 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, TaxConventions and Other Related Items, and Subpart B, Legisla-tion and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to these sub-jects are contained in the other Parts and Subparts. Also in-cluded in this part are Bank Secrecy Act Administrative Rulings.Bank Secrecy Act Administrative Rulings are issued by the De-partment of the Treasury’s Office of the Assistant Secretary (En-forcement).

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

The first Bulletin for each month includes a cumulative index forthe matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the first Bulletin of the succeeding semiannual pe-riod, respectively.

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.

2003–21 I.R.B. May 27, 2003

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

Section 105.—AmountsReceived Under Accident andHealth Plans

(Also Section 106, 125.)

Health plans. This ruling sets forth therules regarding the use of debit and creditcards to reimburse participants in self-insured medical reimbursement plans.

Rev. Rul. 2003–43

ISSUE

Whether, under the facts described,employer-provided expense reimburse-ments made through debit or credit cardsand other electronic media are excludablefrom gross income under § 105 of the In-ternal Revenue Code.

FACTS

Situation 1. Employer N sponsors oneor more major medical plans for employ-ees that provide coverage under accidentand health insurance. Each plan has a fixedcopayment amount (e.g., a $15 copaymentfor physician office visits). Employer N alsosponsors both a health flexible spending ar-rangement (health FSA) and a health re-imbursement arrangement (HRA). Thehealth FSA and the HRA reimburse the un-insured medical care expenses of all par-ticipating employees and their spouses anddependents up to a maximum reimburse-ment amount that is fixed at the begin-ning of each year. The health FSA is paidpursuant to salary reduction elections un-der Employer N’s § 125 cafeteria plan. TheHRA is paid by Employer N and employ-ees make no salary reduction election to payfor the HRA. The HRA plan documentspecifies that coverage under the HRA isavailable only after expenses exceeding thedollar amount elected under the § 125 healthFSA have been paid from the health FSA.Both the health FSA and the HRA meet thenondiscrimination requirements of § 105(h).

In conjunction with the health FSA andthe HRA, Employer N permits electronicreimbursement of medical expenses throughthe use of a debit card or stored-value card(“card”). Under the arrangement adopted byEmployer N, each participating employee

is issued a card and certifies upon enroll-ment in the health FSA and HRA and eachplan year thereafter that the card will onlybe used for eligible medical care expenses,as defined in § 213(d), of the employee andthe employee’s spouse and dependents. Theemployee also certifies that any expensepaid with the card has not been reimbursedand that the employee will not seek reim-bursement under any other plan coveringhealth benefits. An employee-cardholder un-derstands that the certification, which isprinted on the back of the card, is reaf-firmed each time the card is used. The card-holder also agrees to acquire and retainsufficient documentation for any expensepaid with the card, including invoices andreceipts where appropriate. The card is au-tomatically cancelled at termination of em-ployment.

The cardholder’s use of the card is lim-ited to the maximum dollar amount of cov-erage available in the cardholder’s healthFSA or HRA. As described below, the cardis ineffective except at those merchants andservice providers authorized by EmployerN, so that the use of the card at other mer-chants or service providers would be re-jected. Employer N limits the card’s use tospecified Merchant Codes relating to healthcare. Thus, the card’s use is limited to phy-sicians, pharmacies, dentists, vision care of-fices, hospitals, and other medical careproviders. When a cardholder uses the cardat the point-of-sale, the merchant or ser-vice provider is paid the full amount of thecharge (assuming there is sufficient cov-erage available in the health FSA or HRA),and the cardholder’s maximum availablecoverage remaining is reduced by thatamount.

To provide assurance that only eligiblemedical expenses are reimbursed, EmployerN has established, in the health FSA andHRA documents, the following proceduresfor substantiating claimed medical expensesafter the use of the card.

First, if the dollar amount of the trans-action at a health care provider equals thedollar amount of the copayment for that ser-vice under the major medical plan of thespecific employee-cardholder, the charge isfully substantiated without the need for sub-mission of a receipt or further review. Forexample, Employee A is enrolled in a ma-

jor medical plan with a $15 physician’s of-fice visit copayment. When Employee Auses the card to satisfy the copayment re-quirement, the system matches the amountof the transaction, $15, with the copay-ment under Employee A’s coverage and thefact that the transaction is at a physician’soffice.

Second, Employer N permits automaticreimbursement, without further review, ofrecurring expenses that match expenses pre-viously approved as to amount, provider,and time period (e.g., for an employee whorefills a prescription drug on a regular ba-sis at the same provider for the sameamount).

Third, if the merchant, service provider,or other independent third-party (e.g., Phar-macy Benefit Manager), at the time andpoint of sale, provides information to verifyto Employer N (including electronically bye-mail, the internet, intranet, or telephone)that the charge is for a medical expense, thecharge is fully substantiated without theneed for submission of a receipt or fur-ther review (i.e., “real-time substantia-tion”). For example, Employee A fills aprescription at a pharmacy. The PharmacyBenefit Manager under Employee A’s ma-jor medical coverage provides informa-tion that $37.85 of the cost of theprescription is a medical expense that is notcovered by the major medical coverage. Be-cause the information about the medical ex-pense, $37.85, matches the amount of thetransaction, the transaction is substanti-ated. The transaction would also be fullysubstantiated where, for example, treat-ment at a physician’s office results incharges in addition to the copayment and,after obtaining authorization for the card,the provider is prompted to enter treat-ment codes and charges. The additionalthird-party information regarding the typeof care, date of service, and amount pro-vides substantiation of the expense with-out the need for further review.

Employer N’s procedures provide thatall charges to the card, other than copay-ments, recurring expenses, and real-timesubstantiation as described above, are treatedas conditional pending confirmation of thecharge. Thus, Employer N requires that ad-ditional third-party information, such as

2003–21 I.R.B. 935 May 27, 2003

merchant or service provider receipts, de-scribing (1) the service or product, (2) thedate of the service or sale and, (3) theamount, be submitted for review and sub-stantiation.

An employee may also obtain benefitsunder the health FSA or HRA without theuse of the card by submitting to EmployerN either an Explanation of Benefits (EOB)received from a health insurance provideror a receipt from a merchant or service pro-vider showing that funds are owed for aneligible medical expense (e.g., on a de-ductible). In this case, Employer N pays themerchant or service provider directly. Al-ternatively, an employee may pay the mer-chant or service provider directly and submita claim for reimbursement, including third-party information supporting the claim.

Under Employer N’s card arrangement,a few of the claims that have been reim-bursed are subsequently identified as notqualifying for reimbursement. As a re-sult, Employer N has adopted, in the healthFSA and HRA plan documents, all of thefollowing correction procedures with re-spect to the improper payments. First, uponidentifying an improper payment, EmployerN requires the employee to pay back to theplan an amount equal to the improper pay-ment. Second, where this proves unsuc-cessful, Employer N has the amount of theimproper payment withheld from the em-ployee’s wages or other compensation to theextent consistent with applicable law. Third,if the improper payment still remains out-standing, Employer N utilizes a claims sub-stitution or offset approach to resolveimproper claims. For example, if EmployeeA has received an improper reimburse-ment of $200 and subsequently submits asubstantiated claim incurred during the samecoverage period, no reimbursement is madeuntil the improper payment is fully re-couped. In addition to the above, EmployerN takes other actions to ensure that fur-ther violations of the terms of the card donot occur, including denial of access to thecard until the indebtedness is repaid by theemployee.

If these correction efforts prove unsuc-cessful, or are otherwise unavailable, theemployee remains indebted to Employer Nfor the amount of the improper payment.In that event and consistent with its busi-ness practices, Employer N treats the pay-ment as it would any other businessindebtedness.

Situation 2. The facts are the same asSituation 1, except that Employer P’s pro-cedures utilize sampling techniques basedon transaction amounts. For example, Em-ployer P reviews 20% of dental office trans-actions paid with the card that have notbeen otherwise substantiated and are above$100 on the assumption that no dental cos-metic procedures are available for less than$100. Also, Employer P reviews a smallerpercentage (e.g., 5%) of physician officetransactions paid with the card that have notbeen otherwise substantiated and are be-low $150 on the assumption that almost allsuch charges are for eligible medical care.In addition, Employer P does not reviewany card transaction below a low dollarthreshold (e.g., $25) or where the amountof the transaction is a multiple of a speci-fied whole-dollar amount (e.g., $5, $10, $15,etc.) on the assumption that these latteramounts are copayments. Only those pay-ments selected for review are required tobe substantiated by submission of mer-chant or service provider receipts. Thus,Employer P does not substantiate all reim-bursements made through the card.

Situation 3. Employer R sponsors ma-jor medical plans, a health FSA, and anHRA for employees. The health FSA andthe HRA meet the nondiscrimination re-quirements of § 105(h). In conjunction withthe health FSA and the HRA, Employer Rhas entered into an agreement with a spon-soring bank to issue to each participatingemployee a credit card with individual lim-its equaling the coverage available in thehealth FSA or HRA. As in Situation 1, Em-ployer R requires each employee to cer-tify upon enrollment in the plans (which isreaffirmed upon each use of the credit card)that the card will only be used for eli-gible medical care expenses and that anymedical expense paid with the card has notbeen reimbursed and the employee will notseek reimbursement under any other plancovering health benefits. In addition, as inSituation 1, the credit card is usable onlyat a merchant or service provider with aspecified Merchant Code relating to healthcare. Pursuant to the agreement betweenEmployer R and the sponsoring bank, Em-ployer R agrees to be liable to the spon-soring bank for all charges made with thecredit card against the line of credit. Whenthe card is used at the point-of-sale, the

merchant or service provider is paid the fullamount of the charge by the sponsoringbank.

Employer R utilizes substantiation meth-ods identical to those of Employer N inSituation 1, so that copayments, recurringexpenses, and real-time substantiation needno further review. Employer R treats allother charges to the card as conditionalpending confirmation of the medical ex-pense. If the claim is approved, the em-ployee’s maximum available coverage in thehealth FSA or HRA is reduced by thatamount and Employer R repays the spon-soring bank. If the employee fails to pro-vide substantiation of the medical expenseor the claim is denied, Employer R re-pays the sponsoring bank and the employeebecomes liable to Employer R for thecharge. To recoup amounts that have beenidentified as improper payments, EmployerR has adopted the same correction proce-dures as those utilized by Employer N inSituation 1. Also, as described in Situa-tion 1, an employee may obtain benefits un-der the health FSA or HRA without the useof the credit card.

LAW AND ANALYSIS

Section 61(a)(1) and § 1.61–21(a)(3) ofthe Income Tax Regulations provide that,except as otherwise provided in subtitle A,gross income includes compensation for ser-vices, including fees, commissions, fringebenefits, and similar items.

Section 106 provides that “gross in-come of an employee does not includeemployer-provided coverage under an ac-cident or health plan.” Section 1.106–1 pro-vides that the gross income of an employeedoes not include contributions which theemployee’s employer makes to an acci-dent or health plan for compensation(through insurance or otherwise) for per-sonal injuries or sickness to the employeeor the employee’s spouse or dependents (asdefined in § 152).

Section 105(a) provides that “amountsreceived by an employee through acci-dent or health insurance for personal inju-ries or sickness shall be included in grossincome to the extent such amounts (1) areattributable to contributions by the em-ployer which were not includible in thegross income of the employee, or (2) arepaid by the employer.”

Section 105(e) states that amounts re-ceived under an accident or health plan for

May 27, 2003 936 2003–21 I.R.B.

employees are treated as amounts receivedthrough accident or health insurance for pur-poses of § 105. Section 1.105–5(a) pro-vides that an accident or health plan is anarrangement for the payment of amounts toemployees in the event of personal inju-ries or sickness. Thus, amounts that are paidto an employee regardless of whether theemployee incurs expenses for medical careor suffers a personal injury or sickness arenot received under an accident or healthplan.

Section 105(b) states that, except in thecase of amounts attributable to (and not inexcess of) deductions allowed under § 213(relating to medical expenses) for any priortaxable year, gross income does not in-clude amounts referred to in § 105(a) if suchamounts are paid, directly or indirectly, tothe taxpayer to reimburse the taxpayer forexpenses incurred by the taxpayer for themedical care (as defined in § 213(d)) of thetaxpayer or the taxpayer’s spouse or de-pendents (as defined in § 152).

Section 1.105–2 provides that onlyamounts that are paid specifically to reim-burse the taxpayer for expenses incurred bythe taxpayer for the prescribed medical careare excludable from gross income. Sec-tion 105(b) does not apply to amounts thatthe taxpayer would be entitled to receiveirrespective of whether or not the taxpayerincurs expenses for medical care. Accord-ingly, if an employee is not paid specifi-cally to reimburse medical care expensesbut is entitled to receive the payment irre-spective of whether any medical expenseshave been incurred, none of those pay-ments are excludable from gross income un-der § 105(b) whether or not the employeehas incurred medical expenses during theyear.

Under § 125, an employer may estab-lish a cafeteria plan that permits an em-ployee to choose among two or morebenefits, consisting of cash (generally, sal-ary) and qualified benefits, including ac-cident or health coverage. Pursuant to § 125,the amount of an employee’s salary reduc-tion applied to purchase such coverage isnot included in gross income, even thoughit is available to the employee and the em-ployee could have chosen to receive cashinstead. If an employee elects salary re-duction pursuant to § 125, the accident andhealth coverage is excludable from gross in-come under § 106 as employer-provided ac-cident or health coverage.

Q&A–7(a) of § 1.125–2 of the ProposedIncome Tax Regulations states that healthplans that are FSAs must conform to thegenerally applicable rules under §§ 105 and106 in order for the coverage and reim-bursements to qualify for tax-favored treat-ment. Thus, health FSAs must qualify asaccident or health plans and reimburse-ments must be paid specifically to reim-burse the participant for medical expensesincurred previously during the period ofcoverage.

Q&A–7(b)(5) of § 1.125–2 addressesclaims substantiation for health FSAs andprovides that a health FSA may reimbursea medical expense only if the participantprovides a written statement from an in-dependent third-party stating that the medi-cal expense has been incurred and theamount of such expense and the partici-pant also provides a written statement thatthe medical expense has not been reim-bursed or is not reimbursable under anyother health plan coverage.

Part 1 of Notice 2002–45, 2002–28I.R.B. 93, describes an HRA as an arrange-ment that: (1) is paid for solely by the em-ployer and not pursuant to salary reduction;(2) reimburses the employee for medicalcare expenses as defined in § 213(d); and(3) provides that any unused portion of themaximum dollar amount available duringthe coverage period is carried forward tosubsequent coverage periods. Part 2 of thenotice provides that to qualify for the ex-clusion under §§ 106 and 105, an HRA mayonly provide benefits that reimburse§ 213(d) medical expenses and that eachmedical expense submitted for reimburse-ment must be substantiated.

Rev. Rul. 2002–80, 2002–49 I.R.B. 925,describes plans in which amounts are au-tomatically paid to an employee as “ad-vance reimbursements” or “loans” ofuninsured medical expenses. The employertreats the “advance reimbursements” or“loans” as an indebtedness that is forgivenby the end of the year or upon termina-tion of employment. In addition, to the ex-tent an employee does not have uninsuredmedical expenses equal to the “advance re-imbursements” or “loans,” the excess pay-ments to the employee are included in grossincome. The ruling holds that the exclu-sion from gross income under § 105(b) doesnot apply to these plans because the “ad-vance reimbursements” or “loans” are paid

to the employee whether or not the em-ployee incurs medical expenses. See§ 1.105–2

Not all health-related expenses qualifyfor tax-free treatment under § 105(b). Onlyamounts that are paid specifically to reim-burse eligible medical care expenses as de-fined in § 213(d) receive tax-favoredtreatment. Therefore, to provide certaintythat a particular expense is for medical carewithin the meaning of § 213(d), all claimsfor expense reimbursements must be sub-stantiated. However, § 105(b) does notspecify the method of substantiation. Theprocedures adopted by Employer N in Situ-ation 1 with respect to the electronic re-imbursement of medical expenses meet therequirements of § 105(b). First, EmployerN requires a certification upon enrollmentand a reaffirmation upon each use of thecard, as printed on the back, that the cardwill only be used for eligible medical careexpenses. Second, reimbursements for medi-cal expenses are processed only if theyoriginate with certain vendors having healthcare related Merchant Codes. Third, Em-ployer N’s procedures provide that everyclaim is reviewed and substantiated, ei-ther automatically without additional docu-mentation or manually through thesubmission of merchant or service pro-vider receipts. Fourth, Employer N hasadopted meaningful correction proceduresfor claims that are subsequently identi-fied as impermissible. These proceduresmeet the requirements of § 105(b) and thesame conclusion applies to the proceduresadopted by Employer R in Situation 3.

In contrast, the sampling techniquesadopted by Employer P in Situation 2 donot provide that every claim is substanti-ated. Thus, because Employer P’s proce-dures, by plan design, do not specificallylimit reimbursements or payments of claimsto eligible medical expenses, the proce-dures do not meet the requirements of§ 105(b).

HOLDING

Employer-provided expense reimburse-ments made through debit or credit cardsand other electronic media, as described inSituation 1 and Situation 3, are exclud-able from gross income under § 105(b).Employer-provided expense reimburse-ments, as described in Situation 2, are notexcludable from gross income under§ 105(b) because the payments are made ir-

2003–21 I.R.B. 937 May 27, 2003

respective of whether any medical expenseshave been incurred. Thus, in Situation 2, allpayments made during the year, includ-ing amounts paid to reimburse medical ex-penses, are included in the gross income ofthe employee.

SCOPE

This ruling addresses only issues un-der the specific Code sections mentioned.No inference is intended as to any othersection of the Internal Revenue Code.

