Part IV. Items — Internal Revenue Bulletin 2000-6

within the United States will be that amount that bears the same relation to the total compensation as the number of days of performance of the labor or service within the United States bears to the total number of days of performance of labor or services for which the payment is made. In other cases, the facts and circumstances will be such that another method of apportionment will be acceptable.

The IRS understands that, under the current regulations, U.S. individuals posted overseas and foreign individuals posted to the United States generally apportion compensation on a time basis. However, the IRS has become aware that under the facts and circumstances test of the current regulations, U.S. individuals are taking the position that certain fringe benefits associated with an overseas posting by their employer should be considered compensation for labor or personal services performed outside the United States and treated entirely as foreign source income even though some services are performed within the United States during the time of the overseas posting. Conversely, foreign individuals posted to the United States are taking the position that fringe benefits associated with their U.S. posting should be apportioned between compensation for labor or personal services performed within and without the United States based upon the amount of time spent in each jurisdiction and would be partly U.S. and partly foreign source income. In addition, under the current regulations, similarly situated taxpayers may be treated differently depending upon how their employers account for any foreign posting fringe benefits. Where an employer separately states the value of a fringe benefit, a U.S. individual posted overseas may argue that the fringe benefit is entirely compensation for labor or personal services performed outside the United States and foreign source. However, another employee receiving the same amount of additional compensation as part of a foreign posting, but where that benefit is not separately stated, will often be required to apportion this benefit on the basis of time. Finally, the current regulations may allow U.S. individuals to take an inconsistent position for U.S. and

Notice of Proposed Rulemaking and Notice of Public Hearing

Source of Compensation for Labor or Personal Services

REG–208254–90

AGENCY: Internal Revenue Service (IRS), Treasury.

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

SUMMARY: This document contains a proposed Income Tax Regulation describing the appropriate basis for determining the source of income from labor or personal services performed partly within and partly without the United States. This proposed regulation would modify the existing final regulation under section 861 of the Internal Revenue Code (Code). This regulation would affect foreign and United States persons that perform services partly within and partly without the United States during the taxable year. This document also provides a notice of a public hearing on this proposed regulation.

DATES: Written and electronic comments and outlines of topics to be discussed at the public hearing scheduled for April 19, 2000, must be received by March 29, 2000.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG–208254–90), 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–208254–90), 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 Reg” option on the IRS Home Page, or by submitting comments directly to the IRS Internet site at http://www.irs.gov/tax_regs/regslist.html. The public hearing will be held at 10 a.m. in room 2615, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulation, David Bergkuist of the Office of Associate Chief Counsel (International), within the Office of Chief Counsel, (202) 622-3850; concerning submission of comments, the hearing, and/or to be placed on the building access list to attend the hearing, LaNita Van Dyke (202) 6227180 (not toll free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed amendments to the Income Tax Regulations (26 CFR Part 1) under section 861 of the Internal Revenue Code (Code). These amendments modify the application of the existing final regulation relating to the determination of the source of income from the performance of labor or personal services when such labor or personal services are performed partly within and partly without the United States.

Explanation of Provisions

Section 861(a)(3) of the Code provides, in general, that compensation for the performance of labor or personal services within the United States is treated as gross income from sources within the United States. Generally, under current §1.861–4(b)(1)(i) of the Income Tax Regulations, if a specific amount is paid for labor or personal services performed in the United States, that amount shall be included in United States source gross income. If no accurate allocation or segregation of amounts paid as compensation for labor or personal services performed in the United States can be made, or when such compensation is paid for labor or personal service performed partly within and partly without the United States, this regulation provides that the amount to be included in gross income from sources within the United States shall be determined on the basis that most correctly reflects the proper source of income under the facts and circumstances of the particular case. In many cases, the facts and circumstances will be such that an apportionment on a time basis will be acceptable; that is, the amount to be included in gross income from sources

2000–6 I.R.B. 577 February 7, 2000

foreign tax purposes with respect to the source of fringe benefits associated with an overseas posting and avoid all tax on such compensation.

Treasury and the IRS have determined that an individual who performs labor or personal services partly within and partly without the United States during a specific time period should apportion the services income, including any income in the nature of fringe benefits, between compensation for labor or personal services performed within and without the United States on a time basis. The amount of compensation paid for labor or personal services performed in the United States, as determined under proposed §1.861–4(b), will constitute United States source income unless an exception applies under §1.861–4(a). A time basis test for individuals will provide certainty as well as ease of administration for both taxpayers and the IRS. A time basis test will also prevent the possibility of in-bound taxpayers taking a time basis apportionment position to apportion a portion of their United States posting fringe benefits back to their home country while similarly situated out-bound taxpayers take a facts and circumstances position to allocate all of their fringe benefits to foreign sources. This rule will also eliminate any disparate treatment of similarly situated taxpayers that might occur due to their employer’s method of wage accounting. Finally, Treasury and the IRS believe that this rule will limit the potential for individuals to take inconsistent positions for U.S. and foreign tax purposes with respect to the source of their fringe benefits and avoid all tax.

Treasury and the IRS have further determined that, with respect to persons other than an individual, an apportionment based upon all of the facts and circumstances available, for example, an apportionment based upon payroll expenses or capital and intangibles employed, may better reflect the proper source of such compensation. In many situations, an apportionment on a time basis may be acceptable.

The proposed regulation would delete as obsolete current §1.861–4(b)(2), containing rules applicable to taxable years beginning before January 1, 1976.

Proposed Effective Date

These regulations are proposed to be applicable for taxable years beginning on or after the date they are published in the Federal Register as final regulations.

Special Analyses

It has been determined that this proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. Chapter 5) does not apply to this regulation, and, because this regulation does not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. Chapter 6) do not apply. Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed rulemaking will be submitted the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Comments and Public Hearing

Before this proposed regulation is adopted as a final regulation, consideration will be given to any written comments (a signed original and eight (8) copies) and electronic comments that are submitted timely to the IRS. The IRS and Treasury Department 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 April 19, 2000, 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 10 ^th 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 March 29, 2000. 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 this regulation is David Bergkuist of the Office of Associate Chief Counsel (International), within the Office of Chief Counsel, Internal Revenue Service. However, other personnel from the IRS and Treasury Department participated in its development.

Proposed Amendments to the Regulations

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

PART 1—INCOME TAX

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

Authority: 26 U.S.C. 7805. * * * Par. 2. Section 1.861–4 is amended as follows:

The heading for paragraph (a)(1) is revised.
A new sentence is added at the beginning of paragraph (a)(1).
Paragraphs (b) and (d) are revised. The addition and revisions read as follows: §1.861–4 Compensation for labor or per- sonal services.

