Part IV. Items — Internal Revenue Bulletin 1999-9

Notice of Proposed Rulemaking Notice of Public Hearing

Relief From Disqualification for Plans Accepting Rollovers

REG–245562–96

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Proposed regulations; amendment.

SUMMARY: This document contains an amendment to the proposed regulations that implements section 1509 of the Taxpayer Relief Act of 1997 (TRA ’97). The proposed regulations provide guidance on the qualification of retirement plans which accept rollover contributions from employees. This amendment to the proposed regulations clarifies that it is not necessary for the distributing plan to have a favorable IRS determination letter in order for the receiving plan administrator to reach a reasonable conclusion that a contribution is a valid rollover contribution. This amendment applies to any qualified retirement plan receiving or distributing eligible rollover distributions.

DATES: Written comments must be received by March 17, 1999.

ADDRESSES: Send submissions to CC:DOM:CORP:R (REG–245562–96), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. In the alternative, submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 5 p.m. to CC:DOM:CORP:R (REG–245562–96), 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: Marjorie Hoffman, (202) 6226030 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

On September 22, 1995, Final Income Tax Regulations (T.D. 8619) under sections 401(a)(31) and 402(c) were published in the Federal Register (60 F.R. 49199). The final regulations provide guidance for complying with the Unemployment Compensation Amendments of 1992 (UCA). A proposed amendment to the regulations under section 401(a)(31) was published in the Federal Register on September 19, 1996 (REG–245562–96) (61 F.R. 49279).

UCA expanded the types of distributions from a qualified plan that are eligible to be rolled over to an individual retirement account or individual retirement annuity, or to another qualified plan that accepts rollovers (collectively referred to as eligible retirement plans). Such distributions are referred to as eligible rollover distributions. UCA also added a new qualification provision under section 401(a)(31) that requires qualified plans to provide employees with a direct rollover option. Under a direct rollover option, an employee may elect to have an eligible rollover distribution paid directly to an eligible retirement plan. The direct rollover option is provided in addition to the pre-existing rollover provisions under section 402. Thus, an employee who receives an eligible rollover distribution but who does not elect a direct rollover still has the option to roll over the distribution to an eligible retirement plan within 60 days of receipt.

The final regulations under section 401(a)(31) provide that a plan that accepts a direct rollover from another plan will not fail to satisfy section 401(a) or 403(a) merely because the plan making the distribution is, in fact, not qualified under section 401(a) or 403(a) at the time of the distribution if, prior to accepting the rollover, the receiving plan reasonably concluded that the distributing plan was qualified under section 401(a) or 403(a). The regulations provide, by way of example, that the receiving plan may reasonably conclude that the distributing plan was qualified under section 401(a) or 403(a) where, before the receiving plan accepted the rollover, the plan administra

tor of the distributing plan provided the receiving plan with a statement that the distributing plan had received an IRS determination letter indicating that the plan was qualified.

The relief provided in the 1996 proposed regulations under section 401(a)(31) would expand and clarify the guidance previously issued in the Final Income Tax Regulations under sections 401(a)(31) and 402(c). First, the proposed regulations would clarify and expand the relief from disqualification currently provided for plans that accept direct rollovers. The protection would be expanded to be available not only if the plan administrator reasonably concludes the distributing plan is qualified under section 401(a) or 403(a) (even if later it is determined that the distributing plan is not a qualified plan), but also if the plan administrator reasonably concludes that a distribution meets the other requirements to be an eligible rollover distribution (but later it is determined that this conclusion was incorrect). Second, the regulations would extend this expanded relief from disqualification to plans that accept rollover contributions other than direct rollover contributions.

The 1996 proposed regulations do not mandate any particular documentation or procedures that a plan administrator must use in order to reach a reasonable conclusion that a rollover is valid. The 1996 proposed regulations contain a series of examples to illustrate the types of documentation and procedures that would be sufficient to support this conclusion. In each example, the employee making the rollover contribution provides the plan administrator with a letter from the plan administrator of the distributing plan stating that the distributing plan has received an IRS determination letter indicating that the distributing plan is qualified under section 401(a). In response to concerns that the examples might be read to imply that only a distribution from a plan with a favorable IRS determination letter could support a reasonable conclusion that a rollover was valid, section 1509 of TRA ‘97 directs the IRS to issue guidance clarifying that it is not necessary for the distributing plan to have a favorable IRS determination letter in order for the plan

1999–9 I.R.B. 45 March 1, 1999

administrator of the receiving plan to reasonably conclude that a contribution is a valid rollover contribution.

Explanation of Provisions

This amendment to the 1996 proposed regulations is being issued in response to the congressional directive in section 1509 of TRA ’97 to clarify that it is not necessary for a distributing plan to have a favorable IRS determination letter in order for the receiving plan administrator to reasonably conclude that a contribution is a valid rollover contribution. Accordingly, the proposed regulations have been amended to provide explicitly that it is not necessary for the distributing plan to have a favorable IRS determination letter in order for the plan administrator of the receiving plan to reach a reasonable conclusion that a contribution is a valid rollover contribution. In addition, an example has been added in which an employee does not provide a statement from the plan administrator of the distributing plan that the distributing plan has received a favorable IRS determination letter, but provides a statement from the distributing plan administrator relating to the qualification of the distributing plan. Of course, this example and the other examples in the 1996 proposed regulations are not intended to describe the only types of information that a plan administrator can find to be sufficient and, thus, the examples are not intended to preclude reliance on other types of information, such as opinions or statements regarding the plan’s qualification provided by appropriate professionals expert in plan qualification requirements.

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 (a signed original and eight (8) copies) or comments transmitted via Internet 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 these regulations is Pamela R. Kinard, Office of the Associate Chief Counsel (Employee Benefits and Exempt Organizations), IRS. However, other personnel from the IRS and Treasury Department participated in their development.

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Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is 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 1.401(a)(31)–1 as proposed on September 19, 1996, at 61 F.R. 49279, is amended as follows:

Under Q&A-14, paragraph (a) is amended by adding a sentence immediately after the second sentence.
Under Q&A-14, paragraph (c) is amended by redesignating Example 2 and Example 3 as Example 3 and Example 4 respectively, and adding a new Example 2 .

The additions read as follows:

§1.401(a)(31)–1 Requirement to offer direct rollover of eligible rollover distributions; questions and answers.

A-14: (a) Acceptance of Invalid Rollover Contribution. - * * While evidence that the distributing plan is the subject of a determination letter from the Commissioner indicating that the distributing plan is qualified would be useful to the receiving plan administrator in reasonably concluding that the contribution is a valid rollover contribution, it is not necessary for the distributing plan to have such a determination letter in order for the receiving plan administrator to reach that conclusion. * * *

Example 2. (a) The facts are the same as Example 1, except that, instead of the letter provided in paragraph (c) of Example 1, Employee A provides the plan administrator of Plan M with a letter from the plan administrator of Plan O representing that Plan O satisfies the requirements of section 401(a) (or representing that Plan O is intended to satisfy the requirements of section 401(a) and that the administrator of Plan O is not aware of any Plan O provision or operation that would result in the disqualification of Plan O).

(b) Based upon such a letter, absent facts to the contrary, a plan administrator may reasonably conclude that Plan O is qualified and that the amount paid as a direct rollover is an eligible rollover distribution.

John M. Dalrymple, Acting Deputy Commissioner

of Internal Revenue.

(Filed by the Office of the Federal Register on December 18, 1998, 8:45 a.m., and published in the issue of the Federal Register for December 21, 1998, 63 F.R. 70356)

Notice of Proposed Rulemaking Notice of Public Hearing

Communications Excise Tax; Prepaid Telephone Cards

REG–118620–97

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This document contains proposed rules for the application of the communications excise tax to prepaid telephone cards (PTCs). The regulations

March 1, 1999 46 1999–9 I.R.B.

implement certain changes made by the Taxpayer Relief Act of 1997. They affect certain telecommunications carriers, resellers, and purchasers of PTCs. This document also provides notice of a public hearing on these proposed regulations.

DATES: Written comments must be received by, March 17, 1998. Outlines of topics to be discussed at the public hearing scheduled for May 5, 1999, must be received by April 14, 1999.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG–118620–97), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG–118620–97), 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 2615, Internal Revenue Building, 1111 Constitution Avenue NW, Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the hearing, submission of written comments, and to be placed on the building access list to attend the hearing, LaNita VanDyke, (202) 6227180; concerning the regulations, Bernard H. Weberman (202) 622-3130 (not tollfree 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 Manage- ment 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 Service, Attn: IRS Reports Clearance Officer, OP:FS:FP, Washington, DC 20224. Comments on the collection of information should be received by, February 16, 1998. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the proper performance of the functions of the I nter- nal 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 service to provide information.

