Part IV. Applicable Federal Interest Rates.

TABLE OF APPLICABLE FEDERAL INTEREST RATES FOR PURPOSES OF § 807

Year Interest Rate

1997 6.33 1998 6.31

Sources: Rev. Rul. 96–57, 1996–2 C.B. 82 for the 1997 rate and Rev. Rul. 97–50, 1997–49 I.R.B. 5 for the 1998 rate.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 92–19 is supplemented by the addition to Part III of that ruling of prevailing state assumed interest rates under § 807 for certain insurance products issued in 1997 and 1998 and is further supplemented by an addition to the table in Part IV of Rev. Rul. 92–19 listing applicable federal interest rates. Parts I and II of Rev. Rul. 92–19 are not affected by this ruling.

DRAFTING INFORMATION

The principal author of this revenue ruling is Ann H. Logan of the Office of Assistant Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling contact her on (202) 622-3970 (not a toll-free call).

Section 846.—Discounted Unpaid Losses Defined

The adjusted applicable federal short-term, mid

term, and long-term rates are set forth for the month of January 1998. See Rev. Rul. 98–4, on this page.

Section 1274.—Determination of Issue Price in the Case of Certain Debt Instruments Issued for Property

(Also Sections 42, 280G, 382, 412, 467, 468, 482, 483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates; adjusted federal long-term rate, and the long-term exempt rate. For purposes of sections 1274, 1288, 382, and other sections of the Code, tables set forth the rates for January 1998.

Rev. Rul. 98–4

This revenue ruling provides various prescribed rates for federal income tax purposes for January 1998 (the current month.) Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(2) for buildings placed in service during the current month. Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520. Finally, Table 6 contains the deemed rate of return for transfers made during calendar year 1998 to pooled income funds described in § 642(c)(5) that have been in existence for less than 3 taxable years immediately preceding the taxable year in which the transfer is made.

Applicable Federal Rates (AFR) for January 1998

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-Term

AFR 5.70% 5.62% 5.58% 5.56% 110% AFR 6.28% 6.18% 6.13% 6.10% 120% AFR 6.85% 6.74% 6.68% 6.65% 130% AFR 7.44% 7.31% 7.24% 7.20%

Mid-Term

AFR 5.93% 5.84% 5.80% 5.77% 110% AFR 6.52% 6.42% 6.37% 6.34% 120% AFR 7.13% 7.01% 6.95% 6.91% 130% AFR 7.73% 7.59% 7.52% 7.47% 150% AFR 8.95% 8.76% 8.67% 8.60% 175% AFR 10.48% 10.22% 10.09% 10.01%

January 12, 1998 18 1998–2 I.R.B.

REV. RUL. 98–4 TABLE 1 — (continued)

Applicable Federal Rates (AFR) for January 1998

Period for Compounding

Annual Semiannual Quarterly Monthly

Long-Term

AFR 6.13% 6.04% 6.00% 5.97% 110% AFR 6.75% 6.64% 6.59% 6.55% 20% AFR 7.38% 7.25% 7.19% 7.14% 130% AFR 8.00% 7.85% 7.77% 7.72%

REV. RUL. 98–4 TABLE 2

Adjusted AFR for January 1998

Period for Compounding

Annual Semiannual Quarterly Monthly Short-term adjusted AFR 3.86% 3.82% 3.80% 3.79%

Mid-term adjusted AFR 4.30% 4.25% 4.23% 4.21%

Long-term adjusted AFR 5.10% 5.04% 5.01% 4.99%

REV. RUL. 98–4 TABLE 3

Rates Under Section 382 for January 1998

Adjusted federal long-term rate for the current month 5.10%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal long-term rates for the current month and the prior two months.) 5.23%

REV. RUL. 98–4 TABLE 4

Appropriate Percentages Under Section 42(b)(2) for January 1998

Appropriate percentage for the 70% present value low-income housing credit 8.41%

Appropriate percentage for the 30% present value low-income housing credit 3.61%

REV. RUL. 98–4 TABLE 5

Rate Under Section 7520 for January 1998

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest 7.2%

1998–2 I.R.B 19 January 12, 1998

Section 1288.—Treatment of Original Issue Discount on Tax-Exempt Obligations

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of January 1998. See Rev. Rul. 98–4, page 18.

