Part IV. Items — Internal Revenue Bulletin 1999-12

Revenue Code. The collection of information is mandatory. The likely recordkeepers are individuals, business or other for profit institutions, and small businesses or organizations.

The collection of information in §1.6695–2T is generally satisfied by completing: 1) the required information on the Checklist published in Notice 97–65 or the Form 8867, Paid Preparer’s Earned Income Credit Checklist; and 2) the required Worksheet information on the Earned Income Credit Worksheet contained in the instructions to the Form 1040. The burden for the Checklist requirement is reflected in the burden estimate for Form 8867. The burden for the Worksheet requirement is reflected in the burden estimate for the Earned Income Credit Worksheet contained in the instructions to the Form 1040. Preparers may also choose to record the information necessary to complete the Checklist and Worksheet in their paper or electronic files (alternative method).

The information collections in this regulation were originally included in Notice 97–65 and have been approved by the Office of Management and Budget under control number 1545–1570.

The collection of information for preparers who choose to record the information required by the regulations in alternative paper or electronic form is as follows:

Estimated total annual recordkeeping burden: 507,136 hours.

Estimated average annual burden hours per recordkeeper: 5 hours 4 minutes (40 minutes per return or claim for refund, 7.6 returns per preparer).

Estimated number of recordkeepers: 100,000. 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 and 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.

Notice of Proposed Rulemaking Notice of Public Hearing

Preparer Due Diligence Requirements for Determining Earned Income Credit Eligibility

REG–120168–97

AGENCY: Internal Revenue Service (IRS), Treasury.

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

SUMMARY: In T.D. 8798, page 16, the IRS is issuing temporary regulations relating to the due diligence requirements in determining eligibility for the earned income credit for paid preparers of federal income tax returns or claims for refund. The text of those regulations also serves as the text of these proposed regulations. This document also provides notice of a public hearing on these proposed regulations.

DATES: Written comments must be received by, March 22, 1999. Outlines of topics to be discussed at the public hearing scheduled for Thursday, May 20, 1999, at 10 a.m. must be received by Thursday, April 29, 1999.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG–120168–97), 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–120168–97), 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 of the Internal Revenue Building, 1111 Constitution Avenue NW, Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning submissions, LaNita Van Dyke, (202) 622-7190; concerning the regulations, Marc C. Porter, (202) 622-4940 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information should be sent to the Office of Manage- ment and Budget, Attn: Desk Officer for the Department of Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the In- ternal Revenue Service, Attn: IRS Reports Clearance Officer, OP:FS:FP, Washington, DC 20224. Comments on the collection of information should be received by, February 19, 1998. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility;

The accuracy of the estimated burden associated with the proposed collection of information (see below);

How the quality, utility, and clarity of the information to be collected may be enhanced;

How the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and

Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of service to provide information.

The collection of information in this proposed regulation is in §1.6695–2T. This information is required by the IRS to determine preparer due diligence compliance. This information will be used to avoid the imposition of the penalty imposed by section 6695(g) of the Internal

1999–12 I.R.B. 21 March 22, 1999

Section 1.6695–2 also issued under 26 U.S.C. 6695(g). * * *

Par. 2. Section 1.6695–2 is added to read as follows:

§1.6695–2 Preparer due diligence requirements for determining earned income tax credit eligibility.

[The text of proposed §1.6695–2 is the same as the text of §1.6695–2T published in T.D. 8798.]

David S. Mader, 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. 70357)

Notice of Proposed Rulemaking

Intercompany Obligations

REG–105964–98

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains a proposed regulation that clarifies the treatment of the transfer or extinguishment of rights under an intercompany obligation. The existing regulation has caused uncertainty concerning the tax treatment of such transactions. The proposed regulation affects corporations that are members of consolidated groups, their subsidiaries, and their shareholders.

DATES: Comments and requests for a public hearing must be received by March 22, 1999.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG–105964–98), room 5228, 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–105964–98), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC. Alternatively, taxpayers

Background and Explanation of Provisions

Temporary regulations in T.D. 8798 amend the Income Tax Regulations (26 CFR part 1) relating to section 6695. The temporary regulations set forth due diligence requirements that paid preparers of federal income tax returns or claims for refund involving the Earned Income Credit (EIC) must meet to avoid imposition of the penalty under section 6695(g) for taxable years beginning after December 31, 1996. The text of those regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains the amendments.

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. Further, it is hereby certified, pursuant to sections 603(a) and 605(b) of the Regulatory Flexibility Act, 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 upon the fact that the amount of time necessary to record and retain the required information will be minimal for those income tax return preparers that choose to use the Alternative Eligibility Record and Alternative Computation Record. 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 their impact.

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 specifically request comments on the clarity of the proposed rule and how it may be made easier to understand. All comments will be available for public inspection and copying.

A public hearing has been scheduled for May 20, 1999, beginning at 10 a.m. in room 2615 of the 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 who wish to present oral comments at the hearing must submit written comments and an outline of the topics to be discussed and the time to be devoted to each topic (signed original and eight (8) copies) by (April 29, 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 Marc C. Porter, 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 1 is proposed to be amended as follows:

PART 1 — INCOME TAXES

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

Authority: 26 U.S.C. 7805 * * *

March 22, 1999 22 1999–12 I.R.B.

may submit comments electronically via the Internet by selecting the “Tax Regs” option on the IRS Home Page, or by submitting comments directly to the IRS Internet site at http://www.irs.ustreas.gov/ prod/tax_regs/comments.html.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulation, Theresa A. Abell, (202) 622-7790; concerning submissions of comments, LaNita Van Dyke, (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed amendments to §1.1502–13(g) of the Income Tax Regulations. Section 1.1502– 13(g) prescribes rules relating to the treatment of the transfer or extinguishment of rights an intercompany obligation. An intercompany obligation is generally defined as an obligation between members of a consolidated group, but only for the period during which both parties are members of the group. The current regulation provides that if a member of a consolidated group realizes an amount (other than zero) of income, gain, deduction, or loss upon the transfer or extinguishment of all or part of its remaining rights or obligations under an intercompany obligation, the obligation is treated as satisfied (and the transferor’s basis in the property received is adjusted to reflect the satisfaction amount) and, if the obligation remains outstanding, it is treated as reissued as a new obligation.

The current regulation is, however, ambiguous regarding the form of the recast transaction, i.e., the deemed transaction that encompasses the satisfaction,reissuance, and actual transaction. Under one interpretation of the regulation, there is a potential that the form of the recast jeopardizes the tax-free treatment of common corporates restructuring transactions. While it is not clear the regulation produces such consequences, the IRS and Treasury believe that any such consequences would be inappropriate and unnecessary to achieve the objectives of the regulation. Accordingly, the IRS and Treasury propose to amend the regulation as described below.

Explanation of Provisions

The existing regulation does not apply to transactions in which the amount of income, gain, deduction, or loss realized is zero. This rule was intended to avoid application of the regulation to transactions in which preservation of gain or loss location, an objective of §1.1502–13(g), would not be at issue. However, the determination of whether the amount of income, gain, deduction, or loss realized is zero might depend on the fair market value of property received in an exchange. The difficulty and manipulability of that valuation is a reason for the enactment of certain provisions of the original issue discount (OID) rules, particularly section 1274. To the extent that taxpayers were able to avoid the deemed satisfaction and reissuance rule by inaccurately maintaining that the amount of income, gain, deduction, or loss realized is zero, taxpayers could avoid those OID rules and could inappropriately shift gain or loss among members. The IRS and Treasury have concluded that the better and more administrable approach is not to condition the application of the regulation on a realization of some amount of income, gain, deduction, or loss other than zero. Accordingly, the regulation as proposed will apply to all transactions in which any amount is realized due to the transfer or extinguishment of rights in an intercompany obligation.

The IRS and Treasury believe the exception from the operation of this provision for transactions that will not have significant effect on any person’s Federal income tax liability for any year is unclear in its application and scope. Further, the exception offers little, if any, relief from the requirements of the provision. Accordingly, the exception is eliminated from the regulation.

The proposed regulation clarifies the form and timing of the recast applied to transactions subject to the regulation. In particular, it clarifies that the deemed satisfaction proceeds (rather than the obligation) are treated as transferred by the initial creditor in the actual transaction and then advanced by the transferee to the debtor in the deemed reissuance of the obligation. The proposed regulation includes an example to illustrate clearly the mechanics of the proposed regulation. It

also includes certain conforming adjustments.

