Part IV. Items — Internal Revenue Bulletin 1997-45

Changes to Reporting Requirements for 1997 Forms 1099–S and 1099–LTC

Announcement 97–106

Background Forms 1099 are released early in the year so that payers, brokers, etc., can collect necessary information during the year to report to the IRS, recipients, sellers, etc. Because the Taxpayer Relief Act of 1997 (Public Law 105–34) was enacted August 5, 1997, changes in the 1997 reporting requirements of the following Forms 1099 are required:

Form 1099–S, Proceeds From Real Estate Transactions
Form 1099–LTC, Long-Term Care and Accelerated Death Benefits (also, the 1998 instructions for Form

1099–LTC will include changes suggested by industry)

Reporting changes are described in the following sections.

Form 1099–S: Filers who receive an acceptable written assurance from the seller are not required to file Form 1099–S Reporting the Sale of with the IRS nor furnish the seller Form 1099–S for any sale or exchange after May 6, 1997, of a princia Principal Residence pal residence for $250,000 or less ($500,000 or less if the written assurance includes an assurance After May 6, 1997 that the seller is married). The written assurance must state that the:

Property sold is the seller’s principal residence, and
Full gain on the sale or exchange is excludable from gross income under section 121 of the Code.

As soon as possible, the IRS will issue guidance on what will be considered an acceptable written assurance. Although filers are not required to obtain the written assurance, if the written assurance is not obtained, Form 1099–S must be filed with the IRS and a Form 1099–S statement must be furnished to the seller.

Form 1099–LTC: The Act requires payers to provide a telephone number of a person to contact on statements to recipients Telephone Number (Copies B and C) for Form 1099–LTC. This new requirement applies to the 1997 statements due to Required recipients by February 2, 1998. The number must be in any conspicuous place on the statements and must provide direct access to a person who can answer questions about the statements.

Because this requirement was enacted after the 1997 forms were printed, a failure to include a telephone number on the 1997 statements will be considered to have arisen from an event beyond the control of the filer. As a result, the penalty under section 6722 of the Code will be waived for reasonable cause if the next statement required to be provided (generally for 1998) includes the number. Although the penalty will be waived for 1997 statements, payers are encouraged to enter the number anywhere they choose on the statements.

Payers are not required to report the telephone number to the IRS.

Form 1099–LTC: At the request of industry, the IRS plans to revise the 1998 instructions for box 3 of Form 1099–LTC to Instructions Changes require payers of accelerated death benefits to check a box to indicate whether payments were made on a per diem or reimbursed basis. If the payments were made on behalf of a terminally ill person, payers are not required to check either box in box 3. In addition, the instructions will make it clear that, in the case of a group contract, the term “policyholder” means the certificate holder, and the “policyholder” statement must be furnished to the certificate holder.

Payers are encouraged to follow these new instructions in filing their 1997 forms and in providing 1997 statements to recipients.

1997–45 I.R.B. 11 November 10, 1997

Changes to Reporting Requirements for Certain 1996 and 1997 Forms Because of Changes in the Capital Gains Tax Rates

Announcement 97–109

Background The Taxpayer Relief Act of 1997 (Public Law 105–34) amended section 1(h) of the Internal Revenue Code to change the capital gains tax rates. As a result, changes in the reporting requirements are required for the following forms:

1997 Form 1099–DIV, Dividends and Distributions
1997 Form 1099–B, Broker and Barter Exchange Transactions
1996 Form 2439 for 1996–1997 fiscal years ending after May 6, 1997
1996 Schedules K & K–1 for partnerships, S corporations, and estates with 1996–1997 fiscal years ending after May 6, 1997

The instructions for the forms listed above do not reflect these changes.

Also, the tax computation using maximum capital gains rates affects 1996–1997 fiscal year individuals and estates if the taxpayer’s fiscal year ended after May 6, 1997.

The necessary changes are described in the following sections. Further guidance will be issued shortly regarding the computation of capital gain distributions by regulated investment companies and real estate investment trusts.

The following rules relate only to forms for the years listed above. For subsequent years, the reporting requirements will be included on the forms and/or stated in the instructions.

