Part IV. Applicable Federal Interest

Rates.

TABLE OF APPLICABLE FEDERAL

INTEREST RATES FOR PURPOSES

OF § 807

Year Interest Rate

1998 6.31 1999 6.30

Sources: Rev. Rul. 97–50, 1997–49 C.B. 5 for the 1998 rate and Rev. Rul. 98–57, 1998–49 I.R.B. 4 for the 1999 rate.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 92–19 is supplemented by the addition to Part III of that ruling of prevailing state assumed interest rates under § 807 for certain insurance products issued in 1998 and 1999 and is further supplemented by an addition to the table in Part IV of Rev. Rul. 92–19 listing applicable federal interest rates. Parts I and II of Rev. Rul. 92–19 are not affected by this ruling.

1999–10 I.R.B. 13 March 8, 1999

March 8, 1999 14 1999–10 I.R.B.

1999–10 I.R.B. 15 March 8, 1999

March 8, 1999 16 1999–10 I.R.B.

1999–10 I.R.B. 17 March 8, 1999

AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(2) for buildings placed in service during the current month. Finally, Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520.

Section 846.—Discounted Unpaid Losses Defined

The adjusted applicable federal short-term, and long-term rates are set forth for the month of March 1999. See Rev. Rul. 99–11, page 18.

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

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

Determination of issue price in the

case of certain debt instruments issued for property. This ruling provides various prescribed rates for federal income tax purposes for March 1999.

Rev. Rul. 99–11

This revenue ruling provides various prescribed rates for federal income tax purposes for March 1999 (the current month.) Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted

REV. RUL. 99–11 TABLE 1

Applicable Federal Rates (AFR) for March 1999

Period for Compounding

Annual Semiannual Quarterly Monthly Short-Term

AFR 4.67% 4.62% 4.59% 4.58% 110% AFR 5.14% 5.08% 5.05% 5.03% 120% AFR 5.62% 5.54% 5.50% 5.48% 130% AFR 6.10% 6.01% 5.97% 5.94%

Mid-Term

AFR 4.83% 4.77% 4.74% 4.72% 110% AFR 5.32% 5.25% 5.22% 5.19% 120% AFR 5.80% 5.72% 5.68% 5.65% 130% AFR 6.30% 6.20% 6.15% 6.12% 150% AFR 7.29% 7.16% 7.10% 7.06% 175% AFR 8.52% 8.35% 8.26% 8.21%

Long-Term

AFR 5.30% 5.23% 5.20% 5.17% 110% AFR 5.83% 5.75% 5.71% 5.68% 120% AFR 6.38% 6.28% 6.23% 6.20% 130% AFR 6.92% 6.80% 6.74% 6.71%

REV. RUL. 99–11 TABLE 2

Adjusted AFR for March 1999

Period for Compounding

Annual Semiannual Quarterly Monthly Short-term adjusted AFR 3.09% 3.07% 3.06% 3.05%

Mid-term adjusted AFR 3.77% 3.74% 3.72% 3.71%

Long-term adjusted AFR 4.68% 4.63% 4.60% 4.59%

March 8, 1999 18 1999–10 I.R.B.

REV. RUL. 99–11 TABLE 3

Rates Under Section 382 for March 1999

Adjusted federal long-term rate for the current month 4.68%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal long-term rates for the current month and the prior two months.) 4.71%

REV. RUL. 99–11 TABLE 4

Appropriate Percentages Under Section 42(b)(2) for March 1999

Appropriate percentage for the 70% present value low-income housing credit 8.18%

Appropriate percentage for the 30% present value low-income housing credit 3.51%

REV. RUL. 99–11 TABLE 5

Rate Under Section 7520 for March 1999

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest 5.8%

SUPPLEMENTARY INFORMATION:

Background

Under section 6103(j)(1) of the Internal Revenue Code, upon written request from the Secretary of Commerce, the Secretary is to furnish to the Bureau of the Census (“Bureau”) tax return information that is prescribed by Treasury regulations for the purpose of structuring censuses and national economic accounts and conducting related statistical activities. Section 301.6103(j)(1)–1 of the regulations provides an itemized description of the return information authorized to be disclosed for this purpose. Periodically, the disclosure regulations are amended to reflect the changing needs of the Bureau for data for its statutorily authorized statistical activities.

This document adopts temporary regulations that authorize IRS personnel to disclose the additional items of return information that have been requested by the Secretary of Commerce. The temporary

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

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of March 1999. See Rev. Rul. 99–11, page 18.

Section 6103.—Confidentiality and Disclosure of Returns and Return Information

26 CFR 6103.301.6103(j)(1)–1: Department of Commerce

T.D. 8811

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 301

Disclosure of Return Information to the Bureau of the Census

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains final and temporary regulations relating to additions to, and deletions from, the list of items of information disclosed to the Bureau of the Census for use in certain statistical programs. These regulations provide guidance to IRS personnel responsible for disclosing the information. The text of the temporary regulations also serves as the text of the proposed regulations set forth in the notice of proposed rulemaking on this subject in REG– 121806–97, on page 46.

