Part I. Rulings — Internal Revenue Bulletin 1998-52

Section 162.—Trade or Business Expenses

26 CFR 1.162–17: Reporting and substantiation of certain business expenses of employees.

Rules are set forth for substantiating the amount of a deduction or an expense for business use of an automobile that most nearly represents current costs. See Rev. Proc. 98–63, page 25.

Rules are set forth for substantiating the amount of a deduction or an expense for lodging, meal, and incidental expenses or meal and incidental expenses incurred while traveling away from home that most nearly represents current costs. See Rev. Proc. 98–64, page 32.

Section 170.—Charitable, Etc., Contributions and Gifts

26 CFR 1.170–1: Charitable, etc., contributions and gifts; allowance of deductions.

The Service provides inflation adjustments to the “insubstantial benefit” guidelines for calendar year 1999. Under the guidelines, a charitable contribution is fully deductible even though the contributor receives “insubstantial benefits” from the charity. See Rev. Proc. 98–61, page 18.

26 CFR 1.170A–1: Charitable, etc., contributions and gifts; allowance of deduction.

Rules are set forth for substantiating the amount of a deduction or an expense for charitable use of an automobile. See Rev. Proc. 98–63, page 25.

Section 213.—Medical, Dental, Etc., Expenses

The Service provides an inflation adjustment to the limitation on the amount of eligible long-term care premiums includible in the term “medical care” for taxable years beginning in 1999. See Rev. Proc. 98–61, page 18.

26 CFR 1.213–1: Medical, dental, etc., expenses.

Rules are set forth for substantiating the amount of a deduction or an expense for use of an automobile to obtain medical services. See Rev. Proc. 98–63, page 25.

Section 217.—Moving Expenses

26 CFR 1.217–2: Moving expenses.

Rules are set forth for substantiating the amount of a deduction or an expense for use of an automobile as part of a move. See Rev. Proc. 98–63, page 25.

Section 1.—Tax Imposed

26 CFR 1.1–1: Income tax on individuals.

The Service provides adjusted tax tables for individuals, trusts, and estates for taxable years beginning in 1999 to reflect changes in the cost of living. Also adjusted is the amount of certain reductions allowed against the unearned income of minor children in computing the “kiddie tax,” either on the child’s return or, in the alternative, on a parent’s return. The amounts used to determine whether a parent may elect to report the “kiddie tax” on the parent’s return are also adjusted. See Rev. Proc. 98–61, page 18.

Section 32.—Earned Income

26 CFR 1.32–2: Earned income credit for taxable years beginning after December 31, 1978.

The Service provides inflation adjustments to the limitations on the earned income tax credit for taxable years beginning in 1999. See Rev. Proc. 98–61, page 18.

Section 59.—Other Definitions and Special Rules for the Alternative Minimum Tax

The Service provides an inflation adjustment to the exemption amount used in computing the alternative minimum tax for a minor child subject to the “kiddie tax” for taxable years beginning in 1999. See Rev. Proc. 98–61, page 18.

Section 62.—Adjusted Gross Income Defined

26 CFR 1.62–2: Reimbursements and other expense allowance arrangements.

Rules under which a reimbursement or other expense allowance arrangement for the cost of operating an automobile for business purposes will satisfy the requirements of section 62(c) of the Code as to business connection, substantiation, and returning amounts in excess of expenses. See Rev. Proc. 98–63, page 25.

Rules are set forth under which a reimbursement or other expense allowance arrangement for the cost of lodging, meal, and incidental expenses or meal and incidental expenses incurred by an employee while traveling away from home will satisfy the requirements of § 62(c) of the Code as to substantiation of the amount of the expenses. See Rev. Proc. 98–64, page 32.

26 CFR 1.62–2T: Reimbursements and other expense allowance arrangements (temporary).

Rules under which a reimbursement or other expense allowance arrangement for the cost of operat

ing an automobile for business purposes will satisfy the requirements of section 62(c) of the Code as to business connection, substantiation, and returning amounts in excess of expenses. See Rev. Proc. 98–63, page 25.