Section 4161.—Imposition of Tax

26 CFR 48.4161(b)-1: Imposition and rates of tax; bows and arrows.

Bows and arrows; taxable and non- taxable articles. An illustrative list of taxable and nontaxable articles is provided for use by manufacturers, producers, and importers in determining their liability for the manufacturers tax on archery equipment imposed by section 4161 of the Code. The list reflects changes to the tax on archery equipment made by the Taxpayer Relief Act of 1997. Rev. Rul 75–17 supplemented and superseded.

Rev. Rul. 98–5

This revenue ruling updates Rev. Rul. 75–17, 1975–1 C.B. 344, by revising the illustrative list of taxable and nontaxable archery articles in that ruling. This revenue ruling provides guidance to manufacturers, producers, and importers in determining their liability for the manufacturers excise tax on bows and arrows imposed by § 4161(b) of the Internal Revenue Code.

BACKGROUND

For sales prior to October 1, 1997, § 4161(b) imposed an 11 percent tax on the sale by the manufacturer, producer, or importer of any bow that had a draw weight of 10 pounds or more, any arrow that measured 18 inches or more in overall length, or any arrow sold after September 30, 1984, that measured less than 18 inches in overall length but was suitable for use with a taxable bow, any part or accessory suitable for inclusion in or attachment to a taxable bow or arrow, and any quiver suitable for use with taxable arrows.

For sales after September 30, 1997, § 4161(b), as amended by § 1433(a) of the Taxpayer Relief Act of 1997 (TRA-97), provides for the continued taxation of bows, bow parts and accessories, and quivers in the same manner and at the same rate as before amendment. However, § 4161(b), as amended, replaces the prior tax on arrows

and arrow parts and accessories with an excise tax on arrow components. The new tax is imposed at the rate of 12.4 percent on the sale by the manufacturer, producer, or importer of arrow components. For this purpose, an arrow component is any shaft, point, nock, or vane of the type used in the manufacture of any arrow which after its assembly (A) measures 18 inches or more in overall length, or (B) measures less than 18 inches in overall length, but is suitable for use with a taxable bow.

No tax is imposed under the former or amended § 4161(b) with respect to any article taxable under § 4161(a) as sport fishing equipment, for example, bow fishing rods and reels.

Section 48.4161(b)–2(a)(1) of the Manufacturers and Retailers Excise Tax Regulations defines the term “bows” as including all articles made of flexible materials that are designed to be equipped with a string and used for the propelling of arrows in the sport of archery (target shooting), or in hunting or fishing.

Section 48.4161(b)–2(a)(2) defines the term “arrows” as including all articles designed or constructed to be propelled by a bow in the sport of archery (target shooting), or in hunting or fishing. The overall length of the arrow is to be measured from the point of the tip or arrowhead to the end of the arrow nock. In the case of arrows sold by the manufacturer without heads, tips, or nocks, the overall length is to include the length of the shaft plus the length of the nock and head or tip that is normally used with the particular type of arrow shaft.

(The following provisions of the regulations do not reflect the amendments made to § 4161(b) by the TRA–97.)

Section 48.4161(b)–2(b)(1) defines the term “parts and accessories” for bows and arrows as including all articles (other than fishing reels) suitable for inclusion in or attachment to a taxable bow or arrow. Examples of parts and accessories for bows are bow handles, bow limbs, bowstrings, bowstring silencers, bow stabilizers, arrow rests, bow slings, bow sights, bow levels, bow tip protectors, brush buttons, camouflaged bow covers, and all other articles designed to be attached to or included in a bow to assist in aiming or propelling an arrow, or to protect the bow while in use. Examples of parts and accessories for arrows are arrow shafts, nocks, tips, heads, head adapters, and feathers.