EFFECT ON OTHER REVENUERULINGS

Rev. Rul. 2002–80 is distinguished be-cause in that ruling, unlike Situations 1 and3, a payment is made in advance and irre-spective of the employee incurring a medi-cal expense. In Situations 1 and 3, apayment is made concurrent with the em-ployee incurring a medical expense that issubstantiated. Final regulations under § 125will reflect the modifications to the rulesconcerning claims substantiation of healthFSA expenses as set forth in this revenueruling.

FORM 1099 CONSIDERATION

Under the facts described, paymentsmade to medical service providers throughthe use of debit, credit, and stored-valuecards are reportable by the employer onForm 1099–MISC under § 6041. Section6041 provides for information reporting bypersons engaged in a trade or business whomake payments of fixed or determinable in-come to another person in the course ofsuch trade or business of $600 or more ina taxable year. The exceptions provided in§ 1.6041–3 may apply to this requirement,such as the exception for payments to tax-exempt hospitals.

EFFECTIVE DATE

The holding in Situation 2 is effectivefor plan years beginning after December 31,2003.

COMMENTS REQUESTED

The Service requests comments on sam-pling techniques or statistical approaches,other than those described in Situation 2,that may be used by employers in identi-fying types of transactions that should bedeemed to be substantiated. The method-

ology proposed should demonstrate that theoutcome of measures selected provide ahigh degree of certainty sufficient to con-stitute substantiation that the employee hasincurred a medical expense. Send com-ments to: CC:PA:RU (Rev. Rul. 2003–43), Room 5226, Internal Revenue Service,POB 7604, Ben Franklin Station, Wash-ington, DC 20044. Comments may be hand-delivered between the hours of 8 a.m. and4 p.m. to: CC:PA:RU (Rev. Rul. 2003–43), Courier’s Desk, Internal Revenue Ser-vice, 1111 Constitution Avenue, NW,Washington, DC. In the alternative, tax-payers may submit comments electroni-cally at: Notice.Comments@irscounsel.treas.gov. All comments will be availablefor public inspection.

DRAFTING INFORMATION

The principal author of this revenue rul-ing is Barbara E. Pie of the Office of Di-vision Counsel/Associate Chief Counsel(Tax Exempt and Government Entities). Forfurther information regarding this revenueruling, contact Ms. Pie at (202) 622–6080(not a toll-free call).

Section 351.—Transfer toCorporation Controlled byTransferor

26 CFR 1.351–1: Transfer to corporationcontrolled by transferor.

Transfer to corporation. This rulingprovides guidance regarding the control re-quirement under section 351 of the Codeinvolving successive transfers of propertyand stock. Rev. Ruls. 70–140, 70–522, 79–70, and 79–194 distinguished.

Rev. Rul. 2003–51

ISSUE

Whether a transfer of assets to a corpo-ration (the “first corporation”) in exchangefor an amount of stock in the first corpo-ration constituting control satisfies the con-trol requirement of § 351 of the InternalRevenue Code if, pursuant to a bindingagreement entered into by the transferorwith a third party prior to the exchange, thetransferor transfers the stock of the first cor-poration to another corporation (the “sec-ond corporation”) simultaneously with thetransfer of assets by the third party to the

second corporation, and immediately there-after, the transferor and the third party arein control of the second corporation.

FACTS

Corporation W, a domestic corpora-tion, engages in businesses A, B, and C. Thefair market values of businesses A, B, andC are $40x, $30x, and $30x, respectively.X, a domestic corporation unrelated to W,also engages in business A through itswholly owned domestic subsidiary, Y. Thefair market value of X’s Y stock is $30x.W and X desire to consolidate their busi-ness A operations within a new corpora-tion in a holding company structure.Pursuant to a prearranged binding agree-ment with X, W forms a domestic corpo-ration, Z, by transferring all of its businessA assets to Z in exchange for all of thestock of Z (the “first transfer”). Immedi-ately thereafter, W contributes all of its Zstock to Y in exchange for stock of Y (the“second transfer”). Simultaneous with thesecond transfer, X contributes $30x to Y tomeet the capital needs of business A afterthe restructuring in exchange for addi-tional stock of Y (the “third transfer”). Af-ter the second and third transfers, Y transfersthe $30x and its business A assets to Z (the“fourth transfer”). After the second and thirdtransfers, W and X own 40 percent and 60percent, respectively, of the outstandingstock of Y. Viewed separately, each of thefirst transfer, the combined second and thirdtransfers, and fourth transfer qualifies as atransfer described in § 351.

LAW

Section 351(a) provides that no gain orloss shall be recognized if property is trans-ferred to a corporation by one or more per-sons solely in exchange for stock in suchcorporation and immediately after the ex-change such person or persons are in con-trol (as defined in § 368(c)) of thecorporation.

Section 368(c) defines control to meanthe ownership of stock possessing at least80 percent of the total combined votingpower of all classes of stock entitled to voteand at least 80 percent of the total num-ber of shares of all other classes of stockof the corporation.

Section 1.351–1(a)(1) of the Income TaxRegulations provides that the phrase “im-mediately after the exchange” does not nec-

May 27, 2003 938 2003–21 I.R.B.

essarily require simultaneous exchanges bytwo or more persons, but comprehends asituation where the rights of the parties havebeen previously defined and the execu-tion of the agreement proceeds with an ex-pedition consistent with orderly procedure.

Courts have held that the control re-quirement of § 351 is not satisfied where,pursuant to a binding agreement entered intoby the transferor prior to the transfer ofproperty to the corporation in exchange forstock, the transferor loses control of the cor-poration by a taxable sale of all or part ofthat stock to a third party who does not alsotransfer property to the corporation in ex-change for stock. See, e.g., S. Klein on theSquare, Inc. v. Commissioner, 188 F.2d 127(2d Cir.), cert. denied, 342 U.S. 824 (1951);Hazeltine Corp. v. Commissioner, 89 F.2d513 (3d Cir. 1937); Intermountain Lum-ber Co. v. Commissioner, 65 T.C. 1025(1976). The Service has reached the sameconclusion when addressing similar facts.See Rev. Rul. 79–194, 1979–1 C.B. 145;Rev. Rul. 79–70, 1979–1 C.B. 144; Rev.Rul. 70–522, 1970–2 C.B. 81.

In Rev. Rul. 70–140, 1970–1 C.B. 73,A, an individual, owns all of the stock ofcorporation X and operates a business simi-lar to that of X through a sole proprietor-ship. Pursuant to an agreement between Aand Y, an unrelated, widely held corpora-tion, A transfers all of the assets of the soleproprietorship to X in exchange for addi-tional shares of X stock. A then transfersall his X stock to Y solely in exchange forvoting common stock of Y. The ruling rea-sons that because the two steps of the trans-action are parts of a prearranged plan, theymay not be considered independently ofeach other for federal income tax purposes.The ruling concludes that A’s receipt of theX stock in exchange for the sole propri-etorship assets is transitory and without sub-stance for tax purposes because it isapparent that the assets of the sole propri-etorship are transferred to X to enable Y toacquire those assets without the recogni-tion of gain to A. Accordingly, the rulingtreats A as transferring its sole proprietor-ship assets directly to Y in a transfer towhich § 351 does not apply, and Y as trans-ferring these assets to X, independently ofA’s transfer of the X stock to Y in ex-change for Y voting stock. The exchangeby A of the stock of X solely for voting

stock of Y constitutes an exchange to which§ 354 applies. See also § 1.1361–5(b)(3),Example 9.

In Rev. Rul. 77–449, 1977–2 C.B. 110,amplified by Rev. Rul. 83–34, 1983–1 C.B.79, and Rev. Rul. 83–156, 1983–2 C.B. 66,a corporation transfers assets to a whollyowned subsidiary, which in turn transfers,as part of the same plan, the same assetsto its own wholly owned subsidiary. Theruling states that the transfers should beviewed separately for purposes of § 351.Because each transfer satisfies the require-ments of § 351, no gain or loss is recog-nized by the transferor.

In Rev. Rul. 83–34, corporation P owns80 percent of the stock of a subsidiary, S1.An unrelated corporation owns the remain-ing 20 percent. P transfers assets to S1solely in exchange for additional shares ofS1 stock. As part of the same plan, S1transfers the same assets to S2, a newlyformed corporation of which S1 will be an80 percent shareholder. An unrelated cor-poration will own the remaining 20 per-cent of the S2 stock. Citing Rev. Rul. 77–449, the ruling concludes that the transfersshould be viewed separately for purposesof § 351 and that each transfer satisfies therequirements of § 351.

In Rev. Rul. 84–111, 1984–2 C.B. 88,Situation 1, a partnership transfers all of itsassets to a newly formed corporation in ex-change for all the outstanding stock of thecorporation and the assumption by the cor-poration of the partnership’s liabilities. Thepartnership then terminates by distribut-ing all the stock of the corporation to thepartners in proportion to their partnershipinterests. The steps undertaken by the part-nership were parts of a plan to transfer thepartnership operations to a corporation or-ganized for valid business reasons in ex-change for its stock and were not devicesto avoid or evade recognition of gain. Theruling concludes that, under § 351, the part-nership recognizes no gain or loss on thetransfer of its assets to the corporation inexchange for the corporation’s stock and thecorporation’s assumption of the partner-ship’s liabilities, notwithstanding the part-nership’s subsequent distribution of thecorporation’s stock to the partners and con-sequent loss of control within the mean-ing of § 368(c) of the corporation.

ANALYSIS

As described above, if the first trans-fer were viewed as separate from each of

the other transfers, the first transfer wouldsatisfy the technical requirements of a trans-fer under § 351 because W transfers prop-erty to Z in exchange for stock in Z and,immediately after the exchange, W is incontrol of Z. However, because the first andsecond transfers are undertaken pursuant toa prearranged binding agreement, it is nec-essary to determine whether the secondtransfer causes the first transfer to fail tosatisfy the control requirement of § 351.

“Section 351 has been described as a de-liberate attempt by Congress to facilitate theincorporation of ongoing businesses and toeliminate any technical constructions whichare economically unsound.” Hempt Bros.,Inc. v. United States, 490 F.2d 1172, 1177(3d Cir.), cert. denied, 419 U.S. 826 (1974).Section 351(a) is intended to apply to “cer-tain transactions where gain or loss mayhave accrued in a constitutional sense, butwhere in a popular and economic sensethere has been a mere change in the formof ownership and the taxpayer has not re-ally ‘cashed in’ on the theoretical gain, orclosed out a losing venture.” Portland OilCo. v. Commissioner, 109 F.2d 479, 488 (1stCir.), cert. denied, 310 U.S. 650 (1940). SeeS. Rep. No. 67–275, at 12 (1921) (explain-ing that the predecessor to § 351 was en-acted in 1921 to “permit business to goforward with the readjustments required byexisting conditions”). A transaction de-scribed under § 351 “lacks a distinguish-ing characteristic of a sale, in that, insteadof the transaction having the effect of ter-minating or extinguishing the beneficial in-terests of the transferors in the transferredproperty, . . . the transferors continue to bebeneficially interested in the transferredproperty and have dominion over it by vir-tue of their control of the new corporateowner of it.” American Compress & Ware-house Co. v. Bender, 70 F.2d 655, 657 (5thCir.), cert. denied, 293 U.S. 607 (1934).

As described above, courts have held thatthe control requirement of § 351 is not sat-isfied where, pursuant to a binding agree-ment entered into by the transferor prior tothe transfer of property to the corporationin exchange for stock, the transferor losescontrol of the corporation by a taxable saleof all or part of that stock to a third partythat does not also transfer property to thecorporation in exchange for stock. Treat-ing a transfer of property that is followedby such a prearranged sale of the stock re-ceived as a transfer described in § 351 is

2003–21 I.R.B. 939 May 27, 2003

not consistent with Congress’ intent in en-acting § 351 to facilitate the rearrange-ment of the transferor’s interest in itsproperty. Treating a transfer of property thatis followed by a nontaxable disposition ofthe stock received as a transfer describedin § 351 is not necessarily inconsistent withthe purposes of § 351. Accordingly, the con-trol requirement may be satisfied in sucha case, even if the stock received is trans-ferred pursuant to a binding commitmentin place upon the transfer of the propertyin exchange for stock. For example, in Rev.Rul. 84–111, Situation 1, the partnership’stransfer of property to the transferee cor-poration qualified as a transfer described in§ 351, even though the partnership relin-quished control of the transferee corpora-tion within the meaning of § 368(c)pursuant to a prearranged plan to transferthe transferee stock.

In Rev. Rul. 70–140, the transfer of as-sets to the transferor’s wholly owned sub-sidiary followed by an exchange of stockof the wholly owned subsidiary for stockof another corporation was recast as a di-rect transfer of assets to the unrelated,widely held corporation in a taxable trans-action. In Rev. Rul. 70–140, there was noalternative form of transaction that wouldhave qualified for nonrecognition treat-ment. In contrast, in this case, W’s trans-fer of the business A assets to Z was notnecessary for W and X to combine theirbusiness A assets in a holding companystructure in a manner that would have quali-fied for nonrecognition of gain or loss un-der § 351. A transfer of W’s business Aassets to Y in exchange for Y stock as partof a plan that included X’s transfer of $30xto Y in exchange for Y stock, and Y’s trans-fer of the business A assets and $30x to Zin exchange for all of the Z stock, wouldhave qualified as successive transfers de-scribed in § 351. See Rev. Rul. 83–34; Rev.Rul. 77–449. Accordingly, in these circum-stances, Rev. Rul. 70–140 is distinguish-able.

In this case, even though the first trans-fer is followed by a transfer of the stock re-ceived, treating the first transfer as a transferdescribed in § 351 is not inconsistent withthe purposes of § 351. Accordingly, the sec-

ond transfer will not cause the first trans-fer to fail to satisfy the control requirementof § 351.

HOLDING

A transfer of assets to the first corpo-ration in exchange for an amount of stockin the first corporation constituting con-trol satisfies the control requirement of§ 351 even if, pursuant to a binding agree-ment entered into by the transferor witha third party prior to the exchange, thetransferor transfers the stock of the first cor-poration to the second corporation simul-taneously with the transfer of assets by thethird party to the second corporation, andimmediately thereafter, the transferor andthe third party are in control of the sec-ond corporation.

EFFECT ON OTHER REVENUERULINGS

Rev. Rul. 79–194, 1979–1 C.B. 145,Rev. Rul. 79–70, 1979–1 C.B. 144, Rev.Rul. 70–522, 1970–2 C.B. 81, and Rev. Rul.70–140, 1970–1 C.B. 73, are distinguished.

DRAFTING INFORMATION

The principal author of this revenue rul-ing is Lisa K. Leong of the Office of As-sociate Chief Counsel (Corporate). Forfurther information regarding this revenueruling, contact Ms. Leong at (202) 622–7530 (not a toll-free call).

Section 408.—IndividualRetirement Accounts

26 CFR 1.408–4: Treatment of distributions fromindividual retirement arrangements.

T.D. 9056

DEPARTMENT OF THETREASURYInternal Revenue Service(IRS)26 CFR Part 1

Earnings Calculation forReturned or RecharacterizedIRA ContributionsAGENCY: Internal Revenue Service (IRS),Treasury.

ACTION: Final regulations.

SUMMARY: This document contains fi-nal regulations that provide a new methodto be used for calculating the net incomeattributable to IRA contributions that are dis-tributed as a returned contribution pursu-ant to section 408(d)(4) of the InternalRevenue Code (Code) or recharacterizedpursuant to section 408A(d)(6). These regu-lations will affect IRA owners and IRAtrustees, custodians, and issuers.

DATES: Effective Date: These final regu-lations are effective on May 5, 2003.

Applicability Date: These final regula-tions are applicable for calculating incomeallocable to IRA contributions made on orafter January 1, 2004.

FOR FURTHER INFORMATION CON-TACT: Cathy Vohs at (202) 622–6090.

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments tothe Income Tax Regulations (26 CFR Part1) under Code sections 408 and 408A.These regulations provide a new method forcalculating the net income attributable toIRA contributions that are distributed as areturned contribution pursuant to section408(d)(4) or recharacterized pursuant to sec-tion 408A(d)(6).

Section 408(d)(4) provides that an IRAcontribution will not be included in the IRAowner’s gross income when distributed asa returned contribution if: (1) it is receivedby the IRA owner on or before the day pre-scribed by law (including extensions) forfiling the owner’s federal income tax re-turn for the year of the contribution; (2) nodeduction is allowed with respect to thecontribution; and (3) the distribution is ac-companied by the amount of net income at-tributable to the contribution.

Section 408A(d)(6) provides that a con-tribution made to one type of IRA may berecharacterized as having been made to an-other type of IRA if: (1) the recharacter-ization transfer occurs on or before the dateprescribed by law (including extensions) forfiling the IRA owner’s federal income taxreturn for the year for which the contribu-tion was made; (2) no deduction is allowedwith respect to the contribution to the trans-

May 27, 2003 940 2003–21 I.R.B.

feror IRA; and (3) the transfer is accom-panied by any net income allocable to thecontribution.

Notice 2000–39, 2000–2 C.B. 132, pro-vided a new method for calculating net in-come that generally based the calculationof the amount of net income attributable toa contribution on the actual earnings andlosses of the IRA during the time it held thecontribution, and provided that under thenew method, net income could be nega-tive. Notice 2000–39 provided that until fur-ther guidance is issued, either the oldmethod (i.e., the method specified in

§1.408–4(c)(2)(ii)) or the new method maybe used to calculate net income.

Proposed regulations under sections 408and 408A were published in the FederalRegister on July 23, 2002 (REG–124256–02, 2002–33 I.R.B. 383 [67 FR 48067]).These proposed regulations incorporated,with certain modifications, the new methodprovided in Notice 2000–39. The public re-action to Notice 2000–39 was generally fa-vorable and few comments were receivedon the proposed regulations. Consequently,these final regulations adopt the rules in theproposed regulations without modifica-tion.