The collection of information in this proposed regulation is in §49.4251– 4(d)(2). This information is required to document the status of certain purchasers of PTCs. The collection of information is required to obtain a benefit. The likely respondents and recordkeepers are businesses and small businesses.

Estimated total annual reporting burden: 24 hours.

Estimated average burden per respondent: .25 hour.

Estimated number of respondents: 96. Estimated annual frequency of responses: On occasion.

Estimated total annual recordkeeping burden: 10 hours.

Estimated average annual burden per recordkeeper: 1.2 hours.

Estimated number of recordkeepers: 8. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it 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.

Background

Section 4251 imposes a 3 percent excise tax on amounts paid for three communications services: local telephone service, toll telephone service, and teletypewriter exchange service. The tax is paid by the person paying for those communications services and, under section 4291, is collected by the person receiving that payment.

Section 1034 of the Taxpayer Relief Act of 1997 added section 4251(d), effective November 1, 1997, which provides special rules for the treatment of PTCs. Under section 4251(d), a PTC is any card or similar arrangement that permits its holder to obtain communications services and to pay for such services in advance. The face amount of the PTC is treated as an amount paid for communications services and that amount is treated as paid when the PTC is transferred by any telecommunications carrier to any person that is not a carrier.

Explanation of Provisions

These proposed regulations provide rules relating to the imposition of tax, the determination of the face amount upon which tax is imposed, and the identification of the person liable for tax and the person responsible for collecting tax. The purpose of the rules for determining the face amount is to implement Congressional intent that the tax be imposed on a PTC’s retail value, whether a carrier sells a PTC at retail or at wholesale to a transferee reseller. In certain limited circumstances, these rules permit the use of a safe harbor under which the face amount is equal to $0.30 per minute of service provided. Because the IRS and Treasury expect the retail value of PTCs to change over time and intend to review the perminute rate at regular intervals, this safe harbor expires on December 31, 2001.

For purposes of determining whether a transferor is a carrier and whether a transferee is a person that is not a carrier, the proposed regulations adopt the definition of telecommunications carrier used by the Federal Communications Commission. In general, this definition treats any provider of telecommunications service as a telecommunications carrier. In addition, the proposed regulations provide that a transferor carrier is not responsible

1999–9 I.R.B. 47 March 1, 1999

for collecting the tax if it has been notified, in writing, by the purchaser of the purchaser’s status as a carrier and has no reason to believe otherwise. Providing that notification does not relieve the purchaser from liability for tax if the purchaser is not, in fact, a carrier. Furthermore, the rules in the Excise Tax Procedural Regulations (26 CFR part 40) relating to collectors of tax under chapter 33 of the Internal Revenue Code do not apply to noncarrier purchasers.

During the development of the proposed regulations, the IRS and Treasury received inquiries concerning the treatment of multi-use cards and enhanced services cards. Multi-use cards are PTCs that can also be used to purchase items other than communications services, such as gas, groceries, etc. Enhanced services cards are PTCs that can also be used to purchase nontaxable informational services such as stock quotations or access to a 900 number. The proposed regulations do not include special rules for multi-use or enhanced services cards. However, the IRS and Treasury request comments on this issue.

The regulations are proposed to be effective at the beginning of the first calendar quarter after they are published as final regulations. Carriers and transferees may, however, rely on the proposed rules in determining the treatment of PTCs transferred before the effective date.

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. It is hereby certified that the collection of information in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that the time required to prepare or retain the notification is minimal and will not have a significant impact on those small entities that are required to provide notification. Furthermore, notification is provided only once to each seller. Accordingly, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5

U.S.C. chapter 6) 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 (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 Wednesday, May 5, 1999, at 10 a.m. in room 2615, Internal Revenue Building, 1111 Constitution Avenue NW, Washington, DC. Due to building security procedures, visitors must enter at the 10th Street entrance, located between Constitution and Pennsylvania Avenues, NW. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 15 minutes before the hearing starts. For information about having a visitor’s name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT caption.

An outline of the topics to be discussed and the time to be devoted to each topic (a signed original and eight (8) copies) must be submitted by any person that wishes to present oral comments at the hearing. Outlines must be received by April 14, 1999. The rules of 26 CFR 601.601(a)(3) apply to the hearing. 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 requests to speak has passed. Copies of the agenda will be available free of charge at the hearing.

Drafting Information

The principal author of these regulations is Bernard H. Weberman, Office of Assistant Chief Counsel (Passthroughs and Special Industries). However, other personnel from the IRS and Treasury De

partment participated in their development.

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Proposed Amendments to the Regulations

Accordingly, 26 CFR part 49 is proposed to be amended as follows:

PART 49—FACILITIES AND SERVICES EXCISE TAXES

Paragraph 1. The authority citation for part 49 is revised to read as follows:

Authority: 26 U.S.C. 7805, unless otherwise noted.

Section 49.4251–4 also issued under 26 U.S.C. 4251(d).

Par. 2. Section 49.4251–4 is added to read as follows:

§49.4251–4 Prepaid telephone cards.

(a) In general. In the case of communications services acquired by means of a prepaid telephone card (PTC), the face amount of the PTC is treated as an amount paid for communications services and that amount is treated as paid when the PTC is transferred by any carrier to any person that is not a carrier. This section provides rules for the application of the section 4251 tax to PTCs.

(b) Definitions. Carrier means a telecommunications carrier as defined in 47 U.S.C. 153.

Comparable PTC means a currently available dollar card or tariffed unit card (other than a PTC transferred in bulk or under special circumstances, such as for promotional purposes) that provides the same type and amount of communications services as the PTC to which it is being compared.

Dollar card means a PTC the value of which is designated by the carrier in dollars (even if also designated in units of service), provided that the designated value is not less than the amount for which the PTC is expected to be sold to a holder.

Holder means a person that purchases other than for resale.

Prepaid telephone card (PTC) means a card or similar arrangement that permits its holder to obtain a fixed amount of communications services by means of a code (such as a personal identification number (PIN)) or other access device pro

March 1, 1999 48 1999–9 I.R.B.

vided by the carrier and to pay for those services in advance.

Tariff means a schedule of rates and regulations filed by a carrier with the Federal Communications Commission.

Tariffed unit card means a unit card that is transferred by a carrier—

(1) To a holder at a price that does not exceed the designated number of units on the PTC multiplied by the carrier’s tariffed price per unit; or

(2) To a transferee reseller subject to a contractual or other arrangement under which the price at which the PTC is sold to a holder will not exceed the designated number of units on the PTC multiplied by the carrier’s tariffed price per unit.

Transferee means the first person that is not a carrier to whom a PTC is transferred by a carrier.

Transferee reseller means a transferee that purchases a PTC for resale.

Unit card means a PTC other than a dollar card.

Untariffed unit card means a unit card other than a tariffed unit card.

(2) Tariffed unit card. The face amount of a tariffed unit card is the designated number of units on the PTC multiplied by the tariffed price per unit.

(3) Untariffed unit card —(i) Transfer to holder. The face amount of an untariffed unit card transferred by a carrier to a holder is the amount for which the carrier sells the PTC to the holder.

(ii) Transfer to transferee reseller —(A) In general. The face amount of an untariffed unit card transferred by a carrier to a transferee reseller is, at the option of the carrier,—

( 1 ) The highest amount for which the carrier sells an identical PTC to a holder that ordinarily would not be expected to buy more than one such PTC at a time (if the carrier makes such sales on a regular and arm’s-length basis) or the face amount of a comparable PTC (if the carrier does not make such sales on a regular and arm’s-length basis);

( 2 ) 165 percent of the amount for which the carrier sells the PTC to the transferee reseller (including in that amount, in addition to any sum certain fixed at the time of the sale, any contin

gent amount per unit multiplied by the designated number of units on the PTC); or

( 3 ) If the PTC is transferred before January 1, 2002, and is of a type that ordinarily is used entirely for domestic communications service, $0.30 multiplied by the maximum number of minutes of domestic communications service on the PTC.

(B) Sales not at arm’s length. In the case of a transfer of an untariffed unit card by a carrier to a transferee reseller otherwise than through an arm’s-length transaction, the fair market retail value of the PTC shall be substituted for the amount determined in paragraph (c)(3)(ii)(A)(2) of this section.