DATES: Effective Date: These regulations are effective January 25, 1999.

Applicability Date: For dates of applicability, see §301.6103(j)(1)–1T(e) of these regulations.

FOR FURTHER INFORMATION CONTACT: Jamie Bernstein, (202) 622-4570 (not a toll-free number).

1999–10 I.R.B. 19 March 8, 1999

regulations also delete certain items of return information that are enumerated in the existing regulations but that the Secretary of Commerce has indicated are no longer needed.

Except for §301.6103(j)(1)–1T(b)(3), (b)(6)(i)(A) and (b)(6)(iii), the text of the temporary regulations is the same as 26 CFR 301.6103(j)(1)–1. The changes made by §301.6103(j)(1)–1T(b)(3), (b)(6)(i)(A) and (b)(6)(iii) are discussed below.

Explanation of Provisions

The request by the Secretary of Commerce for additional items of return information has indicated several areas in which changes to existing Bureau access to tax return information either would improve present statistical programs or are necessary to implement new programs.

To reduce small businesses’ direct reporting burden in quinquennial economic censuses and current economic surveys, and to improve the quality of the data received, the Bureau needs certain items of information set forth in tax returns. These items include total expenses or deductions, beginning- and end-of-year inventories, net gain from sales of business property, other income, and total income.

The Secretary of Commerce also has requested identity information of parent corporations as shown on corporate tax returns. This information will enable the Bureau to collect data for various economic surveys at the subsidiary or division level rather than at the establishment level. Restructuring data collection in accordance with such new organizational linkages will reduce the burden on individual business establishments to estimate data relating to their affiliates, enhance the quality of the data collected, and provide the Bureau with an efficient sampling frame for surveys collecting certain data, such as capital expenditures, that are typically not available at the establishment level.

To eliminate the follow-up contact of corporate taxpayers presently required under the Quarterly Financial Report (QFR) program in order to establish S corporation status, the Bureau needs the document code and district office code from corporate returns. Another improvement to the QFR program would be ef

fected by the requested disclosure of parent corporation identity information, because subsidiaries could then be linked before a sample was selected and would be relieved of the separate Census reporting requirements. Finally, the Bureau seeks to enhance the quality and reduce the size of sample frames under the QFR program by identifying inactive corporations so that they can be excluded from the universe subject to sampling. This requires that certain items of corporate employment tax information (employer identification number, tax period, total compensation, and taxable wages and tips), available to the Bureau under the existing regulations for economic census purposes, be available to the Bureau as well for QFR purposes.

The Secretary of Commerce has advised that the Bureau no longer uses certain items of information listed in the existing regulations: sales of livestock and produce raised, Schedule E information filed with the Form 1120 series, and, with respect to the QFR program, net income or loss. Accordingly, the temporary regulations have deleted these items from the enumeration of return information to be disclosed to the Bureau.

The transfer of the Census of Agriculture to the Department of Agriculture under the Census of Agriculture Act of 1997 (Public Law 105–113) has also obviated the need for the Secretary of Commerce to receive certain items of information. These items are: Schedule F filed with the Form 1040 series, net farm profits, agricultural activity code, and answers to material participation questions. These items have been deleted in the temporary regulations.

For simplification and consistency, the term “loss” is not expressly stated in these regulations as an alternative to “income” or “gain,” but it is the intent of the Secretary to interpret “income” or “gain” as including negative or loss figures and to provide any such figures to the Bureau.

Special Analyses

It has been determined that this Treasury decision 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 Pro

cedure Act (5 U.S.C. chapter 5) does not apply to these regulations. For the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6) see the Special Analyses section of the preamble to the cross reference notice of proposed rulemaking published in the Proposed Rules section in this issue of the Federal Register. Pursuant to section 7805(f) of the Internal Revenue Code, these temporary regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

Drafting Information

The principal author of these regulations is Douglas Giblen, Office of the Associate Chief Counsel (International) (formerly of the Office of Assistant Chief Counsel (Disclosure Litigation)). However, other personnel from the IRS and Treasury Department participated in their development.

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Adoption of Amendments to the Regulations

Accordingly, 26 CFR Part 301 is amended as follows:

PART 301—PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 is amended by adding an entry in numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * * Section 301.6103(j)(1)–1T also issued under 26 U.S.C. 6103(j)(1);* * *

Par. 2. Section 301.6103(j)(1)–1 is amended by revising paragraphs (b)(3) and (b)(6)(i)(A) to read as follows:

§301.6103(j)(1)–1 Disclosures of return information to officers and employees of the Department of Commerce for certain statistical purposes and related activities.

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(b)(3)[Reserved]. For further guidance, see §301.6103(j)(1)–1T(b)(3).

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(b)(6)(i)(A)[Reserved]. For further guidance, see §301.6103(j)(1)–1T(b)(6)(i)(A).

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March 8, 1999 20 1999–10 I.R.B.

Par. 3. Section 301.6103(j)(1)–1T is added to read as follows:

§301.6103(j)(1)–1T Disclosure of return information to officers and employees of the Department of Commerce for certain statistical purposes and related activities (temporary).