Form 1099–DIV: Regulated investment companies, real estate investment trusts, brokers, and others reporting capital gain Reporting Capital distributions on the 1997 Form 1099–DIV must provide additional information with their statements to Gain Distributions recipients. Payers must continue to report the total capital gain distributions in box 1c. Payers should for 1997 also advise recipients that they cannot report capital gain distributions on Form 1040, line 13, as stated in the official 1997 Form 1099–DIV. Rather, they must report the distributions on Schedule D (Form 1040), line 13, column (f).

In addition, payers must provide to recipients information sufficient to determine the following:

The amount of 28% rate gain distributions. Payers should advise recipients to report this amount on

Schedule D (Form 1040), line 13, column (g).

The amount of unrecaptured section 1250 gain distributions. Payers should advise recipients to report this amount on Schedule D (Form 1040), line 25.

Payers may provide this additional information to recipients on a substitute statement or on a separate statement. Payers are not required to report the additional information to the IRS.

Form 2439: Regulated investment companies (RICs) and other filers completing the 1996 Form 2439 for fiscal years Reporting ending after May 6, 1997, must provide additional information with their notices to shareholders. Filers Undistributed must continue to report the total undistributed long-term capital gains for the year on line 1 of Form Long-Term Capital 2439. Filers should also advise individual shareholders that they cannot report the amount on line 1 on Gains for 1996–1997 Schedule D (Form 1040), Part II, line 12, as stated in the official 1996 Form 2439 instructions. Rather, they must report the amount on line 1 on the 1997 Schedule D (Form 1040), line 11, column (f).

In addition, filers must provide to shareholders information sufficient to determine the following:

The amount of 28% rate gain included on line 1 of Form 2439. Filers should advise recipients to report

this amount on Schedule D (Form 1040), line 11, column (g).

The amount of unrecaptured section 1250 gain included on line 1 of Form 2439. Filers should advise

recipients to report this amount on Schedule D (Form 1040), line 25.

Filers may provide this additional information to shareholders on a substitute statement or on a separate statement. Filers are not required to report this additional information on Forms 2439 filed with the IRS.

November 10, 1997 12 1997–45 I.R.B.

Form 1099–B: Brokers and others reporting the aggregate gain or loss on regulated futures or foreign currency contracts Reporting Aggregate in box 9 of Form 1099-B must provide additional information with their statements to recipients. They Profit or Loss From must continue to report the total aggregate amount in box 9 and also report to the recipient the amount Regulated Futures included in box 9 attributable to the profit or loss before May 7, 1997. or Foreign Currency Contracts Payers may provide this additional information to recipients on a substitute statement or on a separate statement. Payers are not required to report the additional information to the IRS.

Fiscal Year Estates and individuals affected by the new capital gains rates who complete the 1996 Forms 1040 and Estates and 1041 for fiscal years ending after May 6, 1997, must attach a computation similar to that shown in Part IV Individuals: Reporting of the 1997 Schedule D (Form 1040) or Part V of the 1997 Schedule D (Form 1041). These estates and Capital Gains and individuals may use their 1997 Schedule D to figure their 1996 tax provided they use the applicable 1996 Losses for 1996–1997 tax rate schedules or table in the computation. Also, when figuring the amount to enter on line 29 of the 1997 Schedule D, these filers must not use the dollar amounts shown on that line. Instead, they must substitute the dollar amounts shown on line 6 of the Capital Gain Tax Worksheet in the 1996 Form 1040 instructions (or line 39 of the 1996 Schedule D (Form 1041)) .

Note: The new capital gains rates also affect the computation of the alternative minimum tax. The above-mentioned filers should attach a computation similar to that shown in Part IV of the 1997 Form 6251 (or Part IV, Schedule I of the 1997 Form 1041).

Estates also must continue to report each beneficiary’s share of the net long-term capital gain on line 3b of Schedule K–1. In addition, the estate must provide the following information to its beneficiaries:

28% rate gain—the amount on line 3b attributable (after taking into account the netting rules described

in Notice 97–59) to “collectibles gains and losses” AND to net gain from sales, exchanges, or conversions (including installment payments received) either: (a) before May 7, 1997, or (b) after July 28, 1997, for assets held more than 1 year but not more than 18 months.

