Part IV. Items — Internal Revenue Bulletin 1998-8

tice to explain the reason for the intended action. In light of existing paragraph (c)(4), the regulations do not have to be amended to reflect section 201 of TBOR2.

Section 202 of TBOR2 provides that, upon request by a taxpayer, the Secretary shall provide an independent administrative review of the termination of an installment agreement. In addition, although the IRS rarely alters or modifies an installment agreement, the proposed regulations grant taxpayers the right to request an independent administrative review of alterations or modifications. Procedures for requesting an independent administrative review are contained in the proposed regulations.

When the Internal Revenue Service intends to terminate an installment agreement, it currently sends the taxpayer a written notice of its intent. The notice (1) informs the taxpayer why the Internal Revenue Service intends to terminate the agreement, (2) notifies the taxpayer that the Internal Revenue Service intends to levy the taxpayer’s property, (3) explains that the taxpayer has a right to request an independent review of the Internal Revenue Service’s decision, and (4) tells the taxpayer to call the telephone number listed on the notice within 30 days of the date of the notice if the taxpayer wishes to stay collection and request the Internal Revenue Service to review its decision. If the taxpayer timely calls the telephone number listed on the notice, the employee attempts to resolve the case with the taxpayer. If the taxpayer and the employee are not able to resolve the case to the taxpayer’s satisfaction, a conference is set up with a manager. If the manager and the taxpayer are unable to resolve the case, the manager forwards the case to Appeals for an independent administrative review. Absent jeopardy, collection action is stayed until the appeals officer has informed the taxpayer of a decision.

The proposed regulations provide that, if a taxpayer disagrees with a determination to alter, modify, or terminate an installment agreement, the taxpayer may initiate an independent administrative review of the determination by calling the telephone number listed on the notice within

Notice of Proposed Rulemaking

Agreements for Payment of Tax Liability in Installments

REG–100841–97

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains proposed regulations relating to terminations of agreements for the payment of tax liabilities in installments (installment agreements). The proposed regulations reflect changes made to section 6159 of the Internal Revenue Code of 1986 (Code) by the Taxpayer Bill of Rights 2. The proposed regulations provide a procedure for requesting an independent administrative review of an alteration, modification, or termination of an installment agreement.

DATES: Written comments and requests for a public hearing must be received by March 31, 1998.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG–100841–97), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered between the hours of 8 a.m. and 5 p.m.: CC:DOM:CORP:R (REG–100841–97), 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.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Kevin B. Connelly, (202) 622-3640 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed amendments to the Procedure and Admin

istration Regulations (26 CFR part 301) relating to installment agreements under section 6159 of the Code. Section 201 of the Taxpayer Bill of Rights 2 (TBOR2), Pub. L. No. 104–168, 110 Stat. 1452 (1996), amended section 6159 to provide that the Secretary may not alter, modify, or terminate an installment agreement unless notice of such action is given not later than 30 days before the date of the action. The notice must explain why the Secretary intends to take the proposed action. Section 202 of TBOR2 provides that the Secretary shall provide an independent administrative review of the termination of an installment agreement upon request of the taxpayer. These proposed regulations reflect the change made by Section 202 of TBOR2. In addition, although the IRS rarely alters or modifies an installment agreement, the proposed regulations give taxpayers the right to an independent administrative review of alterations or modifications.

Explanation of Provisions

Sections 201 and 202 of TBOR2 amended section 6159 of the Code with respect to installment agreements. Section 201 provides that the Secretary may not alter, modify, or terminate an installment agreement unless notice of such action is given to the taxpayer at least 30 days before the action. The notice must explain why the Secretary intends to take the proposed action. Notice is not necessary if collection of the tax to which the installment agreement relates is in jeopardy.

Prior to the enactment of TBOR2, Section 6159 of the Code required notice only if the Internal Revenue Service intended to alter, modify, or terminate an installment agreement because of a change in the taxpayer’s financial condition. Section 301.6159–1(c)(4) of the regulations that are being amended by this notice of proposed rulemaking, however, already requires 30 days notice whenever the IRS intends to alter, modify, or terminate any agreement, regardless of the reason for the action. The only exception to this rule is that no notice is required if collection of the tax to which the installment agreement relates is in jeopardy. In addition, existing paragraph (c)(4) requires the no

February 23, 1998 30 1998–8 I.R.B.

30 days of the date of the notice. This will set the review process in motion.

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

Comments and Requests for a Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments that are submitted timely (a signed original and eight (8) copies) to the IRS. All comments will be available for public inspection and copying. A public hearing may be scheduled if requested in writing by a person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in the Federal Register.

Drafting Information

The principal author of these regulations is Kevin B. Connelly, Office of Assistant Chief Counsel (General Litigation) CC:EL:GL, IRS. However, other personnel from the IRS and Treasury Department participated in their development.

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 301 is proposed to be amended as follows:

PART 301—PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 301.6159–1 is amended by revising paragraphs (c)(4) and (g) to read as follows:

§301.6159–1 Agreements for payment of tax liability in installments.

(c) * * * (4) Notice. Unless the director determines that collection of the tax is in jeopardy, the director will notify the taxpayer in writing at least 30 days before altering, modifying, or terminating an installment agreement pursuant to paragraph (c)(1) or (2) of this section. A notice provided pursuant to this paragraph must briefly describe the reason for the intended alteration, modification, or termination. If the taxpayer disagrees with the director’s decision to terminate, alter, or modify the installment agreement, the taxpayer has the right to an independent administrative review. The taxpayer may initiate an independent administrative review by calling the telephone number listed on the notice within 30 days of the date of the notice. If, upon calling the telephone number listed on the notice, the dispute is not resolved to the taxpayer’s satisfaction, the taxpayer must speak with a manager. If, after speaking with a manager, the dispute still is not resolved to the taxpayer’s satisfaction, the taxpayer may request the Office of Appeals to independently review the decision. The Office of Appeals shall conduct a review to determine whether the facts and circumstances warrant the alteration, modification, or termination of the taxpayer’s installment agreement.

(g) Effective date. This section is applicable December 23, 1994, except that paragraph (c)(4) of this section is applicable on the date final regulations are published in the Federal Register.

Michael P. Dolan, Deputy Commissioner of

Internal Revenue.

(Filed by the Office of the Federal Register on December 30, 1997, 8:45 a.m., and published in the issue of the Federal Register for December 31, 1997, 62 F.R. 68241)

Notice of Proposed Rulemaking and Notice of Public Hearing

Certain Investment Income

REG–105163–97

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 treatment of certain investment income under the qualifying income provisions of section 7704(d) and the application of the passive activity loss rules to publicly traded partnerships. The regulations would affect the classification of certain partnerships for federal tax purposes and would also affect the passive activity loss limitations with respect to items attributable to publicly traded partnerships. This document also contains a notice of public hearing on these proposed regulations.

DATES: Written comments must be received by March 19, 1998. Requests to speak (with outlines of oral comments) at a public hearing scheduled for April 28, 1998, at 10 a.m., must be received by April 7, 1998.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-105163-97), room 5228, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. In the alternative, submissions may be hand delivered between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG–105163–97), 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 of 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 regulations, Christopher Kelley, (202) 622-3080; concerning submissions and the hearing,

1998–8 I.R.B 31 February 23, 1998

No. 495, 100th Cong., 1st Sess. 952–53 (1987) (Conference Report). In addition, Notice 88–75 (1988–2 C.B. 386) provided the same guidance on the definition of a publicly traded partnership for purposes of both sections 469(k) and 7704.

The recently issued regulations under §1.7704–1, however, define a publicly traded partnership only for purposes of section 7704. The proposed regulations implement the legislative history of section 469(k) by providing that the definition of a publicly traded partnership for purposes of section 469(k) is the same as the definition of publicly traded partnership under section 7704.

Proposed Effective Date

These regulations are proposed to apply for taxable years of a partnership beginning on or after the date the final regulations are published in the Federal Register.

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 regulations do not impose a collection of information on small entities, 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 written comments (preferably a signed original and eight (8) copies) that are submitted timely to the IRS. All comments will be available for public inspection and copying.