Explanation of Provisions

These final regulations retain, withoutchange, the methods provided in the pro-posed regulations. Thus, under these finalregulations, for purposes of returned con-tributions under section 408(d)(4) and re-characterized contributions under section408A(d)(6), the net income attributable toa contribution is determined by allocatingto the contribution a pro-rata portion of thenet income on the assets in the IRA(whether positive or negative) during the pe-riod the IRA held the contribution. This newmethod is represented by the followingformula:

Net Income = Contribution x (Adjusted Closing Balance - Adjusted Opening Balance)Adjusted Opening Balance.

Under the final regulations, generally, theadjusted opening balance means the fairmarket value of the IRA at the beginningof the computation period plus the amountof any contributions or transfers made tothe IRA during the computation period. Aspecial rule is provided for an IRA asset thatis not normally valued on a daily basis. Inthis case, the fair market value of the as-set at the beginning of the computation pe-riod is deemed to be the most recent,regularly determined, fair market value ofthe asset, determined as of a date that co-incides with or precedes the first day of thecomputation period. One commentator sug-gested that the application of this specialrule be extended to all IRA assets as an al-ternate fair market value determination sothat the value of an IRA at the beginningof the computation period could be the mostrecent statement value just prior to the con-tribution, rather than the actual value on theexact date of the contribution.

The final regulations do not extend thespecial valuation rule to all IRA assets be-cause the IRS and Treasury believe that ifan IRA asset is normally valued on a dailybasis, these values must be used so that thecalculation of the amount of net income at-tributable to a contribution is based on theactual earnings and losses of the IRA dur-ing the time it held the contribution. Thealternate rule suggested by the commen-tator would increase the chances of pro-ducing anomalous results because accountactivity in the part of the year that pre-

cedes the date the contribution was madewould be taken into account in the calcu-lation of the net income attributable to thecontribution.

One commentator suggested that whereboth regular Roth IRA contributions andconversion contributions have been madeto the same Roth IRA, the net income cal-culation attributable to a recharacteriza-tion of a conversion contribution mayrequire that some of the regular Roth IRAcontributions be recharacterized to the tra-ditional IRA. The commentator recom-mended that if a conversion contribution isbeing recharacterized, and the Roth IRAcontains both regular contributions and con-version contributions, the final rules shouldpermit the principal amount of any regu-lar Roth IRA contributions in that sameRoth IRA to remain in the Roth IRA.

The final regulations retain the rule,without modification, that net income cal-culations and allocations must be based onthe overall value of an IRA and the dol-lar amounts contributed, distributed or re-characterized to or from the IRA. Even ina recharacterization of an amount con-verted to a Roth IRA where the Roth IRAcontains both regular contributions and con-version contributions, the final regula-tions do not permit net income, includingany losses, to be allocated other than prorata. Thus, the principal amount of regu-lar Roth IRA contributions cannot be pro-tected against adjustment for their pro ratashare of net income, including any net

losses, during the computation period. Oncecontributions are commingled in an ac-count, those dollars are no longer associ-ated with particular assets or contributions.In the absence of maintaining separate ac-counts, tying particular assets to a particu-lar contribution would create administrativeproblems for taxpayers, IRA providers andthe IRS.

Effective Date

These final regulations are applicable forcalculating income allocable to IRA con-tributions made on or after January 1, 2004.For purposes of determining net income ap-plicable to IRA contributions made dur-ing 2002 and 2003, taxpayers may continueto apply the rules set forth in Notice2000–39 or may rely on the proposed regu-lations.

Special Analyses

It has been determined that these finalregulations are not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It also has been determinedthat section 553(b) of the AdministrativeProcedure Act (5 U.S.C. chapter 5) does notapply to these regulations. Because§1.408–11 and A–2(c) of §1.408A–5 im-pose no new collection of information onsmall entities, a Regulatory FlexibilityAnalysis under the Regulatory FlexibilityAct (5 U.S.C. chapter 6) is not required.Pursuant to section 7805(f) of the Inter-

2003–21 I.R.B. 941 May 27, 2003

nal Revenue Code, the notice of proposedrulemaking that preceded these final regu-lations was submitted to the Chief Coun-sel for Advocacy of the Small BusinessAdministration for comment on its im-pact on small business.

Drafting Information

The principal author of these regula-tions is Cathy A. Vohs of the Office of theDivision Counsel/Associate Chief Coun-sel (Tax Exempt and Government Enti-ties). However, other personnel from theIRS and Treasury participated in their de-velopment.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 is amendedas follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by adding entries in nu-merical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *§1.408–4 also issued under 26 U.S.C. 408.§1.408–11 also issued under 26 U.S.C.408. * * *

Par. 2. In §1.408–4, paragraph (c)(1) isamended by adding two sentences beforethe current first sentence to read as follows:

§1.408–4 Treatment of distributions from in-dividual retirement arrangements.

* * * * *(c) * * *(1)* * * The rules in this para-graph (c) apply for purposes of determin-ing net income attributable to IRAcontributions made before January 1, 2004,and returned pursuant to section 408(d)(4).The rules in §1.408–11 apply for purposes

of determining net income attributable toIRA contributions made on or after Janu-ary 1, 2004, and returned pursuant to sec-tion 408(d)(4).* * *

* * * * *Par. 3. Section 1.408–11 is added to read

as follows:

§1.408–11 Net income calculation for re-turned or recharacterized IRA contribu-tions.

(a) Net income calculation for returnedIRA contributions—(1) General rule. Forpurposes of returned contributions undersection 408(d)(4), the net income attribut-able to a contribution made to an IRA is de-termined by allocating to the contributiona pro-rata portion of the earnings on the as-sets in the IRA during the period the IRAheld the contribution. This attributable netincome is calculated by using the follow-ing formula:

Net Income = Contribution x (Adjusted Closing Balance - Adjusted Opening Balance)Adjusted Opening Balance.

(2) Special rule. If an IRA is estab-lished with a contribution and no other con-tributions, distributions or transfers are madeto or from that IRA, then the subsequentdistribution of the entire account balance ofthe IRA pursuant to section 408(d)(4) willsatisfy the requirement of that Internal Rev-enue Code section that the return of a con-tribution be accompanied by the amount ofnet income attributable to the contribu-tion.

(b) Definitions. For purposes of this sec-tion the following definitions apply:

(1) Adjusted opening balance. The termadjusted opening balance means the fairmarket value of the IRA at the beginningof the computation period plus the amountof any contributions or transfers (includ-ing the contribution that is distributed as areturned contribution pursuant to section408(d)(4) and recharacterizations of con-tributions pursuant to section 408A(d)(6))made to the IRA during the computation pe-riod.

(2) Adjusted closing balance. The termadjusted closing balance means the fairmarket value of the IRA at the end of thecomputation period plus the amount of anydistributions or transfers (including rechar-acterizations of contributions pursuant to

section 408A(d)(6)) made from the IRA dur-ing the computation period.

(3) Computation period. The term com-putation period means the period begin-ning immediately prior to the time that thecontribution being returned was made to theIRA and ending immediately prior to theremoval of the contribution. If more thanone contribution was made as a regular con-tribution and is being returned from theIRA, the computation period begins im-mediately prior to the time the first con-tribution being returned was contributed.

(4) Regular contribution. The term regu-lar contribution means an IRA contribu-tion made by the IRA owner that is neithera trustee-to-trustee transfer from anotherIRA nor a rollover from another IRA or re-tirement plan.

(c) Additional rules. (1) When an IRAasset is not normally valued on a daily ba-sis, the fair market value of the asset at thebeginning of the computation period isdeemed to be the most recent, regularly de-termined, fair market value of the asset, de-termined as of a date that coincides with orprecedes the first day of the computationperiod. In addition, solely for purposes ofthis section, notwithstanding A–3 of§1.408A–5, recharacterized contributions are

taken into account for the period they areactually held in a particular IRA.

(2) In the case of an IRA that has re-ceived more than one regular contribu-tion for a particular taxable year, the lastregular contribution made to the IRA for theyear is deemed to be the contribution thatis distributed as a returned contribution un-der section 408(d)(4), up to the amount ofthe contribution identified by the IRA owneras the amount distributed as a returned con-tribution.

(3) In the case of an individual whoowns multiple IRAs, the net income cal-culation is performed only on the IRA con-taining the contribution being returned, andthat IRA is the IRA that must distribute thecontribution.

(d) Examples. The following examplesillustrate the net income calculation un-der section 408(d)(4) and this section:

Example 1. (i) On May 1, 2004, when her IRA isworth $4,800, Taxpayer A makes a $1,600 regular con-tribution to her IRA. Taxpayer A requests that $400of the May 1, 2004, contribution be returned to herpursuant to section 408(d)(4). Pursuant to this re-quest, on February 1, 2005, when the IRA is worth$7,600, the IRA trustee distributes to Taxpayer A the$400 plus attributable net income. During this time,no other contributions have been made to the IRA andno distributions have been made.

May 27, 2003 942 2003–21 I.R.B.

(ii) The adjusted opening balance is $6,400 [$4,800+ $1,600] and the adjusted closing balance is $7,600.Thus, the net income attributable to the $400 May 1,2004, contribution is $75 [$400 x ($7,600 - $6,400)÷ $6,400]. Therefore, the total to be distributed on Feb-ruary 1, 2005, pursuant to § 408(d)(4) is $475.

Example 2. (i) Beginning in January 2004, Tax-payer B contributes $300 on the 15th of each monthto an IRA for 2004, resulting in an excess regular con-tribution of $600 for that year. Taxpayer B requeststhat the $600 excess regular contribution be returnedto her pursuant to section 408(d)(4). Pursuant to thisrequest, on March 1, 2005, when the IRA is worth$16,000, the IRA trustee distributes to Taxpayer B the$600 plus attributable net income. The excess regu-lar contributions to be returned are deemed to be thelast two made in 2004: the $300 December 15 con-tribution and the $300 November 15 contribution. On

November 15, the IRA was worth $11,000 immedi-ately prior to the contribution. No distributions or trans-fers have been made from the IRA and nocontributions or transfers, other than the monthly con-tributions (including $300 in January and February2005), have been made.

(ii) As of the beginning of the computation pe-riod (November 15), the adjusted opening balance is$12,200 [$11,000 + $300 + $300 + $300 + $300] andthe adjusted closing balance is $16,000. Thus, the netincome attributable to the excess regular contribu-tions is $187 [$600 x ($16,000 - $12,200) ÷ $12,200].Therefore, the total to be distributed as returned con-tributions on March 1, 2005, to correct the excess regu-lar contribution is $787 [$600 + $187].

Par. 4. In §1.408A–5, A–2(c) is revisedto read as follows:

§1.408A–5 Recharacterized contribu-tions.

* * * * *A–2. * * *(c) (1) If paragraph (b) of this A–2 does

not apply, then, for purposes of determin-ing net income attributable to IRA contri-butions, the net income attributable to theamount of a contribution is determined byallocating to the contribution a pro-rata por-tion of the earnings on the assets in the IRAduring the period the IRA held the contri-bution. This attributable net income is cal-culated by using the following formula:

Net Income = Contribution x (Adjusted Closing Balance - Adjusted Opening Balance)Adjusted Opening Balance.

(2) For purposes of this paragraph (c),the following definitions apply:

(i) The term adjusted opening balancemeans the fair market value of the IRA atthe beginning of the computation periodplus the amount of any contributions ortransfers (including the contribution that isbeing recharacterized pursuant to section408A(d)(6) and any other recharacteriza-tions) made to the IRA during the compu-tation period.

(ii) The term adjusted closing balancemeans the fair market value of the IRA atthe end of the computation period plus theamount of any distributions or transfers (in-cluding contributions returned pursuant tosection 408(d)(4) and recharacterizations ofcontributions pursuant to section408A(d)(6)) made from the IRA during thecomputation period.

(iii) The term computation period meansthe period beginning immediately prior tothe time the particular contribution beingrecharacterized is made to the IRA and end-ing immediately prior to the recharacter-izing transfer of the contribution. If a seriesof regular contributions was made to theIRA, and consecutive contributions in thatseries are being recharacterized, the com-putation period begins immediately prior tothe time the first of the regular contribu-tions being recharacterized was made.

(3) When an IRA asset is not normallyvalued on a daily basis, the fair marketvalue of the asset at the beginning of thecomputation period is deemed to be themost recent, regularly determined, fair mar-

ket value of the asset, determined as of adate that coincides with or precedes the firstday of the computation period. In addi-tion, solely for purposes of this paragraph(c), notwithstanding A–3 of this section, re-characterized contributions are taken intoaccount for the period they are actually heldin a particular IRA.

(4) In the case of an individual with mul-tiple IRAs, the net income calculation isperformed only on the IRA containing theparticular contribution to be recharacter-ized, and that IRA is the IRA from whichthe recharacterizing transfer must be made.

(5) In the case of multiple contribu-tions made to an IRA for a particular yearthat are eligible for recharacterization, theIRA owner can choose (by date and by dol-lar amount, not by specific assets acquiredwith those dollars) which contribution, orportion thereof, is to be recharacterized.

(6) The following examples illustrate thenet income calculation under section408A(d)(6) and this paragraph:

Example 1. (i) On March 1, 2004, when her RothIRA is worth $80,000, Taxpayer A makes a $160,000conversion contribution to the Roth IRA. Subse-quently, Taxpayer A discovers that she was ineli-gible to make a Roth conversion contribution in 2004and so she requests that the $160,000 be recharac-terized to a traditional IRA pursuant to section408A(d)(6). Pursuant to this request, on March 1, 2005,when the IRA is worth $225,000, the Roth IRA trusteetransfers to a traditional IRA the $160,000 plus allo-cable net income. No other contributions have beenmade to the Roth IRA and no distributions have beenmade.

(ii) The adjusted opening balance is $240,000[$80,000 + $160,000] and the adjusted closing bal-

ance is $225,000. Thus the net income allocable to the$160,000 is -$10,000 [$160,000 x ($225,000 -$240,000) ÷ $240,000]. Therefore, in order to rechar-acterize the March 1, 2004, $160,000 conversion con-tribution on March 1, 2005, the Roth IRA trustee musttransfer from Taxpayer A’s Roth IRA to her tradi-tional IRA $150,000 [$160,000 - $10,000].

Example 2. (i) On April 1, 2004, when her tradi-tional IRA is worth $100,000, Taxpayer B convertsthe entire amount, consisting of 100 shares of stockin ABC Corp. and 100 shares of stock in XYZ Corp.,by transferring the shares to a Roth IRA. At the timeof the conversion, the 100 shares of stock in ABCCorp. are worth $50,000 and the 100 shares of stockin XYZ Corp. are also worth $50,000. Taxpayer B de-cides that she would like to recharacterize the ABCCorp. shares back to a traditional IRA. However, Bmay choose only by dollar amount the contributionor portion thereof that is to be recharacterized. On thedate of transfer, November 1, 2004, the 100 shares ofstock in ABC Corp. are worth $40,000 and the 100shares of stock in XYZ Corp. are worth $70,000. Noother contributions have been made to the Roth IRAand no distributions have been made.

(ii) If B requests that $50,000 (which was the valueof the ABC Corp. shares at the time of conversion)be recharacterized, the net income allocable to the$50,000 is $5,000 [$50,000 x ($110,000 - $100,000)÷ $100,000]. Therefore, in order to recharacterize$50,000 of the April 1, 2004, conversion contribu-tion on November 1, 2004, the Roth IRA trustee musttransfer from Taxpayer B’s Roth IRA to a tradi-tional IRA assets with a value of $55,000 [$50,000+ $5,000].

(iii) If, on the other hand, B requests that $40,000(which was the value of the ABC Corp. shares on No-vember 1) be recharacterized, the net income allo-cable to the $40,000 is $4,000 [$40,000 x ($110,000- $100,000) ÷ $100,000]. Therefore, in order to re-characterize $40,000 of the April 1, 2004, conver-sion contribution on November 1, 2004, the Roth IRAtrustee must transfer from Taxpayer B’s Roth IRA toa traditional IRA assets with a value of $44,000[$40,000 + $4,000].

2003–21 I.R.B. 943 May 27, 2003

(iv) Regardless of the amount of the contribu-tion recharacterized, the determination of that amount(or of the net income allocable thereto) is not af-fected by whether the recharacterization is accom-plished by the transfer of shares of ABC Corp. or ofshares of XYZ Corp.

(7) This paragraph (c) applies for pur-poses of determining net income attribut-able to IRA contributions, made on or afterJanuary 1, 2004. For purposes of deter-mining net income attributable to IRA con-tributions made before January 1, 2004, seeparagraph (c) of this A–2 of §1.408A–5 (asit appeared in the April 1, 2003, edition of26 CFR part 1).

* * * * *

David A. Mader,Assistant Deputy Commissioner of

Internal Revenue.

Approved April 25, 2003.

Pamela F. Olson,Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register on May 2, 2003,8:45 a.m., and published in the issue of the Federal Regis-ter for May 5, 2003, 68 F.R. 23586)

Section 472.—Last-in,First-out Inventories

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

LIFO; price indexes; departmentstores. The March 2003 Bureau of LaborStatistics price indexes are accepted for useby department stores employing the retailinventory and last-in, first-out inventorymethods for valuing inventories for taxyears ended on, or with reference to, March31, 2003.

Rev. Rul. 2003–50The following Department Store Inven-

tory Price Indexes for March 2003 were is-

sued by the Bureau of Labor Statistics. Theindexes are accepted by the Internal Rev-enue Service, under § 1.472–1(k) of the In-come Tax Regulations and Rev. Proc. 86–46, 1986–2 C.B. 739, for appropriateapplication to inventories of departmentstores employing the retail inventory andlast-in, first-out inventory methods for taxyears ended on, or with reference to, March31, 2003.