(4) Exclusion. Any separately stated state or local tax imposed on the furnishing or sale of communications services and any separately stated section 4251 tax are disregarded in determining, for purposes of this paragraph (c), the amount for which a PTC is sold.

(d) Liability for tax —(1) In general. Under section 4251(d), the section 4251(a) tax is imposed on the transfer of a PTC by a carrier to a transferee. The person liable for the tax is the transferee. Except as provided in paragraph (d)(2) of this section, the person responsible for collecting the tax is the carrier transferring the PTC to the transferee. If a holder purchases a PTC from a transferee reseller, the amount the holder pays for the PTC is not treated as an amount paid for communications services and thus tax is not imposed on that payment.

(2) Effect of statement that purchaser is a carrier —(i) On transferor. A carrier that transfers a PTC to a purchaser is not responsible for collecting the tax if, at the time of transfer, the transferor carrier has received written notification from the purchaser that the purchaser is a carrier, and the transferor has no reason to believe otherwise. The notification to be provided by the purchaser is a statement, signed under penalties of perjury by a person with authority to bind the purchaser, that the purchaser is a carrier (as defined in paragraph (b) of this section). The statement is not required to take any particular form.

(ii) On purchaser. If a purchaser that is not a carrier provides the notification described in paragraph (d)(2)(i) of this sec

tion to the carrier that transfers a PTC, the purchaser remains liable for the tax imposed on the transfer of the PTC.

(3) Exemptions. Any exemptions available under section 4253 apply to the transfer of a PTC from a carrier to a holder. Section 4253 does not apply to the transfer of a PTC from a carrier to a transferee reseller.

(e) Examples. The following examples illustrate the provisions of this section:

Example 1. Unit card; sold to individual. (i) On February 1, 2000, A, a carrier, sells a prepaid tele- phone card at A’s retail store to P, an individual, for P’s use in making telephone calls. A provides P with a PIN. The face of the card is marked “400 minutes.” The sales price is $100. A tariff has not been filed for the units on the card. The toll telephone service acquired by purchasing the card will be obtained by entering the PIN and the telephone number to be called.

(ii) Because P purchased from a carrier other than for resale, P is a holder. The card provides its holder, P, with a fixed amount of communications services (400 minutes of toll telephone service) to be obtained by means of a PIN, for which P pays in advance of obtaining service; therefore, the card is a PTC. Because the value of the PTC is not designated in dollars and a tariff has not been filed for the units on the PTC, the PTC is an untariffed unit card. Because it is transferred by the carrier to the holder, the face amount is the sales price ($100).

(iii) The card is a PTC; thus, under section 4251(d), the face amount is treated as an amount paid for communications services and that amount is treated as paid when the PTC is transferred from A to P. Accordingly, at the time of transfer, P is liable for the 3 percent tax imposed by section 4251(a). The tax is $3 (3% � $100 (the face amount of the PTC)). Thus, the total paid by P is $103, the $100 sales price plus $3 tax. A is responsible for collecting the tax from P.

Example 2. Unit card; given to individual. (i) The facts are the same as in Example 1, except that instead of selling a card, A gives a 40 minute card to P.

(ii) Although the card provides P with a fixed amount of communications services (40 minutes of toll telephone service) to be obtained by means of a PIN, P does not pay for the service. Therefore, the card is not a PTC, even though it is called a “prepaid telephone card” by A.

(iii) Because the card is not a PTC, section 4251(d) does not apply. Furthermore, no tax is imposed by section 4251(a) because no amount is paid for the communications services.

Example 3. Unit card; adding value. (i) After using the card described in Example 2, P arranges with A by telephone to have 400 minutes of toll telephone service added to the card. The sales price is $100. P is told to continue using the PIN provided with the card.

(ii) Because P purchased from a carrier other than for resale, P is a holder. The arrangement provides its holder, P, with a fixed amount of communications services (400 minutes of toll telephone service) to be

1999–9 I.R.B. 49 March 1, 1999

service acquired by purchasing the card will be obtained by entering the PIN and the telephone number to be called.

(ii) Because S purchased from a carrier for resale, S is a transferee reseller. Because S’s customers will purchase other than for resale they will be holders. Each card sold by S provides its holder, S’s customer, with a fixed amount of communications services (100 minutes of toll telephone service) to be obtained by means of a PIN, for which S’s customer pays in advance of obtaining service; therefore each card is a PTC. Because the value of each PTC is not designated in dollars and D sells the PTCs to S subject to an arrangement under which the price at which the PTCs are sold to holders will not exceed the designated number of units on the PTC multiplied by D’s tariffed price per unit, each PTC is an tariffed unit card. Because the PTCs are tariffed unit cards, the face amount of each PTC is $33, the designated number of units on the PTC multiplied by the tariffed price per unit (100 � $0.33 = $33), even though the actual retail sale price of the cards is $30.

(iii) The cards are PTCs; thus, under section 4251(d), the face amount is treated as an amount paid for communications services and that amount is treated as paid when the PTC is transferred from D to S. Accordingly, at the time of transfer, S is liable for the 3 percent tax imposed by section 4251(a). The tax is $990 (3% � $33,000 (1,000 PTCs multiplied by the $33 face amount of each PTC)). Thus, the total paid by S is $25,990, the $25,000 sales price plus $990 tax. D is responsible for collecting the tax from S.

Example 7. Transfer of card that is not a PTC. (i) On February 1, 2000, E, a carrier, provides a telephone card to T, an individual, for T’s use in making telephone calls. E provides T with a PIN. The card provides access to an unlimited amount of communications services. E charges T $0.25 per minute of service, and bills T monthly for services used. The communications services acquired by using the card will be obtained by entering the PIN and the telephone number to be called.

(ii) Although the communications services will be obtained by means of a PIN, T does not receive a fixed amount of communications services. Also, T cannot pay in advance since the amount of T’s payment obligation depends upon the number of minutes used. Therefore, the card is not a PTC.

(iii) Because the card is not a PTC, section 4251(d) does not apply. However, the tax imposed by section 4251(a) applies to the amounts paid by T to E for communications services. Accordingly, at the time an amount is paid for communications services, T is liable for tax. E is responsible for collecting the tax from T.

(f) Effective date. This section is applicable with respect to PTCs transferred by a carrier on or after the first day of the first calendar quarter beginning after the date of publication of the final regulations in the Federal Register.

Michael P. Dolan, Deputy Commissioner of

Internal Revenue.

obtained by means of a PIN, for which P pays in advance of obtaining service; therefore, the arrangement is a PTC. Because the value of the PTC is not designated in dollars and a tariff has not been filed for the units on the PTC, the PTC is an untariffed unit card. Because it is transferred by the carrier to the holder, the face amount is the sales price ($100).

(iii) The arrangement is a PTC; thus, under section 4251(d), the face amount is treated as an amount paid for communications services and that amount is treated as paid when the PTC is transferred from A to P. Accordingly, at the time of transfer, P is liable for the 3 percent tax imposed by section 4251(a). The tax is $3 (3% - $100 (the face amount of the PTC)). Thus, the total paid by P is $103, the $100 sales price plus $3 tax. A is responsible for collecting the tax from P.

Example 4. Dollar card; sold other than for resale. (i) On February 1, 2000, B, a carrier, sells 100,000 prepaid telephone cards to Q, an auto dealer. Q will give away a card to each person that visits Q’s dealership. B provides Q with a PIN for each card. The face of each card is marked “$2.” The sales price for the 100,000 cards is $50,000. The toll telephone service acquired by purchasing the card will be obtained by entering the PIN and the telephone number to be called.

(ii) Because Q purchased from a carrier other than for resale, Q is a holder. Each card provides its holder, Q, with a fixed amount of communications services ($2 of toll telephone service) to be obtained by means of a PIN, for which Q pays in advance of obtaining service; therefore, each card is a PTC even though Q’s visitors do not pay for the cards. The value of each PTC is designated in dollars; therefore, each PTC is a dollar card. Because the PTC is a dollar card, the face amount is the designated dollar value ($2).

(iii) The cards are PTCs; thus, under section 4251(d), the face amount is treated as an amount paid for communications services and that amount is treated as paid when the PTCs are transferred from B to Q. Accordingly, at the time of transfer, Q is liable for the 3 percent tax imposed by section 4251(a). The amount of the tax is computed as follows: 3% - $2 (the face amount of the PTC) = $0.06 per PTC � 100,000 PTCs = $6,000 tax. Thus, the total paid by Q is $56,000, the $50,000 sales price plus $6,000 tax. B is responsible for collecting the tax from Q.

