Part IV. Items — Internal Revenue Bulletin 1997-4

method for all its employees, but the employer may change methods from one year to the next.

In addition to comments on the relevant period for applying the locationof-services requirement, Treasury and IRS request comments on other issues relating to the empowerment zone employment credit with respect to which guidance may be helpful to employers. In particular, comments are requested on whether the final regulations should include guidance on (1) the meaning of ‘‘substantially all’’ in the location-ofservices requirement, or (2) a provision authorizing employers to rely on employee certifications to demonstrate compliance with the requirement that a qualified zone employee’s principal place of abode be in an empowerment zone. In this regard, commentators may wish to consider analogous provisions in the final regulations under § 1.1394–1 on enterprise zone facility bonds (T.D. 8673, 61 FR 27258, May 31, 1996). Some taxpayers and their representatives have asked whether there is any requirement that an employee’s status as a qualified zone employee be certified by a third party in a fashion similar to the eligibility certifications required under the targeted jobs tax credit (prior to its expiration on December 31, 1994). There is no such requirement.

Proposed Effective Date

These proposed regulations are proposed to be effective December 21, 1994, the date on which the nine empowerment zones authorized by OBRA’93 were designated by the Secretaries of Housing and Urban Development and Agriculture.

Special Analyses

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in EO 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulation does not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy

Notice of Proposed Rulemaking and Notice of Public Hearing

Empowerment Zone Employment Credit

REG–209834–96

AGENCY: Internal Revenue Service (IRS), Treasury

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This document contains proposed regulations relating to the period employers may use in computing the empowerment zone employment credit under section 1396 of the Internal Revenue Code. These proposed regulations reflect and implement certain changes made by the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93). They affect employers of employees who live and work in an empowerment zone designated under the statute. These proposed regulations provide employers with the guidance necessary to claim the credit. This document also provides a notice of public hearing on these proposed regulations.

DATES: Written comments are due on March 17, 1997. Outlines of oral comments to be presented at the public hearing scheduled for 10:00 a.m. on Wednesday, May 7, 1997, must be received by Wednesday, April 16, 1997.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG–209834–96), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, D.C. 20044. Submissions may be hand delivered between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG–209834–96), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC. Alternatively, taxpayers may submit comments electronically via the Internet by selecting the ‘‘Tax Regs’’ option on the IRS Home Page, or by submitting comments directly to the IRS Internet site at http://www.irs.ustreas.gov/prod/ tax_regs/comments.html. The public hearing will be held in room 2615, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Robert G. Wheeler, (202) 622– 6060; concerning submissions and the

hearing, Michael Slaughter, (202) 622– 7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) relating to the empowerment zone employment credit under section 1396. Sections 1391 through 1397D (relating to empowerment zones and enterprise communities) were added to the Internal Revenue Code by the Omnibus Budget Reconciliation Act of 1993 (OBRA’93). Section 1397D of the Code authorizes the Secretary of the Treasury to prescribe regulations that may be necessary or appropriate to carry out the purposes of section 1394 through 1397C. The amount of the empowerment zone employment credit under section 1396 is equal to a specified percentage of qualified zone wages, which are certain wages paid or incurred by an employer for services performed by a qualified zone employee. Questions have arisen about the definition of a ‘‘qualified zone employee’’ in section 1396(d). In particular, questions have been raised about the appropriate period under section 1396(d)(1)(A) during which substantially all of the services performed by an employee for his or her employer must be performed within an empowerment zone in a trade or business of the employer.

In Notice 96–1, 1996–3 I.R.B. 30, the IRS announced its intention to publish a notice of proposed rulemaking that would clarify the relevant period for this purpose. Notice 96–1 described a rule under which employers would have a choice about what period to use, and invited comments on this and any other related issues for which guidance would be helpful to employers. No comments were received. These proposed regulations set forth the rule described in Notice 96–1.

Explanation of Provisions

Under the proposed regulations, an employer may use either each pay period or the entire calendar year as the relevant period in determining whether a particular employee performed substantially all of his or her services within an empowerment zone (the ‘‘location-ofservices’’ requirement). For each taxable year the employer must use the same

9 1997–4 I.R.B.

of the Small Business Administration for comment on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (preferably a signed original and eight (8) copies) that are timely submitted to the IRS. All comments will be available for public inspection and copying.

A public hearing has been scheduled for Wednesday, May 7, 1997 in room 2615, Internal Revenue Building, 1111 Constitution Avenue NW, Washington, DC. Because of access restrictions, visitors will not be admitted beyond the building lobby more than 15 minutes before the hearing starts.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons that wish to present oral comments at the hearing must submit written comments and an outline of topics to be discussed and the time to be devoted to each topic (signed original and eight (8) copies by Wednesday, April 16, 1997).

