Part I. Rulings — Internal Revenue Bulletin 2001-9

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information contained in these final regulations have been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507) under control number 1545–1639. Responses to these collections of information are mandatory.

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

The estimated annual burden per respondent varies from .5 hour to 5 hours, depending on individual circumstances, with an estimated average of 1 hour.

Comments concerning the accuracy of these burden estimates and suggestions for reducing these burdens should be sent to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S:O, Washington, DC 20224, and 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.

Books or records relating to this 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

On December 20, 1999, the IRS published proposed regulations (REG–106012–98, 2000–2 I.R.B. 290) in the Federal Register (64 F.R. 71082) inviting comments under section 118(c). A public hearing was held April 27, 2000. Numerous comments have been received. After consideration of all the comments, the proposed regulations are adopted as revised by this Treasury decision.

Summary of Comments

Under section 118(a), gross income does not include any contribution to the

Section 56.—Adjustments in Computing Alternative Minimum Taxable Income

This Rev. Rul. announces that the earnings and profits of a corporate employer are reduced to reflect the deduction the corporation takes when an employee receives stock upon exercise of a nonstatutory stock option. Because this item reduces earnings and profits, § 56(g)(4)(C)(i) does not disallow the deduction of the item in computing adjusted current earnings for purposes of alternative minimum tax. See Rev. Rul. 2001–1, page 726.

Section 61.—Gross Income Defined

26 CFR 1.61–1: Gross income.

Must payments made or received with respect to floor stocks be accounted for as adjustments to the invoice price or production cost of the goods physically held on the floor stocks date to which the payments relate, rather than as an adjustment to the tax basis (carrying value) of those goods. See Rev. Rul. 2001–8, page 726.

26 CFR 1.61–21: Taxation of fringe benefits.

This procedure provides the maximum value of employer-provided automobiles first made available to employees for personal use in calendar year 2001 for which the vehicle cents-per-mile valuation rule provided under § 1.61–21(e) of the Income Tax Regulations may be applicable. See Rev. Proc. 2001–19, page 732.

Section 83.—Property Transferred in Connection With Performance of Services

26 CFR 1.83–6: Deduction by employer.

Section 111.—Recovery of Tax Benefit Items

26 CFR 1.111–1: Recovery of certain items previously deducted or credited.

Must payments made or received with respect to floor stocks be accounted for as adjustments to the

invoice price or production cost of the goods physically held on the floor stocks date to which the payments relate, rather than as an adjustment to the tax basis (carrying value) of those goods. See Rev. Rul. 2001–8, page 726.

Section 118.—Contributions to the Capital of a Corporation

26 CFR 1.118–2: Contribution in aid of construction.

T.D. 8936

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 602

Definition of Contribution in Aid of Construction Under Section 118(c)

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations concerning an exclusion from gross income for a contribution in aid of construction under section 118(c) that is treated as a contribution to capital under section 118(a). The final regulations affect a regulated public utility that provides water or sewerage services because a qualifying contribution in aid of construction is treated as a contribution to the capital of the utility and excluded from gross income. The final regulations provide guidance on the definition of a contribution in aid of construction, the adjusted basis of any property acquired with a contribution in aid of construction, the information relating to a contribution in aid of construction required to be furnished by the utility, and the time and manner for providing that information to the IRS.

DATES: Effective Date : These regulations are effective January 11, 2001.

Date of Applicability : For date of applicability of §1.118–2, see §1.118–2(f).

FOR FURTHER INFORMATION CONTACT: Paul Handleman, (202) 622-3040 (not a toll-free number).

February 26, 2001 720 2001–9 I.R.B.