Example 5. Unit card; sold to transferee reseller. (i) On February 1, 2000, C, a carrier, sells 10,000 prepaid telephone cards to R, a convenience store owner. R will sell the cards to individuals for their own use. C provides R with a PIN for each card. The face of each card is marked “400 minutes.” A tariff has not been filed for the units on the card. C’s sales price to R is $40,000 to be paid at the time of sale, plus a contingent amount equal to $0.14 for each minute of service used within 12 months to be paid at the end of the 12-month period. C also sells the identical card at its retail store for $110 to customers purchasing one card, or for $90 each to customers purchasing five or more cards. The toll telephone service acquired by purchasing the card will be obtained by entering the PIN and the telephone number to be called.

(ii) Because R purchased from a carrier for resale, R is a transferee reseller. Because R’s cus

tomers will purchase other than for resale they will be holders. Each card sold by R provides its holder, R’s customer, with a fixed amount of communications services (400 minutes of toll telephone service) to be obtained by means of a PIN, for which R’s customer pays in advance of obtaining service; therefore, each card is a PTC. Because the value of each PTC is not designated in dollars and a tariff has not been filed for the units on the PTC, each PTC is an untariffed unit card.

(iii) The PTCs are untariffed unit cards transferred by the carrier to a transferee reseller. Thus, the face amount is determined under paragraph (c)(3)(ii) of this section, which permits C to choose from three alternative methods. Under paragraph (c)(3)(ii)(A)(1) of this section, the face amount of each PTC would be $110, the highest amount for which C sells to customers purchasing a single PTC. Alternatively, under paragraph (c)(3)(ii)(A)(2) of this section, a face amount of $99 per PTC may be used. This face amount is computed as follows: 165% � $600,000 (the $40,000 sum certain plus the $560,000 contingent amount (10,000 PTCs - 400 units = 4,000,000 units - $0.14 per unit)) = $990,000 � 10,000 (the total number of PTCs sold). Finally, under paragraph (c)(3)(ii)(A)(3) of this section (assuming the PTCs are of a type that ordinarily is used entirely for domestic communications services), a face amount of $120 ($0.30 per unit � 400 units) may be used.

(iv) The cards are PTCs; thus, under section 4251(d), the face amount is treated as an amount paid for communications services and that amount is treated as paid when the PTCs are transferred from C to R. Accordingly, at the time of transfer, R is liable for the 3 percent tax imposed by section 4251(a). The amount of the tax is computed as follows (assuming that C chooses to determine the face amount as provided in paragraph (c)(3)(ii)(A)(2) of this section): 3% - $99 (the face amount of the PTC) = $2.97 per PTC - 10,000 PTCs = $29,700 tax. Thus, the total paid by R at the time of transfer is $69,700, the $40,000 sum certain plus $29,700 tax. C is responsible for collecting the tax from R.

(v) In 2000 and 2001, R sells PTCs to its customers for varying amounts. Because any amount paid for a PTC purchased from a transferee reseller is not an amount paid for communications services, no tax is imposed on R’s sale of a PTC.

(vi) On February 15, 2001, C informs R that 3,000,000 minutes were used during the 12-month period. R pays C $420,000 ($0.14 � 3,000,000), the contingent amount agreed to when R purchased the PTCs. No tax is imposed on this payment. Tax was imposed when the PTCs were transferred to R. The contingent amount paid in 2001, based on the number of minutes used, does not change R’s tax liability.

Example 6. Tariffed unit card; sold to transferee reseller. (i) On February 1, 2000, D, a carrier, sells 1,000 prepaid telephone cards to S, a convenience store owner, for $25,000. The value of the cards is not denominated in dollars, but the face of the card is marked “100 minutes” and a tariff of $0.33 per minute has been filed for the units on the card. S agrees that it will sell the cards to individuals for their own use and at a price that does not exceed $0.33 per minute. S actually sells the cards for $30 each (i.e., at a price of $0.30 per minute). D provides S with a PIN for each card. The toll telephone

March 1, 1999 50 1999–9 I.R.B.

and its tax year ends at that time for all Federal income tax purposes. The subsidiary’s items for the period beginning on the day after it becomes a member of the consolidated group are generally included in the consolidated return of the group. The subsidiary’s items for the period prior to its becoming a member generally are included in a separate return.

(Filed by the Office of the Federal Register on December 16, 1998, 8:45 a.m., and published in the issue of the Federal Register for December 17, 1998, 63 F.R. 69585)

Notice of Proposed Rulemaking Notice of Public Hearing

Acquisition of an S Corporation by a Member of a Consolidated Group

REG–106219–98

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This document contains proposed regulations under section 1502. The proposed regulations provide specific rules that apply to the acquisition of the stock of an S corporation by an affiliated group of corporations that joins in the filing of a consolidated return. These rules eliminate the compliance burdens associated with filing a separate return for the day that an S corporation is acquired by a consolidated group. Additionally, the proposed regulations clarify that §1.1502–76(c) continues to provide rules for the filing of the separate return for a corporation’s items for the period not included in the consolidated return. This document also provides notice of a public hearing on these proposed regulations.

DATES: Written comments must be received by March 10, 1999. Outlines of topics to be discussed at the public hearing scheduled for March 31, 1999, at 10 a.m. must be received by March 17, 1999. ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG–106219–98), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 5 p.m. to CC:DOM:CORP:R (REG–106219–98), 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 In

ternet 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, Jeffrey L. Vogel, (202) 622-7770; concerning submissions, the hearing, and/or to be placed on the building access list to attend the hearing, LaNita Van Dyke, (202) 6227180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) under section 1502 of the Internal Revenue Code of 1986 (the consolidated return regulations). The amendments apply to acquisitions by a consolidated group of at least eighty percent of the stock of an S corporation. When a consolidated group acquires an S corporation, the interaction of the consolidated return regulations and the subchapter S rules requires the filing of a separate return for the day of the acquisition. In most situations, complying with this requirement results in an unnecessary administrative burden for taxpayers.

The proposed regulations also clarify the impact of the 1994 revisions to §1.1502–76(b) (T.D. 8560, 1994–2 C.B. 200). The 1994 revisions provided taxpayers greater certainty and prevented inconsistent allocations of items between a separate and a consolidated return. The proposed regulations clarify that the due date for the filing of the separate return for the period not included in the consolidated return continues to be governed by the rules in §1.1502–76(c).

Acquisition of an S Corporation

Section 1.1502–76(b)(1)(i) provides that a consolidated return must include the common parent’s items of income, gain, deduction, loss, and credit for the consolidated return year and each subsidiary’s items for the portion of the year for which the subsidiary is a member. Generally under §1.1502–76(b)(1)(ii)(A), a subsidiary becomes a member of the consolidated group at the end of the day on which its status as a member changes,

A small business corporation’s election under section 1362(a) to be an S corporation terminates under section 1362(d)(2) if it ceases to be a small business corporation. A small business corporation cannot have a corporate shareholder. Thus, an S corporation election terminates when the corporation has another corporation as a shareholder. The termination is effective on the day the corporation becomes a shareholder. When the termination of an S corporation election becomes effective on any day other than the first day of the taxable year, the taxable year in which the termination occurs is an S termination year under section 1362(e)(4). The S termination year is comprised of a short taxable year for which the corporation is an S corporation (the portion of the S termination year ending on the day before the terminating event occurs, or S short year) and a short taxable year for which the corporation is a C corporation (the remainder of the S termination year, or C short year).

Under section 1362(e)(6)(D), if there is a change in ownership of 50 percent or more of the stock in a corporation during the S termination year, items of income, gain, loss, deduction, and credit must be allocated between the S short year and the C short year on the basis of the corporation’s normal method of accounting, as determined under section 446 (also referred to as a closing of the corporation’s books) as of the close of the S short year, rather than a daily proration or other method. The S short year and the C short year are treated as two separate taxable years for most purposes. Separate returns are required for the S short year and the C short year, and the due date for the S short year return is the date by which the C short year return must be filed.

When an S corporation becomes a member of a consolidated group, the interaction of the consolidated return regulations and the subchapter S rules results in the corporation having three taxable periods for the year of the acquisition for

1999–9 I.R.B. 51 March 1, 1999

which Federal income tax returns are due: (1) an S short year that ends on the day before the acquisition by the consolidated group, (2) a C short year consisting solely of the day of the acquisition, and (3) a short taxable year (included in the consolidated return) for any items occurring after the day of the acquisition. Although three separate taxable periods are created when an S corporation becomes a member of a consolidated group, existing rules preclude an allocation of items properly attributable to either the C short year or the consolidated year to the S short year, for example, through a daily proration of the items attributable to the year of the acquisition. Section 1362(e)(6)(D).