Under the provisions of § 48.4161(b)– 2(b)(2), general purpose materials and arti

cles that are not specifically designed to directly improve the performance or appearance of bows or arrows, or to protect them while in use, are not considered to be parts and accessories for bows or arrows, even though such materials may be intended, after further processing, to be included in or attached to bows or arrows. An example of a nontaxable article that is designed for use with a bow, but is neither attached to a bow, nor serves a purpose directly related to the efficient use of a bow, is a carrying case for a bow. Examples of nontaxable general purpose materials or articles are glues and cements, feathers before they are prepared for use with arrows, and bowstring thread before it is processed into bowstrings. Arrow shaft material is considered to be a taxable part for an arrow unless the manufacturer, producer, or importer can establish that the particular material is unsuitable for use in the manufacture of taxable arrows. In addition, the term parts and accessories does not include articles in the nature of expendable supplies, even though such articles are designed to be applied to, or used with, bows or arrows. Examples of such supply materials are bowstring wax and archery powder.

Section 48.4161(b)–2(c) defines the term “quivers” as including all articles, of whatever material made, that are designed to contain, and to provide ready access to, taxable arrows during the time an archer is engaged in target shooting, hunting, or fishing. The term does not include any article designed solely for storing or transporting arrows during times when the arrows are not in use.

ILLUSTRATIVE LISTS

The Internal Revenue Service has determined that the articles listed below are bows, arrows, arrow components, or parts or accessories subject to the tax imposed by § 4161(b). The parts or accessories subject to the tax include replacement parts or accessories. A separate list of the articles that the Service has determined not to be subject to the tax imposed by that section is also provided. The lists are illustrative and not all-inclusive.

ARTICLES SUBJECT TO TAX

Bows All bows that have a draw weight of 10 pounds or more, including laminated composite bows; solid glass, wood, steel, etc., bows; and crossbows.

January 12, 1998 20 1998–2 I.R.B.

Arrows (Prior to October 1, 1997) All arrows (including bow fishing arrows), regardless of shaft material or the type of head, that measure 18 inches or more in overall length (including the tip or head, and nock), and all arrows sold after September 30, 1984, that measure less than 18 inches in overall length but are suitable for use with a taxable bow.

Arrow Components (After September 30, 1997) All shafts, points, nocks, or vanes of the type used in the manufacture of any arrow which after its assembly (A) measures 18 inches or more overall in length, or (B) measures less than 18 inches overall in length, but is suitable for use with a taxable bow.

Bow and Arrow Sets Bow and arrow sets that contain any taxable article. When a set also contains nontaxable articles, the tax applies only to that portion of the combination sale price properly attributable to the taxable articles. See Rev. Rul. 75–18, 1975–1 C.B. 345, which provides a method of determining the manufacturer’s tax base and computing the tax where taxable and nontaxable articles are sold as a unit at a single price.

Bow Parts and Accessories and Quivers Arrow holders (all items to be affixed to a

bow to hold an arrow in ready position) Arrow plates (whether fixed, adjustable,

spring loaded, etc.) Arrow rests (whether bow shelf or auxil iary type) Bow handles Bow handle sections Bow levels Bow limbs Bow saddles (including interchangeable

or replaceable bow grips) Bow sights and bow sight extensions (including parts and attachments therefor) Bow silencing pads Bow slings Bow stabilizers (all attachments and

weights for use on bows to affect stabilization, counterbalancing, or modification of weight distribution) Bowstrings Bowstring silencers Bow tip protectors Brush buttons Cable guards Cable guard slides

ARTICLES NOT SUBJECT TO TAX Accessory belts Archery armguards Archery powder Archery shooting finger tabs Archery shooting gloves Arrow clips for tackle boxes and display

racks Arrow cresting machines and replacement

parts therefor Arrow cut-off and fabricating tools (and

replacement parts therefor) Arrow fletching jigs and tools Arrow lubes Arrow pullers Arrow shaft dip tanks Arrow spine meters (and replacement

parts therefor) Arrow straighteners

Camouflaged bow covers (slip-over cloth,

self-adhesive tape type, etc.) Cushion nocks Draw checks (spring loaded clickers, mir rors, or any other device attached to a bow or string to insure consistent draw length) Draw stops Finger protectors attached to a bowstring Grip formers Kisser buttons (all items attached to a

bowstring to establish a consistent anchor point) Nocking points (all items attached to a

bowstring to establish arrow positioning) Quivers designed to provide ready access

to taxable arrows while an archer is engaged in target shooting, hunting, or fishing, regardless of material from which constructed (including bow quivers designed to be attached to a bow and ground quivers) Release draw bars String peeps (all items attached to a bow string for use in sighting)