A public hearing has been scheduled for Tuesday, April 28, 1998, at 10 a.m., in Room 2615, Internal Revenue Building, 1111 Constitution Avenue NW, Washington, DC. Because of access restrictions,

Evangelista Lee, (202) 622-7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Introduction

This document proposes to add §1.7704–3 to the Income Tax Regulations (26 CFR part 1) relating to the definition of qualifying income for publicly traded partnerships under section 7704(d) of the Internal Revenue Code (Code). This document also proposes to amend §1.469–10 of the Income Tax Regulations relating to the application of section 469 of the Code to publicly traded partnerships.

Explanation of Provisions

Qualifying Income

Section 7704 of the Code provides that a publicly traded partnership is generally treated as a corporation for federal tax purposes unless 90 percent or more of the gross income of the partnership consists of qualifying income. Section 7704(d) defines qualifying income to include certain types of passive investment income, such as interest, dividends, real property rents, and income that would qualify under the regulated investment company provisions in section 851(b)(2) or the real estate investment trust provisions in section 856(c)(2). Since section 7704 was enacted, however, several new types of financial instruments have been developed that generate passive-type investment income similar to interest and dividends. The preamble to the regulations under §1.7704–1, issued December 4, 1995, (regarding the definition of public trading) requested comments from the public on the definition of qualifying income for investment partnerships and other partnerships engaged in various types of securities transactions.

In response to comments received, the proposed regulations provide that qualifying income for purposes of section 7704(c) includes income from holding annuities, income from notional principal contracts (as defined in §1.446–3), and other substantially similar income from ordinary and routine investments to the extent determined by the Commissioner. Qualifying income, however, includes income from a notional principal contract only if the property, income, or cash flow

that measures the amounts to which the partnership is entitled under the contract would give rise to qualifying income if held or received directly by the partnership. The proposed regulations also confirm that capital gain from the sale of stock is qualifying income, regardless of whether the stock pays dividends. The proposed regulations also provide that qualifying income (as defined in the proposed regulations) does not include income derived in the ordinary course of a trade or business by a broker, dealer, or market maker. Income derived by traders and investors can be qualifying income under the proposed regulations. The proposed regulations, including the trade or business restriction, are consistent with the legislative history of section 7704, which indicates that the exception for passive investment income was intended to distinguish between partnerships engaged in investment activities and those partnerships engaged in active business activities that are more typically conducted in corporate form. See H.R. Rep. No. 391 (Part 2), 100th Cong., 1st Sess. 1066–69 (House Report). The IRS also requests comments on the appropriate way to determine how gains should be measured for purposes of determining whether 90 percent or more of the partnership’s gross income is qualifying income when a partnership makes a mixed straddle account election under §1.1092(b)–4T. The IRS believes that use of the daily mark-to-market method provided for by §1.1092(b)–4T would be inconsistent with the congressional purpose behind section 7704.

Passive Activity Loss Rules

Section 469(a) generally provides that if for any taxable year the taxpayer is an individual, estate, trust, closely held C corporation, or personal service corporation, neither the passive activity loss nor the passive activity credit for the taxable year is allowed. Section 469(k) provides that section 469 applies separately with respect to items attributable to each publicly traded partnership. Section 469(k)(2) defines a publicly traded partnership in the same manner as section 7704(b). The legislative history of section 469(k) indicates that the term publicly traded partnership has the same meaning for purposes of section 469(k) as it does for purposes of section 7704. See H.R. Rep.

February 23, 1998 32 1998–8 I.R.B.

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 that wish to present oral comments at the hearing must submit timely written comments (preferably a signed original and eight (8) copies) by March 19, 1998 and submit an outline of the topics to be discussed and the time to be devoted to each topic by April 7, 1998.

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 Christopher Kelley, Office of Chief Counsel (Passthroughs and Special Industries). 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 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *. Par. 2. Section 1.469-10 is revised to read as follows:

§1.469–10 Application of section 469 to publicly traded partnerships.

(a) [Reserved]. (b) Publicly traded partnership —(1) In general. For purposes of section 469(k), a partnership is a publicly traded partnership only if the partnership is a publicly traded partnership as defined in §1.7704–1.

(2) Effective date. This section applies for taxable years of a partnership beginning on or after the date final regulations are published in the Federal Register.

Par. 3. Section 1.7704-3 is added to read as follows:

§1.7704–3 Qualifying income.

(a) Certain investment income —(1) In general. For purposes of section 7704(d)

(1), qualifying income includes capital gain from the sale of stock, income from holding annuities, income from notional principal contracts (as defined in §1.446–3), and other substantially similar income from ordinary and routine investments to the extent determined by the Commissioner. Income from a notional principal contract is included in qualifying income only if the property, income, or cash flow that measures the amounts to which the partnership is entitled under the contract would give rise to qualifying income if held or received directly by the partnership.

(2) Limitations. Qualifying income as defined in paragraph (a)(1) of this section does not include income derived in the ordinary course of a trade or business. For purposes of the preceding sentence, income derived from an asset with respect to which the partnership is a broker, market maker, or dealer is treated as income derived in the ordinary course of a trade or business; income derived from an asset with respect to which the taxpayer is a trader or investor is not treated as income derived in the ordinary course of a trade or business.

(b) Effective date. This section applies for taxable years of a partnership beginning on or after the date final regulations are published in the Federal Register.

(Filed by the Office of the Federal Register on December 18, 1997, 8:45 a.m., and published in the issue of the Federal Register for December 19, 1997, 62 F.R. 66575)

Notice of Proposed Rulemaking and Notice of Public Hearing

General Rules for Making and Maintaining Qualified Electing Fund Elections

REG–115795–97

AGENCY: Internal Revenue Service (IRS), Treasury

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

SUMMARY: In *** T.D. 8750, page 4 of this Bulletin, the IRS is issuing temporary

Michael P. Dolan, Acting Commissioner of

Internal Revenue.

regulations that provide guidance to a passive foreign investment company (PFIC) shareholder that makes the election under section 1295 (section 1295 election) to treat the PFIC as a qualified electing fund (QEF). The temporary regulations also provide guidance for shareholders that wish to make a section 1295 election that will apply on a retroactive basis (retroactive election). The temporary regulations also include a rule concerning the taxation under section 1291 of an exempt organization that is a shareholder of a PFIC that is not a pedigreed QEF. This rule was originally proposed in 1992. The text of the temporary regulations also serves as the text of these proposed regulations. In addition, this document proposes amendments to proposed regulation § 1.1296–4(e), concerning the treatment of interbank deposits as loans for purposes of the exception to passive income characterization of income derived in the active conduct of a banking business. This document also provides notice of a public hearing on these proposed regulations.

DATES: Written comments must be received by April 2, 1998. Requests to speak and outlines of oral comments to be discussed at the public hearing scheduled for April 16, 1998, must be received by March 26, 1998.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG–115795–97), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG–115795–97), 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 Room 3313, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Gayle Novig, (202) 622-3840; concerning sub

1998–8 I.R.B 33 February 23, 1998

missions and the hearing, Evangelista Lee, (202) 622-7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)).

Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Ser- vice, Attn: IRS Reports Clearance Officer, T:FP, Washington, DC 20224. Comments on the collection of information should be received by March 3, 1998. Comments are specifically requested concerning: Whether the proposed collection of information is necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility; The accuracy of the estimated burden associated with the proposed collection of information (see below); How the quality, utility, and clarity of the information to be collected may be enhanced; How the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

The collection of information in this proposed regulation is in proposed regulation §§ 1.1295–1(f), 1.1295–1(g), 1.1295– 3(c), and 1.1295–3(g). The information required in § 1.1295–1(f) and (g) will notify the Internal Revenue Service that certain shareholders have made the section 1295 election, and will enable the Internal Revenue Service to determine if a shareholder is satisfying the election and annual reporting requirements and is reporting income as required under section 1293.

The information required in proposed regulation § 1.1295–3(c) will notify the IRS that certain shareholders of foreign corporations have filed a Protective Statement to preserve their ability to make a retroactive section 1295 election, and that those shareholders have extended the periods of limitations for their taxable years to which the Protective Statement will apply. The information will enable the IRS to verify that the shareholders filing the Protective Statement had the requisite reasonable belief at the time they filed the statement. The information required in proposed regulation § 1.1295–3(g) will notify the IRS that a shareholder has made the retroactive election and, in the case of a shareholder that filed a Protective Statement, that the shareholder’s waiver of the periods of limitations will terminate within three years of making the election. The information will enable the Service to verify that the requirements for making a retroactive election have been satisfied.