The IRS and Treasury have determined that the compliance burdens associated with filing a separate return for the day that an S corporation is acquired by a consolidated group are not necessary to achieve the separate goals of section 1362(e) and the consolidated return regulations. The proposed regulations will eliminate this requirement in most situations, while preserving the purpose and effect of the rules under section 1362(e). These proposed regulations will not apply, however, if an S corporation becomes a member of a consolidated group in a qualified stock purchase for which an election under section 338(g) is made. If the common parent of the consolidated group and the shareholders of the S corporation jointly make a section 338(h)(10) election, the administrative relief provided by these proposed regulations is unnecessary because the S corporation election of the old target corporation does not terminate. See §1.338(h)(10)–1(e)(2)(iv).

Under the proposed regulations, an S corporation will become a member of the consolidated group at the beginning of the day that includes the acquisition, and its tax year will end for all Federal income tax purposes at the end of the day preceding the acquisition. Thus, instead of three short taxable years, the corporation will have two short taxable years as a result of the acquisition: (1) the period ending on the day before the S corporation joins the consolidated group, which will be treated as a taxable year in which the corporation was an S corporation, and (2) the period during which the corporation is a member of the consolidated group. The termination of an S corporation election under

section 1362(d)(2) continues to become effective on the day of the acquisition. However, because the consolidated return regulations create a separate taxable year for the corporation, the first day of which is the day on which the S corporation election terminates, there is no S termination year within the meaning of section 1362(e)(4). Consequently, section 1362(e) technically does not apply to the corporation.

Notwithstanding that there is no there is no S termination year, the proposed regulations provide rules similar to those that would have applied under section 1362(e). Under the proposed regulations, as under section 1362(e)(1)(A), the S corporation’s short taxable year ends at the end of the day preceding the date of the acquisition. The Federal income tax return for the final taxable year of the S corporation will be due at the earlier of: (1) the date the S corporation return would have been due if the taxable year of the S corporation did not end or (2) the date the consolidated group’s return for the taxable year that includes the acquisition is due.

These proposed regulations also preclude the availability of ratable allocation under §1.1502–76(b)(2)(ii) and (iii) in order to achieve the same results that would have obtained if section 1362(e)(6)(D) had applied. Accordingly, if an S corporation joins a consolidated group and these proposed regulations apply, then items must be allocated between the two short taxable years that begin and end with the corporation joining the consolidated group on the basis of a closing of the books rather than a ratable allocation of the type that would have been available under section 1362(e)(2) (in the case of the termination of an S corporation election) or §1.1502–76(b)(2)(ii) and (iii) (in the case of a corporation becoming or ceasing to be a member of a consolidated group).

Due Date for Separate Return

Section 1.1502-76(b) provides guidance regarding the items to be included in a consolidated return. Items for the portion of a year not included in the consolidated return must be included in a separate return.

Section 1.1502–76(b)(1)(ii)(A) provides that a subsidiary becomes (or ceases to be) a member of the consolidated group

at the end of the day on which its status as a member changes, and its tax year ends at that time for all Federal income tax purposes. Section 1.1502–76(b)(2)(i) generally provides that the returns that end and begin with a subsidiary becoming (or ceasing to be) a member of the consolidated group are subject to the rules of the Internal Revenue Code applicable to short periods, as if the subsidiary ceased to exist on becoming a member (or first existed on becoming a nonmember). Section 1.1502–76(c) provides rules for the filing of the separate return for the period the subsidiary was not included in the consolidated group.

The IRS and Treasury are concerned that a broad application of the provisions of §1.1502–76(b) could be construed to require an accelerated filing of the separate return by the fifteenth day of the third month following the end of the short taxable year that resulted from the corporation joining or leaving the consolidated group. This interpretation would, in effect, override the provisions in §1.150276(c) concerning the due date for the filing of a separate return.

The IRS and Treasury did not intend to modify the due date for the separate return for the period not included in the consolidated return by the changes in §1.1502–76(b) (as amended by T.D. 8560). This proposed regulation clarifies that §1.1502–76(c) continues to provide rules for the filing of the separate return.

Proposed Effective Date

The amendments relating to the acquisition of a corporation that, immediately before becoming a member, had an election under section 1362(a) in effect, are proposed to apply to transactions occurring after the date final regulations are published in the Federal Register. The amendments relating to the clarification of the due date for the separate return for items not included in the return of a consolidated group are proposed to apply to corporations that became or ceased to be members of consolidated groups on or after January 1, 1995, the effective date of the 1994 amendments to §1.1502–76(b).

Special Analyses

It has been determined that this notice of proposed rulemaking is not a signifi

March 1, 1999 52 1999–9 I.R.B.

cant regulatory action as defined in EO 12866. Therefore, a regulatory assessment is not required. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based upon the fact that the proposed regulations will provide administrative relief to small entities by removing the administrative burden of filing a separate one-day return currently required for certain acquisitions. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Comments and Public Hearing

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

A public hearing has been scheduled for March 31, 1999, at 10 a.m. in room 2615, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. Due to building security procedures, visitors must enter at the 10th Street entrance, located between Constitution and Pennsylvania Avenues, NW. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 15 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the “FOR FURTHER INFORMATION CONTACT” section of this preamble.

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 (a signed original and eight (8) copies) by March 10, 1999. The outline of topics to be discussed and the time to be devoted to each topic must be received by March 17, 1999.

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 Jeffrey L. Vogel of the Office of the Assistant Chief Counsel (Corporate), IRS. 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 * * * Section 1.1502–76 also issued under 26 U.S.C. 1502. * * *

Par. 2. Section 1.1362–3 is amended by adding a sentence to the end of paragraph (a) to read as follows:

§1.1362–3 Treatment of S termination year.

(a) In general. - * * See, however, §1.1502–76(b)(1)(ii)(A)(2) for special rules for an S election that terminates under section 1362(d) immediately before the S corporation becomes a member of a consolidated group (within the meaning of §1.1502–1(h)).

Par. 3. Section 1.1502–76 is amended as follows:

The text of paragraph (b)(1)(ii)(A) is redesignated as paragraph (b)(1)(ii)(A)( 1 ).
A paragraph heading for newly designated paragraph (b)(1)(ii)(A)( 1 ) is added.
The first sentence of newly designated paragraph (b)(1)(ii)(A)( 1 ) is revised.
Paragraph (b)(1)(ii)(A)( 2 ) is added.
Paragraph (b)(2)(v) is redesignated as paragraph (b)( 2 )(vi).
New paragraph (b)(2)(v) is added.
Paragraph (b)(5) is redesignated as paragraph (b)(6).
Paragraph (b)(4) is redesignated as paragraph (b)(5).
New paragraph (b)(4) is added.
Newly designated paragraph (b)(5) is amended as follows:

a. The first sentence of paragraph (b)(5), Example 6 (b) is revised.

b. The second sentence of paragraph (b)(5), Example 6 (c) is revised.

c. Example 7 is added to paragraph (b)(5).

Newly designated paragraph (b)(6)(i) is revised.

The revisions and additions read as follows:

§1.1502–76 Taxable year of members of group.

(b) * * * (1) * * * (ii) * * *(A) * * * ( 1 ) In general. If a corporation (S), other than one described in paragraph (b)(1)(ii)(A)( 2 ), becomes or ceases to be a member during a consolidated return year, it becomes or ceases to be a member at the end of the day on which its status as a member changes, and its tax year ends for all Federal income tax purposes at the end of that day. * * *

( 2 ) Special rule for former S corpora- tions. If S becomes a member in a transaction other than in a qualified stock purchase for which an election under section 338(g) is made, and immediately before becoming a member an election under section 1362(a) was in effect, then S will become a member at the beginning of the day the termination of its S corporation election is effective. S’s tax year ends for all Federal income tax purposes at the end of the preceding day. This paragraph (b)(1)(ii)(A)( 2 ) applies to transactions occurring after the date that final regulations are published in the Federal Register.

(2) * * * (v) Acquisition of S corporation. If a corporation is acquired in a transaction to which paragraph (b)(1)(ii)(A)( 2 ) of this section applies, then paragraphs (b)(2)(ii) and (iii) of this section do not apply and items of income, gain, loss, deduction, and credit are assigned to each short tax

1999–9 I.R.B. 53 March 1, 1999

able year on the basis of the corporation’s normal method of accounting as determined under section 446. This paragraph (b)(2)(v) applies to transactions occurring after the date that final regulations are published in the Federal Register.