Estates should advise individual beneficiaries to report this amount on the 1997 Schedule D (Form 1040), line 12, column (g).

Unrecaptured section 1250 gain—the amount on line 3b attributable to unrecaptured section 1250 gain.

Estates should advise individual beneficiaries to report this amount on the 1997 Schedule D (Form 1040), line 25.

Each beneficiary’s share of the above amounts should be reported on line 13 of Schedule K–1.

Forms 1065 and Partnerships and S corporations completing the 1996 Forms 1065 and 1120S for fiscal years ending after 1120S (Schedules K May 6, 1997, must provide additional information on Schedules K and K–1. The partnership or S corpoand K–1): Reporting ration must continue to report the net long-term capital gain or loss on line 4e of Schedules K and K–1 of Capital and Section Form 1065 or 1120S, the net gain or loss under section 1231 (other than due to casualty or theft) on line 1231 Gains and Losses 6 of Schedules K and K–1 of Form 1065 (line 5 of Schedules K and K–1 of Form 1120S), and other infor 1996–1997 come on line 7 of Schedules K and K–1 of Form 1065 (line 6 of Schedules K and K–1 of Form 1120S). In addition, the partnership or S corporation must provide the following information:

28% rate gain or loss—the amount that would be entered on each of the above lines if they included

only “collectibles gains and losses” AND gains and losses from sales, exchanges, or conversions (including installment payments received) either: ( a ) before May 7, 1997, or ( b ) after July 28, 1997, for assets held more than 1 year but not more than 18 months.

The total 28% rate gain or loss of the partnership or S corporation should be reported as an item of information on line 24 of Schedule K, Form 1065, or on line 21 of Schedule K, Form 1120S. Each partner’s or shareholder’s share should be reported in the “Supplemental Information” space on Schedule K–1.

Partnerships and S corporations should advise partners and shareholders to report this amount on the line of the form to which it relates in the separate column, if any, provided on that form for 28% rate gain or loss. For example, a long-term capital gain that is also a 28% rate gain should be reported on the 1997 Schedule D (Form 1040), line 12, column (g); a section 1231 gain that is also a 28% rate gain should be reported on the 1997 Form 4797, line 2, column (h).

1997–45 I.R.B. 13 November 10, 1997

Unrecaptured section 1250 gain—the amount that would be entered on each of the above lines if they included only unrecaptured section 1250 gain. The total unrecaptured section 1250 gain of the partnership or S corporation should be reported as an item of information on line 24 of Schedule K, Form 1065, or on line 21 of Schedule K, Form 1120S. Each partner’s or shareholder’s share should be reported in the “Supplemental Information” space on Schedule K–1.

Partnerships and S corporations should advise partners and shareholders to report this amount on the 1997 Schedule D (Form 1040), line 25.

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

Announcement 97–110

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 filed, con

tributions 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 November 10, 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. Learning Center Association

Kettering, OH Self Awareness Center, Inc.

Evansville, IN

Section 7428(c) Validation of Certain Contributions Made During Pendency of Declaratory Judgment Proceedings

This announcement serves notice to potential donors that the organization listed below has recently filed a timely declara

tory judgment suit under section 7428 of the Code, challenging revocation of its status as an eligible donee under section 170(c)(2). Protection under section 7428(c) of the Code begins on the date that the notice of revocation is published in the Internal Revenue Bulletin and ends on the date on which a court first determines that an organization is not described in section 170(c)(2), as more particularly set forth in section 7428(c)(1). In the case of individual contributors, the maximum amount of contributions protected during this period is limited to $1,000.00, with a husband and wife being treated as one contributor. This protection 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 the revocation. This protection also applies (but without limitation as to amount) to organizations described in section 170(c)(2) which are exempt from tax under section 501(a). If the organization ultimately prevails in its declaratory judgment suit, deductibility of contributions would be subject to the normal limitations set forth under section 170. Student Ministries, Inc.

Milwaukie, OR

November 10, 1997 14 1997–45 I.R.B.