Rules are set forth under which a reimbursement or other expense allowance arrangement for the cost of lodging, meal, and incidental expenses or meal and incidental expenses incurred by an employee while traveling away from home will satisfy the requirements of § 62(c) of the Code as to Substantiation of the amount of the expenses. See Rev. Proc. 98–64, page 32.

Section 63.—Taxable Income Defined

26 CFR 1.63–1: Change of treatment with respect to the zero bracket amount and itemized deductions.

The Service provides inflation adjustments to the standard deduction amounts (including the limitation in the case of certain dependents, and the additional standard deduction for the aged or blind) for taxable years beginning in 1999. See Rev. Proc. 98–61, page 18.

Section 68.—Overall Limitation on Itemized Deductions

The Service provides inflation adjustments to the overall limitation on itemized deductions for taxable years beginning in 1999. See Rev. Proc. 98–61, page 18.

Section 135.—Income From United States Savings Bonds Used To Pay Higher Education Tuition and Fees

The Service provides an inflation adjustment to the limitation on the exclusion of income from United States savings bonds for taxpayers who pay qualified higher education expenses for taxable years beginning in 1999. See Rev. Proc. 98–61, page 18.

Section 151.—Allowance of Deductions for Personal Exemptions

26 CFR 1.151–4: Amount of deduction for each exemption under section 151.

The Service provides inflation adjustments to the personal exemption and to the threshold amounts of adjusted gross income above which the exemption amount phases out for taxable years beginning in 1999. See Rev. Proc. 98–61, page 18.

1998–52 I.R.B. 5 December 28, 1998

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

26 CFR 1.1274A–1: Special rules for certain transactions where stated principal amount does not exceed $2,800,000.

As defined by section 1274A, the definitions for both “qualified debt instruments” and “cash method debt instruments” have dollar ceilings on the stated principal amount. The limits to the stated principal amount are adjusted for inflation for sales or exchanges occurring in the 1999 calendar year. See Rev. Rul. 98–58, page 6.

Section 1274A.—Special Rules for Certain Transactions Where Stated Principal Amount Does Not Exceed $2,800,000

(Also Sections 1274, 483; 1.1274A–1.)

Section 1274A inflation-adjusted numbers for 1999. This ruling provides the dollar amounts, increased by the 1999 inflation-adjustment, for section 1274A of the Code. Rev Rul. 97–56 supplemented and superseded.

Rev. Rul. 98–58

This revenue ruling provides the dollar amounts, increased by the 1999 inflation adjustment, for § 1274A of the Internal Revenue Code.

BACKGROUND

In general, §§ 483 and 1274 determine the principal amount of a debt instrument given in consideration for the sale or exchange of nonpublicly traded property. In addition, any interest on a debt instrument subject to § 1274 is taken into account under the original issue discount provisions of the Code. Section 1274A, however, modifies the rules under §§ 483 and 1274 for certain types of debt instruments.

In the case of a “qualified debt instrument,” the discount rate used for purposes of §§ 483 and 1274 may not exceed 9 percent, compounded semiannually. Section 1274A(b) defines a qualified debt instrument as any debt instrument given in consideration for the sale or exchange of property (other than new § 38 property

Section 220.—Medical Saving Accounts

The Service provides inflation adjustments to the amounts used to determine whether a health plan is a “high deductible health plan” for purposes of determining whether an individual is eligible for a deduction for cash paid to a medical savings account for taxable years beginning in 1999. See Rev. Proc. 98–61, page 18.

Section 267.—Losses, Expenses, and Interest With Respect to Transactions Between Related Taxpayers

26 CFR 1.267(a)–1: Deductions disallowed.

When a payor provides a per diem allowance to an employee who is a related party, the rules set forth for the deemed substantiation to the payor of the amount of the employee’s ordinary and necessary business expenses for lodging, meal, and incidental expenses or meal and incidental expenses incurred while traveling away from home do not apply. See Rev. Proc. 98–64, page 32.

