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

Section 412.—Minimum Funding Standards

Additional funding requirements for certain plans. Questions and answers with respect to the establishment and maintenance of amortization bases for certain plans that have additional funding requirements described in section 412(1) of the Internal Revenue Code as amended by the Uruguay Round Agreements Act, which includes the Retirement Protection Act of 1994, are set forth.

Rev. Rul. 96–20

PURPOSE

This revenue ruling provides questions and answers relating to the establishment and maintenance of certain amortization bases under § 412(l) of the Internal Revenue Code, as amended by the Retirement Protection Act of 1994 (RPA ’94), which is part of the Uruguay Round Agreements Act, Pub. L. 103–65 (GATT).

BACKGROUND

Section 412 of the Code imposes minimum funding requirements with respect to defined benefit and money purchase pension plans. Section 412(l) sets forth additional funding requirements for certain underfunded defined benefit pension plans that have more than 100 participants and that are not multiemployer plans.

The additional funding charge under § 412(l)(1) is determined as the sum of (1) the excess (if any) of (A) the deficit reduction contribution determined under § 412(l)(2) for the plan year over (B) the sum of certain charges for the plan year under § 412(b)(2) reduced by the sum of certain credits for the plan year under § 412(b)(3), and (2) the unpredictable contingent event amount (if any) for the plan year.

The deficit reduction contribution is determined as the sum of the unfunded new liability amount, the expected increase in current liability due to benefits accruing during the plan year, and the amortization amounts for certain amortization bases. These amortization bases (unfunded old liability, unfunded existing benefit increase lia

bility, additional unfunded old liability, and the liability for unfunded mortality increase) are collectively referred to in this revenue ruling as ‘‘DRC amortization bases.’’ The unfunded new liability amount is the applicable percentage of the unfunded new liability. The applicable percentage is based upon the plan’s funded current liability percentage. The unfunded new liability is the excess, if any, of the unfunded current liability for the plan year over the sum of (1) the unamortized portions of the DRC amortization bases, and (2) the liability with respect to any unpredictable contingent event benefits for which the unpredictable contingent event has occurred.

The amortization base for the unfunded old liability described in § 412(l)(3)(B) is established, if appropriate, for the plan year beginning in 1989. This unfunded old liability is amortized over 18 years, beginning with the 1989 plan year.

The amortization base for the unfunded existing benefit increase liability described in § 412(l)(3)(C)(ii) is established, if appropriate, for the plan year in which the benefit increase relating to the liability becomes effective, or, at the election of the employer, for the plan year beginning in 1989. This unfunded existing benefit increase liability is amortized over 18 years beginning with the plan year for which the base is established.

RPA ’94 amended § 412(l), effective for plan years beginning after December 31, 1994, to further specify the actuarial assumptions used to determine current liability for purposes of § 412(l). Section 412(l)(9)(A), added by RPA ’94, provides that § 412(l) does not apply to plans with a funded current liability percentage of at least 90 percent. Section 412(l)(9)(B) provides a volatility rule under which § 412(l) also does not apply (for up to a two-year period) to certain plans with funded current liability percentages of at least 80 percent.

Under RPA ’94, the amortization base for the additional unfunded old liability described in § 412(l)(3)(D) is established, if appropriate, for the 1995 plan year. Section 412(l)(3)(E) provides an optional alternative calculation for the additional unfunded old liability. The additional unfunded old liability is amortized over 12 years, beginning with the 1995 plan year.

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Under RPA ’94, the amortization base for the unfunded mortality increase described in § 412(l)(10)(B) (the increase in current liability resulting from changes in the mortality table used to determine current liability after 1999) is established, if appropriate, in the first plan year a new mortality table issued under § 412(l)(7)(C)(ii)(II) or (III) is used for the plan. This unfunded mortality increase is amortized over a period of 10 years beginning with the plan year in which the base is established.

Any plan year described above for which an amortization base is established, if appropriate, for purposes of § 412(l) is referred to in this revenue ruling as a ‘‘DRC base year.’’