The proposed regulation retains the rule that the deemed satisfaction and reissuance amounts are determined under the principles of the OID provisions if the debt is transferred for property. The IRS and Treasury recognize that an alternate rule providing for a fair market value determination of the deemed satisfaction and reissuance amounts might (in theory) more accurately preserve location of economic gain or loss. In such an alternate regime, however, the inherent difficulty of valuing intercompany obligations would prove burdensome to both taxpayers and the IRS and may provide significant potential for abuse when member obligations are transferred. Certain provisions of the OID rules are intended to address the difficulty and manipulability o this valuation. Other developments in the tax law have recognized that issue price, as determined under the OID rules, is the surrogate for fair market value in the case of a debt obligation. For example, §1.100–1(g) provides that issue price is used in determining the amount realized from the receipt of a debt instrument. For these reasons, and consistent with the objective of promoting single entity treatment of the group, the IRS and Treasury continue to believe that the use of the OID provisions is appropriate and desirable in determining the deemed satisfaction amount and the amount for which the obligation is deemed reissued. Accordingly, the regulation as proposed continues to use the OID provisions to determine both the amount repaid in the deemed satisfaction and the issue price of the reissued obligation in cases involving the exchange of an intercompany obligation for cash or property.

In addition, the proposed regulation clarifies that the term “conversion” includes only conversions pursuant to the terms of the instrument.

Proposed Effective Date

The regulation is proposed to be effective on the date that the final regulation is published in the Federal Register. For purposes of determining the tax treatment of transactions undertaking prior to such effective date, taxpayers may rely on the form and timing of the recast transaction,

1999–12 I.R.B. 23 March 22, 1999

(B) *** (3) The amount realized is from the conversion of an obligation (under the terms of the instrument) into stock of the obligor.

(ii) Satisfaction —(A) General rule. If a creditor member sells an intercompany debt for cash, the debt is treated as satisfied by the debtor immediately before the sale for an amount equal to the amount of the cash. If the debt is transferred for property, the debt is treated as satisfied immediately before the transaction for an amount equal to the issue price (determined under section 1273 or section 1274) of a new debt issued on the date of the transaction, with identical terms, for such property. If this paragraph (g)(3) applies because the debtor or creditor becomes a nonmember, the debt is treated as satisfied for cash in an amount equal to its fair market value immediately before the debtor or creditor becomes a nonmember. If the debt is transferred for cash or property, the proceeds of the deemed satisfaction are treated as transferred by the creditor tot he transferee of the debt in exchange for the cash or property. Similar principles apply to other transactions and to transactions involving intercompany obligations other than debt. For example, if a corporation assumes the debtor’s liability in exchange for property of the debtor, the debt is treated as satisfied for an amount equal to the issue price (determined under section 1273 or section 1274) of a new debt issued on the date of the transaction, with identical terms, for such property. If, in a transaction to which this paragraph (g)(3) applies, the obligation is extinguished, including in a transaction in which the creditor and debtor become the same entity, the obligation is treated as satisfied for an amount equal to the issue price (determined under section 1273 or section 1274) of a new debt issued on the date of the transaction, with identical terms, to a third party, for property that is not publicly traded.

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(iii) Reissuance. If an intercompany debt is transferred for cash or property, it is treated as a new debt (with a new holding period but otherwise identical terms) issued to the transferee in exchange for the proceeds of the deemed satisfaction as determined under paragraph (g)(3)(ii) of

as clarified by these proposed regulations. No inference is intended, however, as to the correct interpretation of the existing regulation.

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 is hereby certified that these regulations will not have a significant impact on a substantial number of small entities. This certification is based on the fact that these regulations principally affect corporations filing consolidated Federal income tax returns. Available data indicates that many consolidated return filers are larger companies (not small businesses). Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility ct (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 Requests for a Public hearing

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

Drafting Information

The principal author of this regulation is Theresa A. Abell of the Office of Assistant Chief Counsel (Corporate), IRS. However, other personnel from the IRS and Treasury Department participated in its development.

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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 1.1502–13 also issued under 26 U.S.C. 1502.

Par. 2. Section 1.1502–13 is amended by:

Revising paragraphs (g)(3)(i)(A), (g)(3)(i)(B)( 3 ), (g)(3)(ii)(A), and (g)(3)(ii), and removing paragraph (g)(3)(i)(B)( 4 ).
Revising paragraph (g)(4)(i)(B).
Amending paragraph (g)(5) by: a. Removing the language “Example 2” in each place it appears in paragraphs (d), (e) and (f) of Example 2 and adding “Example 3” in its place.

b. Removing the language “Example 3” in each place it appears in paragraph (c) and (d) of Example 3 and adding “Example 4” in its place.

c. Removing the language “Example 5” in each place it appears in paragraph (c) of Example 5 and adding “Example 6” in its place.

d. Redesignating Examples 2, 3, 4 and 5 as Examples 3, 4, 5 and 6 and adding a new Example 2.

The revisions and additions read as follows:

§1.1502–13 Intercompany transactions.

(g) *** (3) Deemed satisfaction and reis- suance of intercompany obligations —(i) Application —(a) In general. If a member realizes an amount from the assignment or extinguishment of all or part of its remaining rights or obligations under an intercompany obligation, the intercompany obligation is treated for all Federal income tax purposes as satisfied under paragraph (g)(3)(ii) of this section and, if it remains outstanding (either as an intercompany obligation or a nonintercompany obligations), reissued under paragraph (g)(3)(iii) of this section. Similar principles apply under this paragraph (g)(3) if a member realizes an amount, directly or indirectly, from a comparable transaction (for example, a marking-tomarket of an obligation or a bad debt deduction), or if an intercompany obligation becomes an obligation that is not an intercompany obligation.

March 22, 1999 24 1999–12 I.R.B.

this section. If this paragraph (g)(3) applies because the debtor or creditor becomes a nonmember, the debt is treated as a new debt (with a new holding period but otherwise identical terms) issued to the creditor for the deemed satisfaction proceeds. Similar principles apply to other transactions and to transactions involving intercompany obligations other than debt.

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(4) *** (i) *** (B) Exception. This paragraph (g)(4) does not apply to an obligation if the obligation becomes an intercompany obligation by reason of an event described in §1.108–2(e) (exceptions to the application of section 108(e)(4)).

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(5) Examples.

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Example 2. Nonrecognition transactions. (a) Facts. On January 1 of Year 1, B borrows $100 from S in return for B’s not providing for $10 of interest annually at the end of each year, and repayment of $100 at the end of Year 5. B fully performs its obligations with the same tax consequences as described in paragraph (a) of Example 1. At the end of Year 3, S transfers the note to a newly formed subsidiary, Newco, in exchange for Newco stock. Section 351 applies to the exchange. The interest is adequate stated interest within the meaning of section 1274(c)(2) (determined on the date of the transfer). Neither B’s not nor Newco’s stock is publicly traded.

(b) Deemed satisfaction and reissuance of note. Under paragraph (g)(3)(ii) of this section, B’s note is treated as satisfied for $100 (the issue price of the reissued note, determined under section 1273(b)(4)) immediately before S’s transfer of the note to Newco. Zero gain or loss is recognized by S and B on the deemed satisfaction of B’s note. S is then treated as transferring the deemed proceeds of the satisfaction of the note ($100) to Newco in exchange for the Newco stock. S’s basis in the Newco stock is $100. Under paragraph (g)(3)(iii) of this section, B is treated as reissuing the note to Newco for $100. Newco’s basis in B’s note is $100.

(c) Intercompany obligation transferred in section 332 transaction. The facts are the same as in paragraph (a) of this Example 2, except that S transfers the note to P in a complete liquidation under section 332. Under paragraph (g)(3)(ii) of this section, B’s note is treated as satisfied for $100 (the issue price of the reissued note, determined under section 1273(b)(4)) immediately before S’s transfer of the note to P. Zero gain or loss is recognized by S and B on the deemed satisfaction of the note. S is then treated as transferring the deemed proceeds of the satisfaction of the note, with its other assets, to P in complete liquidation. Under paragraph (g)(3)(iii)

of this section, B is treated as reissuing the note to P for $100. P’s basis in the note is $100.

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Robert E. Wenzel, 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. 70354)

Notice of Proposed Rulemaking and Notice of Public Hearing

Adequate Disclosure of Gifts

REG–106177–98

AGENCY: Internal Revenue Service (IRS), Treasury.

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

SUMMARY: This document contains proposed regulations relating to changes made by the Taxpayer Relief Act of 1997 and the Internal Revenue Service Restructuring and Reform Act of 1998 regarding the valuation of prior gifts in determining estate and gift tax liability, and the period of limitations for assessing and collecting gift tax. The proposed regulations affect individual donors and the estates of those donors. This document also provides notice of a public hearing on these proposed regulations.

DATES: Written and electronic comments must be received by March 22, 1999. Outlines of topics to be discussed at the public hearing scheduled for Wednesday, April 28, 1999, must be received by Wednesday, April 7, 1999.

ADDRESSES: Send submissions to CC:DOM:CORP:R [REG–106177–98] room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington DC 20044. Submissions may also be hand delivered Monday through Friday between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R [REG–106177–98], 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. The public hearing will be held in room 2615, at 10 a.m., Internal Revenue Building, 1111 Constitution Avenue, NW, Washington DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, William L. Blodgett, (202) 622-3090; concerning submissions and the hearing, and/or to be placed on the building access list to attend the hearing, LaNita Van Dyke, (202) 622-7180 (not toll- free numbers).