The collection of information and responses to these collections of information are mandatory. The likely respondents are individuals, businesses, and other for-profit organizations.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number assigned by the Office of Management and Budget.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. Estimated total annual reporting/recordkeeping burden: 623 hours. The estimated annual burden per respondent varies from 15 minutes to three hours, depending on individual circumstances, with an estimated average of 29 minutes. Estimated number of respondents: 1,290. Estimated annual frequency of responses: Annually or one time only.

Background

Sections 1291, 1293, 1295, and 1297. Temporary regulations in T.D. 8750 amend the Income Tax Regulations (26

CFR part 1) relating to sections 1291, 1293, 1295, and 1297. The temporary regulations contain rules concerning the taxation of exempt organizations under section 1291, elections under section 1295 to treat passive foreign investment companies as qualified electing funds (QEFs), the calculation of net capital gain for purposes of section 1293, and the inclusion of the pro rata shares of the earnings and profits of QEFs held through pass through entities. The temporary regulations amend § 1.1297–3T, permitting in certain cases the application of the rules of section 1291(d)(2)(B) to an election made under section 1297(b)(1).

The text of those temporary regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains the temporary regulations.

Section 1296. On April 28, 1995, proposed regulations were published providing guidance for the exceptions to passive income characterization of certain income derived by active foreign banks and foreign security dealers provided in section 1296(b)(2)(A) and (b)(3), respectively. The proposed section 1296 regulations reflect comments received with respect to Notice 89– 81, 1989–2 C.B. 399. That notice established tests for determining whether a foreign corporation qualified for the active foreign bank exception. The notice specifically stated that interbank deposits would not be treated as loans made in the ordinary course of a banking business.

After consideration of the comments received with respect to the Notice, the IRS and Treasury determined that interbank deposits were made and accepted in the ordinary course of a banking business, and therefore should be treated as such for purposes of section 1296(b)(2)(A). Accordingly, proposed regulation § 1.1296– 4(d)(3) specifically includes interbank deposits with other deposits for purposes of determining whether the foreign corporation satisfies the deposit-taking requirements of § 1.1296–4(d). Also in response to comments, proposed regulation § 1.1296–4(e) is clarified to specifically provide that interbank deposits made with banks in the ordinary course of business constitute loans for purposes of § 1.1296– 4. This clarification is favorable to taxpay

February 23, 1998 34 1998–8 I.R.B.

ers, and is proposed to be effective for taxable years beginning after December 31, 1994. It is also proposed that taxpayers may apply it to a taxable year beginning after December 31, 1986, provided it is consistently applied to that taxable year and all subsequent taxable years. The dates for applying proposed regulation § 1.1296–4(e) coincide with the dates for which § 1.1296–4 is proposed to be effective. See proposed regulation § 1.1296– 4(k).

Special Analyses

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment 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. It has been determined that an initial regulatory flexibility analysis is required for the collection of information in this notice of proposed rulemaking under 5 U.S.C. § 603. This analysis is set forth below under the heading ‘Initial Regulatory Flexibility Analysis.’

Initial Regulatory Flexibility Analysis. This initial analysis is provided pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6). The major objective of the proposed regulations is to provide guidance to PFIC shareholders that wish to elect under section 1295 to treat their PFICs as QEFs, and provide guidance to those PFICs about the requirements imposed on them. The legal basis for these requirements is contained in sections 1293, 1294, and 1295. The IRS and Treasury are not aware of any federal rules that duplicate, overlap, or conflict with the proposed regulations.

The recordkeeping and reporting requirements of the proposed regulations enable the Internal Revenue Service to identify those taxpayers that are treating their PFICs as QEFs; to verify that those U.S. taxpayers are currently including their shares of QEF earnings in income, as required in section 1293 of the Internal Revenue Code; to be informed of those QEF shareholders that are not paying their section 1293 tax liability because they made the section 1294 election to

defer the time for payment; to identify those shareholders of foreign corporations that are preserving their right to make a retroactive section 1295 election; to identify those shareholders making retroactive elections and verify that they are satisfying the requirements of a retroactive election; and, in the case of shareholders that have filed Protective Statements, the dates by which the shareholders’ extensions of periods of limitations will terminate.

These proposed regulations will affect those small entities that are PFICs, at least one shareholder of which makes the section 1295 election. The proposed regulations also will affect those small entities that are PFIC shareholders that make the section 1295 election. The IRS and Treasury believe that affected small entities generally will be small businesses, as local governments are not likely to invest in PFICs. Also, few, if any, affected small entities likely will be tax exempt organizations, because only a tax exempt entity that is taxable under subchapter F on dividends received from the PFIC generally would need to consider making the section 1295 election.

The collections of information in these proposed regulations would impact a small entity that is treated as a QEF principally by requiring the entity to calculate annually its ordinary earnings and net capital gain according to federal income tax accounting principles, as required by section 1293, and report that information to its shareholders that are U.S. persons. With the enactment of section 1(h), the QEF also must calculate each type of long term capital gain that it derived and the applicable rates of tax for proper inclusion of the QEF’s net capital gain by the QEF shareholders. Alternatively, the regulations permit the QEF to provide its shareholders with its books, records and other documents necessary for the shareholders to calculate the ordinary earnings and net capital gain amounts. This alternative will enable a small entity that is a QEF to avoid the burden of calculating its net capital gain by providing its shareholders with information with which the shareholders can make the calculations.

The economic impact of other collections of information contained in these proposed regulations would fall on a small entity that is a shareholder of a PFIC for which it has made the section

1295 election or that is a pass through entity to which an interest holder transferred stock subject to a section 1295 election. The economic impact would result primarily from the reporting and recordkeeping requirements pertaining to (1) the manner for making the section 1295 election and the annual election requirements; (2) the calculation by the shareholder (rather than the QEF) of the QEF’s ordinary earnings and net capital gain according to federal income tax principles, and its pro rata shares thereof; (3) a request for consent to revoke a section 1295 election; (4) the preservation of the right to make a retroactive election under section 1295; (5) a request for consent to make a retroactive election; (6) making a retroactive election, including filing amended returns for the affected taxable years; and (7) providing interest holders with PFIC statements and other information received by an intermediary shareholder.

The proposed regulations reduce the burden under existing rules for making the section 1295 election for all taxpayers, including small businesses and other small entities. Unlike the current requirements provided in Notice 88–125, the proposed regulations only require electing shareholders to file Form 8621 to make the section 1295 election, thereby eliminating the shareholder election statement as well as the requirement to file a copy of the PFIC Annual Information Statement. The proposed regulations only require shareholders to retain the PFIC Annual Information Statement or the Annual Intermediary Statement received as well as a copy of their filings for each year to which the section 1295 election applies. In addition, the proposed regulations impose a lesser burden on small shareholders, typically individuals and small entities, to preserve their right to make a retroactive election and a lesser burden of making a retroactive election. A small entity that owns less than five percent of each class of stock of a foreign corporation and satisfies other requirements is not required to file a Protective Statement to preserve its right to make a retroactive election with respect to the foreign corporation. Similarly, a small entity potentially has fewer amended returns to file to make a retroactive election than a shareholder that filed a Protective Statement. These changes in election requirements are illustrative of IRS efforts to

1998–8 I.R.B 35 February 23, 1998

minimize burden, particularly with respect to small entities.

An estimate of the number of small entities that would be affected by these regulations is unavailable. In any event, the enactment in 1997 of the mark-to-market election for PFIC shareholders and the elimination of the overlap in certain cases of subpart F and the PFIC provisions, will reduce the number of small entities that would be affected by these regulations.

None of the significant alternatives considered in drafting these regulations would have significantly altered the economic impact of the collections of information on small entities. In considering the significant alternatives that would be permissible under the Code and would enable the IRS to ensure compliance with the Code, the IRS and Treasury concluded that the alternatives generally would impose equal or greater burdens.

Comments and Public Hearing

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

A public hearing has been scheduled for April 16, 1998, at 10 a.m., in room 2615, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. Because of access restrictions, visitors will not be admitted beyond the Internal Revenue 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 by April 2, 1998, and submit an outline of the topics to be discussed and the time to be devoted to each topic (signed original and eight (8) copies) by March 26, 1998.