A period of 10 minutes will be allotted to each person for making comments.

An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing.

Drafting Information

The principal author of these regulations is Robert G. Wheeler, Office of Associate Chief Counsel, Employee Benefits and Exempt Organizations. However, other personnel from the IRS and Treasury Department participated in their development.

- - - -

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1 - INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding an entry in numerical order to read as follows:

Authority: 26 U.S.C. 7805 - - Section 1.1396–1 also issued under 26 U.S.C. 1397D.

Par. 2. A new undesignated center heading and § 1.1396–1 are added to read as follows:

Empowerment Zone Employment Credit

§ 1.1396–1 Qualified zone employees.

(a) In general. A qualified zone employee of an employer is an employee who satisfies the location-of-services requirement and the abode requirement with respect to the same empowerment zone and is not otherwise excluded by section 1396(d).

(1) Location-of-services requirement. The location-of- services requirement is satisfied if substantially all of the services performed by the employee for the employer are performed in the empowerment zone in a trade or business of the employer.

(2) Abode requirement. The abode requirement is satisfied if the employee’s principal place of abode while performing those services is in the empowerment zone.

(b) Period for applying location-of- services requirement. In applying the location-of-services requirement, an employer may use either the pay period method described in paragraph (b)(1) of this section or the calendar year method described in paragraph (b)(2) of this section. For each taxable year of an employer, the employer must either use the pay period method with respect to all of its employees or use the calendar year method with respect to all of its employees. The employer may change the method applied to all of its employees from one taxable year to the next.

(1) Pay period method —(i) Relevant period. Under the pay period method, the relevant period for applying the location- of-services requirement is each pay period in which an employee provides services to the employer. If an employer has one pay period for certain employees and a different pay period for other employees ( e.g., a weekly pay period for hourly wage employees and a bi-weekly pay period for salaried employees), the pay period actually applicable to a particular employee is the relevant pay period for that employee under this method.

(ii) Application of method. Under this method, an employee does not satisfy the location-of-services requirement during a pay period unless substantially all of the services performed by the employee for the employer during that pay period are performed within the empowerment zone in a trade or business of the employer.

(2) Calendar year method —(i) Rel- evant period. Under the calendar year

method, the relevant period for an employee is the entire calendar year with respect to which the credit is being claimed. However, for any employee who is employed by the employer for less than the entire calendar year, the relevant period is the portion of that calendar year during which the employee is employed by the employer.

(ii) Application of method. Under this method, an employee does not satisfy the location-of-services requirement during any part of a calendar year unless substantially all of the services performed by the employee for the employer during that calendar year (or, if the employee is employed by the employer for less than the entire calendar year, the portion of that calendar year during which the employee is employed by the employer) are performed within the empowerment zone in a trade or business of the employer.

(3) Examples. This paragraph (b) may be illustrated by the following examples. In each example, the employees satisfy the abode requirement at all relevant times and all services performed by the employees for their employer are performed in a trade or business of the employer. The employees are not precluded from being qualified zone employees by section 1396(d)(2) (certain employees ineligible). No portion of the employees’ wages is precluded from being qualified zone wages by section 1396(c)(2) (only first $15,000 of wages taken into account) or section 1396(c)(3) (coordination with targeted jobs credit and work opportunity credit). The examples are as follows:

Example 1. (i) Employer X has a weekly pay period for all its employees. Employee A works for X throughout 1997. During each of the first 20 weekly pay periods in 1997, substantially all of A’s work for X is performed within the empowerment zone in which A resides. A also works in the zone at various times during the rest of the year, but there is no other pay period in which substantially all of A’s work for X is performed within the empowerment zone.

(ii) Employer X uses the pay period method. For each of the first 20 pay periods of 1997, A is a qualified zone employee, all of A’s wages from X are qualified zone wages, and X may claim the empowerment zone employment credit with respect to those wages. X cannot claim the credit with respect to any of A’s wages for the rest of 1997. Example 2. (i) Employer Y has a weekly pay period for its factory workers and a bi-weekly pay period for its office workers. Employee B works for Y in various factories and Employee C works for Y in various offices.