SUPPLEMENTARY INFORMATION:

Introduction

This document proposes to amend the Estate and Gift Tax Regulations (26 CFR parts 20 and 25) under sections 2001 and 2504 relating to the value of prior gifts for purposes of computing the estate and gift tax. This document also proposes to amend the Procedure and Administration Regulations relating to the period for assessment and collection of gift tax under section 6501.

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 22, 1999. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility;

1999–12 I.R.B. 25 March 22, 1999

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;

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 proposed §301.6501(c)–1(f) of the Procedure and Administration Regulations. This information is required by statute in order to commence the period of limitations on assessment. This information will be used to identify gift tax issues relating to the reported transfers. The collection of information is mandatory. The likely respondents are individuals.

The reporting burden contained in §301.6501–1(f) is reflected in the burden of Form 709, U.S. Gift (and GenerationSkipping Transfer) Tax Return.

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 information are confidential, as required by 26 U.S.C. 6103.

Background

Under the unified estate and gift tax system, a single rate schedule is applied to an individual’s cumulative gifts and bequests. Gift tax is computed by determining a tax on the total of the gifts made by the donor in the current calendar year plus the gifts made in prior years (prior taxable gifts). The tax computed is then reduced by the tax that would have been payable on the prior taxable gifts. The result (after taking into account the applicable credit amount under section 2505) is the gift tax on the current gifts. Similarly, the

estate tax is computed by determining a tax on the value of the decedent’s taxable estate plus the value of lifetime gifts (adjusted taxable gifts) made by the decedent. The tax computed is then reduced by the gift tax that would have been payable on the adjusted taxable gifts. The result (after allowing for various credits) is the estate tax on the taxable estate.

The Statute of Limitations for Assessment of Gift Tax Under Section 6501(c)(9) of the Internal Revenue Code

Prior to the Taxpayer Relief Act of 1997 (the 1997 Act) and the Internal Revenue Service Restructuring and Reform Act of 1998 (the 1998 Act), the period for assessment of gift tax for a calendar period generally expired three years from the date a gift tax return for that period was deemed to be filed. The statute of limitation protection extended to all gifts made in a calendar period for which a return was filed, including gifts not reported on the gift tax return for the period. An exception to this general rule applied for gifts subject to the special valuation rules of sections 2701 and 2702. For gifts subject to these rules, section 6501(c)(9) extends the period of assessment indefinitely unless the gifts were disclosed on the gift tax return in a manner adequate to apprise the IRS of the nature of the transfer.

Under the 1997 and 1998 Acts, this adequate disclosure requirement was extended to all gifts, whether or not subject to section 2701 or 2702. Consequently, the period of assessment will not close for any gift made in a calendar year ending after August 5, 1997, or with respect to any increase in gift tax required under section 2701(d), that is not adequately disclosed on a gift tax return.

The proposed regulations provide a list of information that, if applicable to a transaction, must be reported on a gift tax return, or a statement attached thereto, in order for the transaction to be considered adequately disclosed to cause the period for assessment to commence. The required information must completely and accurately describe the transaction and include: the nature of the transferred property; the parties involved; the value of the transferred property; and how the value was determined, including any discounts or adjustments used in valuing the transferred property.

Specific rules are provided in the case of transfers of entities that are not actively traded that own interests in other non-actively traded entities. Comments are requested on how these rules should be applied when the required information is not available to the donor.

In addition, the return must disclose the facts affecting the gift tax treatment of the transaction in a manner that reasonably may be expected to apprise the IRS of the nature of any potential controversy regarding the gift tax treatment of the transfer. In lieu of this statement, the taxpayer may provide a statement of any legal issue presented by the facts. Finally, the taxpayer must also provide a statement of any position taken by the taxpayer that is contrary to any temporary or final Treasury regulation or any revenue ruling. These standards are based on those currently employed under §6662 in determining whether an item is adequately disclosed under that section, such that accuracy-related penalties will not be imposed.

The proposed regulations contain examples that illustrate adequate disclosure under these standards.

Under the proposed regulations, adequate disclosure of a transfer that is reported as a completed gift on the gift tax return will commence the running of the statute of limitations under section 6501(c)(9) even if the transfer is ultimately determined to be an incomplete gift. Thus, if the donor reports a transfer on the gift tax return as a completed gift for gift tax purposes, the period for assessing a gift tax with respect to the transfer will commence. If the IRS does not examine the transaction reported on the gift tax return prior to the expiration of the running of the statute of limitations, the transaction will be treated as a completed gift as reported on the gift tax return. If the IRS, upon examination, disagrees with the donor’s characterization of the transaction, and the issue remains unresolved through the administrative process, the donor will be sent a final notice of determination and the donor will be able to seek a declaratory judgment on the matter pursuant to section 7477.

On the other hand, if a donor initially reports a transfer as an incomplete gift, even if adequately disclosed, the statute of limitations does not commence to run

March 22, 1999 26 1999–12 I.R.B.

until the donor reports the transfer as a completed gift. The IRS would have three years from the date of filing of the subsequent gift tax return disclosing the completed gift to make any assessment with respect to the gift.

As discussed below, the 1997 and 1998 Act amendments to sections 2001 and 2504 curtail the IRS’ ability to redetermine the value of a gift in computing the estate or gift tax, after the statute of limitations expires. However, the adequate disclosure requirement contained in section 6501(c)(9) is intended to afford the IRS the reasonable opportunity to identify in a timely manner and with a minimum expenditure of resources returns that present issues that merit further examination. Accordingly, the information required is intended to enable the IRS to identify issues, if any, without imposing an undue burden on taxpayers.

The proposed regulations conform the regulations to the new statutory rules for gifts made in calendar years ending after August 5, 1997, if such gift tax return is filed after the regulations are published as final regulations. In the interim period, the statutory provisions apply.

Valuation of Prior Gifts for Gift Tax Purposes

Prior to the 1997 and 1998 Acts, section 2504(c) provided that if a gift tax had been paid or assessed with respect to the calendar period in which the gift occurred and the statute of limitations on assessment for the prior gift had expired, then the value of any gift made in such calendar period could not be adjusted for purposes of determining the total amount of prior taxable gifts that the individual had made. This prohibition on adjustments applied even if a particular gift was not disclosed on the gift tax return. This rule continues to apply for gifts made prior to August 6, 1997.

Under section 2504(c) as amended by the 1997 and 1998 Acts, if a gift was adequately disclosed such that the time has expired for assessing gift tax for a preceding calendar period under section 6501, then the value of such gift made in the prior calendar period cannot be adjusted (regardless of whether or not a gift tax has been assessed or paid for a prior calendar period). Rather, the value of the gift is the value as finally determined for gift tax

purposes, as defined in section 2001(f). A similar rule applies with respect to any increase in taxable gifts required under section 2701(d) (pertaining to the transfer of applicable retained interests under section 2701). Section 2504(c) applies only to adjustments involving issues of valuation. Thus, even after the 1997 and 1998 amendments to section 2504(c), adjustments to prior taxable gifts may be made if the adjustment is not related to the valuation of the gift; e.g., the erroneous inclusion or exclusion of property for gift tax purposes. See Rev. Rul. 76–451 (1976–2 C.B. 304). This result is consistent with the legislative history to the 1997 Act which emphasizes that the statutory change imposes a prohibition on revaluing certain gifts. The House Committee report states that a gift for which the limitations period has passed cannot be revalued for purposes of determining the applicable estate tax bracket and available unified credit. H.R. Rep. No. 148, 105th Cong., 1st Sess. 359 (1997).

The proposed regulations conform the regulations to the new statutory rules for gift tax returns filed after the regulations are published as final regulations. In the interim period, the statutory provisions apply.

Valuation of Prior Gifts for Estate Tax Purposes

Prior to the enactment of the 1997 and 1998 Acts, there was no estate tax provision corresponding to section 2504(c). Therefore, even where the period of assessment expired for a calendar period, and gift tax was paid or assessed for that period, the value of any gifts made in that period could be adjusted for purposes of determining the estate tax liability. The statutory change and these proposed regulations preserve that treatment for gifts made prior to August 6, 1997.

Section 2001(f) was added by the 1997 Act and amended by the 1998 Act. Under section 2001(f) as amended, if the time has expired for assessing gift tax for a preceding calendar period under section 6501, then the value of the gift, for purposes of computing the estate tax liability, is the value of the gift as finally determined for gift tax purposes. A similar rule applies for any increase in taxable gifts required under section 2701(d).

Under the statute, the value of a gift is finally determined if: the value is shown on a gift tax return and the IRS does not contest the value before the period for assessing gift tax expires; or, before the period for assessing gift tax expires, the value is specified by the IRS and the taxpayer does not contest the specified value; or, the value is determined by a court or pursuant to a settlement agreement between the taxpayer and the IRS.

