Part IV. Items — Internal Revenue Bulletin 1997-29

Notice of Proposed Rulemaking and Notice of Public Hearing

Guidance Regarding Claims for Income Tax Convention Benefits

REG–104893–97

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rule-making by cross-reference to temporary regulations and notice of public hearing.

SUMMARY: In T.D. 8722, page 4, the IRS is issuing temporary regulations regarding rules for determining whether U.S. source payments made to entities, including entities that are fiscally transparent in the United States and/or the applicable treaty jurisdiction, are eligible for treaty–reduced tax rates. The text of those temporary regulations also serves as the text of these proposed regulations. This document also provides notice of a public hearing on these proposed regulations.

DATES: Comments and outlines of topics to be discussed at the public hearing scheduled for September 24, 1997, at 10 a.m. must be received by September 3, 1997.

ADDRESSES: Send submissions to: CC: DOM:CORP:R (REG–104893–97), room 5228, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may also be hand delivered between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG– 104893–97), 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 the Commissioner’s Conference Room, room 3313, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Elizabeth Karzon, (202) 622-3860; concerning submissions and the hearing, Evangelista Lee, (202) 622-7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

T.D. 8722 amends the Income Tax Regulations (26 CFR part 1) relating to section 894. The temporary regulations contain rules relating to eligibility for benefits under income tax conventions for payments to flow–through entities or arrangements.

The text of T.D. 8722 also serves as the text of these proposed regulations. The preamble to the temporary regulations explains the temporary regulations.

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 these regulations do not impose on small entities a collection of information requirement, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy 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 comments that are submitted timely to the IRS. All comments will be available for public inspection and copying.

A public hearing has been scheduled for September 24, 1997, at 10 a.m. in the Commissioner’s Conference Room, room 3313, Internal Revenue Building, 1111 Constitution Avenue NW., Washington DC. Because of access restrictions, visitors will not be admitted beyond the Internal Revenue Building lobby more than 15 minutes before the hearing starts.

The rules of 26 CFR 601.601(a)(3) apply to the hearing.

Persons who wish to present oral comments at the hearing must submit comments and an outline of the topics to be dis

cussed and the time to be devoted to each topic by September 3, 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.

Proposed Effective Date

This amendment is proposed to apply to payments received by an entity on or after January 1, 1998.

Proposed Amendments to the Regulations

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

PART 1—INCOME TAXES

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

Authority: 26 U.S.C. 7805 * * * Par. 2. In §1.894–1, paragraph (d) is added to read as follows:

§1.894–1 Income affected by treaty.

[The text of proposed paragraph (d) is the same as the text of §1.894–1T(d) published in T.D. 8722, page 4.

Michael P. Dolan, Acting Commissioner of

Internal Revenue.

(Filed by the Office of the Federal Register on June 30, 1997, 12:19 p.m., and published in the issue of the Federal Register for July 2, 1997, 62 F.R. 35755).

Special Rule for U.S. Permanent Residents Receiving Compensation or Pensions From the Government of France

Announcement 97–61

The Competent Authorities of the United States and France have entered into an agreement to alleviate the double taxation of U.S. permanent residents with respect to compensation and pensions for governmental services rendered to the French government. Generally, under the agreement, income of this type received in 1996 is

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taxable only in France and income of this type received in 1997 is taxable only in the United States. For 1998 and subsequent years, both the United States and France will tax the income, but the United States will allow a credit for taxes paid to France.

Taxpayers who are otherwise required to file an Individual Income Tax Return on Form 1040 for tax year 1996 should attach the following statement to the return: “I/we am/are not taxable in the United States under Article 19 of the Income Tax Convention between the United States and France on compensation or pension income received in 1996 for services rendered to the French Government that are of a governmental nature, pursuant to a 1997 Competent Authority agreement between the United States and France.” A taxpayer who has already filed a 1996 return in accordance with the Competent Authority agreement need not amend the return to include such a statement. A taxpayer who has already filed a 1996 return and paid tax on income subject to the Competent Authority agreement should include this statement if filing a claim for refund.

Contacts

For further information or assistance regarding the U.S. income tax treatment of compensation and pensions received from the Government of France, please contact Calvin Watson, Tax Treaty Division, Office of the Assistant Commissioner (International), ((202) 874–1550 (not a toll-free number)). For information or assistance regarding the French tax treatment of these compensation and pension payments, please contact Noel Claudon, Fiscal Attache, French Embassy, ((202) 944–6390 or (202) 944–6391 (not toll-free numbers)). In France, please contact Centre des Impots des Non-Residents, 9, Rue d’Uzes, 75094 Paris Cedex 02.

Announcement 97–70

Transition Relief for Failures To Make Plan Distributions to Certain Employees or Offer Options To Defer Distributions by April 1, 1997

Purpose

This announcement provides transition relief for qualified plans that fail to make distributions required under the terms of

the plan to an employee who attained age 70 1/2 in 1996 and who did not retire in 1996. This relief is conditioned upon the employer meeting specified requirements with respect to such an employee.

Background

Section 401(a)(9) of the Internal Revenue Code (“Code”) provides that, in order for a plan to be qualified under section 401(a), distributions from the plan must commence no later than the “required beginning date.” Prior to 1997, section 401(a)(9)(C) generally provided that the required beginning date is April 1 following the calendar year in which the employee attains age 70 1/2.