(ii) Employer Y uses the pay period method. Y must use B’s weekly pay periods to determine the periods (if any) in which B is a qualified zone employee. Y may claim the empowerment zone employment credit with respect to B’s wages only

1997–4 I.R.B. 10

Chesterfield, MO High Desert Nurse Education Council

Inc., Lancaster, CA High Risk Child Foundation, Golden,

CO High Voltage Transient Research

for the weekly pay periods for which B is a qualified zone employee, because those are B’s only wages that are qualified zone wages. Y must use C’s bi-weekly pay periods to determine the periods (if any) in which C is a qualified zone employee. Y may claim the credit with respect to C’s wages only for the bi-weekly pay periods for which C is a qualified zone employee, because those are C’s only wages that are qualified zone wages.

Example 3. (i) Employees D and E work for Employer Z throughout 1997. Although some of D’s work for Z in 1997 is performed outside the empowerment zone in which D resides, substantially all of it is performed within the empowerment zone. E’s work for Z is performed within the empowerment zone in which E resides for several weeks of 1997 but outside the zone for the rest of the year so that, viewed on an annual basis, E’s work is not substantially all performed within the empowerment zone.

(ii) Employer Z uses the calendar year method. D is a qualified zone employee for the entire year, all of D’s 1997 wages from Z are qualified zone wages, and Z may claim the empowerment zone employment credit with respect to all of those wages, including the portion attributable to work outside the zone. Under the calendar year method, E is not a qualified zone employee for any part of 1997, none of E’s 1997 wages are qualified zone wages, and Z cannot claim any empowerment zone employment credit with respect to E’s wages for 1997. Z cannot use the calendar year method for D and the pay period method for E because Z must use the same method for all employees. For 1998, however, Z can switch to the pay period method for E if Z also switches to the pay period method for D and all Z’s other employees.

Margaret Milner Richardson, Commissioner of Internal Revenue.

(Filed by the Office of the Federal Register on December 13, 1996, 8:45 a.m., and published in the issue of the Federal Register for December 16, 1996, 61 F.R. 66000)

Foundations Status of Certain Organizations

Announcement 97–6

The following organizations have failed to establish or have been unable to maintain their status as public charities or as operating foundations. Accordingly, grantors and contributors may not, after this date, rely on previous rulings or designations in the Cumulative List of Organizations (Publication 78), or on the presumption arising from the filing of notices under section 508(b) of the Code. This listing does not indicate that the organizations have lost their status as organizations described in section 501(c)(3), eligible to receive deductible contributions.

Former Public Charities . The following organizations (which have been treated as organizations that are not private foundations described in section 509(a) of the Code) are now classified as private foundations: Action for Youth Christian Council

Council Inc., Ft. Mitchell, KY

Great Lakes Aquarium and Research

Center, Inc., Muskegon, MI Helping Hands Recycling Centers Inc.,

Incorporated, Greenville, GA Albemarle Fire Safety Committee,

Elizabeth City, NC All Races Coalition With Native

American People, Chapel Hill, NC Bellevue Schools Music Boosters,

Laboratory Inc., Lexington, KY Historical EastField Foundation, East

Nassau, NY Houston Social Service Coalition NE,

Houston, TX In Focus Productions Inc., Evanston, IL Jethro Institute for Biblical Leadership,

Bellevue, OH BHIA A New Jersey Non-Profit

Corporation, Bay Head, NJ Bone Cabin Quarry Inc., Orem, UT Center for Hearing Impaired Persons

Services, Downers Grove, IL Center for Science Technology & Media

Inc., Chevy Chase, MD Chevra Chesed Leysroel, Brooklyn, NY Childrens at Heart Inc., Bridgewater, VA Chinese Seniors Association of Houston,

Inc., Chester, MD Kansas City Science and Mathematics

Alliance, Kansas City, MO Kids Voting Tennessee Inc., Knoxville,

Snake Indians Development Inc., Chiloquin, OR Lawrence County Hunger Coalition Inc.,

TN Klamath-Modoc Yahooskin Band of

Inc., Houston, TX C Incorporated Support for Visions in

Action, Hopewell, NJ CNCA Foundation, Grand Island, NE Committee to Restore Pop Lloyd Field,

Lawrenceburg, TN Lexington School District Four

Education Fund, Swansea, SC Lonesome Pine Community Concert

Inc., Atlantic City, NJ Community United for Progress Inc.,

Southfield, MI Concerned Grandparents Organization,

Association, Big Stone Gap, VA Lukas Foss Cultural Centre Inc.,

Milwaukee, WI M E C C A Rights of Passage, Inc.,

Inc., Clearwater, FL Dade County Khoury League Inc.,

Naranja, FL Dexter Intergenerational Center Inc.,

Gary, IN Michigan CFIDS Organization,

Dexter, MI Eartheart Foundation Inc., Crozet, VA Epoch Industries Inc., Bronx, NY Family Learning Center Inc., Egg