Rev. Rul. 75–557 (1975–2 C.B. 33), and the proposed regulations under former section 118(b) (43 F.R. 22997 (May 30, 1978)). Moreover, the IRS and Treasury Department continue to believe that the exclusion of connection and service lines from a nontaxable contribution in aid of construction is more consistent with the judicial and regulatory interpretation of a contribution in aid of construction and with the Supreme Court’s directive that exclusions be narrowly construed. See, for example, Edwards v. Cuba R.R., 268 U.S. 628 (1925) (IV-2 C.B. 122); Detroit Edison Co. v. Commissioner, 319 U.S. 98 (1943) (1943 C.B. 1019); Chicago, Burlington & Quincy R.R., 412 U.S. at 401; Florida Progress Corp. v. United States, No. 93–246–CIV–T–25A (M.D. Fla. July 2, 1998), appeal docketed, No. 99–15389–FF (11th Cir. Dec. 29, 1999); Commissioner v. Schleier, 515 U.S. 323, 328 (1995); and Rev. Rul. 75–557. As explained by the court in Teco Energy, Inc. v. Unites States, No. 98–430–Civ–J–TJC (M.D. Fla. Oct. 21, 1999), “former [section] 118(b) codifies the principles of Edwards that payments made by a government or other group to a utility to encourage the extension of facilities into new areas benefitting a large number of people are given tax free status, while also affirming the reasoning of Detroit Edison and Revenue Ruling 75-557, that payments made by an individual or business entity to a utility as a prerequisite to receiving water or sewage services would be treated as taxable income to the utility.” Further, the IRS and Treasury Department believe that the definition of a contribution in aid of construction used for regulatory accounting purposes should not control for tax purposes. See, for example, Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 541–45 (1979) (1979–1 C.B. 167). Accordingly, the final regulations retain the exclusion of connection and service lines from the definition of a nontaxable contribution in aid of construction.

Some commentators state that, before the proposed regulations were published, some utilities took the position that payments for connection and service lines were not taxable and did not charge their contributors a sufficient amount to cover

capital of the taxpayer. Section 118(c)(1) provides that a contribution to the capital of a taxpayer includes any amount of money or other property received from any person (whether or not a shareholder) by a regulated public utility that provides water or sewerage disposal services if the amount is a contribution in aid of construction, satisfies the expenditure rule, and is not included in rate base for ratemaking purposes. Pursuant to the authority granted to the Secretary under section 118(c)(3)(A), the proposed regulations define a contribution in aid of con- struction as any amount of money or other property contributed to a regulated public utility that provides water or sewerage disposal services to the extent that the purpose of the contribution is to provide for the expansion, improvement, or replacement of the utility’s water or sewerage disposal facilities.

Customer Connection Fees

The proposed regulations define nontaxable contributions in aid of construction to exclude customer connection fees. Customer connection fees are defined in the proposed regulations to include amounts paid for the cost of installing a connection or service line (including the cost of meters and piping) from the utility’s main lines to the lines owned by the customer, unless the connection or service line serves, or is designed to serve, more than one customer. Customer connection fees also are defined in the proposed regulations to include any amounts paid as service charges for starting or stopping services.

Several commentators contend that connection and service lines should not be treated as taxable customer connection fees for a number of reasons. For example, these commentators argue that the omission from the current law of the language included in former section 118(b)(3)(A) that directed the Secretary to define a contribution in aid of construction to exclude amounts paid to connect the customer’s line to a main water or sewer line signals congressional intent to include connection and service lines in the definition of a nontaxable contribution in aid of construction. In addition, some of these commentators believe that the inclusion of connection and ser

vice lines as taxable customer connection fees is inconsistent with the judicial interpretation of a contribution in aid of construction, which arguably would treat contributions for main lines and connection and service lines as taxable prerequisites for services under the Supreme Court’s decision in United States v. Chicago, Burlington & Quincy R.R., 412 U.S. 401 (1973) (1973–2 C.B. 428). Some of these commentators also contend that the exclusion of connection and service lines from the definition of a nontaxable contribution in aid of construction is inconsistent with regulatory accounting treatment, which does not distinguish between main lines and connection and service lines for purposes of classifying property or for purposes of ratemaking. Finally, a few of these commentators point out that the inclusion of connection and service lines as taxable customer connection fees will result in customers being required to gross-up their contributions of connection and service lines for taxes, increasing the cost of housing and development and creating a competitive disadvantage for investor-owned utilities.