Section 274.—Disallowance of Certain Entertainment, Etc., Expenses

26 CFR 1.274(d)–1T: Substantiation requirements (temporary).

Simplified optional method for substantiating the amount of the ordinary and necessary business expenses of an employee for business use of an automobile when a payor provides a mileage allowance for such expenses. See Rev. Proc. 98–63, page 25.

Rules are set forth for an optional method for substantiating the amount of ordinary and necessary business expenses of an employee for lodging, meal, and incidental expenses or meal and incidental expenses incurred while traveling away from home when a payor provides a per diem allowance under a reimbursement or other expense allowance arrangement to pay for such expenses. See Rev. Proc. 98–64, page 32.

26 CFR 1.274–5T: Substantiation requirements (temporary).

ductible costs of business meal and incidental expenses paid or incurred while traveling away from home. See Rev. Proc. 98–64, page 32.

Section 482.—Advance Pricing Agreements

Notice 98–10, 1998–6 I.R.B. 9, is updated and finalized providing guidance regarding special procedures for small business taxpayers to obtain an advance pricing agreement. See Notice 98–65, on page 10.

Section 483.—Interest on Certain Deferred Payments

26 CFR 1.483–1: Computation of interest on certain deferred payments.

Section 512.—Unrelated Business Taxable Income

The Service provides an inflation adjustment to the maximum amount of annual dues that can be paid to certain agricultural or horticultural organizations without any portion being treated as unrelated trade or business income by reason of any benefits or privileges available to members for taxable years beginning in 1999. See Rev. Proc. 98–61, page 18.

Section 685.—Treatment of Funeral Trusts

The Service provides an inflation adjustment to the maximum amount of contributions that may be made to a qualified funeral trust for contracts entered in calendar year 1999. See Rev. Proc. 98–61, page 18.

Section 877.—Expatriation to Avoid Tax

The Service provides an inflation adjustment to amounts used to determine whether an individual’s loss of United States citizenship had the avoidance of United States taxes as one of its principal purposes for calendar year 1999. See Rev. Proc. 98–61, page 18.

December 28, 1998 6 1998–52 I.R.B.

calendar year. Any increase due to the inflation adjustment is rounded to the nearest multiple of $100 (or, if the increase is a multiple of $50 and not of $100, the increase is increased to the nearest multiple of $100). The inflation adjustment for any calendar year is the percentage (if any) by which the CPI for the preceding calendar year exceeds the CPI for calendar year 1988. Section 1274A(d)(2)(B) defines the CPI for any calendar year as the average of the Consumer Price Index as of the close of the 12-month period ending on September 30 of that calendar year.

INFLATION-ADJUSTED AMOUNTS

For debt instruments arising out of sales or exchanges after December 31, 1989, the inflation-adjusted amounts under § 1274A are shown in Table 1.

within the meaning of § 48(b), as in effect on the day before the date of enactment of the Revenue Reconciliation Act of 1990) if the stated principal amount of the instrument does not exceed the amount specified in § 1274A(b). For debt instruments arising out of sales or exchanges before January 1, 1990, this amount is $2,800,000.

In the case of a “cash method debt instrument,” as defined in § 1274A(c), the borrower and lender may elect to use the cash receipts and disbursements method of accounting. In particular, for any cash method debt instrument, § 1274 does not apply, and interest on the instrument is accounted for by both the borrower and the lender under the cash method of accounting. A cash method debt instrument is a qualified debt instrument that meets the following additional requirements: (A) In

the case of instruments arising out of sales or exchanges before January 1, 1990, the stated principal amount does not exceed $2,000,000; (B) the lender does not use an accrual method of accounting and is not a dealer with respect to the property sold or exchanged; (C) § 1274 would have applied to the debt instrument but for an election under § 1274A(c); and (D) an election under § 1274A(c) is jointly made with respect to the debt instrument by the borrower and lender. Section 1.1274A– 1(c)(1) of the Income Tax Regulations provides rules concerning the time for, and manner of, making this election.