The Department Store Inventory PriceIndexes are prepared on a national basis andinclude (a) 23 major groups of depart-ments, (b) three special combinations of themajor groups — soft goods, durable goods,and miscellaneous goods, and (c) a store to-tal, which covers all departments, includ-ing some not listed separately, except forthe following: candy, food, liquor, tobacco,and contract departments.

BUREAU OF LABOR STATISTICS, DEPARTMENT STOREINVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

GroupsMar.2002

Mar.2003

Percent Changefrom Mar. 2002to Mar. 20031

1. Piece Goods .............................................................................. 490.6 458.9 -6.52. Domestics and Draperies .......................................................... 583.6 552.6 -5.33. Women’s and Children’s Shoes ............................................... 647.4 642.6 -0.74. Men’s Shoes.............................................................................. 903.0 842.0 -6.85. Infants’ Wear............................................................................. 624.2 600.3 -3.86. Women’s Underwear................................................................. 563.7 524.9 -6.97. Women’s Hosiery...................................................................... 355.7 341.2 -4.18. Women’s and Girls’ Accessories.............................................. 563.4 556.0 -1.39. Women’s Outerwear and Girls’ Wear ...................................... 401.0 380.1 -5.210. Men’s Clothing ......................................................................... 594.6 570.0 -4.111. Men’s Furnishings .................................................................... 607.3 591.1 -2.712. Boys’ Clothing and Furnishings............................................... 482.6 470.9 -2.413. Jewelry ...................................................................................... 905.5 871.7 -3.714. Notions ...................................................................................... 800.4 797.7 -0.415. Toilet Articles and Drugs.......................................................... 972.7 976.3 0.416. Furniture and Bedding .............................................................. 630.0 625.2 -0.817. Floor Coverings ........................................................................ 616.3 589.1 -4.418. Housewares ............................................................................... 756.2 734.0 -2.919. Major Appliances ...................................................................... 223.2 217.5 -2.620. Radio and Television ................................................................ 51.1 46.6 -8.821. Recreation and Education2 ....................................................... 87.5 83.8 -4.222. Home Improvements2 ............................................................... 125.6 125.7 0.123. Auto Accessories2 ..................................................................... 110.8 111.7 0.8

May 27, 2003 944 2003–21 I.R.B.

BUREAU OF LABOR STATISTICS, DEPARTMENT STOREINVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

GroupsMar.2002

Mar.2003

Percent Changefrom Mar. 2002to Mar. 20031

Groups 1–15: Soft Goods ..................................................................... 591.8 570.4 -3.6Groups 16–20: Durable Goods ............................................................. 414.6 400.8 -3.3Groups 21–23: Misc. Goods2 ............................................................... 97.2 95.0 -2.3

Store Total3................................................................................ 526.5 508.5 -3.4

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

DRAFTING INFORMATION

The principal author of this revenue rul-ing is Michael Burkom of the Office of As-sociate Chief Counsel (Income Tax andAccounting). For further information re-garding this revenue ruling, contactMr. Burkom at (202) 622–7718 (not a toll-free call).

Section 861.—Income FromSources Within the UnitedStates

26 CFR 1.861–8T: Computations of taxable incomefrom sources within the United States and fromother sources and activities (Temporary).

26 CFR 1.861–9T: Allocation and apportionmentof interest expense (Temporary).

See Rev. Proc. 2003–37, page 950.

Section 864.—Definitions andSpecial Rules

This revenue procedure provides guidance totaxpayers that use the fair market value method toapportion interest expense for purposes ofcalculating the foreign tax credit. See Rev. Proc.2003–37, page 950.

Section 901.—Taxes ofForeign Countries and ofPossessions of United States

This revenue procedure provides guidance totaxpayers that use the fair market value methodapportion interest expense for purposes ofcalculating the foreign tax credit. See Rev. Proc.2003–37, page 950.

Section 904.—Limitation onCredit

This revenue procedure provides guidance totaxpayers that use the fair market value method toapportion interest expense for purposes ofcalculating the foreign tax credit. See Rev. Proc.2003–37, page 950.

Section 3406.—BackupWithholding

26 CFR 31.3406(d)–5: Backup withholding whenthe Service or a broker notifies the payor towithhold because the payee’s taxpayeridentification number is incorrect.

T.D. 9055

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Parts 31 and 301

Receipt of Multiple NoticesWith Respect to IncorrectTaxpayer IdentificationNumbers

AGENCY: Internal Revenue Service (IRS),Treasury.

ACTION: Final Regulations.

SUMMARY: This document contains fi-nal regulations relating to backup with-holding. These regulations clarify themethod of determining whether the payorhas received two notices that a payee’s tax-payer identification number (TIN) is in-correct. If a payor receives two or moresuch notices with respect to the same ac-count during a three-year period, the payormust begin backup withholding unless thepayee provides verification of its correctTIN pursuant to the regulations. This docu-ment also contains regulations which clarifywhen an information return filer must so-licit a payee’s TIN following the receipt ofa penalty notice.

DATES: These regulations are effectiveJanuary 1, 2004.

FOR FURTHER INFORMATION CON-TACT: Nancy L. Rose at (202) 622–4910(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments tothe Employment Tax Regulations (26 CFR

2003–21 I.R.B. 945 May 27, 2003

part 31) under section 3406 of the Inter-nal Revenue Code (Code), and to the Pro-cedure and Administration Regulations (26CFR part 301) under section 6724 of theCode. These regulations finalize proposedamendments to existing §§31.3406(d)–5(d)(2)(ii) and (g)(4), and 301.6724–1(f)(2),(f)(3), (f)(5), and (k). These regulations alsorevise existing §301.6724(f)(1) and (g)(1)to remove obsolete cross-references. A no-tice of proposed rulemaking (REG–116644–01, 2002–31 I.R.B. 268 [67 FR 44579]) waspublished in the Federal Register on July3, 2002. The IRS received written com-ments responding to the notice of pro-posed rulemaking, but no commentatorsrequested the opportunity to present oralcomments at a public hearing. A notice can-celling the public hearing scheduled for Oc-tober 22, 2002, was published on October17, 2002 (67 FR 64067).

Explanation of Provisions and Sum-mary of Comments

Section 3406Section 3406 imposes a requirement to

backup withhold on any reportable pay-ment if the Secretary notifies the payor thatthe TIN furnished by the payee is incor-rect. After receiving a notice of incorrectTIN, the payor must backup withhold onreportable payments until the payee fur-nishes another TIN. However, if the payorreceives two notices with respect to thesame account within a three year period, thepayor must backup withhold on report-able payments until the payor receives averification of the payee’s TIN from the So-cial Security Administration or the IRS.

The regulations under section 3406 setforth detailed procedures for payors to fol-low after receipt of a notice of incorrect TINfrom the IRS. When the first such noticeis received by the payor, the payor mustsend a notice (commonly referred to as a“B” notice) to the payee stating that thepayee will be subject to backup withhold-ing if the payee does not furnish a certi-fied TIN. If a second notice of incorrectTIN is received by a payor with respect tothe payee’s account within a three-year pe-riod, the payor must send a second “B” no-tice to the payee stating that the payee willbe subject to backup withholding unless thepayor receives verification of the payee’sTIN from the Social Security Administra-tion or IRS.

If the payor receives two or more no-tices of incorrect TIN with respect to a pay-

ee’s account within the same calendar year,the regulations provide that the multiple no-tices may be treated as one notice for pur-poses of sending out a first “B” notice, andmust be treated as one notice for purposesof sending out a second “B” notice. How-ever, in some cases, a payor may receivemultiple notices of incorrect TIN in differ-ent calendar years which relate to the samepayee’s account for the same year. This mayoccur where a payor files different types ofinformation returns with respect to the samepayee, such as a Form 1099–B (gross pro-ceeds reported by brokers) and a Form1099–DIV (payment of dividends). Typi-cally these information returns all containthe same TIN, following information con-tained in the payor’s records. Variations inthe processing of such returns by the IRSmay result in the issuance of incorrect TINnotices at different times.

The amendments to the regulations pro-vide that two or more notices of incorrectTIN relating to the same payee and thesame year, but which are received in dif-ferent calendar years, count as one no-tice. Accordingly, a payor who sends a first“B” notice to the payee after receipt of thefirst notice of incorrect TIN would not berequired to send a second “B” notice af-ter receipt of the second notice of incor-rect TIN if the second notice relates to aninformation return filed for the same yearas the first notice.

Section 6724Section 6724 provides for a waiver of

information reporting penalties under sec-tions 6721 through 6723 where the fail-ure giving rise to such penalties was dueto reasonable cause and not willful ne-glect. Under §301.6724–1(a) of the regu-lations, in order to prove reasonable causefor a failure, the filer must establish ei-ther that there are significant mitigating fac-tors with respect to the failure or that thefailure arose from events beyond the fil-er’s control. In addition, the filer must haveacted in a responsible manner both be-fore and after the failure.

Section 301.6724–1(c)(1)(v) of the regu-lations provides that certain actions of thepayee or another person providing neces-sary information with respect to the re-turn may be an event beyond the filer’scontrol. Thus, a payee’s furnishing of an in-correct TIN to a payor may be an event be-yond the payor’s control.

As provided in §301.6724–1(a), thepayor must also act in a responsible man-ner with respect to the failure. That sec-tion sets forth special rules for acting in aresponsible manner with respect to incor-rect TINs. The filer is required to make aninitial solicitation for the payee’s correctTIN at the time the account is opened, andup to two annual solicitations following re-ceipt of penalty notices.

If a filer receives a penalty notice withrespect to an incorrect payee TIN and a no-tice of incorrect TIN under section3406(a)(1)(B) during the same calendar yearfor the same payee, the filer will satisfy thesection 6724 annual solicitation require-ments by sending the required “B” no-tice. The filer does not have to makeanother solicitation pursuant to section 6724.

The amendments to the regulations ad-dress the situation where a filer receives asection 3406(a)(1)(B) notice with respect toa payee in one year, and the following yearreceives a penalty notice with respect to thesame payee and the same year as the sec-tion 3406(a)(1)(B) notice. The amendmentsprovide that the filer is not required to makean annual solicitation for the payee’s TINpursuant to section 6724 in this situation,provided the filer has sent the required “B”notice.

The written comments received ex-pressed the view that the proposed regu-lations clarified the backup withholdingrules and reduced the regulatory burden as-sociated with backup withholding. No re-visions to the proposed amendments weresuggested by commentators.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It has also been determinedthat section 553(b) of the AdministrativeProcedure Act (5 U.S.C. chapter 5) does notapply to these regulations, and, because theregulation does not impose a collection ofinformation on small entities, the Regula-tory Flexibility Act (5 U.S.C. chapter 6)does not apply.

Drafting Information

The principal author of these regula-tions is Nancy L. Rose of the Office of theAssociate Chief Counsel (Procedure and

May 27, 2003 946 2003–21 I.R.B.

Administration), Administrative Provi-sions and Judicial Practice Division.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR parts 31 and 301are amended as follows:

PART 31—EMPLOYMENT TAXESAND COLLECTION OF INCOME TAXAT SOURCE

Par. 1. The authority citation for part 31continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 31.3406(d)–5 is amended

by revising paragraphs (d)(2)(ii) and (g)(4)to read as follows:

§31.3406(d)–5 Backup withholding whenthe Service or a broker notifies the payorto withhold because the payee’s taxpayeridentification number is incorrect.

* * * * *(d) * * *(2) * * *(ii) Two or more notices for an account

for the same year or received in the sameyear. A payor who receives, under the samepayor taxpayer identification number, twoor more notices under paragraph (c)(1) or(2) of this section with respect to the samepayee’s account for the same year, or in thesame calendar year, need only send one no-tice to the payee under this section.

* * * * *(g) * * *(4) Receipt of two notices for the same

year or in the same calendar year. A payorwho receives, under the same payor tax-payer identification number, two or morenotices under paragraph (c)(1) or (2) of thissection with respect to the same payee’s ac-count for the same year, or in the same cal-endar year, must treat such notices as onenotice for purposes of this paragraph (g).

* * * * *

PART 301—PROCEDURE ANDADMINISTRATION

Par. 3. The authority citation for part 301continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Par. 4. Section 301.6724–1 is amended

as follows:

1. Amending paragraph (f)(1)(ii), fourthsentence, by removing “(n)” after “sec-tion 6721”.

2. Revising paragraphs (f)(2) and (f)(3).3. Amending paragraph (f)(5)(vi), last

sentence, by removing the language “para-graph (f)(2)” and adding “paragraph (f)(3)”in its place.

4. Amending paragraph (g)(1) by re-moving the language “as provided undersection 6724(c)(1)”.

5. Amending paragraph (k), Example3(ii), second sentence, by removing the lan-guage “§35a.3406–1(c)(1) of this para-graph” and adding “§31.3406(d)–5(d)(2)(i)of this chapter” in its place; and by remov-ing the language “(f)(2)” and adding “(f)(3)”in its place.

6. Amending paragraph (k), Example3(ii), fifth sentence, by removing the lan-guage “§301.6721–1T” and adding“§301.6721–1” in its place.

7. Amending paragraph (k), Example3(iii), fifth sentence, by removing the lan-guage “§35a.3406–1(c)(1)” and adding“§31.3406(d)–5(d)(2)(i)” in its place.

8. Amending paragraph (k), Example3(iii), last sentence, by removing the lan-guage “§301.6721–1T” and adding“§301.6721–1” in its place.

9. Amending paragraph (k), Example 5,final sentence, by removing the language“§301.6721–1T” and adding “§301.6721–1”in its place.

10. Amending paragraph (k), Example6(ii), sixth sentence, by removing the lan-guage “(f)(3)” and adding the language“(f)(2)” in its place.

11. Amending paragraph (k), Example7(ii), fourth sentence, by removing the lan-guage “(f)(2)” and adding “(f)(3)” in itsplace; and by removing the language“§35a.3406–1(c)(1)” and adding“§31.3406(d)–5(g)(1)(ii)” in its place.

12. Amending paragraph (k), Example7(ii), fifth sentence, by removing the lan-guage “§35a.3406–1(c)(1)” and adding“§31.3406(d)–5(g)(1)(ii)” in its place.

The revisions read as follows:

§301.6724–1 Reasonable cause.

* * * * *(f) * * *(2) Manner of making annual solicita-

tion if notified pursuant to section 6721. Afiler that has been notified of an incorrectTIN by a penalty notice or other notifica-tion pursuant to section 6721 may satisfythe solicitation requirement of this para-

graph (f) either by mail, in the manner setforth in paragraph (e)(2)(i) of this sec-tion; by telephone, in the manner set forthin paragraph (e)(2)(ii) of this section; or byrequesting the TIN in person.

(3) Coordination with solicitations un-der section 3406(a)(1)(b). (i) A filer that hasbeen notified of an incorrect TIN pursu-ant to section 3406(a)(1)(B) (except filersto which §31.3406(d)–5(b)(4)(i)(A) of thischapter applies) will satisfy the solicita-tion requirement of this paragraph (f) onlyif it makes a solicitation in the manner andwithin the time period required under§31.3406(d)–5(d)(2)(i) or (g)(1)(ii) of thischapter, whichever applies.

(ii) A filer that has been notified of anincorrect TIN by a notice pursuant to sec-tion 6721 (except filers to which§31.3406(d)–5(b)(4)(i)(A) of this chapter ap-plies) is not required to make the annual so-licitation of this paragraph (f) if—

(A) The filer has received an effectivenotice pursuant to section 3406(a)(1)(B)with respect to the same payee, either dur-ing the same calendar year or for informa-tion returns filed for the same year; and

(B) The filer makes a solicitation in themanner and within the time period requiredunder §31.3406(d)–5(d)(2)(i) or (g)(1)(ii) ofthis chapter, whichever applies, before thefiler is required to make the annual solici-tation of this paragraph (f).

(iii) A filer that has been notified of anincorrect TIN by a notice pursuant to sec-tion 6721 with respect to a fiduciary ornominee account to which §31.3406(d)–5(b)(4)(i)(A) of this chapter applies is re-quired to make the annual solicitation of thisparagraph (f).

* * * * *

David A. Mader,Assistant Deputy Commisioner of

Internal Revenue.

Approved April 13, 2003.

Pamela F. Olson,Assistant Secretary of the

Treasury (Tax Policy).

(Filed by the Office of the Federal Register on April 28, 2003,8:45 a.m., and published in the issue of the Federal Regis-ter for April 29, 2003, 68 F.R. 22594)

2003–21 I.R.B. 947 May 27, 2003

Part III. Administrative, Procedural, and Miscellaneous

Commercial-Type InsuranceActivities of Certain ExemptOrganizations

Notice 2003–31

I. PURPOSE

This notice announces that the Trea-sury Department and the Internal Rev-enue Service intend to propose regulationsproviding guidance under § 501(m) of theInternal Revenue Code (the “Code”), whichwill define the term “commercial-type in-surance” and address how § 501(m) ap-plies to organizations described in§ 501(c)(3) and § 501(c)(4), including healthmaintenance organizations. This notice alsorequests comments on the content of theregulations to be proposed. Finally, this no-tice announces that, in light of the regula-tions project, the Service is withdrawingfrom the Internal Revenue Manual the sec-tions of Part 7.8.1, Chapter 27, Exempt Or-ganizations Examination GuidelinesHandbook, Health Maintenance Organiza-tions (the “IRM HMO Guidelines”) that re-late to § 501(m) of the Code.