(a) Compensation for labor or personal services performed within the United States . (1) Generally, a specific amount paid for labor or personal services performed in the United States is gross income from sources within the United States. * * *

(b) Compensation for labor or per- sonal services performed partly within and partly without the United States (l) Persons other than individuals . If a

February 7, 2000 578 2000–6 I.R.B.

taxpayer other than an individual receives compensation for a specific time period for labor or personal services performed partly within and partly without the United States, the amount of compensation for labor or personal services performed in the United States shall be determined on the basis that most correctly reflects the proper source of the income under the facts and circumstances of the particular case. To the extent that a determination is made on a time basis, the time period to which the compensation for services relates is presumed to be the taxable year of the taxpayer in which the services are performed unless the taxpayer establishes to the satisfaction of the Commissioner, or the Commissioner determines, a change in circumstances that establishes a distinct, separate, and continuous period of time.

(2) Individuals . If an individual receives compensation, including fringe benefits, for a specific time period for labor or personal services that are performed partly within and partly without the United States, the amount of compensation for labor or personal services performed within the United States shall be determined on a time basis. An amount of compensation for labor or personal services performed in the United States determined on a time basis is an amount that bears the same relation to the total compensation as the number of days of performance of the labor or services within the United States bears to the total number of days of performance of labor or services for which the compensation payment is made. The time period to which the compensation for services relates is presumed to be the calendar year in which the services are performed, unless the taxpayer establishes to the satisfaction of the Commissioner, or the Commissioner determines, a change in circumstances that establishes a distinct, separate, and continuous period of time. For example, a transfer from a position in the United States to a foreign posting during the year would generally establish two separate time periods. However, a foreign posting that requires short-term returns to the United States to perform services for the employer would not be sufficient to establish a distinct, separate, and con

tinuous time period within the foreign posting time period. Short-term returns to the United States during the separate time period of the foreign posting would be relevant to the apportionment of compensation relating to such time period.

(3) Examples . The following examples illustrate the application of this paragraph (b):

Example 1 . Corp X, a United States corporation, receives compensation of $15,000 under a contract for services to be performed concurrently in the United States and in several foreign countries at differing rates of compensation by numerous Corp X employees during the taxable year. The employees performing services under this contract perform their services exclusively in one jurisdiction and do not work both within and without the United States during the taxable year. The payroll costs for employees performing services in the United States associated with these contract services is $2,000 out of a total contract payroll cost of $3,000. Since the employees add relatively different amounts of value to the product, a time basis test is not the best test under the facts and circumstances of this particular case. An apportionment of the income received under the contract based upon relative payroll costs would be the basis that most correctly reflects the proper source of the income. Thus, $10,000 of the compensation received under this contract will be compensation for labor or personal services performed in the United States ($15,000 x $2,000/$3,000).

Example 2 . Corp X, a United States corporation, receives compensation of $15,000 under a contract for services. Corp X is able to perform the services necessary to fulfill its obligation under the contract by assigning only three of its employees, each with the same rate of compensation, to render services both within and without the United States during the taxable year. Since the rate of compensation is the same, it can be assumed that all employees are adding the same value to the product. The total number of employee-days necessary to complete the contract is 30 days of which 10 days were spent performing services within the United States. Under these facts and circumstances, an apportionment on a time basis would be the basis that most correctly reflects the proper source of the income. The amount of compensation for labor or personal services performed in the United States will be that amount that bears the same relation to the total compensation as the number of days of performance of the labor or services within the United States bears to the total number of days of performance of labor or services for which the payment is made. Thus, $5,000 will be compensation from labor or personal services performed in the United States ($15,000 x 10/30). Example 3 . B, a nonresident alien individual, was employed by M, a domestic corporation, from March 1 to June 12 of the taxable year, a total of 104 days, for which B received compensation in the amount of $12,240. Under the contract, B was subject to call at all times by M and was in a payment status on a 7-day week basis. Pursuant to the contract, B performed services within the United States

for 59 days and performed services without the United States for 45 days. Under subparagraph (b)(2) of this section, the amount of compensation from labor or personal services performed in the United States will be determined on a time basis and equal to $6,943.85 ($12,240 x 59/104).

Example 4 . (i) A, a United States citizen, is employed by a domestic corporation. A earns an annual salary of $100,000. During the first quarter of the calendar year, A’s post of duty is in the United States and A performs services entirely within the United States during this period. A is transferred to Country X for the remaining three-quarters of the year, and, in addition to A’s annual salary, receives $75,000 in fringe benefits that relate to the foreign posting. These fringe benefits are paid separately from A’s annual salary and are specifically stated to be a housing allowance and an allowance for family home leave. Under A’s employment contract, A is required to work on a 5-day week basis, Monday through Friday. During the last three quarters of the year, A performs services 30 days in the United States and 150 days abroad.

(ii) A has $175,000 gross income for the taxable year from the performance of services. A is able to clearly establish that A’s transfer created two distinct, separate, and continuous time periods within the calendar year. Accordingly, $25,000 of the income designated as salary is attributable to the first quarter of the year (one quarter of $100,000). This amount is allocated entirely to compensation for labor or personal services performed in the United States. The balance of A’s adjusted gross income, $150,000 (which includes the $75,000 in fringe benefits that relate to the foreign posting), is compensation allocated to services performed for the final three quarters of his taxable year. During the last three quarters of the year, A’s periodic performance of services in the United States does not constitute distinct, separate, and continuous periods of time. Of this $150,000 amount, $125,000 (150/180 x $150,000) is apportioned to compensation for labor or personal services performed outside the United States, and $25,000 (30/180 x $150,000) is apportioned to compensation for labor or personal services performed in the United States.

* * * * *

(d) Effective date . Paragraphs (a) and (c) of this section apply with respect to taxable years beginning after December 31, 1966, however, the first sentence of paragraph (a)(1) applies to taxable years beginning on or after final regulations are published in the Federal Register . Paragraph (b) of this section applies to taxable years beginning on or after final regulations are published in the Federal Regis- ter . For paragraph (b) of this section and corresponding rules applicable to taxable years beginning after December 31, 1966, and before the date final regulations are published in the Federal Register, see §1.861– 4(b) in effect prior to the date final regulations are published in the Federal Register (26 CFR part 1 revised April 1, 1999). For corresponding rules applic

2000–6 I.R.B. 579 February 7, 2000

erence to interest rates, commodity prices, or other similar indices. Factors (1), (2), and (3) above will cause an instrument to be NQPS only if the right or obligation may be exercised within 20 years of the date the instrument is issued and such right or obligation is not subject to a contingency which, as of the issue date, makes remote the likelihood of the redemption or purchase.