Wyoming, MI Michigan Citizens for America’s

Underprivileged Blach Athletic Students Inc., Oklahoma City, OK Neighborhood Network Development

Corporation, Cincinnati, OH New Attitude Drill Team, Centerville,

Children, Ann Arbor, MI National Association for

Harbor Township, NJ Financial Women International of

Illinois Charitable FDTN, Des Plaines, IL Forest City Hospital Scholarship

Foundation Inc., Cleveland, OH Foundation for Quality Service Inc.,

Butte, MT Four Bishop Inc., Boston, MA Friends of the Burgdorff Cultural Center

OH New Hope Youth Homes Inc., Sarasota,

FL New Horizons Child Birth Incorporated,

Fletcher, OH Operation New World Ltd, New York,

NY Peoples View Enterprises, Minneapolis,

Inc., Maplewood, NJ Friends of VA Research, Inc.,

Manchester, NH Georgetown County Environmental

Protection Society, Pawley Island, SC Grand Strand Aviation Park Inc., Myrtle

MN Philipsburg Business Incubator Inc.,

Philipsburg, MT Phillipine Charities Foundation Inc.,

Miami, FL PMHCC Managed Care Corporation,

Beach, NC Grand Traverse-Mtskheta Association,

Traverse City, MI Grand Traverse Poseicon Swim Club,

Prospect, CT Rodney Howard-Browne Evangelistic

Traverse City, MI Greater Cincinnati Employee Benefit

Philadelphia, PA Ragged Mountain Foundation, Inc.,

Association, Inc., Tampa, FL

11 1997–4 I.R.B.

Ronceverte Food Pantry, Ronceverte,

WV Rossano Clinic, Flint, MI Second Chance for Racetrack Animals,

Athens, OH Senior Scholastic Invitional, Zanesville,

Wasmver Development Corp, Newark,

OH Shaar Zion, Brooklyn, NY Shelbyville Bedford Foster Care

Association, Shelbyville, IN Sign of Jonah Accupuncture Clinic, Inc.,

OH Wayne County Foster Parents Network,

West Salem, OH West Michigan Health Care Foundation,

Grand Rapids, MI Western Michigan Festival of Missions,

Grand Rapids, MI Whitely Productions Inc., Mentor, OH William McKay Chapman Living Center

Inc., Wakpala, SD Woodstock Academy, Inc., Woodstock,

Washington, DC Sisters Cities of Richmond, Indiana,

MD Young Fundamentalists Association,

Inc., Richmond, IN Skiles Test Baseball League, Inc.,

Indianapolis, IN Son Rise Ministries International

Inc., Cedar Lake, IN Youth Resource Center, Cleveland, OH

filed, contributions from individuals and organizations described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on January 27, 1997, and would end on the date the court first determines that the organization is not described in section 170(c)(2) as more particularly set forth in section 7428(c)(1). For individual contributors, the maximum deduction protected is $1,000, with a husband and wife treated as one contributor. This benefit is not extended to any individual who was responsible, in whole or in part, for the acts or omissions of the organization that were the basis for revocation. International University

Incorporated, Cleveland, OH Sophia Youth Wrestling, Beckley, WV Soul Survival Ministry Corporation,

Northfork, WV Southlake Sportsmens Club, Lowell, IN Southport Jaycees Foundation Inc.,

Southport, IN Southside Foundation Inc., Alberta, VA Southwest Michigan Underwater

Preserve Committee, Inc., South Haven, MI St. John Youth Baseball, Inc., St. John,

If an organization listed above submits information that warrants the renewal of its classification as a public charity or as a private operating foundation, the Internal Revenue Service will issue a ruling or determination letter with the revised classification as to foundation status. Grantors and contributors may thereafter rely upon such ruling or determination letter as provided in section 1.509(a)–7 of the Income Tax Regulations. It is not the practice of the Service to announce such revised classification of foundation status in the Internal Revenue Bulletin.

Independence, MO Owning the Realty, Inc.

Cincinnati, OH

IN Students Aiding Students Foundation,

McAlester, OK Supporting Single Parents to Save Our

Source of Income From Sales of Inventory and Natural Resources Produced in One Jurisdiction and Sold in Another Jurisdiction; Correction

Announcement 97–8

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correction to final and temporary regulations.

SUMMARY: This document contains corrections to final and temporary regulations (T.D. 8687 [1996–52 I.R.B. 4]), which were published in the Federal Register on Friday, November 29, 1996 (61 FR 60540) governing the source of income from sales of natural resources or other inventory produced in the United States and sold outside the United States or produced outside the United States and sold in the United States.