As discussed above, the provision only limits the IRS’ ability to make adjustments related to the value of a gift. Thus, the IRS is not precluded from making adjustments that are not related to value, such as the erroneous inclusion or exclusion of property for gift tax purposes.

The proposed regulations conform the current regulations to the statutory change for gift tax returns filed after the regulations are published as final regulations. In the interim period, the statutory provisions apply.

Special Analyses

Comment and Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to electronic and written comments (a signed original and eight (8) copies) that are timely submitted to the IRS. The IRS and Treasury specifically request comments on the clarity of the proposed regulations and how it may be made easier to understand. All comments will be available for public inspection and copying.

1999–12 I.R.B. 27 March 22, 1999

A public hearing has been scheduled for Wednesday, April 28, 1999, at 10 a.m. in Room 2615 of the 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.

A period of 10 minutes will be allocated 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 William L. Blodgett, Office of Assistant Chief Counsel (Passthroughs and Special Industries), IRS. However, other personnel from the IRS and Treasury Department participated in their development.

- - - -

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 20 is proposed to be amended as follows:

PART 20—ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 1954

Paragraph 1. The authority citation for part 20 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 20.2001–1 is revised to read as follows:

§20.2001–1 Valuation of adjusted taxable gifts and section 2701(d) taxable events.

(a) Adjusted taxable gifts made prior to August 6, 1997. For purposes of determining the value of adjusted taxable gifts as defined in section 2001(b), if the gift was made prior to August 6, 1997, the value of the gift may be adjusted at any time, even if the time within which a gift tax may be assessed has expired under section 6501. This paragraph (a) also applies to adjustments involving issues other than valuation.

(b) Adjusted taxable gifts and section 2701(d) taxable events occurring after August 5, 1997. For purposes of determining the value of adjusted taxable gifts as defined in section 2001(b), if, under section 6501, the time has expired within which a gift tax may be assessed under chapter 12 of the Internal Revenue Code (or under corresponding provisions of prior laws) with respect to a gift made after August 5, 1997, and during a preceding calendar period (as defined in §25.2502–1(c)(2) of this chapter), or with respect to an increase in taxable gifts required under section 2701(d) and §25.2701–4 of this chapter, then the value of the gift will be the value as finally determined for gift tax purposes under chapter 12 of the Internal Revenue Code. This paragraph (b) does not apply to adjustments involving issues other than valuation. See §25.2504–1(d) of this chapter.

(c) Finally determined. For purposes of paragraph (a) of this section, the value of a gift is finally determined for gift tax purposes if—

(1) The value is shown on a gift tax return, or on a statement attached to the return, and the Internal Revenue Service does not contest the value before the time has expired under section 6501 within which gift taxes may be assessed;

(2) The value is specified by the Internal Revenue Service before the time has expired under section 6501 within which gift taxes may be assessed on the gift and such specified value is not timely contested by the taxpayer;

(3) The value is finally determined by a court of competent jurisdiction; or

(4) The value is determined pursuant to a settlement agreement entered into between the taxpayer and the Internal Revenue Service.

(d) Definitions. For purposes of paragraph (b) of this section, the value is finally determined by a court of competent jurisdiction when the court enters a final decision, judgment, decree or other order passing on the valuation that is not subject to appeal. See, for example, section 7481 regarding the finality of a decision by the U.S. Tax Court. Also, for purposes of paragraph (b) of this section, a settlement agreement means any agreement entered into by the Internal Revenue Service and the taxpayer that is binding on both. The term includes a closing agreement under section 7121, a compromise under section 7122, and an agreement entered into in settlement of litigation involving a valuation issue.

(e) Expiration of period of assessment. For purposes of determining if the time has expired within which a tax may be assessed under chapter 12 of the Internal Revenue Code, see §301.6501(c)-1(e) and (f) of this chapter.

(f) Examples. The following examples illustrate the rules of this section:

Example 1. (i) Facts. A owns Blackacre and B, A’s child, owns Whiteacre. In 1999, A and B exchange ownership of these properties. On A’s federal gift tax return, Form 709, for the 1999 calendar year, the transfer of Blackacre to B is adequately disclosed under §301.6501(c)–1(f)(2) of this chapter. A reports the transfer as nontaxable, representing that the fair market values of Whiteacre and Blackacre, at the time of the transfer, were equal. A dies after the period of assessment for the transfer has expired.

(ii) Application of the rule limiting adjustments to valuation issues. The fair market values of Blackacre and Whiteacre at the time of the transfer are valuation issues. Because A filed the return adequately disclosing the transfer, the period of assessment with respect to A’s transfer has expired, notwithstanding the fact that no gift tax return was required to be filed. Therefore, the Internal Revenue Service is precluded from revaluing Blackacre and Whiteacre in determining the amount of A’s adjusted taxable gifts in computing A’s estate tax liability.

Example 2 . (i) Facts. In 1999, A transfers stock in a closely-held corporation to an irrevocable trust. Under the terms of the trust, the trustee has the discretion to accumulate trust net income or distribute it among A’s children. At A’s death, the trust is to terminate and the trust corpus is to be paid to A’s surviving issue. On A’s federal gift tax return, Form 709, filed for the 1999 calendar year, the transfer is adequately disclosed under §301.6501(c)–1(f)(2) of this chapter. A claims an annual exclusion under

March 22, 1999 28 1999–12 I.R.B.

However, A’s 1999 transfer was adequately disclosed on a timely filed gift tax return and, thus, under §25.2504-1(b), the value of the 1999 gift by A may not be adjusted for purposes of computing the value of prior taxable gifts in determining A’s 2003 gift tax liability.

(d) Effective dates. Paragraph (a) of this section applies to transfers of property by gift made prior to August 6, 1997. Paragraphs (b) and (c) of this section apply to transfers of property by gift made after August 5, 1997, if the gift tax return for the calendar period in which the transfer is reported is filed after this document is published as a final regulation in the Federal Register.

PART 301—PROCEDURE AND ADMINISTRATION

Par. 5. The authority citation for part 301 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * Par. 6. Section 301.6501(c)-1 is amended by:

Revising the heading to paragraph (e).
Adding paragraph (f). The revision and addition reads as follows:

§301.6501(c)–1 Exceptions to general period of limitations on assessment and collection.

(e) Gifts subject to chapter 14 of the In- ternal Revenue Code not adequately dis- closed on the return

(f) Gifts made after August 5, 1997, not adequately disclosed on the return —(1) In general. If a transfer of property, other than a transfer described in paragraph (e) of this section, is not adequately disclosed on a gift tax return (Form 709 United States Gift (and Generation-Skipping Transfer) Tax Return) filed for the calendar period in which the transfer occurs, then any gift tax imposed by chapter 12 of subtitle B of the Internal Revenue Code on the transfer may be assessed, or a proceeding in court for the collection of the appropriate tax may be begun without assessment, at any time.

(2) Adequate disclosure of transfers of property reported as gifts. A transfer will be adequately disclosed on the return only

section 2503(b) for the transfer. A dies after the period of assessment for the transfer has expired.

(ii) Application of the rule limiting adjustments to valuation issues. Because the period of assessment has closed on the transfer due to adequate disclosure, the Internal Revenue Service is precluded from revaluing the transferred stock for purposes of assessing gift tax. Therefore, the value of the transfer as reported on A’s 1999 Federal gift tax return may not be redetermined for purposes of determining A’s adjusted taxable gifts. However, the applicability of the annual exclusion to the transfer is a question of law and not of valuation. Accordingly, although the Internal Revenue Service may not assess or collect additional gift tax on the 1999 transfer (because the period of assessment has closed), the Internal Revenue Service is not precluded from challenging the annual exclusion claimed by A for purposes of determining A’s adjusted taxable gifts in computing the estate tax liability.

(g) Effective dates. Paragraph (a) of this section applies to transfers of property by gift made prior to August 6, 1997, if the estate tax return for the donor/decedent’s estate is filed after this document is published as a final regulation in the Fed- eral Register. Paragraphs (b) through (f) of this section apply to transfers of property by gift made after August 5, 1997, if the gift tax return for the calendar period in which the gift is made is filed after this document is published as a final regulation in the Federal Register.

PART 25—GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954

Par. 3. The authority citation for part 25 continues to read in part as follows: Authority: 26 U.S.C. 7805. * * * Par. 4. Section 25.2504–2 is revised to read as follows:

§25.2504–2 Valuation of certain gifts for preceding calendar periods.

(a) Gifts made before August 6, 1997. If the time has expired within which a tax may be assessed under chapter 12 of the Internal Revenue Code (or under corresponding provisions of prior laws) on the transfer of property by gift made during a preceding calendar period, as defined in §25.2502–1(c)(2), the gift was made prior to August 6, 1997, and a tax has been assessed or paid for such prior calendar period, the value of the gift, for purposes of arriving at the correct amount of the taxable gifts for the preceding calendar periods (as defined under §25.2504–1(a)), is the value used in computing the tax for the last preceding calendar period for

which a tax was assessed or paid under chapter 12 of the Internal Revenue Code or the corresponding provisions of prior laws. However, this rule does not apply where no tax was paid or assessed for the prior calendar period. Furthermore, this rule does not apply to adjustments involving issues other than valuation. See §25.2504–(d).