These rights or obligations do not cause preferred stock to be NQPS in certain circumstances described in section 351(g)(2)(C). In one such exception, contained in section 351(g)(2)(C)(i)(II), a redemption or purchase right shall not cause stock to be NQPS if the stock containing the right is transferred in connection with the performance of services for the issuer or a related person (and represents reasonable compensation), and the right may be exercised only upon the holder’s separation from service.

The NQPS provisions also provide certain exceptions to the treatment of NQPS as boot. Under sections 354(a)(2)(C), 355(a)(3)(D), and 356(e)(2), NQPS is treated as stock, and not other property, in cases where the NQPS is received in exchange for, or in a distribution with respect to, NQPS. As a result, the receipt of NQPS in exchange for NQPS will not result in gain or loss recognition.

Under prior law, preferred stock generally did not constitute boot in a reorganization or in a distribution under section 355 of the Code. The legislative history of the NQPS provisions indicates that Congress was concerned about nonrecognition transactions in which a secure preferred stock instrument is received in exchange for common stock or riskier preferred stock. The committee reports state that “[c]ertain preferred stocks have been widely used in corporate transactions to afford taxpayers non-recognition treatment, even though the taxpayers may receive relatively secure instruments in exchange for relatively risky investments,” and that “[t]he Committee believes that when such preferred stock instruments are received in certain transactions, it is appropriate to view such instruments as taxable consideration, since the investor has often obtained a more secure form of investment.” H.R. Rep. No. 148, 105 ^th

Cong., 1 ^st Sess. 472 (1997); S. Rep. 33, 105 ^th Cong., 1 ^st Sess. (1997).

able to taxable years beginning before January 1, 1967, see §1.861–4 in effect prior to October 2, 1975 (26 CFR part 1 revised April 1, 1975).

Robert E. Wenzel, Deputy Commissioner

of Internal Revenue.

(Filed by the Office of the Federal Register on January 20, 2000, 8:45 a.m., and published in the issue of the Federal Register for January 21, 2000, 65 F.R. 3401)

Notice of Proposed Rulemaking and Notice of Public Hearing

Guidance Under Section 356 Relating to the Treatment of Nonqualified Preferred Stock and Other in Certain Exchanges and Distributions

REG–105089–99

AGENCY: Internal Revenue Service (IRS), Treasury.

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

SUMMARY: This document contains proposed regulations providing guidance relating to nonqualified preferred stock. The proposed regulations address the effective date of the definition of nonqualified preferred stock and the treatment of nonqualified preferred stock and similar preferred stock received by shareholders in certain reorganizations and distributions. This document also provides notice of a public hearing on these proposed regulations.

DATES: Written or electronic comments and requests to speak (with outlines of oral comments) at a public hearing scheduled for 10 a.m., May 31, 2000, must be received by May 10, 2000.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG–105089–99), 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–105089–99), 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/tax_regs/regsli st.html. The public hearing will be held in the NYU Classroom, Room 2615, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Richard E. Coss, (202) 622-7790; concerning submissions of comments, 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:

Background

This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) under sections 354, 355, 356, and 1036 of the Internal Revenue Code (the Code). Section 1014 of the Taxpayer Relief Act of 1997 (TRA of 1997), Public Law 105-34, enacted on August 5, 1997, amended sections 351, 354, 355, 356, and 1036 of the Code. As amended, these sections, in general, provide that nonqualified preferred stock (as defined in section 351(g)(2)) (NQPS) received in an exchange or distribution will not be treated as stock or securities but, instead, will be treated as “other property” or “boot.” As a result, the receipt of NQPS in a transaction occurring after the NQPS provisions are effective will, unless a specified exception applies, result in gain (or, in some instances, loss) recognition. Section 351(g)(4) provides authority to issue regulations to carry out the purposes of these provisions.

Section 351(g)(2)(A) defines NQPS as preferred stock if (1) the holder has the right to require the issuer or a related person to redeem or purchase the stock, (2) the issuer or a related person is required to redeem or purchase the stock, (3) the issuer or a related person has the right to redeem or purchase the stock and, as of the issue date, it is more likely than not that such right will be exercised, or (4) the dividend rate on the stock varies in whole or in part (directly or indirectly) with ref

February 7, 2000 580 2000–6 I.R.B.

The NQPS provisions apply to transactions after June 8, 1997, but will not apply to any transaction (1) made pursuant to a written agreement which was binding on such date and at all times thereafter, (2) described in a ruling request submitted to the IRS on or before such date, or (3) described in a public announcement or filing with the Securities and Exchange Commission on or before such date. Section 1014(f) of TRA of 1997. A temporary regulation published as T.D. 8753 (1999–9 I.R.B. 6) in the Fed- eral Register on January 6, 1998, provides that, notwithstanding contemporaneously issued final regulations treating certain rights to acquire stock as securities that can be received tax-free in reorganizations and section 355 distributions, a right to acquire NQPS received in exchange for stock other than NQPS (or for a right to acquire stock other than NQPS) will not be treated as a security, and that NQPS received in exchange for stock other than NQPS (or for a right to acquire stock other than NQPS) will not be treated as stock or a security. The temporary regulation added §1.356–6T, and applies to NQPS (or a right to acquire such stock) received in connection with a transaction occurring on or after March 9, 1998 (other than transactions described in section 1014(f)(2) of TRA of 1997).

Explanation of Provisions

The proposed regulations address three technical issues relating to the question of whether certain preferred stock instruments qualify as NQPS.

The first issue addressed by the proposed regulations is whether stock described in section 351(g)(2) that was issued in a transaction on or before June 8, 1997, qualifies as NQPS (even though the receipt of such stock would not have been boot because the transaction in which it was received occurred prior to the NQPS provisions’ effective date). Although the NQPS provisions generally are effective with respect to transactions occurring after June 8, 1997, neither the effective date provisions of section 1014(f) of TRA of 1997 nor the legislative history of the NQPS provisions addresses this issue.

The proposed regulations provide that stock described in section 351(g)(2) is NQPS regardless of the date on which the stock is issued. The IRS and Treasury be

lieve that this represents the proper interpretation of the NQPS provisions; a contrary interpretation would give rise to results that are inconsistent with other NQPS provisions and their underlying policy.