EFFECTIVE DATE: December 30, 1996.

FOR FURTHER INFORMATION CONTACT: Anne Shelburne (202) 622–3880, (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final regulations that are the subject of these corrections are under section 863 of the Internal Revenue Code.

Youth, Oak Park, MI Sutton Educational Foundation Inc.,

Sharon, MA Tacoma Lesbian Concern, Tacoma, WA Tague Hall, Inc., Columbus, OH Task Unit One Incorporated, Versailles,

IN Ted Nugent’s Kamp for Kids, Jackson,

MI Tittabawassee Township Historical,

Freeland, MI Toledo Olde Towne Community

Organization, Toledo, OH Tri-State Tres Dias, Inc., Evansville, IN Trotwood Circle Theater II, Clayton,

OH Trout Creek Mill Pond & Dam

Restoration Project, Trout Creek, MI University Students Against Cancer,

Deletions From Cumulative List of Organizations Contributions to Which Are Deductible Under Section 170 of the Code

Announcement 97–7

The names of organizations that no longer qualify as organizations described in section 170(c)(2) of the Internal Revenue Code of 1986 are listed below.

Generally, the Service will not disallow deductions for contributions made to a listed organization on or before the date of announcement in the Internal Revenue Bulletin that an organization no longer qualifies. However, the Service is not precluded from disallowing a deduction for any contributions made after an organization ceases to qualify under section 170(c)(2) if the organization has not timely filed a suit for declaratory judgment under section 7428 and if the contributor (1) had knowledge of the revocation of the ruling or determination letter, (2) was aware that such revocation was imminent, or (3) was in part responsible for or was aware of the activities or omissions of the organization that brought about this revocation.

If on the other hand a suit for declaratory judgment has been timely

Ypsilanti, MI Upper Peninsula Reading Association,

Marquette, MI Upper Sandusky Soccer Association

Charitable Trust, Upper Sandusky, OH Veterans Community Foundation, Inc.,

Toledo, OH Vigo County Child Abuse Prevention

Council, Inc., Terre Haute, IN Walkathon Committee for Shrine

Hospitals, Milford, OH

1997–4 I.R.B. 12

Need for Correction

As published, the final regulations contain errors which may prove to be misleading and are in need of clarification. Correction of Publication

Accordingly, the publication of the final regulations (T.D. 8687), which are the subject of FR Doc. 96–30617, is corrected as follows:

On page 60540, column 3, in the preamble, under the caption ‘‘DATES’’, line 3, the language ‘‘Applicability: Taxpayers may apply’’ is corrected to read ‘‘Applicability: These regulations apply to taxable years beginning after December 30, 1996. However, taxpayers may apply’’.

§ 1.863–1 [Corrected]

On page 60546, column 3, § 1.863–1 (e), is corrected to read as follows:

§ 1.863–1 Allocation of gross income.

- - - -

(e) Effective dates. The rules of paragraphs (a), (b) and (c) of this section will apply to taxable years beginning after December 30, 1996. However, taxpayers may apply the rules of this section for taxable years beginning after July 11, 1995, and on or before December 30, 1996. For years beginning before December 30, 1996, see § 1.863–1 (as contained in 26 CFR part 1 revised as of April 1, 1996).

- - - -

§ 1.863–2 [Corrected]

On page 60547, column 1, § 1.863–2 (c), line 2, the language ‘‘apply to taxable years beginning’’ is corrected to read ‘‘apply to taxable years beginning after’’.
On page 60547, column 2, § 1.863–2 (c), line 2 from the top of the column, the language ‘‘1995, and before December 30, 1996.’’ is corrected to read ‘‘1995, and on or before December 30, 1996.’’.

§ 1.863–3 [Corrected]

On page 60550, column 3, § 1.863–3 (h), is corrected to read as follows:

§ 1.863–3 Allocation and apportionment of income from certain sales of inven- tory.

- - - - (h) Effective dates. The rules of this

section apply to taxable years beginning after December 30, 1996. However, taxpayers may apply these regulations for taxable years beginning after July 11, 1995, and on or before December 30, 1996. For years beginning before December 30, 1996, see §§ 1.863–3A and 1.863–3AT.

- - - -

Cynthia E. Grigsby, Chief, Regulations Unit, Assistant Chief Counsel (Corporate).

(Filed by the Office of the Federal Register on December 10, 1996, 2:21 p.m. and published in the issue of the Federal Register for December 12, 1996, 61 F.R. 65323)

13 1997–4 I.R.B.