II. BACKGROUND

A. Legislative History § 501(m)Section 501(c)(3) describes organiza-

tions organized and operated exclusively forcharitable, religious, educational and otherspecified purposes. Section 501(c)(4) de-scribes organizations not organized for profitbut operated exclusively for the promo-tion of social welfare. Section 501(m) pro-vides that an organization described in§ 501(c)(3) or § 501(c)(4) shall be exemptfrom tax under § 501(a) “only if no sub-stantial part of its activities consists of pro-viding commercial-type insurance.” Section501(m)(3)(A) provides that the term“commercial-type insurance” does not in-clude “insurance provided at substantiallybelow cost to a class of charitable recipi-ents.” Section 501(m)(3)(B) provides that

the term “commercial-type insurance” doesnot include “incidental health insurance pro-vided by a health maintenance organiza-tion of a kind customarily provided by suchorganizations.”

Congress adopted § 501(m) in 1986 be-cause it was “concerned that exempt chari-table and social welfare organizations thatengage in insurance activities are engagedin an activity whose nature and scope is soinherently commercial that tax exempt sta-tus is inappropriate.” H.R. Rep. No. 99–426, at 664 (1985). Congress believed thatthe “tax-exempt status of organizations en-gaged in insurance activities provides an un-fair competitive advantage to theseorganizations” over commercial insurers.Ibid.1

B. Definition of InsuranceNeither the Code nor the Income Tax

Regulations (the “Regulations”) define theterm “insurance.” The United States Su-preme Court, however, has explained that,for an arrangement to constitute insur-ance for federal income tax purposes, bothrisk shifting and risk distribution must bepresent. Helvering v. LeGierse, 312 U.S.531, 539 (1941).

Risk shifting occurs if a person facingthe possibility of an economic loss trans-fers some or all of the financial conse-quences of the potential loss to the insurer,such that a loss by the insured does not af-fect the insured because the loss is offsetby the insurance payment. Risk distribu-tion incorporates the statistical phenom-enon known as the law of large numbers.Distributing risk allows the insurer to re-duce the possibility that a single costlyclaim will exceed the amount taken in aspremiums and set aside for the payment ofsuch a claim. Insuring many independentrisks in return for numerous premiumsserves to distribute risk. By assuming nu-merous relatively small, independent risksthat occur randomly over time, the insurersmoothes out losses to match more closelyits receipt of premiums. Clougherty Pack-ing Co. v. Commissioner, 811 F.2d 1297,

1300 (9th Cir. 1987). Risk distribution nec-essarily entails a pooling of premiums, sothat a potential insured is not in signifi-cant part paying for its own risks. See Hu-mana, Inc. v. Commissioner, 881 F.2d 247,257 (6th Cir. 1989).

When Congress enacted § 501(m), it fol-lowed the Supreme Court’s definition of in-surance. See 1986 General Explanation, at585 (Under § 501(m), “commercial-type in-surance does not include arrangements thatare not treated as insurance [i.e., in the ab-sence of sufficient risk shifting and risk dis-tribution for the arrangement to constituteinsurance],” citing Helvering v. LeGierse,312 U.S. at 539).

C. Definition of “Commercial-Type In-surance”

When § 501(m) was enacted, Congressdid not specifically define the term“commercial-type insurance.” The legisla-tive history of § 501(m) states that“commercial-type insurance generally is anyinsurance of a type provided by commer-cial insurance companies.” H.R. Rep. No.99–426, at 665 (1985); H.R. Conf. Rep. No.99–841, at II–345, 346 (1986); 1986 Gen-eral Explanation, at 585. Congress explainedthat “the provision of insurance to the gen-eral public at a price sufficient to cover thecosts of insurance generally constitutes anactivity that is commercial.” H.R. Rep. No.99–426, at 664; 1986 General Explana-tion, at 584.

In Paratransit Insurance Corporation v.Commissioner, 102 T.C. 745, 754 (1994),the court held that “‘commercial-type in-surance,’ as used in § 501(m), encompassesevery type of insurance that can be pur-chased in the commercial market.”2

In Florida Hospital Trust Fund v. Com-missioner, 103 T.C. 140, 158 (1994), aff’don other grounds, 71 F.3d 808, 812 (11thCir. 1996), the court held that the term“commercial-type insurance” under§ 501(m) means insurance “normally of-fered by commercial insurers.”

In Nonprofits’ Insurance Alliance ofCalifornia v. U. S., 32 Fed. Cl. 277, 284

1 For a detailed discussion of the legislative history of § 501(m), see H.R. Rep. No. 99–426, at 662 – 666 (1985); H.R. Conf. Rep. No. 99–841, at II–344 – 351 (1986); Staff of the Joint Committee on Taxation, Gen-eral Explanation of the Tax Reform Act of 1986, at 583 – 591 (Comm. Print 1987) (“1986 General Explanation”); H.R. Rep. No. 100–795, at 114 – 116 (1988); S. Rep. No. 100–445, at 120 – 122 (1988); H.R. Conf.Rep. No. 100–1104, at 9 (1988); Staff of the Joint Committee on Taxation, Description of the Technical Corrections Act of 1988 (H.R. 4333 and S. 2238), at 115 – 117 (Comm. Print 1988).

2The court also found that the organization did not satisfy the exception in § 501(m)(3)(A). 102 T.C. at 757–758.

May 27, 2003 948 2003–21 I.R.B.

(1994), the court compared the organiza-tion’s activities to commercial insurancecompanies and found they were “commer-cial in nature.”3

III. NEED FOR GUIDANCE

Treasury and the Service believe thatguidance is necessary to provide § 501(c)(3)and § 501(c)(4) organizations with greatercertainty as to the definition of the term“commercial-type insurance” and how§ 501(m) applies to organizations describedin § 501(c)(3) and § 501(c)(4), includinghealth maintenance organizations. The Codedoes not define the term “commercial-type insurance,” and no regulations or pub-lished guidance have been issued under§ 501(m). In addition, since the enactmentof § 501(m), there have been significant de-velopments in the insurance and health careindustries, including changes in the opera-tion of health maintenance organizations.

Taxpayers have asked the Service to pro-vide guidance under § 501(m), defining theterm “commercial-type insurance” and de-scribing the application of the exceptionsin § 501(m)(3)(A) and § 501(m)(3)(B). Trea-sury and the Service intend to propose regu-lations under § 501(m). The proposedregulations will define the term“commercial-type insurance” and addresshow § 501(m) applies to organizations de-scribed in § 501(c)(3) and § 501(c)(4), in-cluding health maintenance organizations.

Treasury and the Service expect thatthese regulations will apply prospectively,effective as of the date that final regula-tions under § 501(m) are published in theFederal Register. Treasury and the Ser-vice will consider proposing appropriatetransition rules, if necessary.

IV. WITHDRAWAL OF IRM

A health maintenance organization thatsatisfies the IRM HMO Guidelines is treatedas qualifying for exemption under either§ 501(c)(3) or § 501(c)(4), as applicable,and its activities are not treated as“commercial-type insurance” under§ 501(m). In light of the regulations project,the Service is withdrawing for further studythe sections of the IRM HMO Guidelinesthat relate to § 501(m).

V. REQUEST FOR COMMENTS

Treasury and the Service request com-ments on the content of the regulations tobe proposed, including the definition of theterm “commercial-type insurance” and theapplication of § 501(m) to organizations de-scribed in § 501(c)(3) and § 501(c)(4), in-cluding health maintenance organizations.In particular, comments are requested onwhat factors may be indicative of“commercial-type insurance.”

In addition, comments are requested onthe exception from “commercial-type in-surance” in § 501(m)(3)(A). Comments arespecifically requested on: (i) the meaningof the term “insurance provided at sub-stantially below cost,” (ii) the applicationof this exception to Medicaid-only healthmaintenance organizations, and (iii) thetreatment of grants or contractual pay-ments from states or the federal govern-ment for purposes of this exception.

Further, Treasury and the Service re-quest comments on the exception from“commercial-type insurance” in§ 501(m)(3)(B). In light of the legislativehistory, comments are specifically requestedon: (i) what historical industry data or othercriteria the Service should use to deter-mine whether the health insurance a healthmaintenance organization provides is “of akind customarily provided by such orga-nizations”; (ii) what factors or criteria theService should consider in determiningwhether a health maintenance organiza-tion’s “principal activity” is “providinghealth care”; (iii) what factors or criteria theService should consider in determiningwhether the health insurance a health main-tenance organization provides is “inciden-tal to the organization’s principal activityof providing health care”; and (iv) how thisexception should be applied to a healthmaintenance organization that does not pro-vide “health care to its members predomi-nantly at its own facility through the use ofhealth care professionals and other work-ers employed by the organization.”4

VI. SUBMISSION OF COMMENTS

Comments should be submitted by Au-gust 25, 2003, in writing and should in-clude a reference to Notice 2003–31.

Comments may be submitted to:

Internal Revenue ServiceAttn: T:EO:RA:T:1 (Notice 2003–31)P.O. Box 7604Ben Franklin StationWashington, DC 20044

Comments may be hand delivered be-tween the hours of 8 a.m. and 4 p.m., Mon-day through Friday, to:

T:EO:RA:T:1 (Notice 2003–31)Courier’s DeskInternal Revenue Service1111 Constitution Avenue, N.W.Washington, DC 20224

Alternatively, comments may be sent viafacsimile to (202) 283–9462 or via e-mailto tege.501m@irs.gov and include a refer-ence to Notice 2003–31.

All comments submitted will be avail-able for public inspection and copying.

VII. DRAFTING INFORMATION

The principal author of this notice isLawrence M. Brauer, TE/GE Division, Ex-empt Organizations. For further informa-tion on this notice, contact Mr. Brauer at(202) 283–9457 (not a toll-free call).

Weighted Average InterestRate Update

Notice 2003–32

Sections 412(b)(5)(B) and 412(l)(7)(C)(i)of the Internal Revenue Code provide thatthe interest rates used to calculate currentliability for purposes of determining the fullfunding limitation under § 412(c)(7) and therequired contribution under § 412(l) mustbe within a permissible range around theweighted average of the rates of interest on30-year Treasury securities during the four-year period ending on the last day beforethe beginning of the plan year.

Notice 88–73, 1988–2 C.B. 383, pro-vides guidelines for determining theweighted average interest rate and the re-sulting permissible range of interest ratesused to calculate current liability for the pur-pose of the full funding limitation of§ 412(c)(7) of the Code.

Section 417(e)(3)(A)(ii)(II) defines theapplicable interest rate, which must be usedfor purposes of determining the minimum

3 The court also found that the organization did not satisfy the exception in § 501(m)(3)(A). 32 Fed. Cl. at 292.4 See H.R. Rep. No. 99–426, at 665; 1986 General Explanation, at 585.

2003–21 I.R.B. 949 May 27, 2003

present value of a participant’s benefit un-der § 417(e)(1) and (2), as the annual rateof interest on 30-year Treasury securities forthe month before the date of distribution orsuch other time as the Secretary may byregulations prescribe. Section 1.417(e)–1(d)(3) of the Income Tax Regulations pro-vides that the applicable interest rate for amonth is the annual interest rate on 30-year Treasury securities as specified by the

Commissioner for that month in revenuerulings, notices or other guidance pub-lished in the Internal Revenue Bulletin.

The rate of interest on 30-year Trea-sury Securities for April 2003 is 4.90 per-cent. Pursuant to Notice 2002–26, 2002–1C.B. 743, the Service has determined thisrate as the monthly average of the daily de-termination of yield on the 30-year Trea-sury bond maturing in February 2031.

Section 405 of the Job Creation andWorker Assistance Act of 2002 amended§ 412(l)(7)(C) of the Code to provide thatfor plan years beginning in 2002 and 2003the permissible range is extended to 120percent.

The following rates were determined forthe plan years beginning in the monthshown below.

Month YearWeightedAverage

90% to 110%Permissible

Range

90% to 120%Permissible

Range

May 2003 5.43 4.89 to 5.97 4.89 to 6.52

Drafting Information

The principal authors of this notice arePaul Stern and Tony Montanaro of the Em-ployee Plans, Tax Exempt and Govern-ment Entities Division. For furtherinformation regarding this notice, pleasecontact the Employee Plans’ taxpayer as-sistance telephone service at 1–877–829–5500 (a toll-free number), between the hoursof 8:00 a.m. and 6:30 p.m. Eastern time,Monday through Friday. Mr. Sternmay be reached at 1–202–283–9703.Mr. Montanaro may be reached at 1–202–283–9714. The telephone numbers in thepreceding two sentences are not toll-free.

26 CFR 601.105: Examination of returns andclaims for refund, credit, or abatement; determina-tion of correct tax liability.(Also Part I, §§ 864; 1.861–8T; 1.861–9T.)

Rev. Proc. 2003–37

SECTION 1. PURPOSE

This revenue procedure describes docu-mentation and information a taxpayer thatuses the fair market value method of ap-portionment of interest expense may pre-pare and make available to the InternalRevenue Service (“Service”) upon requestin order to establish the fair market valueof the taxpayer’s assets to the satisfactionof the Commissioner as required by§ 1.861–9T(g)(1)(iii). It also sets forth theprocedures to be followed in the case ofelections to use the fair market valuemethod.

SECTION 2. BACKGROUND

Section 901 of the Internal RevenueCode (“Code”) allows taxpayers to elect toreceive a credit, subject to the limitationsof section 904, for any income, war prof-its, and excess profits taxes paid or ac-crued during the taxable year to any foreigncountry or to any possession of the UnitedStates. Section 904 generally limits theamount of credit taken under section 901to the portion of the taxpayer’s U.S. tax at-tributable to the taxpayer’s taxable incomefrom sources without the United States.

Sections 862(b) and 863(a) provide thattaxable income attributable to gross in-come from foreign sources shall be deter-mined by deducting the expenses, losses,and other deductions properly apportionedor allocated thereto and a ratable part of anyexpenses, losses, and other deductions thatcannot be definitely allocated to some itemor class of gross income. Section 864(e)(2)provides that all allocations and apportion-ments of interest expense must be made onthe basis of assets rather than gross in-come. Sections 1.861–8T and 1.861–9T pro-vide general rules governing the assetmethod of interest expense apportionment,and §§ 1.861–8T(c)(2) and 1.861–9T(g)(1)(ii) provide that a taxpayer appor-tions its interest expense on the basis of thetax book value of its assets or, at the elec-tion of the taxpayer, the fair market valueof its assets. Under both methods, § 1.861–9T(g)(3) requires assets to be character-ized according to the source and type ofincome that they generate, have gener-ated, or may reasonably be expected to gen-erate.

Section 1.861–9T(g)(1)(iii) requires ataxpayer that elects to apportion its inter-est expense using the fair market valuemethod to establish the fair market valueof its assets to the satisfaction of the Com-missioner for each taxable year. If a tax-payer fails to establish the fair market valueof an asset to the satisfaction of the Com-missioner, the Commissioner may deter-mine the appropriate asset value. If ataxpayer fails to establish the value of asubstantial portion of its assets to the sat-isfaction of the Commissioner, the Com-missioner may require the taxpayer to usethe tax book value method. Section 1.861–9T(h) provides specific rules for valuing as-sets for taxpayers that use the fair marketvalue method of interest expense appor-tionment.

SECTION 3. DOCUMENT ANDINFORMATION REQUIREMENTS

.01 If a taxpayer satisfies the require-ments of sections 3.02 and 3.03 of this rev-enue procedure regarding the preparationand production of documents and other in-formation relating to valuation of assets andthe Commissioner determines that the tax-payer’s valuation of an asset is reason-able, then the taxpayer will have establishedthe fair market value of the asset to the sat-isfaction of the Commissioner pursuant to§ 1.861–9T(g)(1)(iii).

.02 A taxpayer satisfies the require-ments of this section 3.02 if the taxpayerprepares and makes available to the Ser-vice upon request a narrative statement de-scribing the apportionment of interestexpense under the fair market value methodin sufficient detail such that the Service can

May 27, 2003 950 2003–21 I.R.B.

reconcile the information on Schedule H ofForm 1118 with such apportionment meth-odology, which narrative statement incor-porates or is accompanied by the followinginformation:

(a) A description of how the taxpayercalculated the aggregate value of the tax-payer’s assets on the last day of its tax-able year. In the case of a publicly tradedcorporation, the taxpayer must describe howthe taxpayer calculated the aggregate trad-ing value of stock traded on established se-curities markets at year-end and how thetaxpayer calculated year-end liabilities to un-related persons and pro rata share of year-end liabilities of all related persons owedto unrelated persons as required by § 1.861–9T(h)(1)(i). In the case of a corporation thatis not publicly traded, the taxpayer must de-scribe how the taxpayer calculated the ag-gregate value of its assets by reference tothe capitalization of corporate earnings asrequired by § 1.861–9T(h)(1)(i).

(b) A description, by entity, of tangibleassets referred to in § 1.861–9T(h)(1)(ii).With respect to assets that have signifi-cant value or that generate significant in-come, the description must include detailedinformation for the asset. For example, withrespect to real property, the descriptionshould include location, zoning, and squarefootage.

(c) An explanation of company struc-ture and an identification of cost centers orother reporting divisions or units to whichassets are assigned.

(d) A description of the valuation tech-niques used to value tangible assets and thereasons for selecting such valuation tech-niques over alternative techniques. Anyvaluation study relied upon by the tax-payer must include an explanation describ-ing the valuation of the tangible assets asset forth in § 1.861–9T(h)(1)(ii) in detailsufficient to enable the Service, upon ex-amination, to duplicate the methodologyused to obtain those fair market values. Thetaxpayer must also provide a description ofall assumptions made in applying the valu-ation techniques used in the study, includ-ing but not limited to, discount rates,obsolescence factors, and risk adjustments.

(e) An explanation of the manner inwhich tangible assets were combined intoreasonable groupings and the reasons forsuch grouping.

(f) An identification of any fungibleproperty, such as commodities, that was val-

ued using statistical methods of valua-tion, and an explanation of such methods.