The IRS and Treasury Department do not agree with the commentators’ position with respect to connection and service lines. As explained in the preamble to the proposed regulations, the inclusion of connection and service lines in the definition of taxable customer connection fees is consistent with the legislative history explanation that section 118(c) was intended to restore the contribution in aid of construction provision of former section 118(b) that was repealed by The Tax Reform Act of 1986 for regulated public utilities that provide water or sewerage disposal services. H.R. Conf. Rep. No. 737, 104th Cong., 2d Sess. 316 (1996) (1996–3 C.B. 741, 1056). While the language regarding the definition of a contribution in aid of construction did change from the language in former section 118(b), Congress did not explicitly include connection and service lines in the definition of a contribution in aid of construction but instead directed the Secretary to define a contribution in aid of construction, presumably aware of the IRS’ and Treasury Department’s position that connection and service lines are taxable customer connection fees based on

2001–9 I.R.B. 721 February 26, 2001

their tax liabilities. The IRS and Treasury Department understand that there was uncertainty before the proposed regulations were published and that some utilities may have reasonably interpreted section 118(c)(3)(A) to mean that connection and service lines should not be treated as taxable. It is clear that these final regulations apply to money and other property received on or after January 11, 2001, and do not apply to transactions entered into prior to that date. In addition, the IRS will take into account all the facts and circumstances in applying section 118(c) to such transactions.

Commentators suggest that customer connection fees relating to services provided to public authorities, such as schools, hospitals, public libraries, and governmental entities, should be included in the definition of nontaxable contributions in aid of construction because these services provide a broad public benefit. In addition, commentators recommend that customer connection fees relating to fire protection services should qualify as nontaxable contributions in aid of construction because a utility receives no revenue for public fire protection services and only a nominal standby fee for private fire protection services. The IRS and Treasury Department believe that, regardless of whether the activities of public authorities provide a public benefit, connection and service lines that serve these customers should be treated in the same manner as connection or service lines to any paying customer — as a prerequisite for services. Consequently, the final regulations continue to treat amounts paid for connection and service lines with respect to public authorities as customer connection fees. However, the IRS and the Treasury Department agree with commentators that amounts paid with respect to fire protection services should not be considered customer connection fees.

Several commentators suggest that connection and service lines that serve more than one user, such as lines for apartment houses, condominium projects, shopping malls, and office buildings, should be considered to serve more than one customer and, thus, be excluded from taxable customer connection fees, regardless of

whether the utility treats the facility as one customer or many. The final regulations do not adopt this suggestion because whether connection or service lines are designed to serve more than one customer does not depend on the number of users but upon the number of customers. Thus, for example, if a water or sewerage disposal utility treats an apartment or office building as one utility customer, then the cost of connecting the utility’s main lines to the connection or service lines serving that single customer is a taxable customer connection fee.

Binding Agreement Rule

The proposed regulations provide that if a water or sewerage disposal facility is placed in service by the utility before an amount is contributed to the utility, the contribution is not a nontaxable contribution in aid of construction unless, at the time the facility is placed in service by the utility, there is an agreement, binding under local law between the prospective contributor and the utility, that the utility is to receive the amount as reimbursement for the cost of acquiring or constructing the facility.

Commentators suggest that the binding agreement rule should be expanded to include enforceable public utility commission orders and tariffs. The final regulations adopt this suggestion by treating an order or a tariff, issued or approved by the applicable public utility commission, that requires a current or prospective customer to reimburse the utility for the cost of acquiring or constructing the facility as a binding agreement. Because public utility commission orders or tariffs may be issued or approved before or after the facility is placed in service, the final regulations also extend the time for entering into a binding agreement or the issuance or approval of an order or a tariff to no later than 82 months after the close of the taxable year (the usual due date with extensions for a taxpayer’s return) in which the facility is placed in service.

One commentator suggests adding an example demonstrating that payments made pursuant to a binding agreement qualify as a contribution in aid of construction under section 118(c). The final regulations adopt this suggestion.

Basis Rules

The proposed regulations provide that the basis of a water or sewerage facility acquired or constructed with a contribution under a binding agreement must be reduced by the amount of the contribution at the time the facility is placed in service. Several commentators suggest that if the receipt of all of the expected contributions under the agreement occurs more than one or two years after a facility is placed in service, the utility should be permitted to claim the full cost of the facility as basis for depreciation purposes, subject to adjustment as the contributions are received. The final regulations do not adopt this comment because section 118(c)(4) disallows any depreciation deductions for a water or sewerage disposal facility that is fully paid with a nontaxable contribution in aid of construction under section under section 118(c). This result is consistent with similar rules that either exclude expected contributions from basis or deny a deduction to the extent the taxpayer has a right to, or reasonable prospect of, reimbursement. See, for example, §1.110–1(b)(4)(ii)(B); §1.165–1(d)(2)(i); and Rev. Rul. 79–263 (1979–2 C.B. 82).

