Part III. Administrative, Procedural, and Miscellaneous

Revenue Code will permit taxpayers to elect to claim the Hope Scholarship Credit and the Lifetime Learning Credit by attaching Form 8863, Education Credits (Hope and Lifetime Learning Credits), to a Federal income tax return (or amended return) for the taxable year in which the credit is claimed.

BACKGROUND

Section 25A provides two education tax credits, the Hope Scholarship Credit and the Lifetime Learning Credit. In general, § 25A provides that, if certain requirements are met, a taxpayer may claim an education tax credit based on the qualified tuition and related expenses of the taxpayer, the taxpayer’s spouse, and any dependent of the taxpayer for whom the taxpayer properly claims a dependency deduction under § 151. The education tax credits are available for taxable years beginning after 1997. Section 25A(e)(1) provides that a taxpayer must elect to claim an education tax credit.

DISCUSSION

On January 6, 1999, the Treasury Department and the Internal Revenue Service issued proposed regulations under § 25A. See 64 Fed. Reg. 794 (1999). Section 1.25A–1(d) of the proposed regulations provides that no education tax credit is allowed unless a taxpayer elects to claim the credit on the taxpayer’s timely filed (including extensions) Federal income tax return for the taxable year in which the credit is claimed. The proposed regulations provide that the election is made by attaching Form 8863 to that Federal income tax return.

The Treasury Department and the Service have determined that taxpayers should be able to make the election under § 25A on an original or amended return. Thus, the regulations when finalized will provide that a taxpayer claims an education tax credit by attaching Form 8863 to a Federal income tax return for the taxable year in which the credit is claimed. The election procedure provided in the final regulations will apply to taxable years beginning after 1997. Therefore,

Guidance Regarding Section 664 Regulations

Notice 99–31

This notice informs taxpayers that the deadline for special reformations of charitable remainder unitrusts (CRUTs) provided in § 1.664–3(a)(1)(i)( f )( 3 ) of the Income Tax Regulations will be extended from June 8, 1999, until June 30, 2000. This notice also explains that the term “legal proceedings” in § 1.664–3(a)(1)(i)( f )( 3 ) includes certain non-judicial reformations provided they are completed by June 30, 2000.

BACKGROUND

Section 1.664–3(a)(1)(i)( c ) contains the rules for CRUTs that use a combination of methods to compute the unitrust amount. If certain requirements are satisfied, the governing instrument of a CRUT may provide that the unitrust amount is computed using one of the income exception methods during an initial period and thereafter using the fixed percentage method (flip provision). The same fixed percentage must be used throughout the term of the CRUT.

Under § 1.664–3(a)(1)(i)( f )( 1 ), the flip provision is available for CRUTs created on or after December 10, 1998. However, § 1.664–3(a)(1)(i)( f )( 3 ) permits reformations of a CRUT whose governing instrument either contains an impermissible flip provision or uses only one of the income exception methods. Such a CRUT may be reformed to include a permitted flip provision if the trustee begins legal proceedings to reform by June 8, 1999.

DISCUSSION

Since the issuance of § 1.664–3(a)(1)(i)( f )( 3 ), a number of practitioners have requested additional time to begin legal proceedings to reform a CRUT. The Treasury Department and the Service also understand that there may be state law impediments to meeting the June 8, 1999, deadline. In response, the Treasury Department and the Service intend to amend § 1.664–3(a)(1)(i)( f )( 3 ) to extend the June 8, 1999, deadline to June 30, 2000.

Many practitioners have also inquired whether the term “legal proceedings” in § 1.664–3(a)(1)(i)( f )( 3 ) requires a judicial reformation if non-judicial reformations are permitted under state law. The Treasury Department and the Service will clarify that the term “legal proceedings” includes a non-judicial reformation that is valid under state law, but that a non-judicial reformation must be completed by June 30, 2000.

Taxpayers seeking a non-judicial reformation should ascertain what their state law requires for such a reformation to be valid. For example, in some states, a nonjudicial reformation requires the consent of all beneficiaries, including potential beneficiaries. In addition, in some states, the state’s Attorney General has jurisdiction over charitable remainder trusts and must be notified of or consent to a reformation on behalf of the named or unnamed charitable beneficiaries. In some cases, the state’s Attorney General may more closely oversee charitable remainder trusts in which the specific charitable organization is not named in the governing instrument or is subject to change by the grantor or another person.

EFFECTIVE DATE

The amendments to § 1.664–3(a)(1)(i)( f )( 3 ) described in this notice will be effective December 10, 1998.

DRAFTING INFORMATION

The principal author of this notice is Mary Beth Collins of the Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this notice, contact Ms. Collins on (202) 622-3080 (not a toll-free call).

Election to Claim Education Tax Credit

Notice 99–32

PURPOSE

This notice announces that the final regulations under § 25A of the Internal

June 7, 1999 6 1999–23 I.R.B.

for taxable year 1998 and later years, a taxpayer may elect to claim an education tax credit by attaching Form 8863 to a timely filed original Federal income tax return, or an original Federal income tax return or an amended return filed after the due date of the return and before the expiration of the period of limitation for filing a claim for credit or refund for the taxable year in which the credit is claimed.

DRAFTING INFORMATION

The principal author of this notice is Donna Welch of the Office of the Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this notice contact her on (202) 622-4910 (not a toll-free call).

26 CFR § 301.7121-1: Closing agreements. (Also Part I, section 7702A)

Rev. Proc. 99–27