QUESTIONS AND ANSWERS ON THE ESTABLISHMENT OF DRC AMORTIZATION BASES

Q-1. If § 412(l) applies to a plan for a plan year that is a DRC base year, must the appropriate DRC amortization base be established for that plan year?

A-1. If § 412(l) applies to a plan for a plan year that is a DRC base year, the appropriate DRC amortization base must be established for that year. Thus, for example, if § 412(l) applies to a plan for the 1995 plan year, the increase in current liability resulting from the required change in actuarial assumptions must be included in the additional unfunded old liability as provided under §§ 412(l)(3)(D) or 412(l)(3)(E) and may not be included in unfunded new liability.

Q-2. If § 412(l) does not apply to a plan for a plan year that is a DRC base year, are any DRC amortization bases established for that year to prepare for the contingency that § 412(l) may apply to the plan in a future plan year?

A-2. If § 412(l) does not apply to a plan for a plan year that is a DRC base year, then except as provided under Q&A-3, no DRC amortization base is established to prepare for the contingency that § 412(l) may apply to the plan in a future plan year. For example, if for the plan year beginning in 1989, a plan had no unfunded current liability, was a multiemployer plan, or had 100 or fewer participants within the meaning of § 412(l)(6), no amortization base for unfunded old liability is

established. Similarly, if for the plan year beginning in 1995, a plan had a funded current liability percentage (determined under § 412(l)(9)(C)) of 90 percent or greater, was a multiemployer plan, or had 100 or fewer participants within the meaning of § 412(l)(6), no amortization base for additional unfunded old liability is established.

Q-3. In the case of a plan year that is a DRC base year, if § 412(l) does not apply to a plan for that plan year solely by reason of the application of the exception provided under § 412(l)(9)(B) (taking into account the special rules of § 412(l)(9)(D)), are any DRC amortization bases established for that plan year to prepare for the contingency that § 412(l) may apply to the plan in a future plan year?

A-3. In the case of a plan year that is a DRC base year, if § 412(l) does not apply to a plan for that plan year solely by reason of the application of the exception provided under § 412(l)(9)(B) (taking into account the special rules in § 412(l)(9)(D)), the appropriate DRC amortization base is established for that plan year. Thus, for example, if § 412(l) does not apply to a plan with a funded current liability percentage (determined under § 412(l)(9)(C)) that is at least 80 percent but that is less than 90 percent for the plan year beginning in 1995, solely because of the exception under § 412(l)(9)(B) (taking into account the special rules under § 412(l)(9)(D)), an additional unfunded old liability base is established for that plan year. In such a case, if the optional rule under § 412(l)(3)(E) is to be used to determine the additional unfunded old liability, an employer must make an election which is reported on a timely filed 1995 Form 5500.

Q-4. If § 412(l) does not apply to a plan for a plan year (other than by reason of § 412(l)(9)(B) and (D)) that is a DRC base year (and, thus, no amortization base is established for that plan year in accordance with Q&A-2), is the DRC amortization base that would otherwise have been established if § 412(l) had applied to the plan for that plan year established in any subsequent year?

A-4. If § 412(l) does not apply to a plan for a plan year (other than by reason of § 412(l)(9)(B) and (D)) that is a DRC base year (and, thus, no amortization base is established for that plan year in accordance with Q&A-2),

the DRC amortization base that otherwise would have been established if § 412(l) had applied to the plan for that plan year is not established or recreated in any subsequent year. Thus, for example, if a plan’s funded current liability percentage (determined under § 412(l)(9)(C)) is at least 90 percent for the 1995 plan year (and, thus, § 412(l) does not apply to the plan for the 1995 plan year), and if § 412(l) applies to the plan for the 1996 plan year, then for the 1996 plan year all of the plan’s unfunded current liability will be unfunded new liability (with the possible exception of the liability with respect to any unpredictable contingent event benefits resulting from an unpredictable contingent event that occurs in 1996).