Section 1274A(d)(2) provides that, for any debt instrument arising out of a sale or exchange during any calendar year after 1989, the dollar amounts stated in § 1274A(b) and § 1274A(c)(2)(A) are increased by the inflation adjustment for the

Rev. Rul. 98–58 Table 1 Inflation-Adjusted Amounts Under § 1274A

Calendar Year 1274A(b) Amount 1274A(c)(2)(A) Amount of Sale (qualified debt (cash method debt or Exchange instrument) instrument)

1990 $2,933,200 $2,095,100 1991 $3,079,600 $2,199,700 1992 $3,234,900 $2,310,600 1993 $3,332,400 $2,380,300 1994 $3,433,500 $2,452,500 1995 $3,523,600 $2,516,900 1996 $3,622,500 $2,587,500 1997 $3,723,800 $2,659,900 1998 $3,823,100 $2,730,800 1999 $3,885,500 $2,775,400 Note: These inflation adjustments were computed using the All-Urban, Consumer Price Index, 1982– 1984 base, published by the Bureau of Labor Statistics.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 97–56, 1997–2 C.B. 107 is supplemented and superseded.

DRAFTING INFORMATION

The principal author of this revenue ruling is Diana A. Inhof of the Office of the Assistant Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling

contact Ms. Inhof on (202) 622-3930 (not a toll-free call).

Section 2032A.—Valuation of Certain Farm, etc., Real Property

The Service provides an inflation adjustment to the maximum amount by which the value of qualified real property included in a decedent’s gross estate may be decreased for the estate of a decedent

dying in calendar year 1999. See Rev. Proc. 98–62, page 18.

Section 2503.—Taxable Gifts

The Service provides an inflation adjustment to the amount of gifts that may be made to a person in a calendar year without including the amount in taxable gifts for calendar year 1999. See Rev. Proc. 98–61, page 18.

1998–52 I.R.B. 7 December 28, 1998

chronically ill individual for calendar year 1999. See Rev. Proc. 98–61, page 18.

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

CPI adjustment for below-market loans for 1999. The amount that section 7872(g) of the Code permits a taxpayer to lend to a qualified continuing care facility without incurring imputed interest is published and adjusted for inflation for years 1987–1999. Rev. Rul. 97–57 supplemented and superseded.

Rev. Rul. 98–59

This revenue ruling publishes the amount that § 7872(g) of the Internal Revenue Code permits a taxpayer to lend to a qualifying continuing care facility without incurring imputed interest. The amount is adjusted for inflation for the years after 1986.

Section 7872 generally treats loans bearing a below-market interest rate as if they bore interest at the market rate.

Section 7872(g)(1) provides that, in general, § 7872 does not apply for any calendar year to any below-market loan made by a lender to a qualified continuing care facility pursuant to a continuing care contract if the lender (or the lender’s spouse) attains age 65 before the close of the year.

Section 7872(g)(2) provides that, in the case of loans made after October 11, 1985, and before 1987, § 7872(g)(1) applies only to the extent that the aggregate outstanding amount of any loan to which § 7872(g) applies (determined without regard to § 7872(g)(2)), when added to the aggregate outstanding amount of all other previous loans between the lender (or the lender’s spouse) and any qualified continuing care facility to which § 7872(g)(1) applies, does not exceed $90,000.

Section 7872(g)(5) provides that, for loans made during any calendar year after 1986 to which § 7872(g)(1) applies, the $90,000 limit specified in § 7872(g)(2) is increased by an inflation adjustment. The inflation adjustment for any calendar year is the percentage (if any) by which the Consumer Price Index (CPI) for the preceding calendar year exceeds the CPI for

Section 2523.—Gift to Spouse

The Service provides an inflation adjustment to the amount of gifts that may be made to a spouse who is not a citizen of the United States in a calendar year without including the amount in taxable gifts for calendar year 1999. See Rev. Proc. 98–61, page 18.

Section 2631.—GST Exemption

The Service provides an inflation adjustment to the amount of the generation-skipping transfer tax exemption for calendar year 1999. See Rev. Proc. 98–61, page 18.