(g) A description of the apportionmentof interest expense to intangible asset val-ues as computed under § 1.861–9T(h)(1)(iii).

.03 If the taxpayer or a third party usedany computer software to determine assetvalues, characterize assets in accordancewith § 1.861–9T(g)(3), or calculate the tax-payer’s foreign tax credit limitation, the tax-payer satisfies the requirements of thissection 3.03 if the taxpayer makes avail-able to the Service upon request thefollowing:

(a) Any computer software executablecode used for such purposes, including anexecutable copy of the version of the soft-ware used in the preparation of the tax-payer’s return (including any plug-ins,supplements, etc.), and a copy of allrelated electronic data files. Thus, if soft-ware subsequently is upgraded or supple-mented, a separate executable copy of theversion used in preparing the taxpayer’s re-turn must be retained.

(b) Any related computer software sourcecode acquired or developed by the tax-payer or a related person, or primarily forinternal use by the taxpayer or such per-son rather than for commercial distribu-tion.

(c) In the case of any spreadsheet soft-ware or similar software, any formulae orlinks to supporting worksheets.

For these purposes, “software,” “computersoftware executable code,” and “computersoftware source code” have the meaningsprovided for those terms under section7612(d). For example, computer softwareexecutable code includes any related usermanuals or similar documentation. Finally,nothing in this revenue procedure shall af-fect the limitations and protections appli-cable to summonses for software undersection 7612, or the authority of the Com-missioner generally to issue a summons forinformation in accordance with subchap-ter A of Chapter 78 of the Code.

SECTION 4. USE OF FAIR MARKETVALUE METHOD

.01 A taxpayer may elect to use the fairmarket value method with respect to anytaxable year for which the statute of limi-tations has not closed. However, an elec-tion to use the fair market value method that

is not made until an audit of the taxableyear to which the election relates has com-menced, or a taxpayer’s failure to pro-vide timely the documentation and otherinformation supporting the valuation of thetaxpayer’s assets, creates administrative dif-ficulties for the Service. Accordingly, sec-tion 4 of this revenue procedure sets forththe procedures the Service will follow inthe case of taxpayers using the fair mar-ket value method and the actions it will re-quest of taxpayers.

.02 In the case of a taxpayer that hasmade an election to use the fair marketvalue method prior to the opening confer-ence for the audit of the taxable year towhich the election relates or who makessuch an election within 90 days of suchopening conference, if the Service issues awritten information document request ask-ing the taxpayer to provide the documentsand other information described in sec-tions 3.02 and 3.03 of this revenue proce-dure and the taxpayer complies with suchrequest within 30 days of the request, thenthe Service will complete its examina-tion, if any, with respect to the taxpayer’smethod of interest expense apportionmentfor that year as part of the current exami-nation cycle. If the taxpayer does not pro-vide the documents and informationdescribed in sections 3.02 and 3.03 within30 days of the request, then the proce-dures described in section 4.03 of this rev-enue procedure shall apply.

.03 If a taxpayer makes an election touse the fair market value method more than90 days after the opening conference for theaudit of the taxable year to which the elec-tion relates or the taxpayer does not pro-vide the documents and information asrequested in accordance with section 4.02of this revenue procedure, then the Ser-vice will in a separate cycle determinewhether an examination of the taxpayer’smethod of interest expense apportionmentis warranted and complete any such ex-amination. The separate cycle will beworked as resources are available and maynot have the same estimated completiondate as the other issues under examina-tion for the taxable year. The Service mayask the taxpayer to agree to extend the stat-ute of limitations on assessment andcollection for the taxable year to permit ex-amination of the taxpayer’s method of in-terest expense apportionment, includingan extension limited, where appropri-

2003–21 I.R.B. 951 May 27, 2003

ate, to the taxpayer’s method of interestexpense apportionment.

.04 For a taxable year for which the tax-payer and the Service have agreed to usethe Limited Issue Focused Exam (LIFE)process announced in IR 2002–133 (De-cember 4, 2002), the time periods agreedto in that process shall apply for purposesof both the election to use the fair marketvalue method and the provision of docu-ments and other information with respectto such method.

SECTION 5. EFFECTIVE DATE

Section 3 of this revenue procedure iseffective for taxpayers using the fair mar-ket value method for taxable years end-ing after May 7, 2003. Section 4 of thisrevenue procedure is effective for fair mar-ket value method elections relating to tax-able years for which the opening conferenceof the audit occurs more than 30 days af-ter May 7, 2003.

SECTION 6. PAPERWORKREDUCTION ACT

The collection of information containedin this revenue procedure has been reviewedand approved by the Office of Manage-ment and Budget in accordance with the Pa-perwork Reduction Act (44 U.S.C. 3507)under control number 1545–1833.

An agency may not conduct or spon-sor, and a person is not required to re-spond to, a collection of information unlessthe collection of information displays a validOMB control number.

The collection of information in this rev-enue procedure is in section 3, under whichtaxpayers may prepare and make avail-able to the Commissioner upon request thedocuments and other information describedtherein in order for the Commissioner tomake a determination regarding whether ataxpayer’s valuation of an asset is reason-able. This information will be used by rev-enue agents to assist in determining if thetaxpayer has established the fair marketvalue of the taxpayer’s assets to the satis-faction of the Commissioner. The likely re-

spondents are multinational businesses orother for-profit institutions.

The estimated total annual reportingand/or recordkeeping burden is 625 hours.The estimated annual burden perrespondent/recordkeeper is an estimated av-erage of 5 hours. The estimated number ofrespondents and/or recordkeepers is 125.The estimated frequency of response is onoccasion.

Books or records relating to a collec-tion of information must be retained as longas their contents may become material inthe administration of any internal revenuelaw. Generally tax returns and tax return in-formation are confidential, as required by26 U.S.C. 6103.

SECTION 7. DRAFTINGINFORMATION

The principal author of this revenue pro-cedure is Melissa Arndt of the Office of theAssociate Chief Counsel (International). Forfurther information regarding this revenueprocedure, contact Ms. Arndt at (202) 622–3850 (not a toll-free call).

May 27, 2003 952 2003–21 I.R.B.

Part IV. Items of General Interest

New Form 8876, Excise Taxon Structured SettlementFactoring Transactions

Announcement 2003–33

The IRS has released new Form 8876,Excise Tax on Structured Settlement Fac-toring Transactions. Use Form 8876 to re-port and pay the 40% excise tax imposedunder section 5891 on the factoring dis-count.

You can obtain Form 8876 by telephoneor by using IRS electronic information ser-vices.

Request by Number or Address

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

Personal computer:

IRS web site www.irs.govFile transfer protocol ftp.irs.gov

Foundations Status of CertainOrganizations

Announcement 2003–34The following organizations have failed

to 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 designations inthe Cumulative List of Organizations (Pub-lication 78), or on the presumption aris-ing from the filing of notices under section508(b) of the Code. This listing does notindicate that the organizations have lost theirstatus as organizations described in sec-tion 501(c)(3), eligible to receive deduct-ible 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 privatefoundations:

4 Bar M Coach, Inc., Decatur, TX11th Hour Company, Inc.,

Brooklyn, NYAcademy of Artistic Gymnastics TAAG

Parents Club, San Antonio, TXActors Project Theatre Company, Inc.,

Coral Springs, FLAfrican Cultural Center, Incorporated,

Rockville, MDAmerican Childrens Ice Theatre, Inc.,

Saugus, MAAngell School PTO, Ann Arbor, MIAnother Byte, Inc., Flagstaff, AZ

Apex Financial Support Group, Inc.,East Meadow, NY

Appalachian Focus, Inc.,Middlesboro, KY

Arizona Education Academy,Phoenix, AZ

Arkansas Friends for Better Schools,Little Rock, AR

Arrowhead Elementary Parents andTeachers Organization,Lewis Center, OH

Arsenal Football Associates, Ltd.,Mt. Lake Park, MD

Arts for Art, Inc., New York, NYAsheville Puppetry Alliance,

Fairview, NCAshland United Soccer, Ashland, OHAsylum, Las Vegas, NVBaker Brownsfield Athletic Association,

Baton Rouge, LABaldwin RHF Housing, Inc.,

Long Beach, CABaldwyn Childrens Home, Saltillo, MSBean Station PTO, Bean Station, TNBible Research Study Institute,

Santa Cruz, CABittenbender Jr. Ballet Co., Inc.,

Mesquite, TXBlackman TKD Parents Association,

Inc., Albuquerque, NMBloomfield Youth Basketball League,

Bloomfield, CTBorderline Volunteer Caregivers, Inc.,

Monroe, WIBreakaway Ministries, Burnsville, MNBreakers of Rocky River, Inc.,

Rocky River, OH

Brentwood Area Soccer Association —BASA, Pittsburgh, PA

Bridge to Tomorrow Housing, Inc.,Mineola, NY

British Film Festival, West Jordan, UTBroadreach Foundation, Raleigh, NCBurlington Iowa Stepperettes &

Travelers, Burlington, IAByron Center Band and Orchestra

Boosters, Kentwood, MICapital Area Resource Center of the

Deaf and Hard of Hearing, Inc.,Richmond, VA

Caprock Childrens Services,Lubbock, TX

Center for Youth Activism,State College, PA

Central Florida Riptide, Inc.,Orlando, FL

Cfec-Chorus, Myrtle Beach, SCChance Youth Foundation, Inc.,

Richmond, VAChildrens Assistance Organization,

Lansing, MIChristian Faculty and Staff Fellowship,

Fargo, NDChristian Ministries United,

Richmond, VAChronic Fatigue Syndrome Foundation

of Greater Baton Rouge, Inc.,Baton Rouge, LA

Church Multiplication International, Inc.,Duluth, GA

Civic Health Institute, Inc.,Pittsburgh, PA

Clear Ink Foundation, Alamo, CACoastal Bend Resource Group, Inc.,

Corpus Christi, TX

2003–21 I.R.B. 953 May 27, 2003

Colton C A R E Coalition, Colton, ORColumbia School PTO,

McGuire AFB, NJCom Scribe Service, Inc.,

East Lansing, MICommunities Handling Alterns Needs

for Cont. Education, Memphis, TNCommunity Outreach and Youth

Development Services, Inc.,Macon, GA

Community Preschool InclusionProgram, Virginia Beach, VA

Copii House Foundation, Inc.,Cohocton, NY

Copper Basin Baseball Diamond Club,Inc., Copperhill, TN

Copper Basin Cougar Basketball Club,Inc., Copperhill, TN

Copper Basin Lady Cougars SoftballClub, Inc., Copperhill, TN

Copper Basin Touch Down Club, Inc.,Copperhill, TN

Coterie Club, Senatobia, MSCottonwood-Granite Baseball League,

Salt Lake City, UTCougar Haven, Gore Springs, MSCrisis Pregnancy Center,

Greenwood, MSCy-Fair Special Olympic Booster Club,

Cypress, TXCypress Housing Foundation,

Downey, CADan Adders, Incorporated,

Las Vegas, NVDavid Binn Foundation, San Diego, CADazzle Song & Dance Company,

Williamsburg, VADeer Park FFA Booster Club,

Deer Park, TXDenton Youth Basketball, Inc.,

Denton, TXDesert Coyote Youth Hockey Assn.,

Bermuda Dunes, CADeutschland Michigan-Exchange,

West Bloomfield, MIDiabetes Youth Support Foundation,

Santa Monica, CADiscovery Learning Fund, Inc.,

Newark, NJDistrict Resource Investments, Inc.,

Brackettville, TXDiversity in Literature for Kids (DLK),

Inc., Atlanta, GADobson Crew Chiefs, Chandler, AZDobyns Bennett Orchestra Guild,

Kingsport, TNDomenica Enrichment Center for Special

Needs, Inc., Ridgewood, NJ

East End Swim Club, Inc., Shirley, NYEast Falmouth Elementary Parent

Teacher Organization,East Falmouth, MA

East Union Grad Night, Manteca, CAEdmond Figure Skating Club,

Edmond, OKEdwards Volunteer Organization,

Newberg, ORElegance in Style, Incorporated,

Ellicott City, MDEmpowering Residents to Achieve

Scenic Excellence Foundation, Inc.,Charleston, WV

Encampment Riverside Youth Baseball,Encampment, WY

Epiphany Place, Marshall, MNExpress Youth Baseball, Waco, TXFamily Tyme, Madrid, IAFantasia Arts of York Maine (FAYM),

York, MEFCW, Defiance, MOFirst Night Newark, Inc., Newark, NJFor FEMALES, Houston, TXFor the Love of Children,

Colleyville, TXFort Lauderdale Childrens Ballet

Theatre, Inc., Ft. Lauderdale, FLFort Wellington Hopetown Belair

Charity Association, Brooklyn, NYFoundation for United Neighborhood

Development Opportunities,Concord, CA

Framingham Community DevelopmentCorporation, Framingham, MA

Front Forty Productions, Inc.,Stevens Point, WI

GE Federation Booster Club,Meraux, LA

George Jenkins High School ChorusBooster Club, Inc., Lakeland, FL

Georgia Std. Coalition, Inc.,Gainesville, GA

Get Up On It, Inc., Philadelphia, PAGlobal Unity, La Jolla, CAGold Coast Basketball, Inc.,

Santa Barbara, CAGourmet Gala, Slidell, LAGrace Little Peoples Learning Center,

Inc., University Cy, MOGreat Hills Swim Team, Inc.,

Austin, TXGreat Lakes Puppetry Center,

Chicago, ILGreater Roanoke Basketball Union,

Roanoke, VAGreater Rochesters Kingdom Bound

Kids, Inc., Penfield, NY

Green Ridge Booster Club,Green Ridge, MO

Gymnastrum Parents Association, Inc.,Allentown, PA

Hall of Fame Charitable Foundation,Columbus, OH

Hands From Heaven, San Francisco, CAHaralson Coalition for Children Youth

and Families, Inc., Bremen, GAHarbor Arts, Inc., Union Pier, MIHard Hat Theater Company,

Toluca Lake, CAHarvested Seeds, Inc., Birmingham, ALHaude Elementary Parent Teacher

Organization, Inc., Spring, TXHealth Resource Center for Palestine,

Inc., Sarasota, FLHeart of the City Neighborhoods, Inc.,

Buffalo, NYHelp Under Direct Care Organization,

Cape Coral, FLHelping Hands Helping Hearts, Inc.,

Tampa, FLHelzberg Entrepreneurial Mentoring

Program, Kansas City, MOHep C Advocated Network,

Longview, TXHome Scholars, Richmond, CAHomeschoolers Support Network, Inc.,

Trenton, NJHouse of Hope of Northeast Tennessee,

Elizabethton, TNHouse of Levi Keter Kehuna Shevet

Levi, Inc., New York, NYHouston Justice & Peace Center,

Houston, TXHudson River Community Counseling

Alliance, Mount Kisco, NYHurlbutt Elementary School PTO,

Weston, CTHuron High School PTSO,

Ann Arbor, MIInner-City Scholarship Endowment

Fund, New York, NYInternational Electronic Library, Incorp.,

Fontana, CAInternational Professional Assoc. for

AIDS and Childrens Charities,New York, NY

Intertribal Arts Project, Inc.,Falmouth, MA

Iowa City Music Auxiliary, Inc.,Iowa City, IA

Irvine Girls Softball Association,Irvine, CA

Island University Foundation,Corpus Christi, TX

May 27, 2003 954 2003–21 I.R.B.