(a) through (b)(2)[Reserved]. For further guidance, see §301.6103(j)(1)–1(a) through (b)(2).

(b)(3) Officers or employees of the Internal Revenue Service will disclose the following business related return information reflected on the return of a taxpayer to officers and employees of the Bureau of the Census for purposes of, but only to the extent necessary in, conducting and preparing, as authorized by chapter 5 of title 13, United States Code, demographic, economic, and agricultural statistics programs, censuses, and surveys. The “return of a taxpayer” includes, but is not limited to, Form 941; Form 990 series; Form 1040 series and Schedules C and SE; Form 1065 and all attending schedules and Form 8825; Form 1120 series and all attending schedules and Form 8825; Form 851; Form 1096; and other business returns, schedules and forms that the Internal Revenue Service may issue—

(i) Taxpayer identity information (as defined in section 6103(b)(6)) including parent corporation, shareholder, partner, and employer identity information;

(ii) Gross income, profits, or receipts; (iii) Returns and allowances; (iv) Cost of labor, salaries, and wages; (v) Total expenses or deductions; (vi) Total assets; (vii) Beginning- and end-of-year inventory;

(viii) Royalty income; (ix) Interest income, including portfolio interest;

(x) Rental income, including gross rents;

(xi) Tax-exempt interest income; (xii) Net gain from sales of business property;

(xiii) Other income; (xiv) Total income; (xv) Percentage of stock owned by each shareholder;

(xvi) Percentage of capital ownership of each partner;

(xvii) End-of-year code; (xviii) Months actively operated;

(xix) Principal industrial activity code, including the business description;

(xx) Total number of documents and the total amount reported on the Form 1096 transmitting Forms 1099-MISC; (xxi) Form 941 indicator and business address on Schedule C; and

(xxii) Consolidated return indicator. (b)(4) and (5)[Reserved]. For further guidance, see §301.6103(j)(1)–1(b)(4) and (5).

(b)(6)(i) Officers or employees of the Internal Revenue Service will disclose the following return information (but not including return information described in section 6103(o)(2)) reflected on the return of a corporation with respect to the tax imposed by Chapter 1 to officers and employees of the Bureau of the Census for purposes of, but only to the extent necessary in, developing and preparing, as authorized by law, the Quarterly Financial Report—

(A) From the business master files of the Internal Revenue Service—

( 1 ) Taxpayer identity information (as defined in section 6103(b)(6)), including parent corporation identity information;

( 2 ) Document code; ( 3 ) District office code; ( 4 ) Consolidated return and final return indicators;

( 5 ) Principal industrial activity code; ( 6 ) Partial year indicator; ( 7 ) Annual accounting period; ( 8 ) Gross receipts less returns and allowances; and

( 9 ) Total assets. (b)(6)(i)(B) and (ii)[Reserved]. For further guidance, see §301.6103(j)(1)– 1(b)(6)(i)(B) and (ii). (iii) Information from an employment tax return disclosed pursuant to §301.6103(j)(1)–1(b)(2)(iii)(A), (B), (D), (I) and (J) may be used by officers and employees of the Bureau of the Census for the purpose described in and subject to the limitations of this paragraph (b)(6).

(c) and (d) [Reserved]. For further guidance, see §301.6103(j)(1)–1(c) and (d).

(e) Effective date. This section is applicable to the Bureau of the Census on January 25, 1999, through January 22, 2002.

Robert E. Wenzel, Deputy Commissioner of

Internal Revenue.

Approved December 29, 1998.

Donald C. Lubick, Assistant Secretary of

the Treasury.

(Filed by the Office of the Federal Register on January 22, 1999, 8:45 a.m., and published in the issue of the Federal Register for January 25, 1999, 64 F.R. 3669)

Section 6221.—Tax Treatment Determined at Partnership Level

26 CFR 6221–1T: Tax treatment determined at partnership level (Temporary)

T.D. 8808

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 301

Modifications and Additions to the Unified Partnership Audit Procedures

AGENCY: Internal Revenue Service, Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains final and temporary regulations relating to the unified partnership audit procedures added to the Internal Revenue Code by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). The unified partnership audit procedures generally provide administrative rules for the auditing of partnership items at the partnership level. These regulations modify the existing unified partnership audit procedures to comply with the Taxpayer Relief Act of 1997 (1997 Act) and the Internal Revenue Service Restructuring and Reform Act of 1998 (1998 Act), and add new regulations to administer the new unified partnership audit provisions added by the 1997 Act. In general, the text of these temporary regulations also serves as the text of the proposed regulations set forth in the notice of proposed rulemaking on this subject in REG–106564–98, on page 53.

DATES: Effective Date: These regulations are effective January 26, 1999.

1999–10 I.R.B. 21 March 8, 1999

tion 6229(f)(2). Moreover, the temporary regulations clarify that the partner remains subject to the unified audit procedures regarding the nonsettled items.