Arrow Parts and Accessories

(Prior to October 1, 1997) Arrow fletching (natural feathers

processed for application to arrows or synthetic feather substitutes) Arrow nocks and inserts Arrow points, tips, heads, adapters, and

inserts Arrow shafts Arrow shaft material Broadhead guide rings Broadhead rings Feather tracers

Arrow tapering tools Bow and arrow racks designed solely for

the storage of bows and/or arrows Bow and arrow cases designed for the

transportation or storage of bows, arrows, and related equipment Bowfishing line Bow squares Bow stringers Bowstring jigs Bowstring thread Bowstring wax Bow supports including ground bow

holders and stands Broadhead wrenches Electronic trackers Feather burners and feather burner kits

(and replacement parts therefor) Feathers not prepared for use with arrows Feather waterproofing Finger slings Glues and cements Nocking point tools Powder pouches Score card holder Shirt and blouse protectors String holders and keepers String releases String servers Targets and target accessories

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 75–17 is supplemented and superseded.

DRAFTING INFORMATION

The principal author of this revenue ruling is Theodore N. Margopulos of the Office of the Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling contact Mr. Margopulos on (202) 622-3130 (not a toll-free call).

Section 7520.—Valuation Tables

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of January 1998. See Rev. Rul. 98–4, page 18.

Section 7872.—Treatment of Loans with Below-Market Interest Rates

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of January 1998. See Rev. Rul. 98–4, page 18.

1998–2 I.R.B 21 January 12, 1998

Revenue rulings and revenue procedures (hereinafter referred to as “rulings”) that have an effect on previous rulings use the following defined terms to de- scribe the effect:

Amplified describes a situation where no change is being made in a prior published position, but the prior position is being extended to apply to a variation of the fact situation set forth therein. Thus, if an earlier ruling held that a principle applied to A, and the new ruling holds that the same principle also applies to B, the earlier ruling is amplified. (Compare with modified, below).

Clarified is used in those instances where the language in a prior ruling is being made clear because the language has caused, or may cause, some confusion. It is not used where a position in a prior ruling is being changed.

Distinguished describes a situation where a ruling mentions a previously published ruling and points out an essential difference between them.

Modified is used where the substance of a previously published position is being changed. Thus, if a prior ruling held that a principle applied to A but not to B, and the new ruling holds that it ap

The following abbreviations in current use and for- merly used will appear in material published in the Bulletin.

A —Individual. Acq. —Acquiescence. B —Individual. BE —Beneficiary. BK —Bank. B.T.A. —Board of Tax Appeals. C. —Individual. C.B. —Cumulative Bulletin. CFR —Code of Federal Regulations. CI —City. COOP —Cooperative. Ct.D. —Court Decision. CY —County. D —Decedent. DC —Dummy Corporation. DE —Donee. Del. Order —Delegation Order. DISC —Domestic International Sales Corporation. DR —Donor. E —Estate. EE —Employee.

plies to both A and B, the prior ruling is modified because it corrects a published position. (Compare with amplified and clarified, above).

Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions. This term is most commonly used in a ruling that lists previously published rulings that are obsoleted because of changes in law or regulations. A ruling may also be obsoleted because the substance has been included in regulations subsequently adopted.

Revoked describes situations where the position in the previously published ruling is not correct and the correct position is being stated in the new ruling.