Jackys Recreation and Family LifeCenter, Inc., Kilgore, TX

Jenkins Wrestling Club, Lakeland, FLJim Ned Project Graduation,

Tuscola, TXJimmy Raye Youth Foundation, Inc.,

Fayetteville, NCJo Ella Ellison Ministries DBA Therapon

Counseling Center, Austin, TXJoseph House Ministries, Tega Cay, SCJoyful Choices Institute,

Sierra Madre, CAJuice Guys Care, Inc., Nantucket, MAK C Youth Sports Inc.,

Overland Park, KSKairos Academy, Newark, OHKansas City Globe 100 Most Influential

Charitable Fund, Inc.,Kansas City, MO

Kenya Shoe Expedition, Houston, TXKeren Chaverim, Inc., Brooklyn, NYKids Campus Daycare and Learning

Center, Inc., Florence, NJKinney County Youth Development

Association, Brackettville, TXKorima Foundation of the Big Bend

Ranch, Inc., Houston, TXLady Bug Booster Club, Muncie, INLafayette Youth Amateur Ice Hockey

Association, Inc., Carencro, LALagrange Ball Association, Inc.,

Canton, MOLake Country Ami, Inc., Pittsburg, TXLake Unified Visitation Center, Inc.,

Griffith, INLearning Link, Palm Springs, CALee County MHMR Board, Inc.,

Giddings, TXLife Builders Ministries, Irvine, CALiteracy Connection, Kennewick, WALiterature for Humanity Foundation,

Richmond, CALiving Books Literacy Center, Inc.,

Austin, TXLocal Active Women LAW Association,

Brownsville, TXLone Star Behavioral Health Services,

Inc., Round Rock, TXLos Amigos Del Fortin, Presidio, TXLos Angeles Youth Hockey Association,

Long Beach, CAMacArthur-Eisenhower Scholastic Chess

Club, Schaumburg, ILMadge and Raford Martin Charitable

Foundation, Inc.,Indian Rocks Beach, FL

Magic Valley Volleyball Club, Inc.,Buhl, ID

Mahalick Charitable TR 1519013272,Charlotte, NC

Maine Property Rights Alliance, Inc.,Sullivan, ME

Manchester High School Band Boosters,Chesterfield, VA

Manhigim Hadashim Foundation, Inc.,San Diego, CA

March for Jesus of South Bend,Mishawaka, IN

Mariemont High School Parent TeacherOrganization, Cincinnati, OH

Mariemont Junior High PTO,Cincinnati, OH

Marx Toy Museum, Inc., Erie, PAMaryland Arts Den, Inc.,

Baltimore, MDMascotas Jibaras, San Juan, PRMaui Dolphins Swim Club,

Pukalani, HIMcArts Fine Art Organization Limited,

Kimball, WVMid South Gospel Association,

New Orleans, LAMililani High School Spada, Inc.,

Mililani, HIMillington Area Education Foundation,

Millington, TNMiracle Network, Inc., Dallas, TXMiracle Star Womens Recovering

Community, Lancaster, CAMontour Antique Farm Machine

Collectors Association, Danville, PAMountain View Family Youth Center,

Mountain View, MOMulti-County Child and Family

Services, Forrest City, ARMy Sisters Closet, Baltimore, MDNashville Fencing Academy,

Nashville, TNNatick on Ensemble Theater,

Incorporated, Natick, MANational Catholic Forensic League, Inc.,

Milford, MANederland Educational Foundation, Inc.,

Nederland, TXNetwork of Indian Professionals-New

York Foundation, Inc.,New York, NY

New Faith New Beginning,National City, CA

New Hampshire Criminal JusticeResource Center, Inc., Concord, NH

New Neighbors Charitable Tr.,Rancho Palos Verdes, CA

Newtowne Court-Washington ElmsTenant Council, Cambridge, MA

Nicolet Soccer Club, Inc., Glendale, WI

Norman Park Educational Foundation,Chula Vista, CA

North Louisiana Gospel Association,Inc., New Orleans, LA

North Warren Elementary School PTO,N. Warren, PA

Northland College Lumberjack HockeyBooster Club, Inc., Ashland, WI

Northwestern Choral Boosters,Rock Hill, SC

Nueva Vida Por Nueva Mexico,Santa Fe, NM

Nursing Education Alumni Association,Inc., Astoria, NY

Oakland Community Theatre, Inc.,Oakland, NJ

Octopi, Richmond, VAOffering an Entrance to Him Ministries,

Inc., St. Louis, MOOhio F C, Dublin, OHOhr Hadash Jewish Healing Center, Inc.,

Dallas, TXOwasso Cheerleader Booster Club

(OCBC), Owasso, OKP S 11 Programs, Inc., New York, NYPacific Justice Institute,

Citrus Heights, CAPeoples Princess Charitable Foundation,

Tampa, FLPerimeter Global Associates, Inc.,

Duluth, GAPhilanthropic Charities,

Castro Valley, CAPHP Ministries, Inc., Ridgewood, NJPiece of Work Theater Company, Inc.,

New York, NYPiihonua EA, Hilo, HIPine Tree High School Theater Booster

Club, Longview, TXPioneer Lyric Theatre, Denton, TXPlanet ECO, San Diego, CAPoint Dujour Renel, Brooklyn, NYPondering the Documentary,

Santa Monica, CAPresbyterian Learning Center, Inc.,

Morganton, NCPride Productions, Port Isabel, TXProject Vision, Inc., Port St. Lucie, FLProspect Historical Society,

Prospect, VARancho Selah, Inc., Harwood, TXRed River Foundation,

Grand Forks, NDRelief Effort Act Charitable Trust

(REACT), Quakertown, PARiver City Junior Volleyball, Inc.,

Omaha, NE

2003–21 I.R.B. 955 May 27, 2003

Rock Youth Ministries, Inc.,Boynton Beach, FL

Rocks Coordinating Committee,Chicago, IL

Rolling Plains Industrial Foundation,Haskell, TX

Rush-Henrietta Soccer Club, Inc.,Henrietta, NY

S F Striders, San Francisco, CASalazar Park Youth Association,

Los Angeles, CASalt Council of Triad of Jefferson

County Alabama, Birmingham, ALSan Jose Coral Project, Sunnyvale, CASanders Enterprise Community

Development, Brooklyn, NYSCDF Loan and Technical Assistance

Fund, Inc., Lafayette, LASeaside High School Instrumental Music

Boosters, Marina, CASeguin Project, Buffalo, NYServants of Society Foundation, Inc.,

Portland, ORShaarei Zion Day Care, Inc.,

Baltimore, MDShare Mothers Program, Inc.,

Madison, TNShared Technologies, Incorporated,

Norfolk, VASierra Housing Foundation,

Downey, CASierra Leone Charitable Foundation,

Detroit, MISign of the Times-the Recycle Manland

Project, Inc., Waco, TXSilhouettes School of Construction,

Oakland, CASimple Way, Philadelphia, PASomali Community Service, Inc.,

Chelse, MASonoma Creek Adopt-a-Watershed,

Sonoma, CASouth Newton Music Boosters,

Kentland, INSouthern Senior High School Sports

Booster Club, Inc., Tracys Lndg, MDSquires League Rockies Baseball

Organization, Inc., Baton Rouge, LASRI Sadguru Swayam Prakasha

Avadhootha Swamigal Intl. Mission,Jackson Heights, NY

St. Louis Gator AAU Basketball,Chesterfield, MO

Students for DC, Salinas, CATalk Afterschool, Inc., Smoketown, PATao of Holy Confucius Association, Inc.,

Oceanside, NYTarkington Community Baseball

Association, Inc., Cleveland, TX

TDDJ, Inc., Loxahatchee, FLTeam First Volleyball Club,

Cameron, TXTechnological Instruction International,

Culver City, CATempleton Grad Night Committee,

Templeton, CATen Thousand Villages Tucson, Inc.,

Tucson, AZTexas Alternative Certification

Association, Katy, TXTexas Music Library & Research Center,

Houston, TXThird Eye, San Diego, CATogether Education Accomplish More

Success, Seattle, WATraining and Restoring Urban

Empowerment, Cape Girardeau, MOTrampoline and Tumbling Team

Association, Blue Springs, MOT R I P Plus, Riverside, CAUnion of Siguiri People, Inc.,

New York, NYUnited Rescue Groups, Inc., Austin, TXUnited Scholarship America Foundation,

Pleasant Grove, UTUnited States Service Agency USSA,

Buena Park, CAUnited Success-Ful Ministries, Inc.,

Tacoma, WAUnity Network and Counseling Center,

Atlanta, GAUniversal Concert Association, Inc.,

Buffalo, NYUpward Community Builders, Inc.,

Mineola, NYUW-Random Acts of Kindness,

Madison, WIVeterans Refuge Center,

Long Beach, CAVillage Project, Seattle, WAVirginia Citizenship Institute,

Arlington, VAVirginia Raptors, Virginia Beach, VAVox Populi, Philadelphia, PAWagner Middle School Parents

Association, New York, NYWashoe County Assess to Justice

Foundation, Reno, NVWax Fruit Theatre Company,

Chicago, ILWCV, Inc., Brooklyn, NYWe Assist, Inc., Brooklyn, NYWestchester Chinese School, Inc.,

Scarsdale, NYWestern Institute for Nature Resources

Education and Policy, Rickreall, ORWestfield Baseball Association, Inc.,

Houston, TX

Windy City P. A. W. S., Chicago, ILWing & Groove Theatre Company,

Chicago, ILWomen in Gods Word Ministries,

Rialto, CAWorld Historical Society for

Thoroughbred Horses,Las Vegas, NV

Young Artist With Integrity Destine toSucceed, Brooklyn, NY

Youth Soccer Development Fund, Inc.,Norwalk, CT

If an organization listed above submitsinformation that warrants the renewal of itsclassification as a public charity or as a pri-vate operating foundation, the Internal Rev-enue Service will issue a ruling ordetermination letter with the revised clas-sification as to foundation status. Grant-ors and contributors may thereafter relyupon such ruling or determination letter asprovided in section 1.509(a)–7 of the In-come Tax Regulations. It is not the prac-tice of the Service to announce such revisedclassification of foundation status in the In-ternal Revenue Bulletin.

Safe Harbor for SatisfyingStatutory Requirements forValuation Under Section 475for Certain Securities andCommodities

Announcement 2003–35

AGENCY: Internal Revenue Service (IRS),Treasury.

ACTION: Advance notice of proposed rule-making.

SUMMARY: This document describes andexplains a possible framework for a safeharbor (including recordkeeping and recordretention requirements) that would satisfythe statutory requirement to value certainsecurities and commodities under section475 of the Internal Revenue Code. Thisdocument also invites comments from thepublic on this safe harbor and other alter-native valuation methodologies. All mate-rials submitted will be available for publicinspection and copying.

DATES: Written or electronic commentsmust be submitted by August 4, 2003.

May 27, 2003 956 2003–21 I.R.B.

ADDRESSES: Send submissions to:CC:PA:RU (REG–100420–03), room 5226,Internal Revenue Service, POB 7604, BenFranklin Station, Washington, DC 20044.Submissions may be hand delivered Mon-day through Friday between the hours of8 a.m. and 4 p.m. to: CC:PA:RU (REG–100420–03), Courier’s Desk, Internal Rev-enue Service, 1111 Constitution AvenueNW, Washington, DC. Alternatively, tax-payers may send electronic comments di-rectly to the IRS Internet site atwww.irs.gov/regs.

FOR FURTHER INFORMATION CON-TACT: Concerning submissions, LaNitaVan Dyke, (202) 622–7180; concerningthe proposals, Marsha Sabin or John W.Rogers III, (202) 622–3950 (not toll-freenumbers).

SUPPLEMENTARY INFORMATION:

A. Overview

Section 475(a) requires dealers in secu-rities to mark their securities to market. Ifa security is inventory, it must be includedin inventory at its fair market value. If a se-curity is not inventory and is held at the endof the taxable year, it must be treated as ifit were sold for its fair market value on thelast business day of the taxable year. Mark-to-market treatment is available on an elec-tive basis to commodities dealers and totraders in securities or commodities. Seesections 475(e) and (f).

Although the meaning of the term “fairmarket value” has long been established, ithas been difficult for both taxpayers and theIRS to determine fair market value in cer-tain situations. To reduce the administra-tive burden on taxpayers and the IRS ofdetermining fair market value under sec-tion 475, the IRS and the Treasury Depart-ment are considering the publication of anotice of proposed rulemaking that, by al-lowing values used on a financial state-ment to be used on the tax return, wouldprovide an elective safe harbor for satis-fying the statutory requirement to value se-curities and commodities.

Three broad principles guide eligibil-ity for the safe harbor. First, any mark-to-market methodology used on a financialstatement submitted for financial report-ing purposes would have to be sufficientlyconsistent with the mark-to-market meth-odology used under section 475. Second,

the financial statement would have to beone for which the taxpayer has a strong in-centive to report values fairly. Third, if re-quested, the taxpayer would have to timelyprovide the IRS with the information anddocuments necessary to verify the relation-ship between the values reported on the fi-nancial statement and the values used forpurposes of section 475.

B. Principle One: Mark-to-MarketMethodology for Financial Reporting

To qualify for the safe harbor, a mark-to-market methodology used for financialreporting should be sufficiently consis-tent with the requirements of a mark-to-market methodology used for section 475.Under section 475, a mark-to-market meth-odology must (i) value securities and com-modities as of the last business day of eachtaxable year, (ii) recognize into income thegains and losses arising from changes invalue each year, and (iii) compute gain orloss on disposition by reference to the valueat the end of the prior year. To the extentthat mark-to-market methodologies for fi-nancial reporting and section 475 differ, theIRS and the Treasury Department requestcomments identifying the differences andaddressing whether and how the differ-ences should affect the safe harbor.

The valuation standard under section 475is fair market value, the price at which prop-erty would change hands between a will-ing buyer and willing seller, neither beingunder any compulsion to buy or sell andboth having reasonable knowledge of rel-evant facts. The IRS and the Treasury De-partment are considering whether to use thefair value standard under U.S. Generally Ac-cepted Accounting Principles (“GAAP”) asa proxy for the fair market value stan-dard required for tax purposes. In particu-lar, the IRS and the Treasury Departmentseek comments on whether GAAP per-mits (i) valuation of securities at the bidprice, (ii) downward adjustments from mid-market values for future administrative,hedging, or financing expenses, or (iii) oneor more redundant downward adjustmentsfrom mid-market values for credit risk. (Inother words, if future cash flows are dis-counted to present value using a rate, suchas LIBOR (London Interbank Offered Rate),that corresponds to the credit quality of thecounterparty, is there a need for any addi-tional credit adjustment?)

The IRS and the Treasury Departmentare interested in receiving information on

the types of adjustments that are currentlyused for financial statement purposes andan explanation of these adjustments. Com-ments are requested on the Financial Ac-counting Standards Board’s considerationof fair value reporting of derivatives and thevaluation of projected cash flows and anyimpact that has on how taxpayers are re-porting any valuation adjustments for fairvalue purposes.

C. Principle Two: Financial Statementsand Business Use

Two factors are relevant in establish-ing that the taxpayer has a strong incen-tive to report values of the securities andcommodities fairly on the financialstatement: (i) reporting of values on a fi-nancial statement; and (ii) significant useof those reported values in the taxpayer’sbusiness.

As to the reporting of values, the IRSand the Treasury Department are consid-ering various types of financial statementsfor the safe harbor. Three classes of finan-cial statements under consideration are:

(1) A financial statement required to befiled with the Securities and ExchangeCommission (“SEC”) (the 10–K or the An-nual Statement to Shareholders);

(2) A financial statement required to beprovided to the federal government or anyof its agencies (other than the SEC or theIRS); and

(3) A certified audited financial state-ment not required to be filed with the SECor another federal agency.

In certain limited circumstances, it mayalso be appropriate to consider financialstatements required to be filed with a stategovernment or any of its agencies, a po-litical subdivision of a state, or possibly aforeign regulator.

It may also be relevant whether a state-ment is provided to equity holders or credi-tors.

Comments are requested on the extentto which each of these various classes offinancial statements is appropriate for thesafe harbor and whether any other classesof financial statements may be as well.

As to significant use of reported val-ues in the taxpayer’s business, potentiallysignificant uses include guiding the tax-payer’s pricing and risk management de-cisions and determining employeecompensation.

Special considerations arise if securi-ties or commodities are held by a party re-

2003–21 I.R.B. 957 May 27, 2003

lated to the issuer or if derivatives insecurities or commodities (including for-ward contracts in cash markets) exist be-tween related parties. Financial consolidationcan cause these securities or commodities(including derivatives) to be either elimi-nated (because of netting) or incompletelyreported on financial statements. Addition-ally, in certain circumstances, these re-lated party transactions may not receive thesame level of regulatory scrutiny. It is notclear, therefore, whether the safe harborwould be appropriate for securities or com-modities held by a party related to the is-suer or for derivatives in securities orcommodities that exist between related par-ties.

D. Principle Three: Recordkeeping andRecord Production

Under the safe harbor, examinations ofreturns would focus on how the values usedin the financial statements relate to gain andloss on the tax returns. Consequently,records would have to clearly show: (1) thatthe same value used on the financial state-ment was used on the tax return; (2) thatno security subject to section 475 and re-ported under the required methodology onthe financial statement was excluded in theapplication of the safe harbor; and (3) thatonly securities or commodities subject tosection 475 had been carried over to the taxreturn under the safe harbor.

Given the complexity of the business op-erations of many taxpayers, comparing asingle line on the financial statement to asingle line on the tax return will not suf-fice to verify that the same value used forthe financial statement was used on the taxreturn. Therefore, a safe harbor will im-pose specific verification and reconcilia-tion requirements.

The IRS and the Treasury Departmentare concerned about valuation issues thatmay arise from pooling of securities andcommodities. Comments are requested onhow securities and commodities are pooledfor purposes of financial reporting, how theyare pooled for tax reporting, and how theCommissioner can verify the basis deter-mination of a single position contained inthe pool if that position is sold or settledin the year following the mark and other po-sitions in the pool are not sold.

The IRS and the Treasury Departmentare similarly concerned about the consoli-dation and de-consolidation of the busi-ness structure. Comments are requested onthe impact of the consolidation and de-consolidation on determining whether thesame securities and commodities will be re-flected on both the financial statement andthe tax return.

The IRS and the Treasury Departmentare considering rules that would requireelecting taxpayers to maintain and, if re-quested, provide to the Commissioner in atimely manner the following records: (1)books and records clearly establishing thatthe values used in determining gain or lossunder section 475(a) for eligible securi-ties or commodities were the values usedin the financial statement; (2) for taxpay-ers filing a Form 1120, a reconciliation ofthe amount of net income reported on thefinancial statement to the amount reportedon line 1 of the Schedule M–1 on the Form1120, Corporate Income Tax Return; and(3) for other taxpayers, a similar reconcili-ation schedule. The documents for recon-ciliation purposes include supportingschedules, exhibits, computer programs usedin producing the values and schedules, anddocumentation of rules and procedures gov-erning determination of the values. Booksand records would include all those that arerequired to be maintained for financial orregulatory reporting purposes, even if thosebooks and records are not specifically cov-ered by section 6001. Comments are re-quested on whether less burdensomerecordkeeping requirements could be de-veloped that would still allow for effec-tive verification of conformity.

The IRS and the Treasury Departmentare considering situations in which theCommissioner should enter into agree-ments with specific taxpayers establish-ing which records would have to bemaintained, how the records would have tobe maintained, and how long the recordswould have to be retained. Because anagreement would be tailored to a particu-lar taxpayer’s operations and environment,it is expected that an agreement would ariseonly after individual negotiations. Althoughno taxpayer would be entitled to an agree-ment, an agreement based on an early un-derstanding of a taxpayer’s operations

would be in the best interests of tax ad-ministration and, therefore, would be en-couraged.

E. Eligible Taxpayers

The safe harbor is being considered fordealers in securities under section 475(c)(1).Whether the safe harbor would also be ex-tended to securities traders, dealers in com-modities, and commodities traders wouldlargely depend on whether the extensionwould comport with the principles describedin the Overview.