(b) Gifts made or section 2701(d) tax- able events occurring after August 5, 1997. If the time has expired under section 6501 within which a gift tax may be assessed under chapter 12 of the Internal Revenue Code (or under corresponding provisions of prior laws) on the transfer of property by gift made during a preceding calendar period, as defined in §25.2502– 1(c)(2), or with respect to an increase in taxable gifts required under section 2701(d) and §25.2701–4, and the gift was made, or the section 2701(d) taxable event occurred, after August 5, 1997, the value of the gift or the amount of the increase in taxable gifts, for purposes of determining the correct amount of taxable gifts for the preceding calendar periods (as defined in §25.2504–1(a)), is the value that is finally determined for gift tax purposes (within the meaning of §20.2001– 1(c) of this chapter). This rule does not apply to adjustments involving issues other than valuation. See §25.2504–1(d). For an illustration of this rule, see the examples under §20.2001–1(f) of this chapter. For purposes of determining if the time has expired within which a gift tax may be assessed, see §301.6501(c)–1(e) and (f) of this chapter.

Example. (i) Facts. In 1996, A transfers closelyheld stock to B, A’s child. A timely filed a federal gift tax return reporting the 1996 transfer to B. No gift tax was assessed or paid as a result of application of A’s available unified credit. In 1999, A transfers additional closely-held stock to B. A’s federal gift tax return reporting the 1999 transfer is timely filed and the transfer is adequately disclosed under §301.6501(c)-1(f)(2) of this chapter. In 2003, A transfers additional property to B and timely files a federal gift tax return reporting the gift.

(ii) Application of the rule limiting adjustments to valuation of prior gifts. Under section 2504(c), in determining A’s 2003 gift tax liability, the value of A’s 1996 gift can be adjusted for purposes of computing the value of prior taxable gifts, since that gift was made prior to August 6, 1997, and therefore, the provisions of paragraph (a) of this section apply.

1999–12 I.R.B. 29 March 22, 1999

if it is reported in a manner adequate to apprise the Internal Revenue Service of the nature of the gift and the basis for the value so reported. Transfers reported on the gift tax return as transfers of property by gift will be considered adequately disclosed under this paragraph (f) only if the return provides a complete and accurate description of the transaction including—

(i) A description of the transferred property and any consideration received by the transferor;

(ii) The identity of, and relationship between, the transferor and the transferee;

(iii) A detailed description of the method used to determine the fair market value of property transferred, including any relevant financial data and a description of any discounts, such as discounts for blockage, minority or fractional interests, and lack of marketability, claimed in valuing the property. In the case of the transfer of an interest in an entity (e.g., a corporation or partnership) that is not actively traded, a description of any discount claimed in valuing the entity or any assets owned by such entity, including a statement regarding the fair market value of 100 percent of the entity (determined without regard to any discounts in valuing the entity or any assets owned by the entity), the pro rata portion of the entity subject to the transfer, and the fair market value of the transferred interest as reported on the return. If the entity that is the subject of the transfer owns an interest in another non-actively traded entity (either directly or through ownership of an entity), the information required in this paragraph (f)(2)(iii) must be provided for each entity and the assets owned by each entity;

(iv) If the property is transferred in trust, the trust’s tax identification number and a brief description of the terms of the trust;

(v) Any restrictions on the transferred property that were considered in determining the fair market value of the property; and

(vi) A statement of the relevant facts affecting the gift tax treatment of the transfer that reasonably may be expected to apprise the Internal Revenue Service of the nature of any potential controversy concerning the gift tax treatment of the transfer, or in lieu of this statement, a concise description of the legal issue pre

sented by the facts. In addition, a statement describing any position taken that is contrary to any temporary or final Treasury regulations or revenue rulings.

(3) Adequate disclosure of non-gift completed transfers or transactions. Completed transfers, all or a portion of which are reported as not constituting a transfer by gift (for example, a transaction in the ordinary course of business), will be considered adequately disclosed under this paragraph (f) only if the following information is provided on or attached to the return—

(i) The information required for adequate disclosure under paragraph (f)(2) of this section; and

(ii) An explanation as to why the transfer is not a transfer by gift under chapter 12 of the Internal Revenue Code. (4) Adequate disclosure of incomplete transfers. Adequate disclosure of a transfer that is reported as a completed gift on the gift tax return will commence the running of the statute of limitations for assessment of gift tax on the transfer, even if the transfer is ultimately determined to be an incomplete gift for purposes of §25.2511–2 of this chapter. For example, if an incomplete gift is reported as a completed gift on the gift tax return and is adequately disclosed, the period for assessment of the gift tax will begin running when the return is filed, as determined under section 6501(b). On the other hand, if the transfer is reported as an incomplete gift and adequately disclosed, the period for assessing a gift tax with respect to the transfer will not commence to run even if the transfer is ultimately determined to be a completed gift. In that situation, the gift tax with respect to the transfer may be assessed at any time, up until three years after the donor files a return reporting the transfer as a completed gift.

(5) Examples. The following examples illustrate the rules of this paragraph (f):

Example 1. (i) Facts. In 1999, A transfers 100 shares of common stock of XYZ Corporation to A’s child. The common stock of XYZ Corporation is actively traded on a major stock exchange. For gift tax purposes, the fair market value of one share of XYZ common stock on the date of the transfer, determined in accordance with §25.2512-2(b) of this chapter (based on the mean between the highest and lowest quoted selling prices), is $150.00. On A’s federal gift tax return, Form 709, for the 1999 calendar year, A reports the gift as 100 shares of common stock of XYZ Corporation with a value for gift tax

purposes of $15,000. A specifies the date of the transfer, recites that the stock is publicly traded, and identifies the stock exchange on which the stock is traded.

(ii) Application of the adequate disclosure stan- dard. A has adequately disclosed the transfer. Therefore, the period of assessment for the transfer under section 6501 will run from the time the return is filed (as determined under section 6501(b)).

Example 2 . (i) Facts. On December 30, 1999, A transferred closely-held stock to B, A’s child. A determined that the value of the transferred stock, on December 30, 1999, was $9,000. A made no other transfers to B, or any other donee, during 1999. On A’s federal gift tax return, Form 709, filed for the 1999 calendar year, A provides the information required under paragraph (f)(2) of this section (including the method used to determine the fair market value of the stock and a description of discounts claimed) such that the transfer is adequately disclosed. A claims an annual exclusion under section 2503(b) for the transfer. (ii) Application of the adequate disclosure stan- dard . Because the transfer was adequately disclosed under paragraph (f)(2) of this section, the period of assessment for the transfer will expire as prescribed by section 6501(b), notwithstanding that if A’s valuation of the closely-held stock was correct, A was not required to file a gift tax return reporting the transfer under section 6019. After the period of assessment has expired on the transfer, the Internal Revenue Service is precluded from revaluing the transferred stock for purposes of assessing gift tax or for purposes of determining the estate tax liability. Therefore, the value of the transfer as reported on A’s 1999 federal gift tax return may not be redetermined for purposes of determining A’s prior taxable gifts (for gift tax purposes) or A’s adjusted taxable gifts (for estate tax purposes).

Example 3 . (i) Facts. A owns 100 percent of the common stock of X, a closely-held corporation. X does not hold an interest in any other entity that is not actively traded. In 1999, A transfers 20 percent of the X stock to B and C, A’s children, in a transfer that is not subject to the special valuation rules of section 2701. The transfer is made outright with no restrictions on ownership rights, including voting rights and the right to transfer the stock. The reported value of the transferred stock incorporates the use of minority discounts and lack of marketability discounts. No other discounts were used in arriving at the fair market value of the transferred stock or any assets owned by X. A reports the transfer on a federal gift tax return, Form 709, for the 1999 calendar year. On the return, A provides a statement reporting the fair market value of 100 percent of X (before taking into account any discounts), the pro rata portion of X subject to the transfer, and the reported value of the transfer. A also attaches a statement regarding the determination of value that includes a discussion of the discounts claimed and how the discounts were determined.

(ii) Application of the adequate disclosure stan- dard. A has provided sufficient information such that the transfer will be considered adequately disclosed and the period of assessment for the transfer under section 6501 will run from the time the return is filed (as determined under section 6501(b)).

Example 4 . (i) Facts. A owns a 70 percent limited partnership interest in PS. PS owns 40 percent

March 22, 1999 30 1999–12 I.R.B.

ministrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulations do not impose a collection of information on small entities, 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.

Proposed Effective Date

The proposed regulations are proposed to be effective for returns or claims for refund presented to a taxpayer for signature after December 31, 1998 and for returns or claims retained on or before that date.