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

An agenda showing the schedule of 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 authors of the proposed regulations are Gayle Novig and Judith

Cavell Cohen, of the Office of the Associate Chief Counsel (International). Other personnel from the IRS and Treasury Department also participated in the development of these regulations.

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 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.1291–1 is added to read as follows:

[The text of this proposed section is the same as the text of § 1.1291–1T published in T.D. 8750.]

Par. 3. Section 1.1293–1 is added to read as follows:

§ 1.1293–1 Current taxation of income from qualified electing funds.

[The text of this proposed section is the same as the text of § 1.1293–1T published in T.D. 8750.]

Par. 4. Section 1.1295–1 is added to read as follows:

§ 1.1295–1 Qualified electing funds.

[The text of this proposed section is the same as the text of § 1.1295–1T published in T.D. 8750.]

Par. 5. Section 1.1295–3 is added to read as follows:

§ 1.1295–3 Retroactive elections.

[The text of this proposed section is the same as the text of § 1.1295–3T published in T.D. 8750.]

Par. 6. In § 1.1297–3, paragraph (c) is added to read as follows:

§ 1.1297–3 Deemed sale election by a United States person that is a shareholder of a passive foreign investment company.

[The text of this proposed paragraph (c) is the same as the text of § 1.1297–3T(c) published in T.D. 8750.]

Par. 7. Section 1.1296–4(e), as proposed at 60 F.R. 20922 (April 28, 1995), is amended by adding a sentence at the end of the paragraph to read as follows:

§ 1.1296-4 Characterization of certain banking income of foreign banks as passive.

(e) Lending activities test. *** An interbank deposit made in the ordinary course of a corporation’s banking business will be treated as a loan for purposes of this section. For the effective date of this paragraph (e), see paragraph (k) of this section.

Michael P. Dolan, Deputy Commissioner of

Internal Revenue.

(Filed by the Office of the Federal Register on December 31, 1997, 8:45 a.m., and published in the issue of the Federal Register for January 2, 1998, 63 F.R. 35)

Notice of Proposed Rulemaking

Loans to Plan Participants

REG–209476–82

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document amends proposed Income Tax Regulations under section 72(p) of the Internal Revenue Code relating to loans made from a qualified employer plan to plan participants or beneficiaries. Section 72(p) was added by section 236 of the Tax Equity and Fiscal Responsibility Act of 1982, and amended by the Technical Corrections Act of 1982, the Deficit Reduction Act of 1984, the Tax Reform Act of 1986 and the Technical and Miscellaneous Revenue Act of 1988. These regulations provide guidance to the public with respect to section 72(p), and affect administrators of, participants in, and beneficiaries of qualified employer plans that permit participants or beneficiaries to receive loans from the plan (including loans from section 403(b) contracts and other contracts issued under qualified employer plans).

DATES: Written comments and requests for a public hearing must be received by April 2, 1998.

February 23, 1998 36 1998–8 I.R.B.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG–209476–82), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered between the hours 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG– 209476–82), 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.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Vernon S. Carter, (202) 622-6070; concerning submissions or requests to speak at the hearing, La Nita VanDyke, (202) 6227190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed amendments to the Proposed Income Tax Regulations (26 CFR Part 1) under section 72 of the Internal Revenue Code of 1986 (Code). These amendments provide additional guidance concerning the tax treatment of loans that are deemed to be distributed under section 72(p).

Explanation of Provisions

Section 72(p)(1)(A) provides that a loan from a qualified employer plan (including a contract purchased under a qualified employer plan) to a participant or beneficiary is treated as received as a distribution from the plan for purposes of section 72 (a deemed distribution). Section 72(p)(1)(B) provides that an assignment or pledge of (or an agreement to assign or pledge) any portion of a participant’s or beneficiary’s interest in a qualified employer plan is treated as a loan from the plan.

Section 72(p)(2) provides that section 72(p)(1) does not apply to the extent certain conditions are satisfied. Specifically, under section 72(p)(2), a loan from a qualified employer plan to a participant or beneficiary is not treated as a distribution from the plan if the loan satisfies require

ments relating to the term of the loan and the repayment schedule, and to the extent the loan satisfies certain limitations on the amount loaned.

Regulations were proposed in 1995 ¹

withholding ³ ). The participant’s total account then consists of non-loan assets and a receivable for the loan balance. At separation from employment, the participant’s vested account balance is reduced (offset) by the loan amount and the remaining account balance is distributed in a lump sum to the participant. In this case, in addition to the income that previously arose as a result of the deemed distribution due to the failure to make timely payments on the loan, the participant would have a taxable distribution at separation from employment for the remaining account balance reflecting the nonloan assets that are distributed in a lump sum (with no tax basis as a result of the prior deemed distribution of the loan amount). The offset of the loan balance (i.e., the offset of the loan receivable by the loan amount) would be disregarded for purposes of section 72 because the loan had previously been deemed distributed as a result of the failure to make timely payments on the loan.

A loan that is deemed distributed under section 72 is nevertheless outstanding for other purposes until the loan obligation is satisfied (e.g., by cash repayment or by offset against the participant’s accrued benefit). Q&A–13 of the 1995 proposed regulations lists other differences between a deemed distribution and a loan offset. In addition, for purposes of calculating the maximum permitted amount of any subsequent loan, a loan that has been deemed distributed is considered outstanding until the loan obligation has been satisfied.

The proposed regulations also provide that if a participant makes any cash repayments on a loan after the loan is deemed distributed, the repayments increase the participant’s tax basis in the plan in the same manner as if the repayments were

3With respect to coverage under Title I of the Employee Retirement Income Security Act of 1974, the Department of Labor has advised the Service that an employer’s tax-sheltered annuity program would not necessarily fail to satisfy the Department’s regulation at 29 CFR 2510.3–2(f) merely because the employer permits employees to make repayments of laons made in connection with the tax-sheltered annuity program through payroll deductions as part of the employer’s payroll deduction system, if the program operates within the limitations set by that regulation.

with respect to many of the issues arising under section 72(p)(2). The preamble to the 1995 proposed regulations requested comments on whether further guidance should be provided on certain issues that were not addressed. Following publication of the 1995 proposed regulations, comments were received and a public hearing was held on June 28, 1996. One of the issues on which comments were requested and received was the effect of a deemed distribution on the tax treatment of subsequent distributions from a plan (such as whether a participant has tax basis as a result of a deemed distribution). After reviewing the written comments and comments made at the public hearing, these new proposed regulations address this issue.

These new proposed regulations provide that once a loan is deemed distributed under section 72(p), the interest that accrues thereafter on that loan is not included in income. ² Further, because the loan amount is treated as distributed for purposes of section 72, neither the income that resulted from the deemed distribution nor the interest that accrues thereafter increases the participant’s investment in the contract (tax basis) for purposes of section 72.

For example, assume that, after a loan has been made from a defined contribution plan to a participant, a deemed distribution occurs as a result of failure to make timely loan repayments (e.g., the repayments were not to be made by payroll

1Proposed §1.72(p)–1 (EE–106–82) was published in the Federal Register (60 F.R. 66233) on December 21, 1995.

2This treatment applies for purposes of determining the amount taxable under section 72 (including application of return of tax basis). However, as discussed below, the loan is still considered outstanding for purposes of determining the maximum amount of any subsequent loan to the participant under section 72(p)(2)(A). Even though interest continues to accrue on the outstanding loan and is taken into account for purposes of determining the maximum amount of any subsequent loan, this additional interest is not treated as a additional loan that results in a further deemed distribution for purposes of section 72(p).

1998–8 I.R.B 37 February 23, 1998

tion will be given to any written comments that are submitted timely (preferable a signed original and eight copies) to the IRS. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by a person that timely submits written comments. If a public hearing is scheduled, notice of the date, time and place for the hearing will be published in the Federal Register.

Drafting Information

The principal author of these regulations is Vernon S. Carter, Office of Associate Chief Counsel (Employee Benefits and Exempt Organizations). However, other personnel from the IRS and Treasury Department participated in their development.

Amendments to the Previously Proposed 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 continues to read, in part, as follows:

Authority: 26 U.S.C. 7805. * * * Par. 2. Section 1.72(p)–1 of the proposed regulations published December 21, 1995, (60 FR 66233) is amended as follows:

Q&A–19 is redesignated as Q&A–
New Q&A–19 and Q&A–20 are added.
Q&A–21, as redesignated, is revised. The additions and revision read as follows:

§ 1.72(p)–1 Loans treated as distributions.