For example, assume that corporation (T) issues preferred stock described in section 351(g)(2) to shareholder (X) in 1996, and that X surrenders the T stock and receives NQPS of acquiring corporation (P) in a reorganization occurring after June 8, 1997 (when the NQPS provisions are effective). If the T preferred stock received in 1996 is not NQPS, X will recognize gain (if any) on the exchange. This result is unwarranted, because X is not receiving a more secure type of investment for a relatively risky type of investment, and exchanges of NQPS for NQPS are otherwise governed by the nonrecognition rules of sections 354, 355, and 356.

The second issue addressed by the proposed regulations is the treatment of NQPS received in a reorganization in exchange for (or in a distribution with respect to) preferred stock that is not NQPS solely because, at the time the original stock was issued, a redemption or purchase right was not exercisable until after a 20-year period beginning on the issue date, or a redemption or purchase right was exercisable within a 20-year period but was subject to a contingency which made remote the likelihood of the redemption or purchase, or, in the case of an issuer’s right to redeem or purchase stock described in section 351(g)(2)(A)(iii), was unlikely to be exercised within a 20year period beginning on the issue date (or because of any combination of these reasons). To illustrate, assume that after June 8, 1997, T issues preferred stock to X that permits the holder to require T to redeem the stock on demand, but not before the stock is held for 22 years. Assume that seven years later, the T stock is exchanged in a reorganization for P preferred stock with substantially identical terms that permits the holder to require P to redeem the stock after 15 years.

Technically, this transaction could be viewed as a taxable exchange because X is receiving P stock that meets the definition of NQPS in exchange for T stock that is not NQPS (QPS). However, the IRS and Treasury believe that nonrecognition treatment is appropriate because the P

stock represents a continuation of the original investment in the T stock.

The proposed regulations provide a rule that treats the P stock received in such transactions as QPS if the P stock is substantially identical to the T preferred stock surrendered (or the T stock on which a distribution is made). The substantially identical requirement is necessary to ensure that this rule does not permit the NQPS provisions to be circumvented through exchanges of QPS for more secure NQPS. The P stock is considered to be substantially identical to the T stock if two conditions are met. The first condition is that the P stock does not contain any terms which, in relation to the terms of the T stock, decrease the period in which a redemption or purchase right will be exercised, increase the likelihood that such a right will be exercised, or accelerate the timing of the returns from the stock instrument (including the receipt of dividends or other distributions). The second condition is that, as a result of the receipt of P stock in the transaction, the exercise of the right or obligation does not become more likely than not to occur within a 20-year period beginning on the issue date of the T stock. To illustrate the two conditions, if the P stock contains a term that permits the stock to be redeemed before the date on which the T stock could be redeemed, or if, at the time of the transaction, the T stock is not more likely than not to be redeemed within a 20-year period beginning on the issue date of the T stock but the P stock is more likely than not to be redeemed within a 20-year period beginning on the issue date of the T stock, the P stock is not substantially identical to the T stock.

Under this rule, the P stock received will continue to be treated as QPS in subsequent transactions, and similar principles will apply to those transactions. For example, if the P stock is later exchanged in a reorganization for substantially identical stock of another acquiring corporation, the acquiring corporation stock will also be treated as QPS. However, if the P stock is later exchanged for stock described in section 351(g)(2) that is not substantially identical, the receipt of the stock will be treated as boot.

The third issue addressed by the proposed regulations is how to interpret the provision that exempts from the definition

2000–6 I.R.B. 581 February 7, 2000

of NQPS certain preferred stock containing a purchase or redemption right that may only be exercised on the holder’s separation from service (compensation stock). To be exempted from the definition of NQPS under this provision, stock must be “transferred in connection with the performance of services” and must represent “reasonable compensation.” A commentator has questioned how these requirements apply in the context of a reorganization or distribution. The concern is that, when an employee of T receives P preferred stock in a reorganization in exchange for T stock of equal value, the P stock received could be considered transferred in exchange for stock (rather than for services), or could be considered not to represent reasonable compensation (because the P stock received in the equal value exchange represents no additional compensation to the employee). The legislative history of the NQPS provisions does not address these ambiguities.

cated 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 hearing 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 request to speak, and 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 May 10, 2000. 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 proposed regulations is Richard E. Coss, Office of Assistant Chief Counsel (Corporate). However, other personnel from the IRS and Treasury participated in their development.

Proposed Amendments to the Regulations

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

Part 1–INCOME TAXES

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

Authority: 26 U.S.C. 7805 * * * Section 1.354–1 also issued under 26 U.S.C. 351(g)(4).

Section 1.355–1 also issued under 26 U.S.C. 351(g)(4). * * *

Section 1.356–7 also issued under 26 U.S.C. 351(g)(4). * * *

Section 1.1036–1 also issued under 26 U.S.C. 351(g)(4). * * * Par. 2. Section 1.354–1 is amended by adding paragraph (f) as follows:

The IRS and Treasury believe that the exemption for compensation stock is intended to apply in situations where an employee previously received compensation stock and then surrenders that stock in a reorganization in exchange for new compensation stock containing a similar purchase or redemption right that can only be exercised upon separation from service. The proposed regulations provide a rule that treats the P preferred stock received in such transactions as satisfying the “transferred in connection with the performance of services” and the “reasonable compensation” requirements if the T stock surrendered (or the T stock on which a distribution is made) was originally transferred to the T employee in connection with the performance of services and represented reasonable compensation at the time of the transfer. This rule applies regardless of whether the T stock is common or preferred stock. No inference is intended regarding the meaning of the phrases “transferred in connection with the performance of services” and “reasonable compensation” for purposes other than the exemption from the definition of NQPS in section 351(g)(2)(C)(i)(II).

The proposed regulations are proposed to be effective for transactions on the date that final regulations are published in the Federal Register . Notwithstanding the prospective effective date of the proposed regulations, the IRS and Treasury believe that the regulations prescribe the proper treatment of the transactions they address, and the IRS generally will not challenge return positions consistent with the regulations. However, a transaction involving rights to acquire NQPS that occurs before the effective date of §1.356–6T will be treated in accordance with the law governing rights to acquire stock in effect at that time.

Special Analyses

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedures 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.

Comments and Public Hearing

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

A public hearing has been scheduled for May 31, 2000, beginning at 10 a.m., in the NYU Classroom, Room 2615, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, D.C. Due to building security procedures, visitors must enter at the 10 ^th Street entrance, lo

The proposed regulations also provide that the principles of the rules described above apply to transactions involving rights to acquire NQPS that are subject to §1.356–6T.