(4) Determination of due date for sepa- rate return. Paragraph (c) of this section contains rules for the filing of the separate return referred to in this paragraph (b). In applying paragraph (c) of this section, the due date for the filing of S’s separate return shall also be determined without regard to the ending of the tax year under paragraph (b)(1)(ii) of this section or the deemed cessation of its existence under paragraph (b)(2)(i) of this section.

(5) * * *

Example 6. Allocation of partnership items. * * * (b) Analysis. Under paragraph (b)(2)(vi)(A) of this section, T is treated, solely for purposes of determining T’s tax year in which the partnership’s items are included, as selling or exchanging its entire interest in the partnership as of P’s sale of T stock. * * *

(c) Controlled partnership. - * * Under paragraph (b)(2)(vi)(B) of this section, T’s distributive share of the partnership items is treated as T’s items for purposes of paragraph (b)(2) of this section. * * *

Example 7. Acquisition of S corporation . (a) Facts. Z is a small business corporation for which an election under section 1362(a) was in effect at all times since Year 1. At all times, Z had only 100 shares of stock outstanding, all of which were owned by individual A. On July 1 of Year 3, P acquired all of the Z stock. P does not make an election under section 338(g) with respect to its purchase of the Z stock.

(b) Analysis. As a result of P’s acquisition of the Z stock, Z’s election under section 1362(a) terminates. See sections 1361(b)(1)(B) and 1362(d)(2). Z is required to join in the filing of the P consolidated return. See §1.1502-75. Z’s tax year ends for all Federal income tax purposes on June 30 of Year 3. If no extension of time is sought, Z must file a separate return for the period from January 1 through June 30 of Year 3 on or before March 15 of Year 4. See paragraph (b)(4) of this section. Z will become a member of the P consolidated group as of July 1 of Year 3. See paragraph (b)(1)(ii)(A)( 2 ) of this section. P group’s Year 3 consolidated return will include Z’s items from July 1 to December 31 of Year 3.

(6) Effective date —(i) General rule. Except as provided in paragraphs (b)(1)(ii)(A)( 2 ) and (b)(2)(v) of this section, this paragraph (b) applies to corpora

tions becoming or ceasing to be members of consolidated groups on or after January 1, 1995.

Robert E. Wenzel, Deputy Commissioner of

Internal Revenue.

(Filed by the Office of the Federal Register on December 16, 1998, 8:45 a.m., and published in the issue of the Federal Register for December 17, 1998, 63 F.R. 69581.)

Notice of Proposed Rulemaking Notice of Public Hearing

Timely Mailing Treated as Timely Filing/Electronic Postmark

REG–115433–98

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking; and, withdrawal of previous notice of proposed rulemaking.

SUMMARY: This document contains proposed regulations relating to timely mailing treated as timely filing and paying under section 7502. The proposed regulations generally reflect changes to the law made since 1960. The proposed regulations affect taxpayers that file documents or make payments or deposits. This document also withdraws a previous notice of proposed rulemaking published in the Federal Register of December 11, 1979.

DATES: Written comments and requests for a public hearing must be received by April 15, 1999. The notice of proposed rulemaking published at 44 F.R. 71430, December 11, 1979, is withdrawn as of January 15, 1999.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG–115433–98), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG–115433–98),

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 submissions, Michael Slaughter, (202) 622-7180; concerning the regulations, Charles A. Hall, (202) 622-4940 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed amendments to the Regulations on Procedure and Administration (26 CFR part 301) under section 7502 relating to timely mailing treated as timely filing and paying. As originally enacted in the Internal Revenue Code of 1954, Public Law 591, ch. 736 (68A Stat. 895 (1954)), section 7502 provided that if any claim, statement, or other document is delivered to the appropriate agency, officer, or office after the filing date, the date of the United States postmark will be deemed to be the date of delivery if the postmark date is on or before the filing due date. In the case of registered mail, section 7502 provided that the registration will be prima facie evidence of delivery and the date of registration will be deemed the postmark date. At the time, section 7502 did not apply to the mailing of tax returns or payments.

The Technical Amendments Act of 1958, Public Law 85-866 (72 Stat. 1665 (1958)), amended section 7502 by authorizing the Secretary to provide by regulations the extent to which the provisions with respect to prima facie evidence of delivery and the postmark date will apply to certified mail.

Section 5(a) of the Act of November 2, 1966, Public Law 89–713 (80 Stat. 1110 (1966)), amended section 7502 to apply the timely mailing rules to returns and the payment of taxes. Section 106(a) of the Revenue and Expenditure Control Act of 1968, Public Law 90–364 (82 Stat. 266 (1968)), extended these rules to the mailing of deposits of tax. The Deficit Reduction Act of 1984, Public Law 98–369 (98

March 1, 1999 54 1999–9 I.R.B.

Stat. 695 (1984)), limited the timely mailing rules to deposits of less than $20,000 in the case of any person who is required to deposit more than once a month.

Minor changes were also made to section 7502 by the Tax Reform Act of 1976, Public Law 94–455 (90 Stat. 1831 and 1834 (1976)), the Act of October 28, 1977, Public Law 95–147 (91 Stat. 1228 (1977)), and the Tax Reform Act of 1986, Public Law 99–514 (100 Stat. 2833 (1986)).

The existing regulations (T.D. 6232) under section 7502 were last amended on October 25, 1960 (25 F.R. 10247) to implement changes made by the Technical Amendments Act of 1958. The regulations provide that the prima facie evidence of delivery and postmark date rules apply to certified mail.

A notice of proposed rulemaking (REG–209351–71, formerly LR–1406) was published on December 11, 1979 (44 F.R. 71430) to implement changes made by the Act of November 2, 1966, the Revenue and Expenditure Control Act of 1968, the Tax Reform Act of 1976, and the Act of October 28, 1977. The proposed regulations would have conformed the existing regulations to these changes. Because the proposed changes are incorporated in this document, the earlier notice of proposed rulemaking is withdrawn.

In 1996, section 1210 of The Taxpayer Bill of Rights 2, Public Law 104–168 (110 Stat. 1474 (1996)), added section 7502(f) to provide that the term United States mail includes a designated delivery service and that the term postmark includes the date recorded or marked by a designated delivery service. The provision allows the IRS to determine whether a service of a private delivery service (PDS) is a designated delivery service. Section 7502(f) also allows the IRS to provide a rule that equates a service provided by a PDS to United States registered or certified mail. The IRS has determined that certain delivery services of four PDSs are designated for purposes of section 7502(f). However, the IRS has not yet determined that any service of a PDS is substantially equivalent to United States registered or certified mail. See Notice 98–47 (1998–37 I.R.B. 8 (September 14, 1998)).

Finally, section 7502(c)(2) was amended by section 2003(b) of the Inter

nal Revenue Service Restructuring and Reform Act of 1998, Public Law 105-206 (112 Stat. 725 (1998)), to authorize the Secretary to provide the extent to which the prima facie evidence of delivery and postmark date rules apply to electronic filing.

Explanation of Provisions

These proposed regulations propose to add a new §301.7502–1(d) to provide that the date of an electronic postmark given by an authorized electronic return transmitter will be deemed the filing date if the date of the electronic postmark is on or before the filing due date. It also permits the Commissioner to enter into an agreement with an electronic return transmitter or to prescribe in forms, instructions, or other appropriate guidance the procedures under which the electronic return transmitter is authorized to provide taxpayers with an electronic postmark to acknowledge the date and time that the electronic return transmitter received the electronically filed document.

An electronic return transmitter is defined for purposes of the regulation the same as in the revenue procedures governing the Electronic Filing Program, currently Rev. Proc. 98–50 (1998–38 I.R.B. 8 (September 21, 1998)), and the On-Line Filing Program, currently Rev. Proc. 9851 (1998–38 I.R.B. 20 (September 21, 1998)). An electronic postmark is a record of the date and time that an authorized electronic return transmitter receives the transmission of the taxpayer’s electronically filed document on its host system.