Superseded describes a situation where the new ruling does nothing more than restate the substance and situation of a previously published ruling (or rulings). Thus, the term is used to republish under the 1986 Code and regulations the same position published under the 1939 Code and regulations. The term is also used when it is desired to republish in a single ruling a series of situations, names, etc., that were previously published over a period of time in separate rulings. If the

E.O. —Executive Order. ER —Employer. ERISA —Employee Retirement Income Security Act. EX —Executor. F —Fiduciary. FC —Foreign Country. FICA —Federal Insurance Contribution Act. FISC —Foreign International Sales Company. FPH —Foreign Personal Holding Company. F.R. —Federal Register. FUTA —Federal Unemployment Tax Act. FX —Foreign Corporation. G.C.M. —Chief Counsel’s Memorandum. GE —Grantee. GP —General Partner. GR —Grantor. IC —Insurance Company. I.R.B. —Internal Revenue Bulletin. LE —Lessee. LP —Limited Partner. LR —Lessor. M —Minor. Nonacq. —Nonacquiescence. O —Organization. P —Parent Corporation.

new ruling does more than restate the substance of a prior ruling, a combination of terms is used. For example, modified and superseded describes a situation where the substance of a previously published ruling is being changed in part and is continued without change in part and it is desired to restate the valid portion of the previously published ruling in a new ruling that is self contained. In this case the previously published ruling is first modified and then, as modified, is superseded.

Supplemented is used in situations in which a list, such as a list of the names of countries, is published in a ruling and that list is expanded by adding further names in subsequent rulings. After the original ruling has been supplemented several times, a new ruling may be published that includes the list in the original ruling and the additions, and supersedes all prior rulings in the series.

Suspended is used in rare situations to show that the previous published rulings will not be applied pending some future action such as the issuance of new or amended regulations, the outcome of cases in litigation, or the outcome of a Service study.

PHC —Personal Holding Company. PO —Possession of the U.S. PR —Partner. PRS —Partnership. PTE —Prohibited Transaction Exemption. Pub. L. —Public Law. REIT —Real Estate Investment Trust. Rev. Proc. —Revenue Procedure. Rev. Proc.. —Revenue Ruling. S —Subsidiary. S.P.R. —Statements of Procedral Rules. Stat. —Statutes at Large. T —Target Corporation. T.C. —Tax Court. T.D. —Treasury Decision. TFE —Transferee. TFR —Transferor. T.I.R. —Technical Information Release. TP —Taxpayer. TR —Trust. TT —Trustee. U.S.C. —United States Code. X —Corporation. Y —Corporation. Z —Corporation.

1998–2 I.R.B 39 January 12, 1998

Numerical Finding List ¹

Bulletin 1998–1

Revenue Procedures:

98–1, 1998–1 I.R.B. 1 98–2, 1998–1 I.R.B. 74 98–3, 1998–1 I.R.B. 100 98–4, 1998–1 I.R.B. 113 98–5, 1998–1 I.R.B. 155 98–6, 1998–1 I.R.B. 183 98–7, 1998–1 I.R.B. 222 98–8, 1998–1 I.R.B. 225

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 1997–27 through 1997–52 will be found in Internal Revenue Bulletin 1998–1, dated January 5, 1998.

January 12, 1998 40 1998–2 I.R.B.

Finding List of Current Action on Previously Published Items ¹

Bulletin 1998–1

Revenue Procedures:

97–1 Superseded by 98–1, 1998–1 I.R.B. 7

97–2 Superseded by 98–2, 1998–1 I.R.B. 74

97–3 Superseded by 98–3, 1998–1 I.R.B. 100

97–4 Superseded by 98–4, 1998–1 I.R.B. 113

97–5 Superseded by 98–5, 1998–1 I.R.B. 155

97–6 Superseded by 98–6, 1998–1 I.R.B. 183

97–7 Superseded by 98–7, 1998–1 I.R.B. 222

97–8 Superseded by 98–8, 1998–1 I.R.B. 225

97–21 Superseded by 98–2, 1998–1 I.R.B. 74

97–53 Superseded by 98–3, 1998–1 I.R.B. 100

1 A cumulative finding list for previously published items mentioned in Internal Revenue Bulletins 1997–27 through 1997–52 will be found in Internal Revenue Bulletin 1998–1, dated January 5, 1998.

1998–2 I.R.B 41 January 12, 1998

January 12, 1998 42 1998–2 I.R.B.

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