QUESTIONS AND ANSWERS ON THE MAINTENANCE OF DRC AMORTIZATION BASES

Q-5. How is the unamortized portion of a DRC amortization base determined?

A-5. For the plan year for which a DRC amortization base is established, the unamortized portion of that base is the amount of the liability that gives rise to the base, as determined under § 412(l)(3) or (10), as applicable. For any subsequent plan year, the unamortized portion of a DRC amortization base is determined by reducing the unamortized portion as of the valuation date for the prior plan year by the amortization amount for the prior plan year, and adjusting the result with interest to the valuation date in the current plan year at the appropriate current liability interest rate.

Q-6. How is the annual amortization amount for a DRC amortization base determined?

A-6. The annual amortization amount for a DRC amortization base is determined by amortizing the unamortized portion of the DRC amortization base over the remainder of the statutory amortization period using the appropriate current liability interest rate for the plan year. These annual amortization amounts are included in the calculation of the deficit reduction contribution under § 412(l)(2), until the DRC amortization base is fully amortized or considered to be fully amortized.

Q-7. When is a DRC amortization base considered to be fully amortized prior to the end of the scheduled amortization period?

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A-7. Except as otherwise provided in this Q&A-7, a DRC amortization base that was established in a prior DRC base year is considered to be fully amortized for the first plan year for which § 412(l) does not apply to the plan. However, if § 412(l) does not apply to the plan for a plan year solely by reason of the exception provided under § 412(l)(9)(B) (taking into acc o u n t t h e s p e c i a l r u l e s i n § 412(l)(9)(D)), then any DRC amortization bases are not considered to be fully amortized for that plan year, but are maintained in accordance with Q&A-5 above. For example, under the provisions of § 412(l) as in effect prior to amendment by RPA ’94, any DRC amortization base is considered to be fully amortized in the first plan year after establishment of such base for which (1) the plan’s funded current liability percentage (determined under § 412(l)(8)(B)) is 100 percent or greater, (2) the plan is reestablished as a multiemployer plan, or (3) the plan has 100 or fewer participants within the meaning of § 412(l)(6). Similarly, under the provisions of § 412(l) as in effect after amendment by RPA ’94, any DRC amortization base (whether or not created prior to the effective date of RPA ’94) is considered to be fully amortized for the first plan year after establishment of such base for which (1) the plan’s funded current liability percentage (determined under § 412(l)(9)(C)) is 90 percent or greater, (2) the plan is reestablished as a multiemployer plan, or (3) the plan has 100 or fewer participants within the meaning of § 412(l)(6).

DRAFTING INFORMATION

The principal author of this revenue ruling is Martin L. Pippins of the Employee Plans Division. For further information regarding this revenue ruling, please contact the Employee Plans Division’s taxpayer assistance telephone service between 2:30 p.m. and 4:00 p.m. Eastern Time, Monday through Thursday on (202) 622-6076 (Actuarial Hotline) (not a toll-free telephone number). Mr. Pippins’ telephone number is (202) 622-6261 (also not a toll-free number).

A-3. For an ‘‘eligible plan,’’ an election under § 412(l)(11) may be made for any plan year beginning after December 31, 1994, and before January 1, 2002, regardless of whether an election under § 412(l)(11) has been made for any prior plan year. An election made under § 412(l)(11) for a plan year is irrevocable for that plan year.

Q-4. Who makes the election under § 412(l)(11), and must the election be reported?

A-4. Any election under § 412(l)(11) is made by the employer maintaining the plan. An election under § 412(l)(11) for a plan year is effective only if the first Form 5500 filed for the plan year reports that the election has been made for the plan year, and the Form 5500 is filed not later than the due date, including extensions.

QUESTIONS AND ANSWERS ON THE CALCULATIONS UNDER § 412(l)(11)

Q-5. For purposes of applying § 412(l)(11) to a plan year, how is the additional amount necessary to increase the funded current liability percentage of the plan to the ‘‘target percentage’’ determined for that plan year?