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 8 copies) that are submitted timely to the IRS. All comments will be available for public inspection and copying. A public hearing may be scheduled if requested in writing by any 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

- - - -

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1—INCOME TAXES

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

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.6695–1 is amended by:

of the stock in X, a closely-held corporation. The assets of X include a 50 percent general partnership interest in PB. PB owns an interest in commercial real property. None of the entities (PS, X, or PB) is actively traded. In 1999, A transfers a 25 percent limited partnership interest in PS to B, A’s child. On the federal gift tax return, Form 709, filed for the 1999 calendar year, A reports the transfer of the 25 percent limited partnership interest in PS and that the fair market value of 100 percent of PS is $y and that the value of 25 percent of PS is $z, reflecting marketability and minority discounts with respect to the 25 percent interest. However, A does not disclose that PS owns 40 percent of X, and that X owns 50 percent of PB and that, in arriving at the $y fair market value of 100 percent of PS, discounts were claimed in valuing PS’s interest in X, X’s interest in PB, and PB’s interest in the commercial real property.

(ii) Application of the adequate disclosure stan- dard. Because A has failed to comply with requirements of paragraph (f)(2) of this section regarding PS’s interest in X, X’s interest in PB, and PB’s interest in the commercial real property, the transfer will not be considered adequately disclosed and the period of assessment for the transfer under section 6501 will remain open indefinitely.

(6) Effective date. This paragraph (f) is applicable to gifts made in calendar years ending after August 5, 1997, if the gift tax return for such calendar year is filed after this document is published as a final regulation in the Federal Register.

Robert E. Wenzel, Deputy Commissioner of

Internal Revenue.

(Filed by the Office of the Federal Register on December 21, 1998, 8:45 a.m., and published in the issue of the Federal Register for December 22, 1998, 63 F.R. 70701)

Notice of Proposed Rulemaking

Retention of Income Tax Return Preparers’ Signatures

REG–106386–98

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary regulations.

SUMMARY: In T.D. 8803, page 15, the IRS is issuing temporary regulations relating to the retention of income tax return preparers’ signatures. The text of those temporary regulations also serves as the text of these proposed regulations.

DATES: Written comments and requests for a public hearing must be received by March 31, 1999. The IRS and Treasury Department request comments on the clarity of the proposed rules and how they can be made easier to understand.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG–106386–98), 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–106386–98), 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 the regulations, Marc C. Porter, (202) 622-4940; concerning submissions, LaNita Van Dyke, (202) 622-7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

Temporary regulations in T.D. 8803 amend Income Tax Regulations (26 CFR part 1) under section 6695(b) of the Internal Revenue Code. These regulations require an income tax return preparer to keep a manually signed (by the preparer) copy of a return or claim for refund if the preparer presented to the taxpayer for signature a return or claim with a copy of the preparer’s manual signature.

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

Special Analyses

1999–12 I.R.B. 31 March 22, 1999

Lawrence Bud Kern Trust Fund Inc.,

Somers Point, NJ Lawyers for Affordable Housing Inc.,

Revising paragraph (b)(4)(i).
Adding paragraph (g). The revision and addition read as follows:

§1.6695–1 Other assessable penalties with respect to the preparation of income tax returns for other persons.

(b) * * * (4)(i) [The text of proposed paragraph (b)(4)(i) is the same as the text of §1.6695–1T(b)(4)(i) published in T.D. 8803.]

(g) [The text proposed paragraph (g) is the same as the text of §1.6695–1T(g) published in T.D. 8803.]

Robert E. Wenzel, Deputy Commissioner of

Internal Revenue.

(Filed by the Office of the Federal Register on December 30, 1998, 8:45 a.m., and published in the issue of the Federal Register for December 31, 1998, 63 F.R. 72218)

Foundations Status of Certain Organizations

Announcement 99–22

The following organizations have failed to establish or have been unable to maintain their status as public charities or as operating foundations. Accordingly, grantors and contributors may not, after this date, rely on previous rulings or designations in the Cumulative List of Organizations (Publication 78), or on the presumption arising from the filing of notices under section 508(b) of the Code. This listing does not indicate that the organizations have lost their status as organizations described in section 501(c)(3), eligible to receive deductible contributions.

Former Public Charities. The following organizations (which have been treated as organizations that are not private foundations described in section 509(a) of the Code) are now classified as private foundations: L I Science and Engineering fair Inc.,

La Charitable Organization Alliance Inc.,

NY Laurinburg Community Economic Action

Metairie, LA Lanier Retirement Community, Inc.,

Gainesville, GA Lansing Neighborhood Housing

Corporation, Lansing, MI La Porte County Juvenile Service Center

Dallas, TX Lay Ministry to Missions Inc., Arlington,

TX Lay Missionaries of the Blessed

Sacrament, Dayton, OH LDS International Student Exchange,

Weatherford, TX Le Bayou Legendaire Company, Lake

Task Force Inc., LaPorte, IN La Raza Lawyers Institute, Sacramento,

CA The Last Harvest Inc., Irvine, CA La Vida-2 Inc., Rochester, NY La Vivienda Housing Development

Corporation, Chicago, IL Labor-Environmental Solidarity

Charles, LA Lead or Leave Education Fund,

Network, Portland, OR Lackawanna County Medical Society

Washington, DC Leadership Lindsay, Lindsay, CA League of Benefactors for Childrens

Health Care Fund, Scranton, PA Lady Boston Inc., Charlestown, MA Lahoma Community Park Association,

Activities Inc., Guthrie, OK League of Volunteers Association,

Lahoma, OK Lake Cinderella Improvement

Committee, Spring, TX Lake County Minority Healty Coalition

Fairfax, VA Learning Lab Inc., Okemah, OK Learning Parent Inc., Houston, TX Learning S Way, Manchester, NH Lee Guardianship Services Inc., Fort

Inc., East Chicago, IN Lake Erie Native American Council Inc.,

Myers, FL Leon-Wakulla County Community

Cleveland, OH Lake Neatahwanta Reclamation

Committee Inc., Fulton, NY Lake Ontario Youth Athletic League Inc.,

Housing & Development Agency Inc., Tallahassee, FL Leonard Music Institute of Texas Inc.,

Fort Worth, TX Leroy Christian Youth Centre Inc., Leroy,

KS Let Live Inc., Baltimore, MD Life Inc., Lafayette, LA Leva Tatidar Samaj Inc. USA, Waltham,

MA Lewisburg Area Community Center Inc.,

Lewisburg, PA Liberty Glass Company Foundation Inc.,

Sapulpa, OK Liberty Park USA Foundation, Colorado

Medina, NY Lake St. Louis Golf Charities Inc., Lake

St. Louis, MO Lake Toxaway Community Club, Lake

Toxaway, NC Lakeland Rebounders Inc., Lakeland, FL Lakewood Works for Disabled Too,

Lakewood, OH Laotian American Organized Support,

Fountain Valley, CA Larimer Land Trust, Loveland, CO Larose Institution for Development,

Springs, CO Libraries Worl-Wide Inc., Weston, MO Life Center Foundation Inc., Key West,

Kalamazoo, MI Las Vegas Valley Fire Fighters

Association, Las Vegas, NV Lathika International Film &

Entertainment Inc., Virginia Beach, VA Latin American Mission Programs &

FL Life-Flite Corporation, Miami, FL Life From Life Mid-Iowa Transplant

Support Group, Des Moines, IA Life Harvest, Hersey, MI Life Involves New Connections Inc.,

Publishing, National City, CA Latin World Ministries Inc., Austin, TX Latino Empowerment Association of

Delmarva – Lead, Dover, DE Laura Lagrotteria Jill Sawyer Christy

Rockville, Centre, NY Life Long Learning Center Inc.,

Southampton, PA Life Out Reach Development Center,

Oregonia, OH Lifechange Ministries Inc., Fort Mill, SC Lifeline a Mental Retardation

Partnership, Washington, DC Lifeline Institute Inc., Dale city, VA

East Setauket, NY La Alma Lincoln Park Neighborhood

Stevens Michael Gallo, Niantic, CT Lauravetlan Foundation Inc., New York,

Program Inc., Lauringburg, NC

Organization Inc., Denver, CO

March 22, 1999 32 1999–12 I.R.B.