Q–19: If there is a deemed distribution under section 72(p), is the interest that accrues thereafter on the amount of the deemed distribution an indirect loan for income tax purposes?

A–19: (a) General rule. Except as provided in paragraph (b) of this Q&A– 19, a deemed distribution of a loan is

after-tax contributions. However, such repayments are not treated as after-tax contributions for purposes of section 401(m) or 415(c)(2)(B). These regulations are proposed to become effective for loans made on or after the first January 1 that is at least 6 months after the date the regulations are published as final regulations in the Federal Register (the regulatory effective date). These regulations also revise the proposed effective date for the 1995 proposed regulations, so that the same proposed effective date would apply to the 1995 proposed regulations and these proposed regulations.

Generally, a plan is permitted to apply the new proposed regulations to loans made before the regulatory effective date. However, the regulations include a special consistency rule applicable if there has been any deemed distribution of the loan before the date the plan switches to the new proposed regulations for the loan. In this event, a plan is not permitted to apply the new proposed regulations to the loan unless the plan reported, in Box 1 of Form 1099–R, a gross distribution with respect to the loan that is at least equal to the amount required by the 1995 proposed regulations (referred to as the initial default amount in the new proposed regulations) for a taxable year that is not later than the latest year that would be permitted under the 1995 proposed regulations. In such a case, the plan may apply the new proposed regulations to the loan even though, in the past, the plan reported deemed distributions with respect to the loan in a manner that is not consistent with the new proposed regulations.

If a plan does apply the new proposed regulations to a pre-regulatory effective date loan that has been deemed distributed, then the plan, in its subsequent reporting and withholding, must not attribute investment in the contract (tax basis) to the participant based upon the initial default amount. For example, a plan that reported income for the initial default amount plus all interest accruing thereafter as a result of the default and made corresponding increases in the participant’s tax basis would comply with this consistency rule by reducing the participant’s tax basis by an amount equal to the initial default amount. In addition, a special rule applies if a plan had increased

a participant’s tax basis by the initial default amount and, just before the first actual distribution made after the plan switches to applying the new proposed regulations to the loan, the sum of the participant’s tax basis immediately before the switch plus any increase in basis thereafter (e.g., from after-tax contributions) is less than the initial default amount (as a result of intervening distributions). In this case, a loan transition amount equal to the amount by which the initial default amount exceeds the participant’s tax basis is treated as remaining outstanding and that amount is includible in the participant’s income at the time of the next actual distribution from the plan to the participant. The proposed regulations include examples illustrating the application of the consistency rule.

Comments are requested on whether the final regulations should include further guidance relating to plan loans made to participants before the regulatory effective date.

Taxpayers may rely on these proposed regulations for guidance pending the issuance of final regulations. If, and to the extent, future guidance is more restrictive than the guidance in these proposed regulations, the future guidance will be applied without retroactive effect.

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

Comments and Requests for a Public Hearing

Before these proposed regulations are adopted as final regulations, considera

February 23, 1998 38 1998–8 I.R.B.

treated as a distribution for purposes of section 72. Therefore, a loan that is deemed to be distributed under section 72(p) ceases to be an outstanding loan for purposes of section 72, and the interest that accrues thereafter under the plan on the amount deemed distributed is disregarded in applying section 72 to the participant or beneficiary. Even though interest continues to accrue on the outstanding loan (and is taken into account for purposes of determining the tax treatment of any subsequent loan in accordance with paragraph (b) of this Q&A–19), this additional interest is not treated as an additional loan (and, thus, does not result in an additional deemed distribution) for purposes of section 72(p). However, a loan that is deemed distributed under section 72(p) is not considered distributed for all purposes of the Internal Revenue Code. See Q&A–11 through Q&A–16 of this section.

(b) Exception for purposes of applying section 72(p)(2)(A) to a subsequent loan. A loan that is deemed distributed under section 72(p) (including interest accruing thereafter) and that has not been repaid (such as by a plan loan offset) is considered outstanding for purposes of applying section 72(p)(2)(A) to determine the maximum amount of any subsequent loan to the participant or beneficiary.

Q–20: Is a participant’s tax basis in the plan increased if the participant repays the loan after a deemed distribution?

A–20: (a) Repayments after deemed distribution. Yes, if the participant or beneficiary repays the loan after a deemed distribution of the loan under section 72(p), then, for purposes of section 72(e), the participant’s or beneficiary’s investment in the contract (tax basis) under the plan increases by the amount of the cash repayments that the participant or beneficiary makes on the loan after the deemed distribution. However, loan repayments are not treated as after-tax contributions for other purposes, including sections 401(m) and 415(c)(2)(B). (b) Example. The following example illustrates the rules in paragraph (a) of this Q&A-20 and is based on the assumptions described in ASSUMPTIONS FOR EXAMPLES:

Example. (a) A participant receives a $20,000 loan on January 1, 1999, to be repaid in 20 quarterly installments of $1,245 each. On December 31,

1999, the outstanding loan balance ($19,179) is deemed distributed as a result of a failure to make quarterly installment payments that were due on September 30, 1999 and December 31, 1999. On June 30, 2000, the participant repays $5,147 (which is the sum of the three installment payments that were due on September 30, 1999, December 31, 1999, and March 31, 2000, with interest thereon to June 30, 2000, plus the installment payment that was due on June 30, 2000). Thereafter, the participant resumes making the installment payments of $1,245 from September 30, 2000 through December 31, 2003. The loan repayments made after December 31, 1999 through December 31, 2003 total $22,577. (b) Because the participant repaid $22,577 after the deemed distribution that occurred on December 31, 1999, the participant has investment in the contract (tax basis) equal to $22,577 as of December 31, 2003.

Q–21: When is the effective date of section 72(p) and these regulations?

A–21: (a) Statutory effective date. Section 72(p) generally applies to assignments, pledges, and loans made after August 13, 1982.

(b) Regulatory effective date. This section applies to assignments, pledges, and loans made on or after the first January 1 that is at least 6 months after the date of publication of the final regulations in the Federal Register (the regulatory effective date).

(c) Loans made before the regulatory effective date - (1) General rule. A plan is permitted to apply Q&A–19 and Q&A– 20 of this section to a loan made before the regulatory effective date (and after the statutory effective date in paragraph (a) of this Q&A–21) if there has not been any deemed distribution of the loan before the transition date or if the conditions of paragraph (c)(2) of this Q&A–21 are satisfied with respect to the loan.

(2) Consistency transition rule for cer- tain loans deemed distributed before the regulatory effective date. (i) The rules in this paragraph (c)(2) apply to a loan made before the regulatory effective date (and after the statutory effective date in paragraph (a) of this Q&A–21) if there has been any deemed distribution of the loan before the transition date.

(ii) The plan is permitted to apply Q&A–19 and Q&A–20 of this section to the loan beginning on any January 1, but only if the plan reported, in Box 1 of Form 1099–R, for a taxable year no later than the latest taxable year that would be permitted under this section, a gross distribution of an amount at least equal to the initial default amount. For purposes of

this section, the initial default amount is the amount that would be reported as a gross distribution under Q&A–4 and Q&A–10 of this section and the transition date is the January 1 on which a plan begins applying Q&A–19 and Q&A–20 of this section to a loan.

(iii) If a plan applies Q&A–19 and Q&A–20 of this section to such a loan, then the plan, in its reporting and withholding on or after the transition date, must not attribute investment in the contract (tax basis) to the participant or beneficiary based upon the initial default amount.

(iv) This paragraph (c)(2)(iv) applies if—

(A) The plan attributed investment in the contract (tax basis) to the participant or beneficiary based on the deemed distribution of the loan;

(B) The plan subsequently made an actual distribution to the participant or beneficiary before the transition date; and

(C) Immediately before the first actual distribution made on or after the transition date, the initial default amount (or, if less, the amount of the investment in the contract so attributed) exceeds the sum of the participant’s or beneficiary’s investment in the contract (tax basis) immediately before the transition date plus any increase in the participant’s or beneficiary’s investment in the contract (tax basis) on or after the transition date. If this paragraph (c)(2)(iv) applies, the plan must treat the excess (the loan transition amount) as a loan amount that remains outstanding and must include the excess in the participant’s or beneficiary’s income at the time of the actual distribution.