A-5. For purposes of applying § 412(l)(11) to a plan year, the additional amount (the ‘‘target amount’’) necessary to increase the funded current liability percentage of a plan to the ‘‘target percentage’’ for that plan year is the excess, if any, of the product of the ‘‘target percentage’’ and the ‘‘adjusted current liability’’ of the plan, over the ‘‘adjusted assets’’ of the plan.

Q-6. How is the ‘‘target percentage’’ determined for purposes of computing the ‘‘target amount’’ for a plan year?

A-6. For purposes of computing the ‘‘target amount’’ for a plan year, the ‘‘target percentage’’ for the plan year is the plan’s initial funded current liability percentage, plus the applicable number of percentage points computed under § 412(l)(11)(B) for the plan year.

The plan’s initial funded current liability percentage is the funded current liability percentage of the plan for the plan year beginning in 1995. This percentage is calculated as of the valuation date for that plan year, and is equal to the actuarial value of assets divided by the current liability of the plan computed under § 412(l)(7). For purposes of computing the initial

(Also see, § 7805; 26 CFR 301.7805–1.)

Phase-in of increases in funding. Questions and answers pertaining to the election to phase in increases in additional funding requirements for certain plans under section 412(l)(11) of the Internal Revenue Code as amended by the Uruguay Round Amendments Act, which includes the Retirement Protection Act of 1994, are set forth.

Rev. Rul. 96–21

PURPOSE

This revenue ruling provides questions and answers relating to the transition rule of § 412(l)(11) of the Internal Revenue Code, as amended by the Retirement Protection Act of 1994 (RPA ’94), which is part of the Uruguay Round Agreements Act, Pub. L. 103–465 (GATT).

BACKGROUND

Section 412 of the Code imposes minimum funding requirements with respect to defined benefit and money purchase pension plans. Section 412(l) sets forth additional funding requirements for certain underfunded defined benefit pension plans that have more than 100 participants and that are not multiemployer plans. The additional funding requirements are in the form of an additional funding charge under § 412(l)(1) and are generally based on a plan’s unfunded current liability, as defined in § 412(l)(8).

RPA ’94 amended § 412(l) to modify the additional funding charge in order to produce faster funding of a plan’s unfunded current liability. The amendments increased the unfunded new liability amount, changed the way in which the additional charge was integrated with the charges and credits under § 412(b), and further specified the actuarial assumptions used to determine current liability for purposes of § 412(l). RPA ’94 also provided certain transition rules to be used in determining the amount of the additional funding charge.

Section 412(l)(11) of the Code provides a temporary transition rule that allows employers to phase in increases in the additional funding charge due to changes made by RPA ’94. This transition rule applies for plan years beginning after December

31, 1994, and before January 1, 2002. Section 412(l)(11) provides that, at the election of the employer, the additional funding charge computed for a plan year under § 412(l)(1) shall not exceed the greater of (1) the additional funding charge for the plan year that would have been required under § 412(l)(1), as in effect prior to amendment by RPA ’94, or (2) the amount that, after taking into account charges (other than the additional funding charge) and credits under § 412(b), is necessary to increase the funded current liability percentage of the plan for the plan year to the sum of the initial funded current liability percentage and the applicable number of percentage points determined under § 412(l)(11)(B).

QUESTIONS AND ANSWERS ON THE ELECTION UNDER § 412(l)(11)

Q-1. What is the election under § 412(l)(11)?

A-1. Under § 412(l)(11), an election may be made to limit the additional funding charge under § 412(l)(1) for a plan year. If the transition rule under § 412(l)(11) is elected for a plan year, the additional funding charge under § 412(l)(1) for the plan year is equal to the lesser of (1) the additional funding charge for the plan year determined without regard to § 412(l)(11), or (2) the greater of (A) the additional funding charge that would have been required for the plan year under § 412(l)(1) as in effect prior to amendment by RPA ’94, and (B) the additional amount necessary to increase the funded current liability percentage of the plan to the ‘‘target percentage’’ (as defined in Q&A-6) for that plan year.

Q-2. For what plans may the election under § 412(l)(11) be made?