Lifestream Ministries Inc., Brentwood,

Leesburg, VA Louisiana Air National Guard

Mon County Housing Development

TN Lifta Society, Dallas, TX Lighthouse Maternity Services, Oxford,

Loudoun Families for Children,

Community, New Orleans, LA Louisiana for Low-Income Housing

Corporation, Morgantown, WV The Moreno Valley Arts Association,

IL The National Jazz Hall of Fame and

OH Lighthouse Restoration Center, Castle

Moreno Valley, CA National Aquatic Foundation, Naperville,

Museum, Inc., Pittsburgh, PA New Directions Community

Improvement Corp., Ravenna, OH Northwest Florida Spinal Cord Injury

Hayne, NC Lighthouse of the Virginian Sea, Louisa,

Today Incorporated, New Orleans, LA Louisiana League of Anglers, Marrero,

LA Louisiana Mico Enterprise Development

VA Lincoln Avenue Community

Development Corporation Inc., Evansville, IN Lindale Historical Society, Tyler, TX Linden Ladies Auxiliary Inc., Linden, NC Linesville Community Public Library

Corporation, Monroe, LA Louisianas Absolute Pitch Inc., Baton

Mt. Prospect, IL Love All Tennis Patrons Incorporated Not

for Profit, East Chicago, IN Love and Hope Inc., Lynwood, CA Love in Christ Foundation Incorporated,

Rouge, LA Love & Action Midwest Inc.,

Council, Inc., Pensacola, FL North Iowa Alliance for the Mentally Ill,

Mason City, IA Ohio Jujitsu, Stow, OH Operation Unity, Los Angeles, CA Orange County Cocaine Anonymous,

Inc., Linesville, PA Link Community Inc., Philadelphia, PA Link to Life Network Inc., New York,

NY Linton Teen Center Inc., Linton, IN Lionel Washingtons River Parishes Pro

Costa Mesa, CA Outreach Ministries of the Greater New

Zion Missionary Baptist Church, Los Angeles, CA Oregon Horse Rescue, Eugene, OR Pandora Playground, Inc., Pandora, OH Paul Emerick Vocational Education

Foundation, Wilsonville, OR Personal Physician Cave of Ohio, Inc.,

Football Camp, Lutcher, LA Listen to Me Inc., Baltimore, MD Literacy Council of Colorado County

Inc., Columbus, TX Lithuanian-American Historical Aviation

Grand Prairie, TX Love Inc. Anchorage, Anchorage, AK Love Nutrition Program, Houston, TX Love Our Kids Inc., Houston, TX Love Santa Inc., Woodburn, OR Loving Arms, Memphis, TN Loving Hands Adult Day Program,

Bellefontaine, OH Loving Hands Ministries Inc.,

Society, Grand Rapids, MI Little Frontier Inc., E Amherst, NY Little Hand Charities Inc., New Port

Cleveland, OH Petersburg-Newburg Improvement

Association, Inc., Louisville, KY PHS Community Development

Corporation, Detroit, MI Pineland Early Learning Center, Inc.,

Richey, FL Little River Community Complex Inc.,

Durham, NC Live Eyes Theatre Company Inc., New

Birmingham, AL Loving Options, San Bernardino, CA Lower Richland Community Care Center

Natchez, MS Lulac National Civil Rights Commission

York, NY Live Foundation Inc., New Orleans, LA Livermore Fire Department Inc.,

Inc., Columbia, SC LPS Ministry Inc., Folly Beach, SC Lt. Eddie Kitchen Jr Foundation,

Inc., Lubbock, TX Luso American Social and Cultural

Pineland, TX Pinnah Eben Ministries, Lawrenceville,

GA Portland Metro Mens Council, Portland,

OR Project Youth Life Skills Center,

Livermore, CO Livernois-Seven Mile Non-Profit

Housing Corporation, Detroit, MI Living Climb Organization Inc., New

Center Inc., Providence, RI Luther Village of Tampa Bay Inc.,

Las Vegas, NV Puritan Community Outreach, Baton

York, NY Living Stones Fellowship Inc., Hixson,

Tampa, FL Lyme Disease Coalition of Minnesota,

Roseville, MN Lyon County Girls Club Incorporated,

Rouge, LA Puyallup Schools Foundation, Puyallup,

TN Living Tradition, Garden Grove, CA Living Well Foundation, Dallas, TX Living Word Explorations, Arriba, CO Lo Society Branch of Wisconsin Inc.,

WA Rivercrest Community Church Inc.,

San Antonio, TX San Antonio Retired Educators

Crescent Springs, KY San Antonio Leadership Foundation,

Oshkosh, WI Lodgistics Interim Homes for Homeless

Kuttawa, KY Lyons Community Association, Stilwell,

OK Lyons Parent-Teacher Organization Inc.,

Randolph, MA Lyric Opera of Erie Inc., Erie, PA Lytal Aquatic Foundation Inc., Palm

Veterans, Corpus Christi, TX Lombard Orioles Baseball Club,

Foundation Inc., San Antonio, TX San Joaquin County Bar Foundation,

Lombard, IL Long Island for Education Center Inc.,

Farmingdale, NY Long Island Maritime Heritage Society

Beach, FL Maasai Nation, Inc., Atlanta, GA Maine Immigration Advocacy Project,

Stockton, CA San Quentin Productions, San Rafael, CA Scuppernong Vision & Action, Creswell,

NC Sea Ministries Charit Tr, Minonk, IL Seenet, Charlottesville, VA Shelter From Darkness Ministries,

Inc., Riverhead, NY Lou Brock Scholarship Foundation Inc.,

Portland, ME Merchants Foundation, Inc., Homestead,

PA Midwest Childrens Theatre, Inc.,

Kenosha, WI

Oroville, WA

St. Louis, MO

1999–12 I.R.B. 33 March 22, 1999

Shepherds Field, Mobile, AL The Shiloh Community Services

Vermilion Education Foundation,

Foundation, Sacramento, CA Shriners Hospital for Crippled Children

Vermilion, OH Vincents Foundation Inc., Aulander, NC Virtual Worlds Society, Seattle, WA Vox Populi Inc., Bala Cynwyd, PA Washington State Tissue Services,

Tr 2225, Boston, MA Silver Lake Community Development

Corporation, Silver Lake, OR The Simeon Institute, Claremont, CA Smiles Learning Center, Inc., Starkville,

Seattle, WA Watershed Defense Fund, Bellingham,

WA West Florida Child Development Center,

Inc., New Port Richey, FL The West Tennessee Annual Conference

MS Sonshine Sanctuary, Bellingham, WA South Florida Aerospace Scholarship

Corporation, Miami, FL Southern Housing Restoration &

Development, Inc., Atlanta, GA Special Games for Special People, Inc.,

of the AME Church Inc., Memphis, TN Whitfield Manor Inc., Anaheim, CA World Entertainers Hall of Fame Inc.,

Reno, NV Youth for a Change, Inc., Stone

Milford, CT St. Edmunds Community Service

Council, Inc., Chicago, IL Steven Langs Aging & Disability

Services, Chicago, IL St. Gregory’s Retreat Center, Inc.,

Mountain, GA Youth on a Mission of New York, Inc.,

Mexico, NY Sthle Wildlife Fdn., Brewer, ME St. Louis Lesbian and Gay Community

Center, Inc., St. Louis, MO Strive Inc., Hilton Head Is., SC Symbiosis Foundation, Inc., Miami, FL Targeted Research Foundation Inc.,

Irvine, CA Together Grandview A Community Task

North Babylon, NY If an organization listed above submits information that warrants the renewal of its classification as a public charity or as a private operating foundation, the Internal Revenue Service will issue a ruling or determination letter with the revised classification as to foundation status. Grantors and contributors may thereafter rely upon such ruling or determination letter as provided in section 1.509(a)–7 of the Income Tax Regulations. It is not the practice of the Service to announce such revised classification of foundation status in the Internal Revenue Bulletin.

Force on Alcohol & Drug Abuse, Grandview, MO The Total Care Living Center

Incorporated, Baltimore, MD Tri-Community Youthcare Center Inc.,

come tax regulations. This action is taken to remove from the IRS’ inventory of regulations projects those proposed regulations that are in an inactive status and would remain in an inactive status for the foreseeable future.

DATES: These proposed regulations are withdrawn December 22, 1998.

FOR FURTHER INFORMATION CONTACT: George Bradley of the Office of the Assistant Chief Counsel (Income Tax & Accounting), Internal Revenue Service, 1111 Constitution Ave., NW, Washington, DC 20224. Telephone (202) 622-4920, not a toll-free number.

SUPPLEMENTARY INFORMATION:

Background

This document withdraws certain proposed regulations previously published in the Federal Register by the IRS. These proposed regulations are being withdrawn because they are part of regulations projects that will not be pursued in the foreseeable future, and there are no current plans to adopt the proposed regulations as final regulations.

Drafting Information

The principal author of this withdrawal notice is George H. Bradley, Office of the Assistant Chief Counsel (Income Tax & Accounting) within the Office of the Chief Counsel, Internal Revenue Service. Other personnel from the Internal Revenue Service and the Treasury Department participated in developing the withdrawal notice.

- - - -

Withdrawal of Proposed Amendments to the Regulations

Accordingly, under the authority of 26 U.S.C. 7805, the following proposed amendments to 26 CFR part 1 are withdrawn:

Angie, LA Trinity Educational Foundation Inc.,

Las Vegas, NV Triple S Rescue Mission, Chadron, NE Under His Wings Ministries, Freeport, IL United Black Fund of Tennessee,

Notice of Proposed Rulemaking

Withdrawal of Proposed Regulations

REG–116099–98

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Withdrawal of proposed regulations.