Proposed Effective Date

February 7, 2000 582 2000–6 I.R.B.

sonable compensation) within the meaning of section 351(g)(2)(C)(i)(II), if such preferred stock is received in exchange for (or in a distribution with respect to) existing stock containing a similar right or obligation (exercisable only upon separation from service) and the existing stock was transferred in connection with the performance of services for the issuer or a related person (and represented reasonable compensation when transferred). In applying the rules relating to NQPS, the preferred stock received will continue to be treated as transferred in connection with the performance of services (and representing reasonable compensation) in subsequent transactions involving such stock, and the principles of this paragraph (c) apply to such transactions.

(d) Rights to acquire stock . For purposes of §1.356–6T, the principles of paragraphs (a), (b), and (c) of this section apply.

(e) Examples . The following examples illustrate paragraphs (a), (b), and (c) of this section. For purposes of the examples in this paragraph (e), T and P are corporations, A is a shareholder of T, and, except for in Example 1, A surrenders and receives (in addition to the stock exchanged in the examples) common stock in the reorganizations described.

Example 1 . In 1995, A transfers property to T and receives T preferred stock that is described in section 351(g)(2) in a transaction under section 351. In 2002, pursuant to a reorganization under section 368(a)(1)(B), A surrenders the T preferred stock in exchange for P NQPS. Under paragraph (a) of this section, the T preferred stock issued to A in 1995 is NQPS. However, because section 351(g) does not apply to transactions occurring before June 9, 1997, the T NQPS was not “other property” within the meaning of section 351(b) when issued in 1995. Under sections 354(a)(2)(C) and 356(e)(2), the P NQPS received by A in 2002 is not “other property” within the meaning of section 356(a)(1)(B) because it is received in exchange for NQPS.

Example 2 . T issues QPS to A on January 1, 2000 that is not NQPS solely because the holder cannot require T to redeem the stock until January 1, 2022. In 2007, pursuant to a reorganization under section 368(a)(1)(A) in which T merges into P, A surrenders the T preferred stock in exchange for P preferred stock with terms that are identical to the terms of the T preferred stock, including the term that the holder cannot require the redemption of the stock until January 1, 2022. Because the P stock and the T stock have identical terms, and because the redemption did not become more likely than not to occur within the 20-year period that begins on January 1, 2000 (which is the issue date of the T preferred stock) as a result of the exchange, under paragraph (b) of this section, the P preferred stock received by A is treated as QPS. Thus, the P preferred stock received is not “other property” within

§1.354–1 Exchanges of stock and securi- ties in certain reorganizations.

(f) Nonqualified preferred stock . See §1.356–7(a) and (b) for the treatment of nonqualified preferred stock (as defined in section 351(g)(2)) received in certain exchanges for nonqualified preferred stock or preferred stock. See §1.356–7(c) for the treatment of preferred stock received in certain exchanges for common or preferred stock described in section 351(g)(2)(C)(i)(II). Par. 3. Section 1.355–1 is amended by adding paragraph (d) as follows: §1.355–1 Distributions of stock and secu- rities of a controlled corporation.

(d) Nonqualified preferred stock. See §1.356–7(a) and (b) for the treatment of nonqualified preferred stock (as defined in section 351(g)(2)) received in certain exchanges for (or in certain distributions with respect to) nonqualified preferred stock or preferred stock. See §1.356–7(c) for the treatment of the receipt of preferred stock in certain exchanges for (or in certain distributions with respect to) common or preferred stock described in section 351(g)(2)(C)(i)(II).

Par. 4. Section 1.356–7 is added to read as follows: § 1.356–7 Rules for treatment of nonqual- ified preferred stock and other preferred stock received in certain transactions.

(a) Stock issued prior to effective date . Stock described in section 351(g)(2) is nonqualified preferred stock (NQPS) regardless of the date on which the stock is issued. However, sections 351(g), 354(a)(2)(C), 355(a)(3)(D), 356(e), and 1036(b) do not apply to any transaction occurring prior to June 9, 1997, or to any transaction occurring after June 8, 1997, that is described in section 1014(f)(2) of the Taxpayer Relief Act of 1997, Public Law 105–34, 111 Stat. 788, 921.

(b) Receipt of preferred stock in ex- change for (or distribution on) substan- tially identical preferred stock —- (1) General rule. For purposes of sections 354(a)(2)(C)(i), 355(a)(3)(D), and 356(e)(2), preferred stock is not NQPS, even though it is described in section 351(g)(2), if it is received in exchange for (or in a distribution with respect to) preferred stock (the original preferred stock) that is not NQPS (QPS), provided —

(i) The original preferred stock is QPS solely because, on its issue date, a right or obligation described in clause (i), (ii), or (iii) of section 351(g)(2)(A) was not exercisable until after a 20-year period beginning on the issue date, the right or obligation was exercisable within the 20-year period beginning on the issue date but was subject to a contingency which made remote the likelihood of the redemption or purchase, or the issuer’s (or a related party’s) right to redeem or purchase the stock was not more likely than not to be exercised within a 20-year period beginning on the issue date, or because of any combination of these reasons; and

(ii) the stock received is substantially identical to the original preferred stock.

(2) Substantially identical. The stock received is substantially identical to the original preferred stock if —

(i) the stock received does not contain any term or terms which, in relation to any term or terms of the original preferred stock, decrease the period in which a right or obligation described in clause (i), (ii), or (iii) of section 351(g)(2)(A) may be exercised, increase the likelihood that such a right or obligation may be exercised, or accelerate the timing of the returns from the stock instrument, including the timing of actual or deemed dividends or other distributions received on the stock; and

(ii) as a result of the exchange or distribution, exercise of the right or obligation does not become more likely than not to occur within a 20-year period beginning on the issue date of the original preferred stock.

(3) Treatment of stock received . The stock received will continue to be treated as QPS in subsequent transactions involving such stock, and the principles of this paragraph (b) apply to such transactions as though the stock received is the original preferred stock issued on the same date as the original preferred stock.

(c) Stock transferred for services. For purposes of sections 354(a)(2)(C)(i), 355(a)(3)(D), and 356(e)(2), preferred stock containing a right or obligation described in clause (i), (ii) or (iii) of section 351(g)(2)(A) that is exercisable only upon the holder’s separation from service from the issuer or a related person (as described in section 351(g)(3)(B)) will be treated as transferred in connection with the performance of services (and representing rea

2000–6 I.R.B. 583 February 7, 2000

the meaning of section 356(a)(1)(B).