Tax Matters Partner As A Debtor In Bankruptcy

Section 6229(b)(1)(B) provides that the statute of limitations under section 6229 is extended with respect to all partners in the partnership by an agreement entered into between the tax matters partner (TMP) and the Service. Treas. Reg. §301.6231(a)(7)–1(l)(1)(iv) (1996) and Temp. Treas. Reg. §301.6231(c)–7T(a) (1987), however, provide that upon the filing of a petition naming a partner as a debtor in a bankruptcy proceeding, the partner/debtor’s partnership items convert to nonpartnership items, and if the partner/debtor was the TMP, that status terminates. These rules were promulgated to avoid the complications that the automatic stay provision contained in 11 U.S.C. 362(a)(8) would have on a unified partnership audit. As a result, if a TMP executed a consent to extend the statute of limitations during a period when the TMP was a debtor in a bankruptcy proceeding, the consent would not be binding on the other partners. Under the regulations, the person signing the agreement was ineligible to act as the TMP and extend the statute as to all partners.

To resolve the uncertainty under prior law in the situation where a TMP executes an agreement extending the statute of limitations as to all partners while, unknown to the Service, the TMP is a debtor in a bankruptcy proceeding, the 1997 Act provides that the Service may rely on the executed statute extension agreement unless it is notified of the TMP’s bankruptcy proceeding. If the Service is not notified of the TMP’s bankruptcy proceeding, statute extensions granted by the TMP are binding on all partners in the partnership.

The temporary regulations provide a mechanism for the TMP, or other partners, to provide notice to the Service that the TMP is a debtor in a bankruptcy proceeding and therefore is ineligible to serve as TMP and extend the statute under section 6229. This mechanism is derived from existing regulations that provide guidance on how to notify the Service of information concerning a partnership’s partners.

FOR FURTHER INFORMATION CONTACT: Robert G. Honigman, (202) 6223050 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains temporary amendments to the Procedure and Administration Regulations (26 CFR Part 301) relating to the unified partnership audit procedures found in sections 6221 through 6233 of the Internal Revenue Code (Code) and final regulations pertaining to the applicable dates of §301.6231(a)(7)– 1T(p)(2) and §301.6231(a)(7)–1T(r)(1). Sections 1231 through 1243 of the Taxpayer Relief Act of 1997, Public Law 105–34, 111 Stat. 788, modified some of the existing procedures and added certain new rules. Section 3507 of the Internal Revenue Service Restructuring and Reform Act of 1998, Public Law 105–206, 112 Stat. 685, modified section 6231. This document modifies existing regulations that, because of the 1997 Act or the 1998 Act, no longer reflect current law.

Explanation of Provisions

Penalties Determined At The Partnership Level

Before the 1997 Act, the Internal Revenue Service (Service) could impose penalties on a partner only through the application of the deficiency procedures after the completion of a partnership level proceeding. Forcing the Service to open deficiency proceedings against the individual partners was inconsistent with the efficiency goal of the unified partnership audit rules. The 1997 Act cured this problem by providing that, for partnerships under audit for taxable years ending after August 5, 1997, partnership level proceedings include the determination of applicable penalties at the partnership level. Partners now may raise any partner level defenses to the imposition of penalties only in a subsequent refund action.

Consistent with these statutory changes, the temporary regulations mandate that the partnership’s penalty defenses are to be resolved during the partnership proceeding. Nevertheless, any individual defenses that a partner may have to the imposition of a penalty may

be brought by the partner in a refund action subsequent to the partnership level determination. In order to minimize the burden on individual partners to defend themselves by bringing their own refund suits, the temporary regulations incorporate a large number of defenses at the partnership level. The majority of a partner’s defenses to the imposition of penalties are not specific to a particular partner, but can be determined by reference to the activities of the partnership. The applicability of these defenses may be resolved at the partnership level during the partnership proceeding. In addition, the temporary regulations modify the computational adjustment rules to allow the Service to assess penalties under those procedures.

Partial Settlements

The period for assessing tax with respect to partnership items generally is the longer of the periods provided by section 6229 or section 6501. For partnership items that convert to nonpartnership items, section 6229(f) provides that the period for assessing tax shall not expire before the date which is one year after the date that the items became nonpartnership items. Section 6231(b)(1)(C) provides that the partnership items of a partner for a partnership taxable year become nonpartnership items as of the date the partner enters into a settlement agreement with the Service with respect to such items. In some audits, however, the taxpayer and the Service will enter into a settlement agreement regarding some, but not all, of the taxpayer’s partnership items. The 1997 Act added a special rule for these partial settlement agreements in section 6229(f)(2), providing that the period for assessing any tax attributable to the settled items is determined as if the partial settlement had not been executed. Thus, the limitations period applicable to the last partnership item to be resolved for the partnership’s taxable year under audit is controlling with respect to all disputed partnership items (including settled items) for such partnership taxable year.

The temporary regulations state that the one year period for assessing partnership items that convert to nonpartnership items applicable to settlement agreements under section 6231(b)(1)(C) does not apply to partial settlement agreements under sec

March 8, 1999 22 1999–10 I.R.B.