SUMMARY: This document withdraws proposed regulations amending the in

Nashville, TN United States School of Hammer

Throwing, Eugene, OR Universal Network Intrust for Youth,

Inc., Highland park, NJ Values, Inc., Birmingham, AL

March 22, 1999 34 1999–12 I.R.B.

Amendments Relating to Proposed Regulations Section: FR Citation and Project Number Subject

1.162, 1.162–16, FR Doc. 71–9954 Transfer of Franchises, Trademarks, 1.461–1(a)(3)(iii), Published 7/15/71 36 FR 13148 and Trade Names 1.1016 1.1253 1.1253–1, 1.1253–2, 1.1253–3

1.381(c)(4)–1(c)(1), FR Doc. 72–14187 Carryover of Inventories and Accounting 1.381(c)(4)–1(c)(3) Example (5), Published 8/23/72 37 FR 16947 Methods in Certain Corporate Acquisitions 1.381(c)(4)–1(d)(1)(iii), 1.381(c)(5), 1.381(c)(5)–1

1.351–1(c)(1)(ii), FR Doc. 80–40833 Limitations on Reorganization 1.351–1(c)(4), 1.351–1(c)(5)(i), Published 1/7/81 46 FR 1744 Treatment for Investment Companies 1.351–1(c)(5)(ii), 1.351–1(c)(6) (LR–135–76) Examples (3) & (4), 1.368–4

1.278–2, 1.464–1, 1.464–2 FR Doc. 83–30789 Farming Syndicate Expenditures Published 11/15/83 48 FR 51936 (LR–144–76)

1.453–2 FR Doc. 84–891 Installment Obligations Received Published 1/13/84 49 FR 1742 From Liquidating Corporations (LR–184–80)

1.6050J–2 FR Doc. 84–23131 Published 8/31/84 Returns Relating to Transfers of Security to 49 FR 34518 (LR–182–84) Persons Other Than the Lender

1.131–1 FR Doc. 85–2718 Published 2/1/85 Exclusion From Gross Income for Certain 50 FR 4702 (LR–83–83) Foster Care Payments

Robert E. Wenzel, Deputy Commissioner of

Internal Revenue.

(Filed by the Office of the Federal Register on December 22, 1998, 8:45 a.m., and published in the issue of the Federal Register for December 23, 1998, 63 F.R 71047)

Joint Board for the Enrollment of Actuaries

Announcement 99–25

Examinations

The Joint Board for the Enrollment of Actuaries has under consideration the restructuring of the examinations it offers under 20 CFR 901.13(d)(1). The need for

restructuring is based on the expansion of the body of law affecting the private pension system and the corresponding increase in the complexity of the work for which enrolled actuaries are responsible. The syllabus of the current law examination, one of two examinations an individual must pass in order to meet the knowledge requirement for enrollment, does not provide sufficient opportunity to test a candidate’s knowledge of the relevant pension law. In addition, the pension mathematics segment of the basic actuarial examination does not cover sufficient material to test a candidate’s ability to apply sound actuarial techniques to the increasingly complex regulatory environment in which defined benefit pension plans operate.

As a result of discussions held at a public meeting on June 30, 1998, and in other public forums, the Joint Board and the examination co-sponsors, the Society of Actuaries and the American Society of Pension Actuaries, propose to restructure the examination program.

The major topics for the restructured basic actuarial examination would be (1) compound interest, and (2) life contingencies. These topics are now covered in the first segment of the basic actuarial examination (EA-1A). The restructured examination covering these topics would be 2 ¹ ⁄2 hours long, the same length as the current EA-1A examination.

The restructured pension law examination would be offered in two segments. The first would cover basic pension math

1999–12 I.R.B. 35 March 22, 1999

ematics, including the law and regulations that relate to funding qualified defined benefit pension plans that are neither overfunded nor seriously underfunded. The second segment would cover the remaining relevant law and regulations. This would include treatment of overfunded plans, deficit reduction contributions, qualification standards, etc. A minimum standard of competence would be established for each segment. Each segment of the restructured pension law examination would be 4 hours long.

It is the Joint Board’s intention to offer each examination once a year. The basic actuarial examination and the second segment of the pension law examination would be offered in the spring. The first segment of the pension law examination would be offered in the fall. It is anticipated that the restructured program will take effect in the spring of 2001 when the basic actuarial examination and the second segment of the pension law examination will be offered.

Appropriate transition credits would be accorded to persons who have successfully completed portions of the enrollment examination before 2001. The Joint Board is considering the following system of transition credits:

(1) A person who has successfully completed the first segment of the current basic actuarial examination before 2001 will receive credit for the restructured basic actuarial examination and will satisfy the examination requirement of the Joint Board’s regulations only if he or she passes both segments of the restructured pension law examination. (2) A person who has successfully completed both segments of the current basic actuarial examination before 2001 will receive credit for the restructured basic actuarial examination and will satisfy the examination requirement of the Joint Board’s regulations only if he or she passes both segments of the restructured pension law examination. (3) A person who has successfully completed the first segment of the current basic actuarial examination and the current pension law examination before 2001 will receive credit for the restructured basic actuarial examination and for the second segment of the restruc

tured pension law examination and will satisfy the examination requirement of the Joint Board’s regulations only if he or she passes the first segment of the restructured pension law examination. (4) A person who has successfully completed the second segment of the current basic actuarial examination and the current pension law examination before 2001 will receive credit for both segments of the restructured pension law examination and will satisfy the examination requirement of the Joint Board’s regulations only if he or she passes the restructured basic actuarial examination. (5) A person who has successfully completed the current pension law examination before 2001 will receive credit for the second segment of the restructured pension law examination and will satisfy the examination requirement of the Joint Board’s regulations only if he or she passes the restructured basic actuarial examination and the first segment of the restructured pension law examination. (6) A person who does not meet the requirements of one of the preceding five paragraphs before 2001 will receive no credit for any examinations passed under the current examination program and will satisfy the examination requirement of the Joint Board’s regulations only if he or she passes the restructured basic actuarial examination and both segments of the restructured pension law examination.

Enrollment

The regulations of the Joint Board for the Enrollment of Actuaries define the period during which Enrolled Actuaries must fulfill their Continuing Professional Education ( CPE ) requirements to be eligible for renewal of enrollment. Those regulations also define the period during which the enrollment of an Enrolled Actuary is valid and the date by which Enrolled Actuaries must file their application for renewal of enrollment for that application to be timely filed.

The current enrollment cycle, the pe- riod in which CPE requirements for the upcoming cycle are fulfilled ran from January 1, 1996 through December 31, 1998.

The current enrollment cycle techni- cally started (with the use of the new pre-fix) on April 1, 1996 and will end on March 31, 1999.

Applications for renewal of enroll- ment should have been filed by March 1st. The Board has noted that there is a wide spread impression that credits necessary to meet the CPE requirements for reenrollment that were not earned by December 31, 1998 could be earned in January and/or February 1999. This is contrary to the regulations. However, the Board recognizes that, in the past, certain circumstances called for relaxation of the rules and that what has happened in the past might have been taken as a precedent.

As result, the Board will not deny reenrollment to those actuaries solely because they fulfilled their CPE requirements in part with credits obtained in January and/or February 1999. However, the Board will require that Enrolled Actuaries who have availed themselves of this relief should, in a signed letter to the Board, disclose the number of hours of credit thus obtained and how they were obtained ( e.g. identify the course taken, when and where the course was taken, etc. ). Those credits earned in 1999 will not count towards meeting the requirements for the next enrollment cycle.

Such administrative relief will not be available at the end of the current re-enrollment cycle ( April 1, 1999 through March 31, 2002 ) for credits earned in January and/or February 2002, nor will it be available in subsequent re-enrollment cycles. Enrolled Actuaries who are unable to complete their CPE requirements by the end of the last full year of the cycle will be expected to provide the Board’s Executive Director with an explanation of the facts and circumstances which made it impossible for them to meet the requirements in a timely fashion.

Four-Digit Enrollment Number

This notice provides enrolled actuaries and other interested parties with a reminder of the Joint Board’s position, which was adopted some years ago, on a matter where some confusion has arisen in the past. The confusion arises regarding the prefix to the four-digit enrollment

March 22, 1999 36 1999–12 I.R.B.

number an enrolled actuary should use when signing a schedule B after December 31, 1998, but before the earlier of (1) receipt of official notice of reenrollment, and (2) April 1, 1999.

Accordingly, enrolled actuaries are advised that:

An enrolled actuary is not permitted to use the (in this case 99-) prefix until such time as he/she has been

officially notified in writing by the Joint Board of his/her entitlement to do so. See the Instructions for Schedule B. 2. An enrolled actuary who has not yet received official notification from the Joint Board should use the 96prefix if he/she signs a Schedule B in the first three months of 1999. The IRS Service Center will not re

ject the 96-prefix for a signature date during this three month period. The 96-prefix will be rejected for a Schedule B where the signature date is April 1, 1999 or later.

Paulette Tino, Chairperson,

Joint Board for the Enrollment of Actuaries.

1999–12 I.R.B. 37 March 22, 1999