A-2. An election under § 412(l)(11) may be made for any ‘‘eligible plan.’’ For this purpose, an ‘‘eligible plan’’ is any plan to which § 412(l) applies for the plan year beginning in 1995, or any plan to which § 412(l) does not apply for the plan year beginning in 1995 solely by reason of the exception provided under § 412(l)(9)(B) (taking into account the special rules of § 412(l)(9)(D)). The election under § 412(l)(11) may not be made for a plan that is not an ‘‘eligible plan.’’

Q-3. For what plan years may an election under § 412(l)(11) be made for an ‘‘eligible plan?’’

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funded current liability percentage, the actuarial value of assets is reduced by any credit balance in the plan’s funding standard account as of the end of the prior plan year, adjusted with interest to the valuation date (using the valuation interest rate). Also, for this purpose, the current liability does not include the expected increase in current liability due to benefits accruing during the plan year beginning in 1995.

Q-7. How is the ‘‘adjusted current liability’’ determined for purposes of computing the ‘‘target amount’’ for a plan year?

A-7. For purposes of computing the ‘‘target amount’’ for a plan year, the adjusted current liability is equal to the excess of (1) the current liability of the plan for the plan year, including the expected increase in current liability due to benefits accruing during the plan year, computed under § 412(l)(7), over (2) the expected release from current liability on account of disbursements (including single sum distributions) from the plan expected to be paid after the valuation date but prior to the end of the plan year. The components of this calculation are determined as of the valuation date, and each is appropriately adjusted with interest to the end of the plan year using the interest rate used to determine current liability under § 412(l)(7).

Q-8. How are the ‘‘adjusted assets’’ determined for purposes of computing the ‘‘target amount’’ for a plan year?

A-8. For purposes of computing the ‘‘target amount’’ for a plan year, the ‘‘adjusted assets’’ are equal to the actuarial value of assets for the plan year adjusted by (1) subtracting any credit balance (or adding any debit balance) in the plan’s funding standard account as of the end of the prior plan year, adjusted with interest to the valuation date at the valuation interest rate, (2) subtracting the disbursements from the plan (including single sum distributions) expected to be paid after the valuation date but prior to the end of the plan year, (3) adding the charges to the funding standard account as maintained under § 412(b) for the plan year (other than the additional funding charge under § 412(l)), and (4) subtracting the credits to the funding standard account as maintained under § 412(b) for the plan year (other than credits under §§ 412(b)(3)(A) and 412(b)(3)(C)). The actuarial value of assets and the adjustments described

above are determined as of the valuation date, and each is appropriately adjusted with interest to the end of the plan year at the valuation interest rate. The result of this calculation may be a negative number, which would increase the ‘‘target amount’’.

Q-9. How is the additional funding charge that would have been required under § 412(l)(1), as in effect prior to amendment by RPA ’94, determined?

A-9. The determination of the additional funding charge that would have been required under § 412(l)(1), as in effect prior to amendment by RPA ’94, is the same as the determination of the additional funding charge required under 412(l)(1), as amended by RPA ’94, with the following exceptions:

(1) If the current liability under § 412(l), as amended by RPA ’94, is determined using an interest rate that is the highest rate in the permissible range under § 412(l)(7)(C), the current liability under § 412(l) as in effect prior to amendment by RPA ’94 is determined using the interest rate used for purposes of § 412(c)(7)(A). In such a case, the latter interest rate must be the interest rate under § 412(l)(7)(C) or any higher rate permitted under § 412(b)(5)(B). On the other hand, if the current liability under § 412(l), as amended by RPA ’94, is determined using an interest rate that is less than the highest interest rate in the permissible range under § 412(l)(7)(C), the current liability under § 412(l) as in effect prior to amendment by RPA ’94 (and the current liability for purposes of the full funding limitation under § 412(c)(7)(A)) is determined using the same interest rate used to determine current liability under § 412(l), as amended by RPA ’94.

(2) The mortality table used to determine current liability is the mortality table used to determine costs and liabilities under the plan in accordance with § 412(c)(3).