Partner level defenses are limited to those that are personal to the partner or are dependant upon the partner’s separate return, and cannot be determined at the partnership level. Examples of these determinations are: whether any applicable threshold underpayment of tax has been met with respect to the partner or whether the partner has met the criteria of section 6664(b)(penalties applicable only where return is filed), or section 6664(c)(1)(reasonable cause exception) subject to partnership level determinations as to the applicability of section 6664(c)(2).

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Par. 3. Amend §301.6223(c)–1T by adding a sentence to the end of paragraph (c) to read as follows:

§301.6223(c)–1T Additional information regarding partners furnished to the Service (temporary).

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(c) * * * Furthermore, reference to a prior general notification to the Service that a partner who would otherwise be the tax matters partner is a debtor in a bankruptcy proceeding or has had a receiver appointed for him in a receivership proceeding is not sufficient unless a copy of the notification document referred to is attached to the statement.

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Par. 4. Amend §301.6224(c)–3T by:

1. Revising the section heading.
2. Revising paragraphs (b), (c)(3)(ii), and (d), Example (1).

The revisions read as follows:

§301.6224(c)–3T Consistent settlement terms (temporary).

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(b) Requirements for consistent settle- ment terms —(1) In general. Consistent settlement terms are those based on the same determinations with respect to partnership items. However, consistent settlement terms also may include partnership level determinations of any penalty, addition to tax, or additional amount that relates to partnership items. Settlements with respect to partnership items shall be self-contained; thus, a concession by one party with respect to a partnership item

Small Partnership Exception

The 1997 Act amended the small partnership exception to the unified partnership audit procedures found in section 6231. Formerly, in order to qualify for the small partnership exception, the partnership had to have 10 or fewer partners at all times during the tax year, each of whom was a natural person (other than a nonresident alien) or an estate, and for which each partner’s share of each partnership item was the same as that partner’s share of every other partnership item. The 1997 Act amended the small partnership exception by allowing partnerships to qualify for the exception even if they have a C corporation for a partner or specially allocate some partnership items. The temporary regulations modify the existing regulations interpreting the small partnership exception to take account of this change in the law.

Effective Date

These final and temporary regulations are applicable January 26, 1999. In accordance with section 7805(e)(2), the temporary regulations contained herein shall expire January 25, 2002.

Special Analyses

It has been determined that this Treasury decision 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 533(b) of the Administrative Procedures Act (5 U.S.C. chapter 5) does not apply to these regulations. For the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6) refer to the Special Analyses section of the preamble to the cross reference notice of proposed rulemaking published in the Proposed Rules section in this issue of the Federal Regis- ter. Pursuant to section 7805(f) of the Internal Revenue Code, these final and temporary regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

Drafting Information

The principal authors of these temporary regulations are Robert G. Honigman, Office of the Assistant Chief Counsel

(Passthroughs & Special Industries), and William A. Heard, Office of the Assistant Chief Counsel (Field Service). However, other personnel from the Service and Treasury Department participated in their development.

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Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 301 is amended as follows:

PART 301—PROCEDURE AND ADMINISTRATION

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

Authority: 26 U.S.C. 7805 * * * Par. 2. Amend §301.6221–1T by:

1. Redesignating paragraph (c) as paragraph (e).

2. Adding new paragraphs (c) and (d). The additions read as follows:

§301.6221–1T Tax treatment determined at partnership level (temporary).

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(c) Penalties determined at partner- ship level (partnership taxable years end- ing after August 5, 1997). Any penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item, shall be determined at the partnership level. Partner level defenses to such items can only be asserted through refund actions following assessment and payment. Assessment of any penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item shall be made based on partnership level determinations. Partnership level determinations include all the legal and factual determinations that underlie the determination of any penalty, addition to tax, or additional amount, other than partner level defenses specified in paragraph (d) of this section.

(d) Partner level defenses. Partner level defenses to any penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item, may not be asserted in the partnership level proceeding, but may be asserted through separate refund actions following assessment and payment. See section 6230(c)(4).

1999–10 I.R.B. 23 March 8, 1999

may not be based upon a concession by another party with respect to any item that is not a partnership item other than any penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item. Consistent agreements, whether comprehensive or partial, must be identical to the original settlement (that is, the settlement upon which the offered settlement terms are based). A consistent agreement must mirror the original settlement and may not be limited to selected items from the original settlement. Once a partner has settled a partnership item, or penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item, that partner may not subsequently request settlement terms consistent with a settlement that contains the previously settled item. The requirement for consistent settlement terms applies only if—

(i) The items were partnership items (and any related penalty, addition to tax, or additional amount) for the partner entering into the original settlement immediately before the original settlement; and

(ii) The items are partnership items (and any related penalty, addition to tax, or additional amount) for the partner requesting the consistent settlement at the time the partner files the request.

(2) Effect of consistent agreement. Consistent settlement terms are reflected in a consistent agreement. A consistent agreement is not a settlement agreement which gives rise to further consistent settlement rights because it is required to be given without volitional agreement of the Secretary. Therefore, a consistent agreement required to be offered to a requesting taxpayer is not a settlement agreement under section 6224(c)(2) of the Internal Revenue Code, or paragraph (c)(3) of this section which starts a new period for requesting consistent settlement terms. For all other purposes of the Internal Revenue Code, however, (e.g., binding effect under section 6224(c)(1), and conversion to nonpartnership items under section 6231(b)(1)(C)) a consistent agreement is treated as a settlement agreement.