F. Eligible Securities and Commodities

Section 475 applies to a wide variety ofsecurities and commodities. It is relativelyeasy for both taxpayers and the IRS to de-termine the fair market value of positionsfor which pricing information is readilyavailable, such as most actively traded per-sonal property. The need for a safe har-bor is most pressing for positions for whichpricing information is not readily avail-able, including more complex notional prin-cipal contracts and derivative instruments,and hedges described in sections475(c)(2)(D), (E), and (F). Comments arerequested on what securities should be in-cluded in the safe harbor.

Commodities raise problems similar tothose for securities, so the need for a safeharbor is similarly pressing for commodi-ties (including commodities derivatives) forwhich pricing information is not readilyavailable. Comments are requested address-ing application of a safe harbor for com-modities.

G. Comments on Other ValuationMethodologies and Safe Harbors

Comments are requested on whetherthere are other methodologies for deter-mining fair market values under section 475.Comments are also requested on whetherother safe harbors could act as proxies forfair market value under section 475.

Lon B. Smith,Associate Chief Counsel

(Financial Institutions and Products).

(Filed by the Office of the Federal Register on May 2, 2003,8:45 a.m., and published in the issue of the Federal Regis-ter for May 5, 2003, 68 F.R. 23632)

May 27, 2003 958 2003–21 I.R.B.

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

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

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

Distinguished describes a situationwhere a ruling mentions a previouslypublished ruling and points out an essen-tial difference between them.

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

applies to both A and B, the prior rulingis modified because it corrects a pub-lished position. (Compare with amplifiedand 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 usedin a ruling that lists previously publishedrulings that are obsoleted because ofchanges in law or regulations. A rulingmay also be obsoleted because the sub-stance has been included in regulationssubsequently adopted.

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

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

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

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further namesin subsequent rulings. After the originalruling has been supplemented severaltimes, a new ruling may be published thatincludes the list in the original ruling andthe additions, and supersedes all prior rul-ings in the series.

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

AbbreviationsThe following abbreviations in currentuse and formerly used will appear inmaterial published 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.—Statements of Procedural Rules.Stat.—Statutes at Large.T—Target Corporation.T.C.—Tax Court.T.D.—Treasury Decision.TFE—Transferee.TFR—Transferor.T.I.R.—Technical Information Release.TP—Taxpayer.TR—Trust.TT—Trustee.U.S.C.—United States Code.X—Corporation.Y—Corporation.Z—Corporation.

2003–21 I.R.B. i May 27, 2003

Numerical Finding List1

Bulletins 2003–1 through 2003–20

Announcements:

2003–1, 2003–2 I.R.B. 2812003–2, 2003–3 I.R.B. 3012003–3, 2003–4 I.R.B. 3612003–4, 2003–5 I.R.B. 3962003–5, 2003–5 I.R.B. 3972003–6, 2003–6 I.R.B. 4502003–7, 2003–6 I.R.B. 4502003–8, 2003–6 I.R.B. 4512003–9, 2003–7 I.R.B. 4902003–10, 2003–7 I.R.B. 4902003–11, 2003–10 I.R.B. 5852003–12, 2003–10 I.R.B. 5852003–13, 2003–11 I.R.B. 6032003–14, 2003–11 I.R.B. 6032003–15, 2003–11 I.R.B. 6052003–16, 2003–12 I.R.B. 6412003–17, 2003–15 I.R.B. 7222003–18, 2003–13 I.R.B. 6752003–19, 2003–15 I.R.B. 7232003–20, 2003–15 I.R.B. 7502003–21, 2003–17 I.R.B. 8462003–22, 2003–17 I.R.B. 8462003–23, 2003–16 I.R.B. 8082003–24, 2003–16 I.R.B. 8102003–25, 2003–17 I.R.B. 8462003–26, 2003–18 I.R.B. 8622003–27, 2003–18 I.R.B. 8622003–28, 2003–19 I.R.B. 8992003–29, 2003–20 I.R.B. 9282003–30, 2003–20 I.R.B. 9292003–31, 2003–20 I.R.B. 9302003–32, 2003–20 I.R.B. 933

Court Decisions:

2077, 2003–19 I.R.B. 868

Notices:

2003–1, 2003–2 I.R.B. 2572003–2, 2003–2 I.R.B. 2572003–3, 2003–2 I.R.B. 2582003–4, 2003–3 I.R.B. 2942003–5, 2003–3 I.R.B. 2942003–6, 2003–3 I.R.B. 2982003–7, 2003–4 I.R.B. 3102003–8, 2003–4 I.R.B. 3102003–9, 2003–5 I.R.B. 3692003–10, 2003–5 I.R.B. 3692003–11, 2003–6 I.R.B. 4222003–12, 2003–6 I.R.B. 4222003–13, 2003–8 I.R.B. 5132003–14, 2003–8 I.R.B. 5152003–15, 2003–9 I.R.B. 5402003–16, 2003–10 I.R.B. 5752003–17, 2003–12 I.R.B. 6332003–18, 2003–14 I.R.B. 6992003–19, 2003–14 I.R.B. 7032003–20, 2003–19 I.R.B. 8942003–21, 2003–17 I.R.B. 8172003–22, 2003–18 I.R.B. 851

Notices—Continued:

2003–23, 2003–17 I.R.B. 8212003–24, 2003–18 I.R.B. 8532003–25, 2003–18 I.R.B. 8552003–26, 2003–18 I.R.B. 8552003–27, 2003–19 I.R.B. 8982003–29, 2003–20 I.R.B. 917

Proposed Regulations:

REG–209500–86, 2003–2 I.R.B. 262REG–104385–01, 2003–12 I.R.B. 634REG–116641–01, 2003–8 I.R.B. 518REG–125638–01, 2003–5 I.R.B. 373REG–126016–01, 2003–7 I.R.B. 486REG–126485–01, 2003–9 I.R.B. 542REG–103580–02, 2003–9 I.R.B. 543REG–124069–02, 2003–7 I.R.B. 488REG–131478–02, 2003–13 I.R.B. 669REG–138882–02, 2003–8 I.R.B. 522REG–139768–02, 2003–10 I.R.B. 583REG–141097–02, 2003–16 I.R.B. 807REG–141659–02, 2003–20 I.R.B. 927REG–151043–02, 2003–3 I.R.B. 300REG–164464–02, 2003–2 I.R.B. 262

Revenue Procedures:

2003–1, 2003–1 I.R.B. 12003–2, 2003–1 I.R.B. 762003–3, 2003–1 I.R.B. 1132003–4, 2003–1 I.R.B. 1232003–5, 2003–1 I.R.B. 1632003–6, 2003–1 I.R.B. 1912003–7, 2003–1 I.R.B. 2332003–8, 2003–1 I.R.B. 2362003–9, 2003–8 I.R.B. 5162003–10, 2003–2 I.R.B. 2592003–11, 2003–4 I.R.B. 3112003–12, 2003–4 I.R.B. 3162003–13, 2003–4 I.R.B. 3172003–14, 2003–4 I.R.B. 3192003–15, 2003–4 I.R.B. 3212003–16, 2003–4 I.R.B. 3592003–17, 2003–6 I.R.B. 4272003–18, 2003–6 I.R.B. 4392003–19, 2003–5 I.R.B. 3712003–20, 2003–6 I.R.B. 4452003–21, 2003–6 I.R.B. 4482003–22, 2003–10 I.R.B. 5772003–23, 2003–11 I.R.B. 5992003–24, 2003–11 I.R.B. 5992003–25, 2003–11 I.R.B. 6012003–26, 2003–13 I.R.B. 6662003–27, 2003–13 I.R.B. 6672003–28, 2003–16 I.R.B. 7592003–29, 2003–20 I.R.B. 9172003–30, 2003–17 I.R.B. 8222003–31, 2003–17 I.R.B. 8382003–32, 2003–16 I.R.B. 8032003–33, 2003–16 I.R.B. 8032003–34, 2003–18 I.R.B. 8562003–35, 2003–20 I.R.B. 9192003–36, 2003–18 I.R.B. 859

Revenue Rulings:

2003–1, 2003–3 I.R.B. 2912003–2, 2003–2 I.R.B. 2512003–3, 2003–2 I.R.B. 2522003–4, 2003–2 I.R.B. 2532003–5, 2003–2 I.R.B. 2542003–6, 2003–3 I.R.B. 2862003–7, 2003–5 I.R.B. 3632003–8, 2003–3 I.R.B. 2902003–9, 2003–4 I.R.B. 3032003–10, 2003–3 I.R.B. 2882003–11, 2003–3 I.R.B. 2852003–12, 2003–3 I.R.B. 2832003–13, 2003–4 I.R.B. 3052003–14, 2003–4 I.R.B. 3022003–15, 2003–4 I.R.B. 3022003–16, 2003–6 I.R.B. 4012003–17, 2003–6 I.R.B. 4002003–18, 2003–7 I.R.B. 4672003–19, 2003–7 I.R.B. 4682003–20, 2003–7 I.R.B. 4652003–21, 2003–8 I.R.B. 5092003–22, 2003–8 I.R.B. 4942003–23, 2003–8 I.R.B. 5112003–24, 2003–10 I.R.B. 5572003–25, 2003–13 I.R.B. 6422003–26, 2003–10 I.R.B. 5632003–27, 2003–11 I.R.B. 5972003–28, 2003–11 I.R.B. 5942003–29, 2003–11 I.R.B. 5872003–30, 2003–13 I.R.B. 6592003–31, 2003–13 I.R.B. 6432003–32, 2003–14 I.R.B. 6892003–33, 2003–13 I.R.B. 6422003–34, 2003–17 I.R.B. 8132003–35, 2003–14 I.R.B. 6872003–36, 2003–18 I.R.B. 8492003–37, 2003–15 I.R.B. 7172003–38, 2003–17 I.R.B. 8112003–39, 2003–17 I.R.B. 8112003–40, 2003–17 I.R.B. 8132003–41, 2003–17 I.R.B. 8142003–42, 2003–16 I.R.B. 7542003–44, 2003–18 I.R.B. 8482003–45, 2003–19 I.R.B. 8762003–46, 2003–19 I.R.B. 8782003–47, 2003–19 I.R.B. 8662003–48, 2003–19 I.R.B. 8632003–49, 2003–20 I.R.B. 903

Tax Conventions:

Ann. 2003–21, 2003–17 I.R.B. 846

Treasury Decisions:

9024, 2003–5 I.R.B. 3659025, 2003–5 I.R.B. 3629026, 2003–5 I.R.B. 3669027, 2003–6 I.R.B. 4139028, 2003–6 I.R.B. 4159029, 2003–6 I.R.B. 4039030, 2003–8 I.R.B. 4959031, 2003–8 I.R.B. 5049032, 2003–7 I.R.B. 4719033, 2003–7 I.R.B. 483

1 A cumulative list of all revenue rulings, revenue

procedures, Treasury decisions, etc., published in

Internal Revenue Bulletins 2002–26 through 2002–52 is

in Internal Revenue Bulletin 2003–1, dated January 6, 2003.

May 27, 2003 ii 2003–21 I.R.B.

Treasury Decisions—Continued:

9034, 2003–7 I.R.B. 4539035, 2003–9 I.R.B. 5289036, 2003–9 I.R.B. 5339037, 2003–9 I.R.B. 5359038, 2003–9 I.R.B. 5249039, 2003–10 I.R.B. 5619040, 2003–10 I.R.B. 5689041, 2003–8 I.R.B. 5109042, 2003–10 I.R.B. 5649043, 2003–12 I.R.B. 6119044, 2003–14 I.R.B. 6909045, 2003–12 I.R.B. 6109046, 2003–12 I.R.B. 6149047, 2003–14 I.R.B. 6769048, 2003–13 I.R.B. 6449049, 2003–14 I.R.B. 6859050, 2003–14 I.R.B. 6939051, 2003–16 I.R.B. 7559052, 2003–19 I.R.B. 8799053, 2003–20 I.R.B. 9149054, 2003–20 I.R.B. 909

2003–21 I.R.B. iii May 27, 2003

Finding List of Current Actionson Previously Published Items2

Bulletins 2003–1 through 2003–20

Notices:

97–19Modified byRev. Proc. 2003–1, 2003–1 I.R.B. 1

2000–38Modified byNotice 2003–20, 2003–19 I.R.B. 894

2001–26Obsoleted byT.D. 9032, 2003–7 I.R.B. 471

2001–46Modified byNotice 2003–6, 2003–3 I.R.B. 298

2001–69Modified and superseded byNotice 2003–1, 2003–2 I.R.B. 257

2002–20Superseded byRev. Proc. 2003–36, 2003–18 I.R.B. 859

2002–27Clarified byNotice 2003–3, 2003–2 I.R.B. 258

2002–40Modified byAnn. 2003–18, 2003–13 I.R.B. 675

2002–46Modified byNotice 2003–10, 2003–5 I.R.B. 369

Proposed Regulations:

REG–209500–86Corrected byAnn. 2003–6, 2003–6 I.R.B. 450

REG–103829–99Corrected byAnn. 2003–12, 2003–10 I.R.B. 585

REG–126485–01Withdrawn byREG–126485–01, 2003–9 I.R.B. 542Corrected byAnn. 2003–25, 2003–17 I.R.B. 846

REG–131478–02Corrected byAnn. 2003–24, 2003–16 I.R.B. 810

REG–143321–02Corrected byAnn. 2003–12, 2003–10 I.R.B. 585

REG–164464–02Corrected byAnn. 2003–6, 2003–6 I.R.B. 450

Revenue Procedures:

83–23Supplemented byRev. Proc. 2003–21, 2003–6 I.R.B. 448

84–37Modified byRev. Proc. 2003–1, 2003–1 I.R.B. 1

93–38Obsoleted byRev. Proc. 2003–15, 2003–4 I.R.B. 321

97–31Modified byRev. Proc. 2003–9, 2003–8 I.R.B. 516

98–13Obsoleted byT.D. 9032, 2003–7 I.R.B. 471

2002–1Superseded byRev. Proc. 2003–1, 2003–1 I.R.B. 1

2002–2Superseded byRev. Proc. 2003–2, 2003–1 I.R.B. 76

2002–3Superseded byRev. Proc. 2003–3, 2003–1 I.R.B. 113

2002–4Superseded byRev. Proc. 2003–4, 2003–1 I.R.B. 123

2002–5Superseded byRev. Proc. 2003–5, 2003–1 I.R.B. 163

2002–6Superseded byRev. Proc. 2003–6, 2003–1 I.R.B. 191

2002–7Superseded byRev. Proc. 2003–7, 2003–1 I.R.B. 233

2002–8Superseded byRev. Proc. 2003–8, 2003–1 I.R.B. 236

2002–9Modified and amplified byRev. Proc. 2003–20, 2003–6 I.R.B. 445Rev. Rul. 2003–3, 2003–2 I.R.B. 252

2002–20Supplemented byRev. Proc. 2003–26, 2003–13 I.R.B. 666

2002–22Modified byRev. Proc. 2003–3, 2003–1 I.R.B. 113

2002–29Modified byRev. Proc. 2003–10, 2003–2 I.R.B. 259

2002–37Modified byRev. Proc. 2002–34, 2002–18 I.R.B. 856

Revenue Procedures—Continued:

2002–39Modified byRev. Proc. 2002–34, 2002–18 I.R.B. 856

2002–51Superseded byRev. Proc. 2003–31, 2003–17 I.R.B. 838

2002–52Modified byRev. Proc. 2003–1, 2003–1 I.R.B. 1

2002–53Superseded byRev. Proc. 2003–30, 2003–17 I.R.B. 822

2002–57Superseded byRev. Proc. 2003–28, 2003–16 I.R.B. 759

2002–67Supplemented byAnn. 2003–3, 2003–4 I.R.B. 361

2002–75Superseded byRev. Proc. 2003–3, 2003–1 I.R.B. 113

2003–3Amplified byRev. Proc. 2003–14, 2003–4 I.R.B. 319

2003–7Corrected byAnn. 2003–4, 2003–5 I.R.B 396

Revenue Rulings:

53–131Modified byRev. Rul. 2003–12, 2003–3 I.R.B. 283

57–190Obsoleted byRev. Rul. 2003–18, 2003–7 I.R.B. 467

65–190Revoked byRev. Rul. 2003–3, 2003–2 I.R.B. 252

66–118Distinguished byRev. Rul. 2003–41, 2003–17 I.R.B. 814

69–372Revoked byRev. Rul. 2003–3, 2003–2 I.R.B. 252

86–88Supplemented byRev. Rul. 2003–46, 2003–19 I.R.B. 878

88–36Supplemented byRev. Rul. 2003–46, 2003–19 I.R.B. 878

92–19Supplemented in part byRev. Rul. 2003–24, 2003–10 I.R.B. 557

2 A cumulative list of current actions on previously

published items in Internal Revenue Bulletins

2002–26 through 2002–52 is in Internal Revenue

Bulletin 2003–1, dated January 6, 2003.

May 27, 2003 iv 2003–21 I.R.B.

Revenue Rulings—Continued:

2000–49Modified and superseded byRev. Rul. 2003–49, 2003–20 I.R.B. 903

2003–2Revoked byRev. Rul. 2003–22, 2003–8 I.R.B. 494

Treasury Decisions:

9002Corrected byAnn. 2003–8, 2003–6 I.R.B. 451

9021Corrected byAnn. 2003–16, 2003–12 I.R.B. 641

9022Supplemented byAnn. 2003–7, 2003–6 I.R.B. 450Corrected byAnn. 2003–11, 2003–10 I.R.B. 585

9048Corrected byAnn. 2003–23, 2003–16 I.R.B. 808

2003–21 I.R.B. v *U.S. Government Printing Office: 2003—496–919/60084 May 27, 2003