(3) In determining the additional funding charge, the deficit reduction contribution is offset under § 412(l)(1)(A)(ii) solely by amortization charges under § 412(b)(2)(B) (other than clauses (iv) and (v) thereof) and § 412(b)(2)(C) and (D), reduced by t h e s u m - f c r e d i t s u n d e r § 412(b)(3)(B)(i).

(4) The amount of the additional funding charge is limited to the unfunded current liability, rather than the amount that, after taking into account

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charges (other than the additional funding charge) and credits under § 412(b), is necessary to increase the funded current liability percentage (taking into account the expected increase in current liability due to benefits accruing during the plan year) of the plan to 100 percent.

(5) The deficit reduction contribution under § 412(l)(2) does not include the expected increase in current liability due to benefits accruing during the plan year and the aggregate of the unfunded mortality increase amounts.

(6) The unfunded old liability amount under § 412(l)(3) is determined without including any amortization of additional unfunded old liability under § 412(l)(3)(D) or (E).

(7) The applicable percentage under § 412(l)(4)(C) for computing the unfunded new liability amount is equal to 30 percent reduced by the product of .25 multiplied by the number of percentage points by which the funded current liability percentage exceeds 35 percent.

(8) The unfunded new liability under § 412(l)(4)(B) is determined by subtracting from the unfunded current liability of the plan the unamortized portion of the unfunded old liability, the unamortized portion of the unfunded existing benefit increase liability, and the liability with respect to any unpredictable contingent event benefits (without regard to whether the event has occurred).

(9) In determining the deficit reduction contribution, any unfunded old liability base or unfunded existing benefit increase liability base continues to be amortized for the duration of the original amortization period, or until an earlier time determined under Q&A-7 of Rev. Rul. 96–20 (as those rules would be applied under § 412(l) as in effect prior to amendment by RPA ’94).

(10) The unpredictable contingent event amount under § 412(l)(5) is determined without regard to § 412(l)(5)(A)(iii) and § 412(l)(5)(E).

(11) Sections 412(l)(9) and 412(l)(11), as added by RPA ’94, are not taken into account. In addition, for purposes of computing the additional funding charge that would have been required under § 412(l)(1), as in effect prior to RPA ’94, the credit balance used should be the actual credit balance of the plan for the plan year.

Q-10. How is the target amount computed given the following fact pattern?

General facts:

The employer elects the transition rule under § 412(l)(11) for the 1995 plan year. The plan year is the calendar year, and the valuation date is January 1, 1995. The valuation interest rate is 8.5 percent and the § 412(l)(7)(C) interest rate is 7.93 percent.

The valuation results are as follows:

ing, please contact the Employee Plans Division’s taxpayer assistance telephone service between 2:30 p.m. and 4:00 p.m. Eastern Time, Monday through Thursday on (202) 622-6076 (Actuarial Hotline) (not a toll-free telephone number). Mr. Pippins’ telephone number is (202) 622-6261 (also not a toll-free number).

§ 472.—Last-in, First-out Inventories

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

LIFO; price indexes; department stores. The February 1996 Bureau of Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and lastin, first-out inventory methods for valuing inventories for tax years ended on, or with reference to, February 29, 1996.

Rev. Rul. 96–22

The following Department Store Inventory Price Indexes for February 1996 were issued by the Bureau of Labor Statistics on March 15, 1996. The indexes are accepted by the Internal Revenue Service, under § 1.472–1(k) of the Income Tax Regulations and Rev. Proc. 86–46, 1986–2 C.B. 739, for appropriate application to inventories of department stores employing the retail inventory and lastin, first-out inventory methods for tax years ended on, or with reference to, February 29, 1996.

A-10. The ‘‘target amount’’ is the excess, if any, of the product of the ‘‘target percentage’’ and the ‘‘adjusted current liability’’, over the ‘‘adjusted assets’’.