(c) * * * (3) * * * (ii) The 60th day after the day on which the settlement agreement was entered into.

(d) * * *

Example (1). The Service seeks to disallow a $100,000 loss reported by Partnership P. The Service agrees to a settlement with X, a partner in P, in which the Service allows 60 percent of the loss, accepts the treatment of all other partnership items on the partnership return, and imposes a penalty for negligence related to the loss disallowance. Partner Y, which owns a 10 percent interest in the partnership, requests settlement terms which are consistent with the settlement made between X and the Service. The items are partnership items (and a related penalty) for X immediately before X enters into the settlement agreement and are partnership items (and a related penalty) for Y at the time of the request. The Service must offer Y settlement terms allowing a $6,000 loss, a negligence penalty on the $4,000 disallowance, and otherwise reflecting the treatment of partnership items on the partnership return.

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Par. 5. Add §301.6229(b)–2T to read as follows:

§301.6229(b)–2T Special rule with respect to debtors in Title 11 cases (temporary).

(a) In general. Notwithstanding any other law or rule of law, if an agreement is entered into under section 6229(b)(1)(B), and the agreement is signed by a person who would be the tax matters partner but for the fact that, at the time that the agreement is executed, the person is a debtor in a bankruptcy proceeding under Title 11 of the United States Code, such agreement shall be binding on all partners in the partnership unless the Service has been notified of the bankruptcy proceeding in accordance with paragraph (b) of this section.

(b) Procedures for notifying the Ser- vice of a partner’s bankruptcy proceed- ing. (1) The Service shall be notified of the bankruptcy proceeding of the tax matters partner in accordance with the procedures set forth in §301.6223(c)–1T.

(2) In addition to the information specified in §301.6223(c)–1T, notification that a person is (or was) a debtor in a bankruptcy proceeding shall include the date the bankruptcy proceeding was filed, the name and address of the court in which the bankruptcy proceeding exists (or took place), the caption of the bankruptcy proceeding (including the docket number or other identification number used by the court), and the status of the proceeding as of the date of notification.

Par. 6. Add §301.6229(f)–1T to read as follows:

(a) In general. If a partner enters into a settlement agreement with the Service with respect to the treatment of some of the partnership items in dispute for a partnership taxable year, but other partnership items for such year remain in dispute, the period of limitations for assessing any tax attributable to the settled items shall be determined as if such agreement had not been entered into.

(b) Other items remaining in dispute. Pursuant to section 6226(c), a partner is a party to a partnership level judicial proceeding with respect to partnership items. When a partner settles partnership items, the settled partnership items convert to nonpartnership items under section 6231(b)(1)(C) and will not be subject to any future or pending partnership level proceeding pursuant to section 6226(d)(1). The remaining unsettled partnership items, however, will remain subject to determination under partnership level administrative and judicial procedures. Consequently, any remaining unsettled items will be deemed to remain in dispute. Thus, the period for assessing settled items will be governed by the period for assessing the remaining unsettled items.

Par. 7. Amend §301.6231(a)(1)–1T by:

1. Revising the first two sentences of paragraph (a)(1).

2. Removing paragraph (a)(3).

3. Redesignating paragraph (a)(4) as paragraph (a)(3).

The revision reads as follows:

§301.6231(a)(1)–1T Exception for small partnerships (temporary).

(a) * * * (1) “ 10 or fewer. ” The “10 or fewer” limitation described in section 6231(a)(1)(B)(i) is applied to the number of natural persons (other than nonresident aliens), C corporations, and estates of deceased partners that were partners at any one time during the partnership taxable year. Thus, for example, a partnership that at no time during the taxable year had more than 10 partners may be treated as a small partnership even if, because of transfers of interests in the partnership, 11 or more natural persons, C corporations, or estates of deceased partners owned in

§301.6229(f)–1T Special rule for partial settlement agreements (temporary).

March 8, 1999 24 1999–10 I.R.B.

terests in the partnership for some portion of the taxable year. * * *

• ---

Par. 8. Amend §301.6231(a)(6)–1T by:

1. Revising paragraph (a).
2. Removing paragraph (c). The revision reads as follows:

§301.6231(a)(6)–1T Computational adjustments (temporary).

(a) In general. A change in the tax liability of a partner to properly reflect the treatment of a partnership item under subchapter C of chapter 63 of the Internal Revenue Code is made through a computational adjustment. A computational adjustment includes a change in tax liability that reflects a change in an affected item where that change is necessary to properly reflect the treatment of a partnership item, or any penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item. However, if a change in a partner’s tax liability cannot be made without making one or more partner level determinations, that portion of the change in tax liability attributable to the partner level determinations shall be made under the provisions of subchapter B of chapter 63 of the Internal Revenue Code (relating to deficiency procedures), except for any penalty, addition to tax, or additional amount which relates to an adjustment to a partnership item.