(3) Examples. The rules in paragraph (c)(2) of this Q&A-21 are illustrated by the following examples, which are based on the assumptions described in ASSUMPTIONS FOR EXAMPLES (and, except as specifically provided in the examples, also assume that no distributions are made to the participant and that the participant has no investment in the contract with respect to the plan). Example 1, Example 2, and Example 4 illustrate the application of these rules to a plan that, before the transition date, did not treat interest accruing after the initial deemed distribution as resulting in additional deemed distributions under section 72(p). Example 3 illustrates the application of

1998–8 I.R.B 39 February 23, 1998

these rules to a plan that, before the transition date, treated interest accruing after the initial deemed distribution as resulting in additional deemed distributions under section 72(p).

Example 1. (a) In 1995, when a participant’s account balance under a plan is $50,000, the participant receives a loan from the plan. The participant makes the required repayments until 1996 when there is a deemed distribution of $20,000 as a result of a failure to repay the loan. For 1996, as a result of the deemed distribution, the plan reports, in Box 1 of Form 1099–R, a gross distribution of $20,000 (which is the initial default amount in accordance with paragraph (c)(2)(ii) of Q&A–21 of this section) and, in Box 2 of Form 1099–R, a taxable amount of $20,000. The plan then records an increase in the participant’s tax basis for the same amount ($20,000). Thereafter, the plan disregards, for purposes of section 72, the interest that accrues on the loan after the 1996 deemed distribution. Thus, as of December 31, 1998, the total taxable amount reported by the plan as a result of the deemed distribution is $20,000 and the plan’s records show that the participant’s tax basis is the same amount ($20,000). As of January 1, 1999, the plan decides to apply Q&A–19 of this section to the loan. Accordingly, it reduces the participant’s tax basis by the initial default amount of $20,000, so that the participant’s remaining tax basis in the plan is zero. Thereafter, the amount of the outstanding loan is not treated as part of the account balance for purposes of section 72. The participant attains age 59-1/2 in the year 2000 and receives a distribution of the full account balance under the plan consisting of $60,000 in cash and the loan receivable. At that time, the plan’s records reflect an offset of the loan amount against the loan receivable in the participant’s account and a distribution of $60,000 in cash.

(b) For the year 2000, the plan must report a gross distribution of $60,000 on Box 1 of Form 1099–R and a taxable amount of $60,000 in Box 2 of Form 1099–R.

Example 2. The facts are the same as in Example 1, except that in 1996, immediately prior to the deemed distribution, the participant’s account balance under the plan totals $50,000 and the participant’s tax basis is $10,000. For 1996, the plan reports, in Box 1 of Form 1099–R, a gross distribution of $20,000 (which is the initial default amount in accordance with paragraph (c)(2)(ii) of Q&A–21 of this section) and reports, in Box 2 of Form 1099-R, a taxable amount of $16,000 (the $20,000 deemed distribution minus $4,000 of tax basis ($10,000 times ($20,000/$50,000)) allocated to the deemed distribution). The plan then records an increase in tax basis equal to the $20,000 deemed distribution, so that the participant’s remaining tax basis as of December 31, 1996 totals $26,000 ($10,000 minus $4,000 plus $20,000). Thereafter, the plan disregards, for purposes of section 72, the interest that accrues on the loan after the 1996 deemed distribution. Thus, as of December 31, 1998, the total taxable amount reported by the plan as a result of the deemed distribution is $16,000 and the plan’s records show that the participant’s tax basis is $26,000. As of January 1, 1999, the plan decides to apply Q&A–19 of this section to the loan. Accord

ingly, it reduces the participant’s tax basis by the initial default amount of $20,000, so that the participant’s remaining tax basis in the plan is $6,000. Thereafter, the amount of the outstanding loan is not treated as part of the account balance for purposes of section 72. The participant attains age 59-1/2 in the year 2000 and receives a distribution of the full account balance under the plan consisting of $60,000 in cash and the loan receivable. At that time, the plan’s records reflect an offset of the loan amount against the loan receivable in the participant’s account and a distribution of $60,000 in cash.

(b) For the year 2000, the plan must report a gross distribution of $60,000 on Box 1 of Form 1099–R and a taxable amount of $54,000 in Box 2 of Form 1099–R.

Example 3. (a) In 1990, when a participant’s account balance in a plan is $100,000, the participant receives a loan of $50,000 from the plan. The participant makes the required loan repayments until 1992 when there is a deemed distribution of $28,919 as a result of a failure to repay the loan. For 1992, as a result of the deemed distribution, the plan reports, in Box 1 of Form 1099–R, a gross distribution of $28,919 (which is the initial default amount in accordance with paragraph (c)(2)(ii) of Q&A–21 of this section) and, in Box 2 of Form 1099–R, a taxable amount of $28,919. For 1992, the plan also records an increase in the participant’s tax basis for the same amount ($28,919). Each year thereafter through 1998, the plan reports a gross distribution equal to the interest accruing that year on the loan balance, reports a taxable amount equal to the interest accruing that year on the loan balance reduced by the participant’s tax basis allocated to the gross distribution, and records a net increase in the participant’s tax basis equal to that taxable amount. As of December 31, 1998, the taxable amount reported by the plan as a result of the loan totals $44,329 and the plan’s records for purposes of section 72 show that the participant’s tax basis totals the same amount ($44,329). As of January 1, 1999, the plan decides to apply Q&A–19 of this section. Accordingly, it reduces the participant’s tax basis by the initial default amount of $28,919, so that the participant’s remaining tax basis in the plan is $15,410 ($44,329 minus $28,919) as of December 31, 1999. Thereafter, the amount of the outstanding loan is not treated as part of the account balance for purposes of section 72. The participant attains age 59-1/2 in the year 2000 and receives a distribution of the full account balance under the plan consisting of $180,000 in cash and the loan receivable equal to the $28,919 outstanding loan amount in 1992 plus interest accrued thereafter to the payment date in 2000. At that time, the plan’s records reflect an offset of the loan amount against the loan receivable in the participant’s account and a distribution of $180,000 in cash.

(b) For the year 2000, the plan must report a gross distribution of $180,000 in Box 1 of Form 1099-R and a taxable amount of $164,590 in Box 2 of Form 1099–R ($180,000 minus the remaining tax basis of $15,410).

Example 4. (a) The facts are the same as in Example 1, except that in 1997, after the deemed distribution, the participant receives a $10,000 hardship distribution. At the time of the hardship distribution, the participant’s account balance under the plan totals $50,000. For 1997, the plan reports, in Box 1 of

(Filed by the Office of the Federal Register on December 31, 1997, 8:45 a.m., and published in the issue of the Federal Register for January 2, 1998, 63 F.R. 42)

Notice of Proposed Rulemaking

FICA and FUTA Taxation of Amounts Under Employee Benefit Plans

REG–209484–87; REG–209807–95

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

Form 1099-R, a gross distribution of $10,000 and, in Box 2 of Form 1099–R, a taxable amount of $6,000 (the $10,000 actual distribution minus $4,000 of tax basis ($10,000 times ($20,000/ $50,000)) allocated to this actual distribution). The plan then records a decrease in tax basis equal to $4,000, so that the participant’s remaining tax basis as of December 31, 1997 totals $16,000 ($20,000 minus $4,000). After 1996, the plan disregards, for purposes of section 72, the interest that accrues on the loan after the 1996 deemed distribution. Thus, as of December 31, 1998, the total taxable amount reported by the plan as a result of the deemed distribution plus the 1997 actual distribution is $26,000 and the plan’s records show that the participant’s tax basis is $16,000. As of January 1, 1999, the plan decides to apply Q&A–19 of this section to the loan. Accordingly, it reduces the participant’s tax basis by the initial default amount of $20,000, so that the participant’s remaining tax basis in the plan is reduced from $16,000 to zero. However, because the $20,000 initial default amount exceeds $16,000, the plan records a loan transition amount of $4,000 ($20,000 minus $16,000). Thereafter, the amount of the outstanding loan, other than the $4,000 loan transition amount, is not treated as part of the account balance for purposes of section 72. The participant attains age 59-1/2 in the year 2000 and receives a distribution of the full account balance under the plan consisting of $60,000 in cash and the loan receivable. At that time, the plan’s records reflect an offset of the loan amount against the loan receivable in the participant’s account and a distribution of $60,000 in cash.