Example 3 . The facts are the same as in Example 2, except that, in addition, in 2010, pursuant to a recapitalization of P under section 368(a)(1)(E), A exchanges the P preferred stock above for P NQPS that permits the holder to require P to redeem the stock in 2020. Under paragraph (b) of this section, the P preferred stock surrendered by A is treated as QPS. Because the P preferred stock received by A in the recapitalization is not substantially identical to the P preferred stock surrendered, the P preferred stock received by A is not treated as QPS. Thus, the P preferred stock received is “other property” within the meaning of section 356(a)(1)(B).

Example 4 . T issues preferred stock to A on January 1, 2000 that permits the holder to require T to redeem the stock on January 1, 2018, or at any time thereafter, but which is not NQPS solely because, as of the issue date, the holder’s right to redeem is subject to a contingency which makes remote the likelihood of redemption on or before January 1, 2020. In 2007, pursuant to a reorganization under section 368(a)(1)(A) in which T merges into P, A surrenders the T preferred stock in exchange for P preferred stock with terms that are identical to the terms of the T preferred stock. Immediately before the exchange, the contingency to which the holder’s right to cause redemption of the T stock is subject makes remote the likelihood of redemption before January 1, 2020, but the P stock, although subject to the same contingency, is more likely than not to be redeemed before January 1, 2020. Because, as a result of the exchange of T stock for P stock, the exercise of the redemption right became more likely than not to occur within the 20-year period beginning on the issue date of the T preferred stock, the P preferred stock received by A is not substantially identical to the T stock surrendered, and is not treated as QPS. Thus, the P preferred stock received is “other property” within the meaning of section 356(a)(1)(B).

Example 5 . The facts are the same as in Example 4, except that, immediately before the merger of T into P in 2007, the contingency to which the holder’s right to cause redemption of the T stock is subject makes it more likely than not that the T stock will be redeemed before January 1, 2020. Because exercise of the redemption right did not become more likely than not to occur within the 20-year period beginning on the issue date of the T preferred stock as a result of the exchange, the P preferred stock received by A is substantially identical to the T stock surrendered, and is treated as QPS. Thus, the P preferred stock received is not “other property” within the meaning of section 356(a)(1)(B).

Example 6 . A is an employee of T. In connection with A’s performance of services for T, T transfers to A in 2000 an amount of T common stock that represents reasonable compensation. The T common stock contains a term granting A the right to require T to redeem the common stock, but only upon A’s separation from service from T. In 2005, pursuant to a reorganization under section 368(a)(1)(A) in which T merges into P, A receives, in exchange for A’s T common stock, P preferred stock granting a similar redemption right upon A’s separation from P’s service. Under paragraph (c) of this section, the P preferred stock received by A is treated as transferred in connection with the performance of services (and representing reasonable compensation) within the meaning of section 351(g)(2)(C)(i)(II).

Thus, the P preferred stock received by A is QPS.

(f) Effective dates . This section applies to transactions occurring on or after the date these regulations are published as final regulations in the Federal Register .

Par. 5. Section 1.1036–1 is amended by adding paragraph (d) as follows: §1.1036–1 Stock for stock of the same corporation.

(d) Nonqualified preferred stock . See §1.356–7(a) for the applicability of the definition of nonqualified preferred stock in section 351(g)(2) for stock issued prior to June 9, 1997, and for stock issued in transactions occurring after June 8, 1997, that are described in section 1014(f) of the Taxpayer Relief Act of 1997, Public Law 105–34, 111 Stat. 788, 921.

(Filed by the Office of the Federal Register on January 21, 2000, 8:45 a.m., and published in the issue of the Federal Register for January 26, 2000, 65 F.R. 4203)

Notice of Proposed Rulemaking and Notice of Public Hearing

Stock Transfer Rules: Supplemental Rules

REG–116048–99

AGENCY: Internal Revenue Service (IRS), Treasury.

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

SUMMARY: This document proposes, by cross-reference to temporary regulations, amendments to the final regulations concerning the Federal tax treatment of certain exchanges subject to section 367(b) of the Internal Revenue Code (Code). The temporary regulations, T.D. 8863, provide an election for certain taxpayers engaged in certain exchanges described in section 367(b). The temporary regulations provide guidance for taxpayers that make the specified election in order to determine the extent to which income must be included and certain corresponding adjustments must be made. The text of the temporary regulations also serves as the text of the proposed regulations. This

Robert E. Wenzel, Deputy Commissioner

of Internal Revenue.

document also provides notice of a public hearing on the proposed regulations.

DATES: Written comments must be received by April 24, 2000. Requests to speak (with outlines of oral comments) at the public hearing scheduled for April 20, 2000, must be submitted by March 31, 2000.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG–116048–99), room 5228, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. In the alternative, submissions may be hand delivered between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG–116048–99), 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 of the IRS Home Page, or by submitting comments directly to the IRS Internet site at: http://www.irs.ustreas.gov/prod/tax_regs/ regslist.html. The public hearing will be held in room 2615, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Mark D. Harris, (202) 622-3860 (not a toll-free number); concerning submissions and the hearing, Guy Traynor, (202) 622-7180 (not a toll-free number).

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 Management 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 March 24, 2000. Comments are specifically requested concerning:

February 7, 2000 584 2000–6 I.R.B.

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 §1.367(b)–3(b)(4). This information is required to properly make an election to include an amount in income that is different than the inclusion currently required under §1.367(b)–3 of the final regulations. This information will be used to verify proper compliance with the section 367(b) regulations, including that the election provided herein was made and that the required adjustments will be made by all parties to the section 367(b) transaction. The collection of information is mandatory. The likely respondents are businesses or other for-profit institutions.

Estimated total annual reporting burden: 85 hours.

Estimated average annual burden hours per respondent: 4 hours, 15 minutes.

Estimated number of respondents: 20 Estimated annual frequency of responses: once

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

Background

T.D. 8863 on page 488 amends the Income Tax Regulations (26 CFR part 1) re

lating to section 367(b). The temporary regulations contain rules that provide an election for certain taxpayers engaged in certain exchanges described in section 367(b). The text of those temporary regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains the proposed regulations.

Proposed Effective Date

Except as otherwise specified, these regulations are proposed to apply to section 367(b) exchanges that occur on or after January 24, 2000.