Section 4001.—Passenger Vehicles

The Service provides an inflation adjustment to the price above which a passenger vehicle becomes subject to an excise tax for transactions occurring in calendar year 1999. See Rev. Proc. 98–61, page 18.

Section 4003.—Special Rules

The Service provides an inflation adjustment to the price above which a passenger vehicle becomes subject to an excise tax for transactions occurring in calendar year 1999. (Price includes the price of installation of parts or accessories on a passenger vehicle within six months of the date after the vehicle was first placed in service.) See Rev. Proc. 98–61, page 18.

Section 4261.—Transportation by Air

The Service provides an inflation adjustment to the amount of the excise tax on passenger air transportation beginning or ending in the United States for calendar year 1999. See Rev. Proc. 98–61, page 18.

Section 6033.—Returns by Exempt Organizations

The Service provides an inflation adjustment to the amount of dues certain exempt organizations can charge and still be excepted from the reporting requirements for exempt organizations with nondeductible lobbying expenditures for taxable years beginning in 1999. See Rev. Proc. 98–61, page 18.

Section 6039F.—Notice of Large Gifts Received From Foreign Persons

The Service provides an inflation adjustment to the amount of gifts in a taxable year from certain

foreign person(s) that may trigger a reporting requirement for a United States person for taxable years beginning in 1999. See Rev. Proc. 98–61, page 18.

Section 6323.—Validity and Priority Against Certain Persons

The Service provides inflation adjustments for calendar year 1999 to the maximum amount of a casual sale of personal property below which a federal tax lien will not be valid against a purchaser of the property, and to the maximum amount of a contract for the repair or improvement of certain residential property at or below which a federal tax lien will not be valid against a mechanic’s lienor. See Rev. Proc. 98–61, page 18.

Section 6601.—Interest on Underpayment, Nonpayment, or Extension of Time for Payment of Tax

The Service provides an inflation adjustment to the amount used to determine the amount of interest charged on a certain portion of the estate tax payable in installments for the estate of a decedent dying in calendar year 1999. See Rev. Proc. 98–61, page 18.

Section 6662.—Imposition of Accuracy-Related Penalty

When information shown on a return in accordance with the applicable forms and instructions will be adequate disclosure for purposes of reducing an understatement of income tax. See Rev. Proc. 98–62, page 23.

Section 7430.—Awarding of Costs and Certain Fees

The Service provides an inflation adjustment to the hourly limit on attorney fees that may be awarded in a judgment or settlement of an administrative or judicial proceeding concerning the determination, collection, or refund of tax, interest, or penalty for calendar year 1999. See Rev. Proc. 98–61, page 18.

Section 7702B.—Treatment of Qualified Long-Term Care Insurance

The Service provides an inflation adjustment to the stated dollar amount of the per diem limitation regarding periodic payments received under a qualified long-term care insurance contract or periodic payments received under a life insurance contract that are treated as paid by reason of the death of a

December 28, 1998 8 1998–52 I.R.B.

calendar year 1985. Section 7872(g)(5) states that the CPI for any calendar year is the average of the CPI as of the close of

the 12-month period ending on September 30 of that calendar year. Table 1 sets forth the amount specified

in § 7872(g)(2) of the Code. The amount is increased by the inflation adjustment for the years 1987-99.

REV. RUL. 98–59 TABLE 1

Limit under 7872(g)(2)

Year Amount

Before 1987 $ 90,000 1987 $ 92,200 1988 $ 94,800 1989 $ 98,800 1990 $103,500 1991 $108,600 1992 $114,100 1993 $117,500 1994 $121,100 1995 $124,300 1996 $127,800 1997 $131,300 1998 $134,800 1999 $137,000

Note: These inflation adjustments were computed using the All-Urban, Consumer Price Index 1982–1984 base, published by the Bureau of Labor Statistics.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 97–57, 1997–2 C.B. 275, is supplemented and superseded.

DRAFTING INFORMATION

The author of this revenue ruling is Diana A. Inhof of the Office of Assistant

Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling, contact Ms. Inhof on (202) 622-3930 (not a toll-free call).

1998–52 I.R.B. 9 December 28, 1998