(b) In accordance with paragraph (c)(2)(iv) of Q&A–21 of this section, the plan must report in Box 1 of Form 1099–R a gross distribution of $64,000 and in Box 2 of Form 1099–R a taxable amount for the participant for the year 2000 equal to $64,000 (the sum of the $60,000 paid in the year 2000 plus $4,000 as the loan transition amount).

Michael P. Dolan, Deputy Commissioner of

Internal Revenue .

February 23, 1998 40 1998–8 I.R.B.

SUMMARY: This document contains a revision to the proposed regulations under section 3121(v)(2) of the Internal Revenue Code of 1986, relating to when amounts deferred under or paid from certain nonqualified deferred compensation plans are taken into account as “wages” for purposes of the taxes imposed by the Federal Insurance Contributions Act (FICA). This document extends the proposed general effective date of the regulations to January 1, 1998. The extension also applies to the proposed regulations under section 3306(r)(2), relating to when amounts deferred under or paid from certain nonqualified deferred compensation plans are taken into account as “wages” for purposes of the taxes imposed by the Federal Unemployment Tax Act (FUTA), due to the cross-reference therein to the provisions of the proposed regulations under section 3121(v)(2).

DATES: Written comments and requests for a public hearing must be received by March 24, 1998.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (EE–142–87), room 5228, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. In the alternative, submissions may be hand delivered between the hours of 8 a.m. and 5 p.m. to: CC:DOM: CORP:R (REG–209484–87), 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 of 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.

FOR FURTHER INFORMATION CONTACT: Janine Cook, (202) 622-6040 (not a toll-free number), concerning the regulations, and Michael Slaughter, (202) 622-7190 (not a toll-free number), concerning submissions.

SUPPLEMENTARY INFORMATION:

Background

This document contains a revision to the proposed amendments to the Employment Tax Regulations (26 CFR part 31) under section 3121(v)(2) of the Internal

Revenue Code of 1986 (Code), relating to the Federal Insurance Contributions Act (FICA) tax treatment of amounts deferred under or paid from certain nonqualified deferred compensation plans. The proposed regulations were published in the Federal Register on January 25, 1996 (61 F.R. 2194), with a proposed general effective date of January 1, 1997. This document extends the proposed general effective date to January 1, 1998. The same issue of the Federal Register contained proposed amendments to the Employment Tax Regulations under section 3306(r)(2) of the Code, relating to the Federal Unemployment Tax Act (FUTA) tax treatment of amounts deferred under or paid from certain nonqualified deferred compensation plans (61 F.R. 2214). The proposed regulations under section 3306(r)(2) cross-reference the provisions of the proposed regulations under section 3121(v)(2), including the proposed general effective date. Consequently, the extension of the effective date under the proposed regulations under section 3121(v)(2) automatically applies to the proposed regulations under section 3306(r)(2). The project numbers assigned to the notices of proposed rulemaking setting forth the proposed regulations under section 3121(v)(2) and section 3306(r)(2) were EE–142–87 and EE–55–95, respectively. Due to changes in the Internal Revenue Service’s regulations numbering system, the project numbers for this notice of proposed rulemaking have been changed to REG–209484–87 and REG– 209807–95, respectively, as reflected at the beginning of this document.

Explanation of Provisions

Section 31.3121(v)(2)–1(g)(1)(i) of the proposed regulations provides that the proposed general effective date of the regulations is January 1, 1997. Because the final regulations have not been issued, this document contains an amendment to the proposed regulations to extend the proposed general effective date to January 1, 1998. This extension of the proposed general effective date also applies to § 31.3306(r)(2)–1 of the proposed regulations due to the cross-reference therein to the provisions in the proposed regulations under section 3121(v)(2).

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 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 Requests for a Public Hearing

Before this revision to the proposed regulations is adopted as part of the final regulations, consideration will be given to any written comments (preferably a signed original and eight (8) copies) that are submitted timely to the IRS. All comments will be available for public inspection and copying. A public hearing may be scheduled if requested in writing by a person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in the Federal Register.

Drafting Information

The principal author of this revision to the proposed regulations is Janine Cook, Office of the Associate Chief Counsel (Employee Benefits and Exempt Organizations), IRS. However, other personnel from the IRS and Treasury Department participated in its development.

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 31 is proposed to be amended as follows:

PART 31—EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE

Paragraph 1. The authority citation for part 31 continues to read in part as follows:

1998–8 I.R.B 41 February 23, 1998

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 31.3121(v)(2)–1 as proposed to be added at 61 FR 2199, January 25, 1996, is amended by revising paragraph (g)(1)(i) to read as follows:

§ 31.3121(v)(2)–1 Treatment of amounts deferred under certain nonqualified deferred compensation plans.

(g) Effective date and transition rules (1) General effective date —(i) Effective date. Except as otherwise provided in this paragraph (g) or in §31.3121(v)–2, this section is effective for amounts deferred and benefits paid on or after January 1, 1998.

Michael P. Dolan, Deputy Commissioner of

Internal Revenue .

(Filed by the Office of the Federal Register on December 23, 1997, 8:45 a.m., and published in the issue of the Federal Register for December 24, 1997, 62 F.R. 67304)

Foundations Status of Certain Organizations

Announcement 98–11

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: Childrens Resource Center Inc., East

Miami, FL Greater Corktown Economic

Development Corporation, Detroit, MI Greater Des Moines Sports Authority,

Coalition Advancing Universal Social

Equality Cause Inc., Jackson, MS Coalition for Citizens With Disabilities,

Greater Tampa Youth Hockey Inc.,

Oldsmar, FL Greenbrier Music Festival Inc.,

Charleston, WV Greater Warner Friends of the Library

Incorporated, Jackson, MS Coalition for a Free America LTD,

Peoria, IL Coalition for Human Priorities of New

Jersey, East Orange, NJ Coalition for Progress Foundation, Inc.,

Miami, FL Coalition for the Earths Environment of

Inc., Warner, OK Historic Preservation of Porter County,

Valparaiso, IN Historic Watertown Inc., Watertown, TN Historical Society of the American

Memorial Park, Saipan, MP Hmong National Development Inc.,

Dallas, Dallas, TX Community Organization for Puerto

Rican Affairs, Inc., Fort Launderdale, FL Community Program of Our Fathers

Omaha, NE Ho-Ho-Kus Education Foundation Inc.,

House Inc., Houston, TX Community Reconstruction Institute Inc.,

Ho Ho Kus, NJ Joint SIU Conference, Tallahassee, FL Jomar Health Services Inc., Lake

Charles, LA Jones City Park Development Inc., Jones,

Plantation, FL County of Dixon School District 24,

OK Jonesboro Area Athletic Assoc.

Newcastle, NE Dwayne S. Brown Foundation Inc.,

Washington, DC East Russell Childcare and Development

Government Cir., Jonesboro, GA Josephs Journeys Inc., Charlotte, NC Joy in Learning Educational Center

Incorporated, Gary, IN Joy International Ministries Inc.,

Center Inc., Louisville, KY E & J Nichols Inc., Baytown, TX E.C. Reems Womens International

Ministries, Dayton, OH E.C. Wood Foundation, Austin, TX Emma Inman Williams Scholarship Fund,

Jackson, TN Emmanuel Housing Center, Dothan, AL Emmas Clinic Inc. Center for Counseling

Oklahoma City, OK Joy Outdoor Ministries, Glendale, AZ Joyful Toyful Fiesta Inc., Baytown, TX Khmer Society & Association, Houston,

TX Kids & Kicks Soccer Club, Columbia, IL Kids at Hart Inc., Hart, MI Kids Express, Clancy, MT Kids Express Daycare Service Inc.,

Jackson, MS Kids First Charitable Trust, Carrollton, TX Laredo Medical Foundation, Laredo, TX Larry Laoretti Kids Classic Inc., Winter

and Learning, Colorado Springs, CO Flint Fast Track, Flint, MI Flora T. Benshoof Foundation,

Westminster, CO Florence Community Band Inc.,

Florence, KY Florence Community Chorus Inc.,

Richwood, KY Florence Interfaith Outreach, Florence,

Park, FL Las Cruces Aquatic Team Incorporated,

Las Cruces, NM Lincoln Economic Area Development

SC Florida Association of Teachers of

English to Speakers of Other Languages Inc., Miami, FL Florida Community Housing Assistant

Association, Roselawn, IN Link Up Broward Inc., Ft. Lauderdale, FL Lions Arms II Inc., Louisville, KY Little Falls Main Street Inc., Little Falls,

Corp, Fort Lauderdale, FL Florida Health Care Utilities Inc.,

Hialeah, FL Florida Indigent Medical Program Inc.,

MN Little Hill House Inc., Grandbury, TX Little Ones Inc., Poydras, LA Louisiana School for the Deaf

Point, GA Coal Creek-Rock Creek Trails

Foundation, Baton Rouge, LA Louisville East Community Development

Corporation, Louisville, KY Louisville Scottish Country Dance

Society Inc., Louisville, KY Mesa Centennial Campus for Girls Inc.,

Foundation, Louisville, CO Coal Plasma Energy Conversion Inc.,

Des Moines, IA Greater Sugar Land Pony Colt League

Inc., Sugar Land, TX

Pueblo, CO

Alexandria, VA

February 23, 1998 42 1998–8 I.R.B.