(1) Changes in a partner’s tax liability with respect to affected items that do not require partner level determinations (such as the threshold amount of medical deductions under section 213 that changes as the result of determinations made at the partnership level) are computational adjustments that are directly assessed. When making computational adjustments, the Service may assume that amounts the partner reported on the partner’s individual return include all amounts reported to the partner by the partnership, absent contrary notice to the Service (for example, a “Notice of Inconsistent Treatment”). Such an assumption by the Service does not constitute a partner level determination. Moreover, substituting redetermined partnership items for the partner’s previously reported partnership items (including partnership items included in carryover amounts) does not constitute a partner level determination

where the Service otherwise accepts all nonpartnership items (including, for example, nonpartnership item components of carryover amounts) as reported.

(2) Changes in a partner’s tax liability with respect to affected items that require partner level determinations (such as a partner’s at-risk amount to the extent it depends upon the source from which the partner obtained the funds that the partner contributed to the partnership) are computational adjustments subject to deficiency procedures. Nevertheless, any penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item may be directly assessed following a partnership proceeding, based on determinations in that proceeding, regardless of whether partner level determinations are required.

• ---

Par. 9. Amend §301.6231(a)(7)–1 by adding a sentence at the end of paragraphs (p)(2) and (r)(1) to read as follows:

§301.6231(a)(7)–1 Designation or selection of tax matters partner.

• ---

(p) * * * (2) * * * For regulations applicable on or after January 26, 1999 (reflecting statutory changes made effective July 22, 1998) and before January 25, 2002, see §301.6231(a)(7)–1T(p)(2).

• ---

(r) * * * (1) * * * For regulations applicable on or after January 26, 1999 (reflecting statutory changes made effective July 22, 1998) and before January 25, 2002, see §301.6231(a)(7)–1T(r)(1).

• ---

Par. 10. Add §301.6231(a)(7)–1T to read as follows:

§301.6231(a)(7)–1T Designation or selection of tax matters partner (temporary).

(a) through (p)(1) [Reserved]. For further guidance, see §301.6231(a)(7)–1(a) through (p)(1).

(p)(2) When each general partner is deemed to have no profits interest in the partnership. If it is impracticable under §301.6231(a)(7)–1(o)(2) to apply the

largest-profits-interest rule of §301.6231(a)(7)–1(m)(2), the Commissioner will select a partner (including a general or limited partner) as the tax matters partner in accordance with the criteria set forth in §301.6231(a)(7)–1(q). The Commissioner will notify, within 30 days of the selection, the partner selected, the partnership, and all partners required to receive notice under section 6223(a), effective as of the date specified in the notice. For regulations applicable before July 22, 1998, see §301.6231(a)(7)–1(p)(2). (p)(3) through (q) [Reserved]. For further guidance, see §301.6231(a)(7)– 1(p)(3) through (q). (r) Notification of partnership —(1) In general. If the Commissioner selects a tax matters partner under the provisions of §301.6231(a)(7)–1(p)(1) or (3)(i), the Commissioner will notify, within 30 days of the selection, the partner selected, the partnership, and all partners required to receive notice under section 6223(a), effective as of the date specified in the notice. For regulations applicable before July 22, 1998, see §301.6231(a)(7)– 1(r)(1). (r)(2) [Reserved]. For further guidance, see §301.6231(a)(7)–1(r)(2).

Robert E. Wenzel, Deputy Commissioner of Internal Revenue Service.

Approved December 30, 1998.

Donald C. Lubick, Assistant Secretary of

the Treasury.

(Filed by the Office of the Federal Register on January 25, 1999, 8:45 a.m., and published in the issue of the Federal Register for January 26, 1999, 64 F.R. 3837)

Section 7520.—Valuation Tables

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of March 1999. See Rev. Rul. 99–11, page 18.

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

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of March 1999. See Rev. Rul. 99–11, page 18.

1999–10 I.R.B. 25 March 8, 1999

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

March 8, 1999 66 1999–10 I.R.B.

Numerical Finding List ¹

Bulletins 1999–1 through 1999–9

Announcements:

99–1, 1999–2 I.R.B. 41 99–2, 1999–2 I.R.B. 44 99–3, 1999–3 I.R.B. 15 99–4, 1999–3 I.R.B. 15 99–5, 1999–3 I.R.B. 16 99–6, 1999–4 I.R.B. 24 99–7, 1999–2 I.R.B. 45 99–8, 1999–4 I.R.B. 24 99–9, 1999–4 I.R.B. 24 99–10, 1999–5 I.R.B. 63 99–11, 1999–5 I.R.B. 64 99–12, 1999–5 I.R.B. 65 99–13, 1999–6 I.R.B. 18 99–14, 1999–7 I.R.B. 60 99–15, 1999–8 I.R.B. 78 99–16, 1999–8 I.R.B. 80 99–17, 1999–9 I.R.B. 59

Notices:

99–1, 1999–2 I.R.B. 8 99–2, 1999–2 I.R.B. 8 99–3, 1999–2 I.R.B. 10 99–4, 1999–3 I.R.B. 9 99–5, 1999–3 I.R.B. 10 99–6, 1999–3 I.R.B. 12 99–7, 1999–4 I.R.B. 23 99–8, 1999–5 I.R.B. 26 99–9, 1999–4 I.R.B. 23 99–10, 1999–6 I.R.B. 14 99–11, 1999–8 I.R.B. 56 99–12, 1999–9 I.R.B. 44

Proposed Regulations:

REG–245562–96, 1999–9 I.R.B. 45 REG–114663–97, 1999–6 I.R.B. 15 REG–118620–97, 1999–9 I.R.B. 46 REG–106219–98, 1999–9 I.R.B. 51 REG–115433–98, 1999–9 I.R.B. 54 REG–106902–98, 1999–8 I.R.B. 57 REG–111435–98, 1999–7 I.R.B. 55 REG–113694–98, 1999–7 I.R.B. 56 REG–116824–98, 1999–7 I.R.B. 57 REG–117620–98, 1999–7 I.R.B. 59 REG–121865–98, 1999–8 I.R.B. 63

Revenue Procedures:

99–1, 1999–1 I.R.B. 6 99–2, 1999–1 I.R.B. 73 99–3, 1999–1 I.R.B. 103 99–4, 1999–1 I.R.B. 115 99–5, 1999–1 I.R.B. 158 99–6, 1999–1 I.R.B. 187 99–7, 1999–1 I.R.B. 226 99–8, 1999–1 I.R.B. 229 99–9, 1999–2 I.R.B. 17 99–10, 1999–2 I.R.B. 11 99–11, 1999–2 I.R.B. 14 99–12, 1999–3 I.R.B. 13 99–13, 1999–5 I.R.B. 52 99–14, 1999–5 I.R.B. 56 99–15, 1999–7 I.R.B. 42 99–16, 1999–7 I.R.B. 50 99–17, 1999–7 I.R.B. 52

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 1998–1 through 1998–52 will be found in Internal Revenue Bulletin 1999–1, dated January 4, 1999.

Revenue Rulings:

99–1, 1999–2 I.R.B. 4 99–2, 1999–2 I.R.B. 5 99–3, 1999–3 I.R.B. 4 99–4, 1999–4 I.R.B. 19 99–5, 1999–6 I.R.B. 8 99–6, 1999–6 I.R.B. 6 99–7, 1999–5 I.R.B. 4 99–8, 1999–6 I.R.B. 8 99–9, 1999–7 I.R.B. 14

Treasury Decisions:

8789, 1999–3 I.R.B. 5 8791, 1999–5 I.R.B. 7 8792, 1999–7 I.R.B. 36 8793, 1999–7 I.R.B. 15 8794, 1999–7 I.R.B. 4 8795, 1999–7 I.R.B. 8 8796, 1999–4 I.R.B. 16 8797, 1999–5 I.R.B. 5 8799, 1999–6 I.R.B. 10 8800, 1999–4 I.R.B. 20 8801, 1999–4 I.R.B. 5 8802, 1999–4 I.R.B. 10 8805, 1999–5 I.R.B. 14 8806, 1999–6 I.R.B. 4 8807, 1999–9 I.R.B. 33 8809, 1999–7 I.R.B. 27 8810, 1999–7 I.R.B. 19 8812, 1999–8 I.R.B. 19 8813, 1999–9 I.R.B. 34 8814, 1999–9 I.R.B. 4 8815, 1999–9 I.R.B. 31 8816, 1999–8 I.R.B. 4 8817, 1999–8 I.R.B. 51

1999–10 I.R.B. 67 March 8, 1999

Finding List of Current Action on Previously Published Items ¹

Bulletins 1999–1 through 1999–9

Revenue Procedures:

78–10 Obsoleted by 99–12, 1999–3 I.R.B. 13

94–56 Superseded by 99–9, 1999–2 I.R.B. 17

97–23 Superseded by 99–3, 1999–1 I.R.B. 103

98–1 Superseded by 99–1, 1999–1 I.R.B. 6

98–2 Superseded by 99–2, 1999–1 I.R.B. 73

98–3 Superseded by 99–3, 1999–1 I.R.B. 103

98–4 Superseded by 99–4, 1999–1 I.R.B. 115

98–5 Superseded by 99–5, 1999–1 I.R.B. 158

98–6 Superseded by 99–6, 1999–1 I.R.B. 187

98–7 Superseded by 99–7, 1999–1 I.R.B. 226

98–8 Superseded by 99–8, 1999–1 I.R.B. 229

98–22 Modified and amplified by 99–13, 1999–5 I.R.B. 52

98–56 Superseded by 99–3, 1999–1 I.R.B. 103

98–63 Modified by announcement 99–7, 1999–2 I.R.B. 45

1 A cumulative finding list for previously published items mentioned in Internal Revenue Bulletins 1998–1 through 1998–52 will be found in Internal Revenue Bulletin 1999–1, dated January 4, 1999.

March 8, 1999 68 1999–10 I.R.B.

1999–10 I.R.B. 69 March 8, 1999

March 8, 1999 70 1999–10 I.R.B.

The Introduction on page 3 describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superintendent of Documents when their subscriptions must be renewed.

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