For tax year 1998, the rules on electronic postmarks are effective for income tax returns filed through electronic return transmitters authorized to provide an electronic postmark pursuant to an agreement under the Electronic Tax Administration’s Request for Agreement released on November 26, 1997. For taxable years beginning after 1998, the rules on electronic postmarks are effective for documents submitted to electronic return transmitters that are authorized to provide an electronic postmark pursuant to §301.7502– 1(d)(2). The remainder of the changes contained in §§301.7502–1 and 301.7502–2 conform the regulations to the expanded scope of section 7502 as amended over

the years. For instance, §301.7502–1 provides that the timely mailing treated as timely filing rule extends to the mailing of tax returns and payments. Additionally, §301.7502–2 provides guidance on the timely mailing of deposits.

In 1980, IRS and the Treasury Department received comments in response to the notice of proposed rulemaking. Comments have not been requested since that time. Accordingly, the public is encouraged to make comments regarding this notice of proposed rulemaking, including comments regarding whether section 7502 should apply to claims for refunds made on delinquent original income tax returns or whether the prima facie evidence of delivery rule for registered mail should be extended to services of a PDS or to electronic filing of documents.

Effect on other Documents

The notice of proposed rulemaking published in the Federal Register for December 11, 1979 (REG–209351–71, formerly LR-1406, 44 F.R. 71430) is withdrawn as of January 15, 1999.

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 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 comments (a signed original and eight (8) copies) that are submitted timely to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed rules

1999–9 I.R.B. 55 March 1, 1999

and how they can be made easier to understand. All comments will be available for public inspection and copying. A public hearing may be scheduled if requested by any person that timely submits 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 Charles A. Hall, Office of Assistant Chief Counsel (Income Tax & Accounting). However, other personnel from the IRS and Treasury Department participated in their development.

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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 is amended by adding entries in numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * * Section 301.7502–1 also issued under 26 U.S.C. 7502 * * * Section 301.7502–2 also issued under 26 U.S.C. 7502 * * * Par. 2. Section 301.7502–1 is revised to read as follows:

§301.7502–1 Timely mailing of documents and payments treated as timely filing and paying.

(a) General rule. Section 7502 provides that, if the requirements of that section are met, a document or payment (within the meaning of paragraph (b) of this section) is deemed to be filed or paid on the date of the postmark stamped on the envelope or other appropriate wrapper (envelope) in which the document or payment was mailed. Thus, if the envelope that contains the document or payment has a timely postmark, the document or payment is considered timely filed or paid even if it is received after the last date, or the last day of the period, prescribed for filing the document or making the payment. However, if a document or payment is not considered timely filed or

timely paid under section 7502, the document or payment is not deemed to be filed or paid on the date of the postmark stamped on the envelope in which the document or payment was mailed. Thus, section 7502 does not apply to determine the period of time during which there is a failure to file a return or pay a tax for purposes of computing the penalties and additions to tax imposed by section 6651. Except as provided in section 7502(e) and §301.7502–2, relating to the timely mailing of deposits, and paragraph (d) of this section, relating to electronically filed documents, section 7502 is applicable only to those documents or payments as defined in paragraph (b) of this section and only if the document or payment is mailed in accordance with paragraph (c) of this section and is delivered in accordance with paragraph (e) of this section.

(b) Definitions —(1) Document defined. (i) The term document, as used in this section, means any return, claim, statement, or other document required to be filed within a prescribed period or on or before a prescribed date under authority of any provision of the internal revenue laws, except as provided in paragraph (b)(1)(ii), (iii), or (iv) of this section.

(ii) The term does not include returns, claims, statements, or other documents that are required under any provision of the internal revenue laws or the regulations thereunder to be delivered by any method other than mailing.

(iii) The term does not include any document filed in any court other than the Tax Court, but the term does include any document filed with the Tax Court, including a petition for redetermination of a deficiency and a petition for review of a decision of the Tax Court.

(iv) The term does not include any document that is required to be filed with a bank or other depositary under section 6302. However, see §301.7502–2 for special rules relating to the timeliness of deposits and documents required to be filed with deposits.

(2) Payment defined. (i) The term pay- ment, as used in this section, means any payment required to be made within a prescribed period or on or before a prescribed date under the authority of any provision of the internal revenue laws, except as provided in paragraph (b)(2)(ii), (iii), (iv), or (v) of this section.

(ii) The term does not include any payment that is required under any provision of the internal revenue laws or the regulations thereunder to be delivered by any method other than mailing. See, for example, section 6302(h) and the regulations thereunder regarding electronic funds transfer.

(iii) The term does not include any payment, whether it is made in the form of currency or other medium of payment, unless it is actually received and accounted for. For example, if a check is used as the form of payment, this section does not apply unless the check is honored upon presentation.

(iv) The term does not include any payment to any court other than the Tax Court.

(v) The term does not include any deposit that is required to be made with a bank or other depositary under section 6302. However, see §301.7502-2 for rules relating to the timeliness of deposits.

(3) Last date or last date prescribed. As used in this section, the term the last date, or the last day of the period, pre- scribed for filing the document or making the payment includes any extension of time granted for that action. When the last date, or the last day of the period, prescribed for filing the document or making the payment falls on a Saturday, Sunday or legal holiday, section 7503 applies. Therefore, in applying the rules of this paragraph (b)(3), the next succeeding day that is not a Saturday, Sunday, or legal holiday is treated as the last date, or the last day of the period, prescribed for filing the document or making the payment.

(c) Mailing requirements —(1) In gen- eral. Section 7502 does not apply unless the document or payment is mailed in accordance with the following requirements:

(i) Envelope and address. The document or payment must be contained in an envelope, properly addressed to the agency, officer, or office with which the document is required to be filed or to which the payment is required to be made.

(ii) Timely deposited in U.S. mail. The document or payment must be deposited within the prescribed time in the mail in the United States with sufficient postage prepaid. For this purpose, a document or payment is deposited in the mail in the United States when it is deposited with

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the domestic mail service of the U.S. Postal Service. The domestic mail service of the U.S. Postal Service, as defined by the Domestic Mail Manual as incorporated by reference in the postal regulations, includes mail transmitted within, among, and between the United States of America, its territories and possessions, and Army post offices (APO), fleet post offices (FPO), and the United Nations, NY. (See Domestic Mail Manual, section G011.2.1, as incorporated by reference in 39 CFR 111.1.) Section 7502 does not apply to any document or payment that is deposited with the mail service of any other country.

(iii) Postmark —(A) U.S. Postal Ser- vice postmark. If the postmark on the envelope is made by the U.S. Postal Service, the postmark must bear a date on or before the last date, or the last day of the period, prescribed for filing the document or making the payment. If the postmark does not bear a date on or before the last date, or the last day of the period, prescribed for filing the document or making the payment, the document or payment is considered not to be timely filed or paid, regardless of when the document or payment is deposited in the mail. Accordingly, the sender who relies upon the applicability of section 7502 assumes the risk that the postmark will bear a date on or before the last date, or the last day of the period, prescribed for filing the document or making the payment. See, however, paragraph (c)(2) of this section with respect to the use of registered mail or certified mail to avoid this risk. If the postmark on the envelope is made by the U.S. Postal Service but is not legible, the person who is required to file the document or make the payment has the burden of proving the date that the postmark was made. Furthermore, if the envelope that contains a document or payment has a timely postmark made by the U.S. Postal Service but it is received after the time when a document or payment postmarked and mailed at that time would ordinarily be received, the sender may be required to prove that it was timely mailed.

(B) Postmark made by other than U.S. Postal Service —(1) In general. If the postmark on the envelope is made other than by the U.S. Postal Service—

( i ) The postmark so made must bear a legible date on or before the last date, or the last day of the period, prescribed for filing the document or making the payment; and

( ii ) The document or payment must be received by the agency, officer, or office with which it is required to be filed not later than the time when a document or payment contained in an envelope that is properly addressed, mailed, and sent by the same class of mail would ordinarily be received if it were postmarked at the same point of origin by the U.S. Postal Service on the last date, or the last day of the period, prescribed for filing the document or making the payment.

( 2 ) Document or payment received late. If the document or payment is received after the time when a document or payment so mailed and so postmarked by the U.S. Postal Service would ordinarily be received, the document or payment is treated as having been received at the time when a document or payment so mailed and so postmarked would ordinarily be received if the person who is required to file the document or make the payment establishes– ( i ) That it was actually deposited in the U.S. mail before the last collection of the mail from the place of deposit which was postmarked (except for the metered mail) by the U.S. Postal Service on or before the last date, or the last day of the period, prescribed for filing the document or making the payment;

( ii ) That the delay in receiving the document or payment was due to a delay in the transmission of the U.S. mail; and

( iii ) The cause of the delay. ( 3 ) U.S. and non-U.S. postmarks. If the envelope has a postmark made by the U.S. Postal Service in addition to the postmark not so made, the postmark that was not made by the U.S. Postal Service is disregarded, and whether the envelope was mailed in accordance with this paragraph (c)(1)(iii)(B) will be determined solely by applying the rule of paragraph (c)(1)(iii)(A) of this section.