The ‘‘target percentage’’ for the plan is the plan’s ‘‘initial funded current liability percentage’’ plus the applicable number of percentage points under § 412(l)(11)(B). The plan’s ‘‘initial funded current liability percentage’’ is equal to the actuarial value of assets (reduced by the prior year credit balance), divided by the plan’s current liability as of the valuation date. Thus, the plan’s ‘‘initial funded current liability percentage’’ is 70 percent ($720,000 minus $20,000, divided by $1,000,000), and the ‘‘target percentage’’ is 73 percent (70 percent plus 3 percent, the applicable number of percentage points under § 412(l)(11)(B)).

The ‘‘adjusted current liability’’ of the plan is equal to the excess of $1,070,000 (the sum of $1,000,000 and $70,000) over $40,000, each adjusted with interest to the end of the plan year at the § 412(l)(7)(C) interest rate. The $1,070,000 is adjusted with a full year’s interest ($1,070,000 times 1.0793, or $1,154,851) and the $40,000 is adjusted with a full year’s interest at the same rate ($40,000 times 1.0793, or $43,172). The resulting ‘‘adjusted current liability’’ is $1,111,679 ($1,154,851 minus $43,172).

The ‘‘adjusted assets’’ of the plan are equal to $720,000 minus $20,000, minus $50,000, plus $100,000, minus

$75,000, each adjusted with interest from the appropriate date to the end of the plan year at the valuation interest rate. The $720,000 and $20,000 as adjusted with a full year’s interest at the valuation interest rate equals $759,500 ($720,000 minus $20,000, times 1.085). The $50,000 receives no interest adjustment, as benefit payments are expected to be paid at the end of the year. The charges and credits already are calculated with interest to the end of the year. The resulting ‘‘adjusted assets’’ is $734,500 ($759,500, minus $50,000, plus $100,000, minus $75,000).

The ‘‘target amount’’ is equal to the excess of the product of 73 percent (the ‘‘target percentage’’) and $1,111,679 (the ‘‘adjusted current liability’’), over $734,500 (the ‘‘adjusted assets’’), or $77,026.

APPLICATION OF § 7805(b)

Pursuant to § 7805(b), this revenue ruling shall not be applied for purposes of determining the amount of any required installment under § 412(m)(4), if the due date for that required installment is on or before April 15, 1996.

DRAFTING INFORMATION

The principal author of this revenue ruling is Martin L. Pippins of the Employee Plans Division. For further information regarding this revenue rul

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The Department Store Inventory Price Indexes are prepared on a national basis and include (a) 23 major groups of departments, (b) three special

combinations of the major groups — soft goods, durable goods, and miscellaneous goods, and (c) a store total, which covers all departments, including

some not listed separately, except for the following: candy, foods, liquor, tobacco, and contract departments.

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(February 1941 = 100, unless otherwise noted)

Percent Change from

Groups Feb. 1995 Feb. 1996

Feb. 1995 to Feb.

1996 ¹

1. Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480.0 505.1 5.2
2. Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . . 645.9 651.2 0.8
3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . 633.8 644.5 1.7
4. Men’s Shoes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 925.5 895.1 –3.3
5. Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 617.3 645.3 4.5
6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 518.2 522.3 0.8
7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283.0 289.3 2.2
8. Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . 542.0 552.3 1.9
9. Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . 413.0 402.0 –2.7
10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602.4 619.5 2.8
11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 560.5 570.8 1.8
12. Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . 488.9 476.6 –2.5
13. Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 995.5 1003.4 0.8
14. Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750.7 813.7 8.4
15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . 839.3 871.0 3.8
16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . 654.9 666.9 1.8
17. Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 579.6 563.4 –2.8
18. Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 771.1 799.7 3.7
19. Major Appliances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246.4 249.2 1.1
20. Radio and Television . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85.6 79.0 –7.7
21. Recreation and Education ² . . . . . . . . . . . . . . . . . . . . . . . . 114.7 113.6 –1.0
22. Home Improvements ² . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121.3 123.1 1.5
23. Auto Accessories ² . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107.0 107.3 0.3

Groups 1—15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . 586.4 590.0 0.6

Groups 16—20: Durable Goods. . . . . . . . . . . . . . . . . . . . . . . 465.1 467.3 0.5

Groups 21—23: Misc. Goods ² . . . . . . . . . . . . . . . . . . . . . . . . 114.3 113.8 –0.4

Store Total ³ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 545.8 548.3 0.5

1Absence of a minus sign before percentage change in this column signifies 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, foods, liquor, tobacco, and contract departments.