The proposed regulations provide that, if a contribution in aid of construction treated as a contribution to the capital of the taxpayer is repaid to the contributor, either in whole or in part, then the repayment amount is a capital expenditure in the taxable year in which it is paid or incurred, resulting in an increase in the property’s adjusted basis in such year. A couple of commentators suggest that the repayment should be depreciated over the remaining life of the property. The final regulations adopt this suggestion.

Reporting Requirement

The proposed regulations provide that a taxpayer treating a contribution in aid of construction as a contribution to capital must file a statement with its tax returns to report the amount of the contribution in aid of construction the taxpayer: (1) expended during the taxable year for property described in section 118(c)(2)(A) (qualified property); (2) does not intend to expend for qualified

February 26, 2001 722 2001–9 I.R.B.

property; and (3) failed to expend for qualified property. Several commentators express concern that the reporting requirement in the proposed regulations exceeds the intent of the statute because section 118(c)(2)(C) only requires the maintenance of adequate records. However, section 118(d)(1) provides that if the taxpayer for any taxable year treats an amount as a contribution to the capital of the taxpayer described in section 118(c), then the statutory period for the assessment of any deficiency attributable to any part of the amount does not expire before the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may prescribe) of the amount of the expenditure referred to in section 118(c)(2)(A), of the taxpayer’s intention not to make the expenditures referred to in section 118(c) (2)(A), or of a failure to make the expenditure within the period described in section 118(c)(2)(B). Thus, the regulations do not impose an additional reporting requirement but merely provide the time and manner in which taxpayers must notify the Secretary under section 118(d)(1) of amounts treated as contributions in aid of construction.

Collection of Information under Paperwork Reduction Act

Two comments were sent to OMB on the collection of information contained in the proposed regulations, with copies of the comments sent to the IRS Reports Clearance Officer. The commentators estimate that complying with the recordkeeping requirements of section 118(c) (2)(C) involves more hours and that the number of respondents is greater than estimated. The collection of information burden under the proposed regulations is based only upon the time for notifying the IRS of the required information under section 118(d)(1) and is not required to include the time for maintaining accurate books and records. Thus, the individual time to comply with the collection of information burden was not increased to reflect these commentators concerns. However, the estimated number of annual respondents has been increased to 300 and the estimated total annual reporting burden has been increased to 300 hours.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collection of information in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based upon the fact that any burden on taxpayers is minimal. Accordingly, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Drafting Information

The principal author of these regulations is Paul F. Handleman, Office of the Associate Chief Counsel (Passthroughs and Special Industries), IRS. However, other personnel from the IRS and Treasury Department participated in their development.

Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 602 are 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 in part as follows:

Authority: 26 U.S.C. 7805 * * * Section 1.118–2 also issued under 26 U.S.C. 118(c)(3)(A); * * * Par. 2. Section 1.118–2 is added to read as follows:

§1.118–2 Contribution in aid of construction.

(a) Special rule for water and sewer- age disposal utilities —(1) In general .

For purposes of section 118, the term contribution to the capital of the tax- payer includes any amount of money or other property received from any person (whether or not a shareholder) by a regulated public utility that provides water or sewerage disposal services if—

(i) The amount is a contribution in aid of construction under paragraph (b) of this section;

(ii) In the case of a contribution of property other than water or sewerage disposal facilities, the amount satisfies the expenditure rule under paragraph (c) of this section; and

(iii) The amount (or any property acquired or constructed with the amount) is not included in the taxpayer’s rate base for ratemaking purposes.

(2) Definitions —(i) Regulated public utility has the meaning given such term by section 7701(a)(33), except that such term does not include any utility which is not required to provide water or sewerage disposal services to members of the general public in its service area.

(ii) Water or sewerage disposal facili- ty is defined as tangible property described in section 1231(b) that is used predominately (80% or more) in the trade or business of furnishing water or sewerage disposal services.