Special Analyses

It has been determined that these regulations are not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It is hereby certified that the collection of information contained 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 number of section 367(b) exchanges that require reporting under these regulations is estimated to be only 20 per year. 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 Code, these proposed regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (preferably a signed original and eight (8) copies) that are submitted timely to the IRS. The IRS and Treasury request comments on the clarity of the proposed regulation 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 April 20, 2000, beginning at 10 a.m., in room 2615, Internal Revenue Building, 1111 Constitution Avenue NW., Washing

ton, DC. Because of access restrictions, visitors will not be admitted beyond the Internal Revenue Building lobby more than 15 minutes before the hearing starts.

The rules of 26 CFR 601.601(a)(3) apply to the hearing.

Persons that wish to present oral comments at the hearing must submit timely written comments and an outline of the topics to be discussed and the time to be devoted to each topic by (preferably a signed original and eight (8) copies) March 31, 2000. However, comments not to be presented at the hearing must be submitted by April 24, 2000.

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 Mark Harris of the Office of Associate Chief Counsel (International). However, other personnel from the IRS and Treasury Department participated in their development.

Proposed Amendments to the Regulations

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

Income taxes, Reporting and recordkeeping requirements.

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 1.367(b)–3 is amended by adding paragraph (b)(4) to read as follows: §1.367(b)–3 Repatriation of foreign cor- porate assets in certain nonrecognition transactions.

(b) * * * (4) [The text of this proposed addition is the same as the text of §1.367(b)–3T(b)(4) published in T.D.8863].

2000–6 I.R.B. 585 February 7, 2000

Department are undertaking a review of the mortality tables used to determine current liability under § 412( l )(7)(C) of the Code and section 302(d)(7)(C) of ERISA. As part of the review, the Service and the Treasury Department will take into account studies of mortality of individuals covered by defined benefit pension plans. The review also includes an analysis of projected trends in mortality of individuals covered by defined benefit pension plans.

Accordingly, interested parties are invited to submit any studies of mortality, any studies of trends in mortality, or any information with respect to such studies that they believe to be relevant to individuals covered by defined benefit pension plans. Furthermore, interested parties are invited to submit written comments concerning the mortality table or tables to be used for determining current liability for plan years beginning after December 31, 1999. The studies, information, or comments should be sent to Commissioner of Internal Revenue, Attention: T:EP:RA:T:A1, Washington, D.C. 20224.

If the review indicates that a change in mortality tables is appropriate, the Service and the Treasury Department will propose regulations. The Service and the Treasury Department anticipate that in no event would there be any change in the mortality tables for plan years beginning before January 1, 2001.

Foundations Status of Certain Orgainzations

Announcement 2000–8

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.

John M. Dalrymple, Acting Deputy Commissioner

of Internal Revenue.

was to establish separate tables for individuals whose disabilities occur in plan years beginning before January 1, 1995, and for individuals whose disabilities occur in plan years beginning on or after such date.

Except as provided in section 412( l )(7)(C)(iii) of the Code and section 302(d)(7)(C)(iii) of ERISA, relating to disabled lives, Rev. Rul. 95–28, 1995–1 C.B. 74, sets forth the mortality table to be used under Section 412( l )(7)(C)(ii)(I) of the Code and section 302(d)(7)(C)(ii)(I) of ERISA for plan years beginning after December 31, 1994. Rev. Rul. 95–28 also requested written comments concerning the mortality table to be used for determining current liability for plan years beginning after December 31, 1999, and information on existing or upcoming independent studies of mortality of individuals covered by pension plans.

Rev. Rul. 96–7, 1996–1 C.B. 59, sets forth the alternative mortality tables that may be used under § 412( l )(7)(C)(iii) of the Code and section 302(d)(7)(C)(iii) of ERISA to determine a plan’s current liability for individuals who are entitled to benefits under the plan on account of disability.

Section 412( l )(7)(C)(ii)(III) of the Code and section 302(d)(7)(C)(ii)(III) of ERISA provide that the Secretary shall periodically (at least every 5 years) review any tables in effect under these sections and, to the extent the Secretary determines necessary, by regulation update the mortality tables used to determine current liability. Section 412( l )(7)(C)(ii)(II) of the Code and section 302(d)(7)(C)(ii)(II) of ERISA provide that the updated tables are to be based upon the actual experience of pension plans and projected trends in such experience, and that in prescribing such tables, the Secretary is to take into account results of available independent studies of mortality of individuals covered by pension plans. Section 412( l )(7)(C)(ii)(II) of the Code and section 302(d)(7)(C)(ii)(II) of ERISA also provide that the updated tables may not be effective until the first plan year beginning after December 31, 1999.

Review

As required by § 412( l )(7)(C)(ii)(III) of the Code and section 302(d)(7)(C)(ii)(III) of ERISA, the Internal Revenue Service and the Treasury

(Filed by the Office of the Federal Register on January 21, 2000, 8:45 a.m., and published in the issue of the Federal Register for January 24, 2000, 65 F.R. 3629)

Update of Mortality Tables

Announcement 2000–7

The Internal Revenue Service and the Treasury Department are undertaking a review of the mortality table in effect under § 412( l )(7)(C) of the Internal Revenue Code (the Code) and section 302(d)(7)(C) of the Employee Retirement Income Security Act of 1974 (ERISA).

Background

Section 412( l ) of the Code and section 302(d) of ERISA provide additional funding requirements for certain defined benefit pension plans. The additional funding requirements for a plan are in part based upon the current liability under a plan as defined in § 412( l )(7) of the Code and section 302(d)(7) of ERISA. Section 412( l )(7)(C) of the Code and section 302(d)(7)(C) of ERISA provide for the interest rate and mortality table to be used to determine the current liability of a plan.

Section 412( l )(7)(C) of the Code and section 302(d)(7)(C) of ERISA provide that the mortality table used in determining current liability shall be prescribed by the Secretary of the Treasury. Section 412( l )(7)(C)(ii)(I) of the Code and section 302(d)(7)(C)(ii)(I) of ERISA provide that the initial mortality table is to be based on the prevailing commissioners’ standard table (described in § 807(d)(5)(A) of the Code) used to determine reserves for group annuity contracts issued on January 1, 1993. Section 412( l )(7)(C)(iii) of the Code and section 302(d)(7)(C)(iii) of ERISA provide that, in the case of plan years beginning after December 31, 1995, the Secretary shall establish mortality tables which may be used (in lieu of the tables under§ 412( l )(7)(C)(ii) of the Code and section 302(d)(7)(C)(ii) of ERISA) to determine current liability for individuals who are entitled to benefits under the plan on account of disability. The Secretary

February 7, 2000 586 2000–6 I.R.B.