(2) Registered or certified mail. If the document or payment is sent by U.S. registered mail, the date of registration of the document or payment is treated as the postmark date. If the document or payment is sent by U.S. certified mail and the

sender’s receipt is postmarked by the postal employee to whom the document or payment is presented, the date of the U.S. postmark on the receipt is treated as the postmark date of the document or payment. Accordingly, the risk that the document or payment will not be postmarked on the day that it is deposited in the mail may be eliminated by the use of registered or certified mail.

(d) Electronically filed documents —(1) In general. A document filed electronically with an electronic return transmitter (as defined in paragraph (d)(3)(i) of this section and authorized pursuant to paragraph (d)(2) of this section) in the manner and time prescribed by the Commissioner is deemed to be filed on the date of the electronic postmark (as defined in paragraph (d)(3)(ii) of this section) given by the authorized electronic return transmitter. Thus, if the electronic postmark is timely, the document is considered filed timely although it is received by the agency, officer, or office after the last date, or the last day of the period, prescribed for filing such document.

(2) Authorized electronic return trans- mitters. The Commissioner may enter into an agreement with an electronic return transmitter or prescribe in forms, instructions, or other appropriate guidance the procedures under which the electronic return transmitter is authorized to provide taxpayers with an electronic postmark to acknowledge the date and time that the electronic return transmitter received the electronically filed document.

(3) Definitions —(i) Electronic return transmitter. For purposes of this paragraph (d), the term electronic return transmitter has the same meaning as contained in section 3.02(4) of Rev. Proc. 98–50 (1998–38 I.R.B. 8 (September 21, 1998)) and section 3.02(3) of Rev. Proc. 98–51 (1998–38 I.R.B. 20 (September 21, 1998))(See §601.601(d)(2) of this chapter.) or in procedures subsequently prescribed by the Commissioner.

(ii) Electronic postmark. For purposes of this paragraph (d), the term electronic postmark means a record of the date and time (in a particular time zone) that an authorized electronic return transmitter receives the transmission of a taxpayer’s electronically filed document on its host system. However, if the taxpayer and the

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electronic return transmitter are located in different time zones, it is the time in the taxpayer’s time zone that controls the timeliness of the electronically filed document.

(e) Delivery. (1) Except as provided in section 7502(f) and paragraph (d) of this section, section 7502 is not applicable unless the document or payment is delivered by U.S. mail to the agency, officer, or office with which the document is required to be filed or to which payment is required to be made. However, in the case of a document (but not a payment) sent by registered or certified mail, proof that the document was properly registered or that a postmarked certified mail sender’s receipt was properly issued and that the envelope was properly addressed to the agency, officer, or office constitutes prima facie evidence that the document was delivered to the agency, officer, or office.

(2) Section 7502 is applicable only when the document or payment is delivered after the last date, or last day of the period, prescribed for filing the document or making the payment. Thus, section 7502 is applicable when a claim for credit or refund is delivered after the last day of the period specified in section 6511 or in any other corresponding provision of law relating to the limit on the amount of credit or refund that is allowable. For example, taxpayer A was required to file an income tax return for 1993 on or before April 15, 1994, but A secured an extension until August 15, 1994, to file such return. A filed the return on August 15, 1994, but no tax was paid at that time because the tax liability disclosed by the return had been completely satisfied by the income tax that had been withheld on A’s wages. On August 14, 1997, A mailed in accordance with the requirements of this section a claim for refund of a portion of this 1993 tax. The envelope containing the claim was postmarked on August 14, 1997, but it was not delivered to the Service Center until August 18, 1997. Under section 6511, A’s claim for refund is timely if filed within three years from August 15, 1994. Thus, since A’s claim for refund was mailed in accordance with the requirements of this section and was delivered after the last day of the period specified in section 6511, section 7502 is applicable and the claim is deemed to have been filed on August 14, 1997.

(f) Effective date —(1) In general. This section applies to any payment or document mailed and delivered in accordance with the requirements of this section in an envelope bearing a postmark dated after January 15, 1999.

(2) Electronically filed documents —(i) For taxable year 1998. For taxable year 1998, this section only applies to electronically filed income tax returns transmitted to an electronic return transmitter that was authorized to provide an electronic postmark pursuant to an agreement entered into in response to submissions received in reply to the Electronic Tax Administration’s Request for Agreement released on November 26, 1997.

(ii) For taxable years after 1998. For taxable years after 1998, this section applies to any electronically filed return, claim, statement, or other document transmitted to an electronic return transmitter that is authorized to provide an electronic postmark pursuant to paragraph (d)(2) of this section.

Par. 3. Section 301.7502–2 is added to read as follows:

§301.7502–2 Timely mailing of deposits.

(a) General rule —(1) Two day rule. Section 7502(e) provides that, if the requirements of that section are met, a deposit is deemed to be received on the date the deposit was mailed even though it is received after the date prescribed for making the deposit. The requirements of the section are met if the person required to make the deposit establishes that the date of mailing was on or before the second day preceding the date prescribed for making the deposit. If the date of mailing was not established to be on or before the second day preceding the date prescribed for making the deposit, the deposit will not be considered timely received unless it is actually received on or before the date prescribed for making the deposit. Section 7502(e) only applies to a deposit mailed to the bank, trust company, domestic building and loan association, or credit union authorized to receive that deposit. Thus, section 7502(e) does not apply to any remittance mailed to an internal revenue service center.

(2) Deposits of $20,000 or more. Paragraph (a)(1) of this section does not apply with respect to any deposit of $20,000 or

more by any person required to deposit any tax more than once a month. Any such deposit must be made by the due date for such deposit, regardless of the method of delivery.

(b) Deposit defined. The term deposit, as used in this section, means any deposit of tax required to be made on or before a prescribed date pursuant to regulations prescribed under section 6302. For information regarding the making of deposits by electronic funds transfer, see section 6302(h) and the regulations thereunder. (c) Mailing requirements —(1) In gen- eral. Section 7502(e) does not apply unless the deposit is mailed in accordance with the requirements of paragraph (c)(2) of this section.

(2) Requirements. The date of mailing must fall on or before the second day preceding the prescribed date for making a deposit (including any extension of time granted for making the deposit). For example, if a deposit is due on or before January 15, the date of mailing must fall on or before January 13. The deposit must be contained in an envelope or other appropriate wrapper approved for use in the mails by the U.S. Postal Service, properly addressed to the bank, trust company, domestic building and loan association, or credit union authorized to receive the deposit. The deposit must be deposited with sufficient postage prepaid on or before the second day in the mail in the United States within the meaning of §301.7502–1.

(3) Registered and certified mail. The provisions of §301.7502–1(c)(2) apply to a deposit sent by U.S. registered mail or U.S. certified mail as if the deposit were a payment, except that the date of registration or the date of the postmark on the sender’s receipt is considered the date of mailing of such deposit.

(d) Delivery. Section 7502(e) does not apply unless a deposit is actually delivered by U.S. mail to the authorized financial institution with which the deposit is required to be made and is accepted by that financial institution. For rules relating to the acceptance of deposits by authorized financial institutions (see 31 CFR 203.18). The fact that a deposit is sent by U.S. registered or U.S. certified mail does not constitute prima facie evidence that the deposit was delivered to the financial institution authorized to receive the de

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posit. Section 7502(e) does not apply unless the deposit is delivered after the date prescribed for making the deposit.

(e) Effective date. This section applies to all deposits required to be made after January 15, 1999.

uary 25, 1999, contains an error. On page 4, in column 3, in the last paragraph, the statement “The Commissioner WITHDRAWS the following decision” is incorrect. The statement should have read “The Commissioner WITHDRAWS the Action on Decision written in response to the following decision:”

Robert E. Wenzel, Deputy Commissioner of

Internal Revenue.

ary 14, 1999, 8:45 a.m., and published in the issue of the Federal Register for January 15, 1999, 64 F.R. 2606)

Announcement Relating to Court Decisions; Correction

Announcement 99–17

The Announcement Relating to Court Decisions in the 1999–4 I.R.B., dated Jan

(Filed by the Office of the Federal Register on Janu

1999–9 I.R.B. 59 March 1, 1999