DRAFTING INFORMATION

The principal author of this revenue ruling is Stan Michaels of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Mr. Michaels on (202)

622-4970 (not a toll-free call).

Section 2032A.—Valuation of Certain Farm, Etc., Real Property

26 CFR 20.2032A–4: Method of valuing farm real property.

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Special use value; farms; interest rates. The 1996 interest rates to be used in computing the special use value of farm real property for which an election is made under section 2032A of the Code are listed for estates of decedents.

rate. The rates applicable for valuation in 1995 are in Rev. Rul. 95–38, 1995–1 C.B. 184. For rate information for years prior to 1995, see Rev. Rul. 94– 33, 1994–1 C.B. 235, and other revenue rulings that are cited therein.

DRAFTING INFORMATION

The principal author of this revenue ruling is Lane Damazo of the Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact Lane Damazo on (202) 622-3090 (not a toll-free call).

Interest

Rate

Rev. Rul. 96–23

This revenue ruling contains a list of the average annual effective interest rates on new loans under the Farm Credit Bank system. This revenue ruling also contains a list of the states within each Farm Credit Bank District.

Under § 2032A(e)(7)(A)(ii) of the Internal Revenue Code, rates on new Farm Credit Bank loans are used in computing the special use value of real property used as a farm for which an election is made under § 2032A. The rates in this revenue ruling may be used by estates that value farmland

under § 2032A as of a date in 1996.

Average annual effective interest rates, calculated in accordance with § 2032A(e)(7)(A) and § 20.2032A–4(e) of the Estate Tax Regulations, to be used under § 2032A(e)(7)(A)(ii), are set forth in the accompanying Table of Interest Rates (Table 1). The states within each Farm Credit Bank District are set forth in the accompanying Table of Farm Credit Bank Districts (Table 2). Rev. Rul. 81–170, 1981–1 C.B. 454, contains an illustrative computation of an average annual effective interest

REV. RUL. 96–23 TABLE 1

TABLE OF INTEREST RATES

(Year of Valuation 1996)

Farm Credit Bank District in Which Property Is Located

Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.98 Omaha . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.38 Sacramento . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.28 St. Paul . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.73 Spokane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.48 Springfield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.59 Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.86 Wichita. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.44

REV. RUL. 96–23 TABLE 2

TABLE OF FARM CREDIT BANK DISTRICTS

District States

Columbia . . . . . . . . . . . . . . . . . . . . Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina, Pennsylvania, South Carolina, Virginia, West Virginia. Omaha . . . . . . . . . . . . . . . . . . . . . . Iowa, Nebraska, South Dakota, Wyoming. Sacramento . . . . . . . . . . . . . . . . . . Arizona, California, Hawaii, Nevada, Utah. St. Paul . . . . . . . . . . . . . . . . . . . . . Arkansas, Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, North Dakota, Ohio, Tennessee, Wisconsin. Spokane . . . . . . . . . . . . . . . . . . . . . Alaska, Idaho, Montana, Oregon, Washington. Springfield . . . . . . . . . . . . . . . . . . . Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont. Texas . . . . . . . . . . . . . . . . . . . . . . . Alabama, Louisiana, Mississippi, Texas. Wichita . . . . . . . . . . . . . . . . . . . . . . Colorado, Kansas, New Mexico, Oklahoma.

Sec. 7805.—Rules And Regulations

26 CFR 301.7805–1: Rules and regulations.

Whether § 7805 of the Code will be applied for purposes of determining the amount of any

required installment under § 412(m)(4) that is due on or before April 15, 1996. See Rev. Rul. 96–21, page 7.

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