Madison Rotary Club Foundation, Inc.,

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: 1-12 Club, Baton Rouge, LA Abounding Love Christian Ministries,

Brown Deer, WI Affirming Life, Inc., Oklahoma City, OK Affordable Housing Corporation, Chicago,

IL Agape Community Arts Center, Cayce, SC A.L. Brown Outreach Foundation,

Takoma Park, MD Covington County Art Association,

Association, Elkhorn, NE Eugene/Springfield/Bethel Education

Foundation, Eugene, OR Flipper Temple Institutional Outreach

Seminary, MS The D & N Institute, Oakland, CA Danville Lions Foundation, Inc., Danville,

Roseland, NJ MAK Foundation, Inc., Montebello, CA Marshall County Sheriff’s Posse,

Plymouth, IN M & M Community Development, Inc.,

VA Dialogue Toward Change, Inc.,

Framingham, MA Dr. Morris Smoller Social Service Fund,

New York, NY Eastern Virginia Breastfeeding Taskforce,

Nashville, TN Multicultural Journalism Consortium, Inc.,

Schererville, IN My Iran, Inc., Beaverton, OR My Sisters Keeper, Seagoville, TX National Hispanic Youth Organization, San

Norfolk, VA Elkhorn American Legion Baseball

Antonio, TX New Day, Inc., Des Moines, IA New Direction Outreach, Mound Bayou,

MS New Federalist Foundation, Salt Lake City,

Jackson, MS Alexandria Outreach Inc., Pineville, LA Amazing Grace Ministries, Youngstown,

Ministry, Inc., Atlanta, GA Fort Dale Pioneer Settlement, Inc.,

OH American Institute of Mathematics,

Palo Alto, Ca Amesbury Youth Music Supporters,

New York, NY Foundation of the Interreligious Council of

Central New York, Syracuse, NY Fowler Center for Wildlife Education, Inc. New Canaan, CT Frends/Funding Resources in Education

Amesbury, MA Another Way, Inc., Acme, PA Arts for Hearts, Inc., Sacramento, CA Bees Incorporated, New York, NY Black Research Organization, Inc.,

Milwaukee, WI Blast Intermediate Unit 17 Educational

Greenville, AL Foundation of the Burns Archive, Inc.,

UT New Life for All, Inc., Eustis, FL New Life Praise Temple Ministries, Inc.,

Savannah, GA New Mexico Foundation for Educational

of Shelters, San Francisco, CA OSHO Neeraj Meditation Center, Inc.,

Niskayuna, NY Outreach Ministry for Singles, Inc.,

Excellence, Albuquerque, NM New York Kunsthalle, Inc., New York, NY Operation One Warm Coat Plus—Children

Enhancement Foundation, Williamsport, PA Board of Trustees for People with

Developmental Disabilities Inc., Bronx, NY Bondservant Ministries, Inc., Katy, TX Build and Design for Charities, Inc. A

Needs and Directional Solutions, Inc., Tucson, AZ Friends of Francis W. Gregory Jr. High

Greenwood, SC Healing Institute for Jobs Recovery

School Foundation, New Orleans, LA Friends of Luke, Glendale, AZ Greenwood Stop the Violence Committee,

Newark, NY Philadelphia Center for Complementary

Medicine, Philadelphia, PA Pioneer Civic Services, Inc. Peoria, IL Project Scivias Hildegardis, San Francisco,

Delaware Corporation, Glendora CA Capital City Transit Coalition, Gahanna,

OH Carlos Mantilla Ortega Foundation, Inc.,

CA Promotion of Education in Pakistan

Washington, DC RNC, Inc., Dallas, TX Salon De Fleurus, Inc., New York, NY Sandwich Islands Mission Outreach,

Honolulu, HI Seawind Initiative, Inc., Cotuit, MA Serving Christ Ministry, St. Paul, MN Shamrock Foundation, Portland, OR Shofar Broadcasting Corp c/o James R.

Baltimore, MD Causa-Peru, East Hartford, CT Center for Alcohol Policy and Prevention,

Foundation, Inc., Staten Island, NY Ra’Hel House, Columbus, OH Reaching Out to Others Through Services,

Syracuse, NY Challenger Space Education Foundation,

Santa Clara, CA Christian Buddies, Wyoming, MI City of Tolleson Community Development

Block Grant Corporation, Tolleson, AZ Clowns on Rounds, Inc., Albany, NY Coalition for the Advancement of Regional

Academics and Housing, Mt. View, CA Heartbeat Enterprises, Prescott, AZ Heavenbound, Inc., Reno, NV Holden Youth Sports, Inc., Worchester,

MA Home Street Home, Clayton, NC ILC Industries Foundation, Inc., Bohemia,

NY International Children Care, Houston, TX The Jamani/Tanawake Project, Fairfield,

CA J & L Center Stage Incorporated, Danville,

Anchorage, AK Latin American Educational Association

for Health Care, Boston, MA Lincoln Crawford, Cincinnati, Oh Living Potential, Inc., Binghampton, NY Local 144 Hospital & Health Facilities

Foundation, Medinah, IL Snadpiper Medical Foundation, Palo Alto,

CA Sons of the American Revolution Patriotic

CA Koanig Educational Foundation,

Jenkins, Charleston, WV Shree Kapilaben Ramanlal Patel

and Educational Foundation, Inc., Atlanta, GA Sullivan Center Foundation for Children,

Transportation, Inc., Louisville, KY Coastal Villages Investment Fund,

Anchorage, AK Columbia-Marion County Development

Foundation, Inc., Columbia, MS Community Recovery House of Kansas,

Education Fund, New York, NY Los Angeles County Bomberos, Inc.,

Fresno, CA

Kansas City, MO Comtemporary Music Forum, Inc.,

Monterey Park, CA

2000–6 I.R.B. 587 February 7, 2000

Texas Medical Assistance and

Development, Houston, TX Tullywinney Arts and Education Fund,

We Stop the Tears, Sun City, AZ Wooster Family Housing Corporation,

Inc., Helena, MT United Interfaith Council, Chicago, IL University Community Hospital Specialty

Akron, OH Yonose Foundation, Tucson, AZ

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.

Care, Inc., Tampa, FL Village Oaks Community Association,

Eugene, OR Wayne Group Home Corporation,

Hackensack, NJ

February 7, 2000 588 2000–6 I.R.B.