(b) Contribution in aid of construc- tion —(1) In general . For purposes of section 118(c) and this section, the term contribution in aid of construction means any amount of money or other property contributed to a regulated public utility that provides water or sewerage disposal services to the extent that the purpose of the contribution is to provide for the expansion, improvement, or replacement of the utility’s water or sewerage disposal facilities.

(2) Advances . A contribution in aid of construction may include an amount of money or other property contributed to a regulated public utility for a water or sewerage disposal facility subject to a contingent obligation to repay the amount, in whole or in part, to the contributor (commonly referred to as an advance). For example, an amount received by a utility from a developer to construct a water facility pursuant to an agreement under which the utility will pay the developer a

2001–9 I.R.B. 723 February 26, 2001

percentage of the receipts from the facility over a fixed period may constitute a contribution in aid of construction. Whether an advance is a contribution or a loan is determined under general principles of federal tax law based on all the facts and circumstances. For the treatment of any amount of a contribution in aid of construction that is repaid by the utility to the contributor, see paragraphs (c)(2)(ii) and (d)(2) of this section.

(3) Customer connection fee —(i) In general . Except as provided in paragraph (b)(3)(ii) of this section, a customer connection fee is not a contribution in aid of construction under this paragraph (b) and generally is includible in income. The term customer connection fee includes any amount of money or other property transferred to the utility representing the cost of installing a connection or service line (including the cost of meters and piping) from the utility’s main water or sewer lines to the line owned by the customer or potential customer. A customer connection fee also includes any amount paid as a service charge for starting or stopping service.

(ii) Exceptions —(A) Multiple cus- tomers . Money or other property contributed for a connection or service line from the utility’s main line to the custome’s or the potential customer’s line is not a customer connection fee if the connection or service line serves, or is designed to serve, more than one customer. For example, a contribution for a split service line that is designed to serve two customers is not a customer connection fee. On the other hand, if a water or sewerage disposal utility treats an apartment or office building as one utility customer, then the cost of installing a connection or service line from the utility’s main water or sewer lines serving that single customer is a customer connection fee.

(B) Fire protection services . Money or other property contributed for public and private fire protection services is not a customer connection fee.

(4) Reimbursement for a facility previ- ously placed in service —(i) In general . If a water or sewerage disposal facility is placed in service by the utility before an amount is contributed to the utility, the contribution is not a contribution in aid of construction under this paragraph (b) with

respect to the cost of the facility unless, no later than 82 months after the close of the taxable year in which the facility was placed in service, there is an agreement, binding under local law, that the utility is to receive the amount as reimbursement for the cost of acquiring or constructing the facility. An order or tariff, binding under local law, that is issued or approved by the applicable public utility commission requiring current or prospective utility customers to reimburse the utility for the cost of acquiring or constructing the facility, is a binding agreement for purposes of the preceding sentence. If an agreement exists, the basis of the facility must be reduced by the amount of the expected contributions. Appropriate adjustments must be made if actual contributions differ from expected contributions.

(ii) Example . The application of paragraph (b)(4)(i) of this section is illustrated by the following example:

Example . M, a calendar year regulated public utility that provides water services, spent $1,000,000 for the construction of a water facility that can serve 200 customers. M placed the facility in service in 2000. In June 2001, the public utility commission that regulates M approves a tariff requiring new customers to reimburse M for the cost of constructing the facility by paying a service availability charge of $5,000 per lot. Pursuant to the tariff, M expects to receive reimbursements for the cost of the facility of $100,000 per year for the years 2001 through 2010. The reimbursements are contributions in aid of construction under paragraph (b) of this section because no later than 82 months after the close of the taxable year in which the facility was placed in service there was a tariff, binding under local law, approved by the public utility commission requiring new customers to reimburse the utility for the cost of constructing the facility. The basis of the $1,000,000 facility is zero because the expected contributions equal the cost of the facility.

(5) Classification by ratemaking authority . The fact that the applicable ratemaking authority classifies any money or other property received by a utility as a contribution in aid of construction is not conclusive as to its treatment under this paragraph (b).