Metanoia Inc., Belle Rose, LA Metro Charitable Auctions Inc.,

Louisville, KY Micaiah Ministries Inc., Tahlequah, OK Mid-Michigan Canine Search and Rescue

Team, Farmington Hills, MI Mid-Ohio Psychological Services Inc.,

Lancaster, OH Millennium Foundation, Ridgewood, NJ Millfield Community Organization,

Millfield, OH Milwaukee Area Recovery Center Inc.,

Milwaukee, WI Milwaukee Center for Cultural Dance

and Awareness, Inc., Milwaukee, WI Milwaukee Women in the Trades Inc.,

Shorewood, WI Morehouse D A R E Inc., Bastrop, LA Motorcycle-Dial-a-Ride Inc.,

Chanhassen, MN Moultrie Sculpture Committee Inc.,

Washington, DC Mount Auburn Community Council of

Cincinnati, Inc., Cincinnati, OH Mount Carmel International Breaking

Chain Prison Ministry, Inc., Jersey City, NJ National Longevity Foundation, West

Palm Beach, FL National Organization of Single Mothers

Incorporated, Midland, NC National Pastoral Center for Vietnamese

Apostolate, Inc., New Orleans, LA National Pet Disaster Fund, Harrisburg,

PA Newarks Coalition of Small Business

Development Corporation, Inc., Newark, NJ Newport Campus-Arkansas State

University Beebe Charitable Foundation, Inc., Newport, AR Newton County Housing Council, Jasper,

AR Nigerian Cultural Association, St. Louis,

MO Nightcare at the Bear Minimum-A PM

Childcare Service, Inc., Cleveland, OH Nikki Childrens Home, Houston, TX Nims Neighborhood Association,

Muskegon, MI Nizhoni Smiles, Shiprock, NM Noble Hill Wheeler Memorial

Association, Inc., Cartersville, GA Noblesville Babe Ruth Bambino League,

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.

Completing Form 8582 Worksheets for More Than One Passive Activity With Schedule D (Form 1040) Transactions

Announcement 98–12

The 1997 instructions for Form 8582, Passive Activity Loss Limitations, included an example of how to complete the worksheets for Form 8582 when the filer has one passive activity with Schedule D (Form 1040) transactions.

In response to requests for clarification on how to complete the worksheets if the filer has more than one passive activity with Schedule D (Form 1040) transactions, we have developed the following example:

Example of Schedule D (Form 1040) Transactions

The taxpayer had the following Schedule D (Form 1040) transactions from two activities in 1997.

Activity I

A passive activity prior year unallowed long-term capital loss (a 28% rate loss) of ($1,000), and a loss on a May 8, 1997, sale of an asset held more than 12 months (a 20% rate loss) of ($3,000).

Activity II

A loss on a July 30, 1997, sale of an asset held more than 12 months but not more than 18 months (a 28% rate loss) of ($230), and net income of $1,100 from Schedule E (Form 1040).

Worksheet 2

The activities were reported separately on

Worksheet 2. Activity I had an overall loss of ($4,000) (current year net loss of ($3,000) and a prior year unallowed loss of ($1,000)). Activity II had an overall gain of $870 (current year net income of $1,100 less current year net loss of ($230)). Line 11 of Form 8582 shows a loss allowed of ($1,100).

Worksheet 4

Activity I has an unallowed loss of ($3,130). (Line 3 of Form 8582 ($3,130) less line 9 of Form 8582 (–0–) � 100%). All of the ($230) loss is allowed for Activity II.

Worksheet 6

Use Worksheet 6 to figure the portion of the unallowed loss attributable to the 28% rate loss and the portion to the 20% rate loss.

Enter the loss attributable to the 28% rate loss ($1,000) and the loss attributable to the 20% rate loss ($3,000) as separate entries in Worksheet 6 (i.e., as if they were going to be reported on a different form or schedule). Then figure the ratio of each loss to the total of the two losses as follows. $1,000/$4,000 = .25. $3,000/$4,000 = .75. Multiply each of these ratios by the unallowed loss for Activity I shown in column (c) of Worksheet 4 ($3,130).

Unallowed losses for Activity I:

28% rate loss: .25 � $3,130 = $782.50 20% rate loss: .75 � $3,130 = $2,347.50

Allowed losses for Activity I:

28% rate loss: $1,000 – $782.50 = $217.50 20% rate loss: $3,000 – $2,347.50 = $652.50

The total loss allowed for Activity I ($870.00) is entered in column (f), Part II, Schedule D (Form 1040) and the 28% rate loss ($217.50) is entered in column (g). Keep a record of the unallowed 28% and 20% rate losses to figure the passive activity loss for these transactions next year.

Revision of Form 3115

Announcement 98–13

Form 3115, Application for Change in Accounting Method, and the Instructions

Inc., Noblesville, IN Nomad Boosters Inc., Davidson, NC Nordstrom Foundation, Red Lodge, MT

1998–8 I.R.B 43 February 23, 1998

for Form 3115 have been revised. This November 1997 revision is the current Form 3115 and replaces the February 1996 version of Form 3115. Copies of the revised form and instructions are available at most IRS offices.

Applicants may order Form 3115 by telephone or they may use other IRS electronic information services to get copies.

Request by— Number or Address

Telephone 1-800-TAX-FORM (1-800-829-3676)

Personal computer: World Wide Web www.irs.ustreas.gov File Transfer

Protocol ftp.irs.ustreas.gov Telnet iris.irs.ustreas.gov

Direct Dial 703-321-8020 (by modem)

New Forms 5305–R, 5305–RA, 5305–E, and 5305–EA Now Available

Announcement 98–14

Form 5305–R, Roth Individual Retirement Trust Account, and Form 5305–RA,

Roth Individual Retirement Custodial Account, are two new model trust and custodial account agreements. Section 302 of the Taxpayer Relief Act of 1997 (the “Act”) created the Roth individual retirement account (Roth IRA). A Roth IRA is established after Form 5305–R or 5305– RA is executed by both the grantor and the trustee (for Form 5305–R) or the depositor and the custodian (for Form 5305– RA). The forms meet the requirements of section 408A of the Internal Revenue Code (the “Code”).

Form 5305–E, Education Individual Retirement Trust Account, and Form 5305–EA, Education Individual Retirement Custodial Account, are also two new model trust and custodial account agreements. The education individual retirement account (Ed IRA) is established under section 213 of the Act. An Ed IRA is established after Form 5305–E or 5305–EA is executed by both the grantor and the trustee (for Form 5305–E) or the depositor and the custodian (for Form 5305–EA). The forms meet the requirements of Code section 530.

Copies of Forms 5305–R, 5305–RA, 5305–E, and 5305–EA are available at most IRS offices. Applicants may order the forms by telephone or they may use other IRS electronic information services to get copies.

Request by— Number or Address

Telephone 1-800-TAX-FORM (1-800-829-3676)

Personal computer: World Wide Web www.irs.ustreas.gov File Transfer

Protocol ftp.irs.ustreas.gov Telnet iris.irs.ustreas.gov

Direct Dial 703-321-8020 (by modem)

February 23, 1998 44 1998–8 I.R.B.