Section 1404(a) of the Small Business Job Protection Act of 1996 (“SBJPA”) amended section 401(a)(9) of the Code to provide that, in the case of an employee who is not a 5-percent owner, the required beginning date for minimum distributions from a qualified plan is April 1 of the calendar year following the later of the calendar year in which the employee attains age 70 1/2 or the calendar year in which the employee retires. The amendment to section 401(a)(9) applies to years beginning after December 31, 1996.

Notice 96–67, 1996–53 I.R.B. 12, December 30, 1996, Q&A–2, provides that, under section 401(a)(9) as amended by the SBJPA, an employee (other than a 5percent owner) who attained age 70 1/2 in 1996, but who had not retired from employment with the employer maintaining the plan by the end of 1996, is not required to receive a minimum distribution by April 1, 1997. Such an employee’s required beginning date is determined under amended section 401(a)(9), which requires distributions to commence by April 1 of the calendar year following the calendar year in which the employee retires from employment with the employer maintaining the plan.

Many qualified plans continue to contain provisions (consistent with section 401(a)(9) prior to its amendment by the SBJPA) requiring an employee who attains age 70 1/2 in a calendar year to begin receiving distributions by April 1 of the following calendar year.

Announcement 97–24, 1997–11 I.R.B. 24, March 13, 1997, provides that, prior to amending its plan, an employer maintaining a plan is permitted

to offer an employee (other than a 5percent owner) who attains age 70 1/2 in a calendar year after 1995, e.g. 1996, and who does not retire by the end of that calendar year, the option to delay commencement of distributions until no later than April 1 following the calendar year in which the employee retires from employment with the employer. Announcement 97–24 notes that future guidance will provide that an employer that offers this option under a plan must amend the plan retroactively to provide for the option. The retroactive plan amendment must conform the plan to its pre-amendment operation regarding this option to defer distributions until after retirement.

Announcement 97–24 states that it also applies to an employer that has adopted a master or prototype or a regional prototype plan. Announcement 97–24 notes that if a conforming amendment is not an available option under the sponsor’s prototype plan document, the required amendment may result in the loss of prototype status.

Transition Relief

Under this announcement, if the requirements described below are satisfied, a plan will not be treated as failing to satisfy the requirements of section 401(a) of the Code merely because the plan fails to make certain distributions required under the terms of the plan to an employee (other than a 5-percent owner) who attained age 70 1/2 in 1996 and who did not retire from employment with the employer maintaining the plan by the end of 1996. The relief in this announcement applies to a plan with respect to distributions required under the terms of the plan to be made to such an employee between August 20, 1996 (the date of enactment of the SBJPA) and December 31, 1997.

This relief is available only if: (1) the employee is offered an option to defer the distribution and elects to defer, or a make-up distribution is paid to such employee, and (2) the employee option or the make-up distribution meets the qualification requirements under section 401(a) of the Code (other than the requirement that a plan operate in accordance with its terms). For example, the employee option or the make-up distribution must satisfy the requirements of sec

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tions 401(a)(11) and 417 (relating to joint and survivor annuities).

If the employer chooses to offer an election to defer, the election to defer must be made by the employee by December 31, 1997. If an employee chooses not to defer, the plan must pay a make-up distribution to the employee in a manner that satisfies the rules set out below.

Whether a make-up distribution from the plan is paid to all employees (other than 5percent owners) who attained age 70 1/2 in 1996 and who did not retire from employment with the employer maintaining the plan by the end of 1996 or only to any such employee who is offered an election to defer but chooses not to defer, the make-up distribution must be made by December 31, 1997 and must include all of the employee’s distributions required under the plan terms up to that date. The make-up distribution must restore to the employee the benefits that the employee would have had if the plan terms had been followed. For example, in the case of a defined benefit plan, the make-up distribution for an employee must be increased to take into account the delayed payment consistent with the plan’s actuarial adjustments.

Further, future guidance will provide that an employer who offers the option to defer described above under a plan must amend the plan retroactively, no later than the date specified in that guidance, to provide for the option. The retroactive plan amendment must conform the plan to its preamendment operation regarding the option to defer commencement of benefits. However, a plan will not fail to satisfy this operational requirement merely because the amendment provides for an employee to have the option to either commence distribution by April 1, 1997 or to defer distribution beyond that date but, in operation, the plan provided for an election to defer or make-up distributions in accordance with this announcement.

This announcement also applies to an employer that has adopted a master or prototype or a regional prototype plan. Such an employer should note that if a conforming amendment is not an available option under the sponsor’s prototype plan document, the required amendment may result in the loss of prototype status.

Availability of Publication 1542, Per Diem Rates (Revised May 1997)

Announcement 97–71

Publication 1542, recently updated, is now available from the Internal Revenue Service.

The publication gives the maximum per diem rate employers can use without treating part of the allowance as wages for tax purposes. It also provides the listing of localities eligible for $166 per diem amount under the high-low substantiation method.

You can get a copy of this publication by calling 1–800–829–3676. You can also write to the IRS Forms Distribution Center nearest you.

If you have access to a personal computer and modem, you also can get the publication electronically. You can get the publication at:

World Wide Web-http:// www.irs.ustreas.gov,
FTP-ftp.irs.ustreas.gov, and
IRIS at FEDWORLD–(703) 321-8020.

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

Announcement 97–72

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.

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 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 July 21, 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.

Kinaman Animal Shelter Erie, PA Don Stewart Association Phoenix, AZ St. Matthews Publishing, Inc. f/k/a Church and Bible Study in the Home by Mail, Inc. Los Angeles, CA Washington Institute for Policy Studies Seattle, WA

1997-29␣␣I.R.B. 15 July 21, 1997