(c) Expenditure rule —(1) In general . An amount satisfies the expenditure rule of section 118(c)(2) if the amount is expended for the acquisition or construction of property described in section 118(c)(2)(A), the amount is paid or incurred before the end of the second taxable year after the taxable year in which the amount was received as required by

section 118(c)(2)(B), and accurate records are kept of contributions and expenditures as provided in section 118(c)(2)(C).

(2) Excess amount —(i) Includible in the utility’s income . An amount received by a utility as a contribution in aid of construction that is not expended for the acquisition or construction of water or sewerage disposal facilities as required by paragraph (c)(1) of this section (the excess amount) is not a contribution to the capital of the taxpayer under paragraph (a) of this section. Except as provided in paragraph (c)(2)(ii) of this section, such excess amount is includible in the utility’s income in the taxable year in which the amount was received.

(ii) Repayment of excess amount . If the excess amount described in paragraph (c)(2)(i) of this section is repaid, in whole or in part, either—

(A) Before the end of the time period described in paragraph (c)(1) of this section, the repayment amount is not includible in the utility’s income; or

(B) After the end of the time period described in paragraph (c)(1) of this section, the repayment amount may be deducted by the utility in the taxable year in which it is paid or incurred to the extent such amount was included in income.

(3) Example . The application of this paragraph (c) is illustrated by the following example:

Example . M, a calendar year regulated public utility that provides water services, received a $1,000,000 contribution in aid of construction in 2000 for the purpose of constructing a water facility. To the extent that the $1,000,000 exceeded the actual cost of the facility, the contribution was subject to being returned. In 2001, M built the facility at a cost of $700,000 and returned $200,000 to the contributor. As of the end of 2002, M had not returned the remaining $100,000. Assuming accurate records are kept, the requirement under section 118(c)(2) is satisfied for $700,000 of the contribution. Because $200,000 of the contribution was returned within the time period during which qualifying expenditures could be made, this amount is not includible in M’s income. However, the remaining $100,000 is includible in M’s income for its 2000 taxable year (the taxable year in which the amount was received) because the amount was neither spent nor repaid during the prescribed time period. To the extent M repays the remaining $100,000 after year 2002, M would be entitled to a deduction in the year such repayment is paid or incurred.

(d) Adjusted basis —(1) Exclusion from basis . Except for a repayment described in paragraph (d)(2) of this section, to the extent that a water or sewerage

February 26, 2001 724 2001–9 I.R.B.

disposal facility is acquired or constructed with an amount received as a contribution to the capital of the taxpayer under paragraph (a) of this section, the basis of the facility is reduced by the amount of the contribution. To the extent the water or sewerage disposal facility is acquired as a contribution to the capital of the taxpayer under paragraph (a) of this section, the basis of the contributed facility is zero.

(2) Repayment of contribution . If a contribution to the capital of the taxpayer under paragraph (a) of this section is repaid to the contributor, either in whole or in part, then the repayment amount is a capital expenditure in the taxable year in which it is paid or incurred, resulting in an increase in the property’s adjusted basis in such year. Capital expenditures allocated to depreciable property under paragraph (d)(3) of this section may be depreciated over the remaining recovery period for that property.

(3) Allocation of contributions . An amount treated as a capital expenditure under this paragraph (d) is to be allocated proportionately to the adjusted basis of each property acquired or constructed with the contribution based on the relative cost of such property.

(4) Example . The application of this paragraph (d) is illustrated by the following example:

Example . A, a calendar year regulated public utility that provides water services, received a $1,000,000 contribution in aid of construction in 2000 as an advance from B, a developer, for the purpose of constructing a water facility. To the extent that the $1,000,000 exceeds the actual cost of the facility, the contribution is subject to being returned. Under the terms of the advance, A agrees to pay to B a percentage of the receipts from the facility over a fixed period, but limited to the cost of the facility. In

2001, A builds the facility at a cost of $700,000 and returns $300,000 to B. In 2002, A pays $20,000 to B out of the receipts from the facility. Assuming accurate records are kept, the $700,000 advance is a contribution to the capital of A under paragraph (a) of this section and is excludable from A’s income. The basis of the $700,000 facility constructed with this contribution to capital is zero. The $300,000 excess amount is not a contribution to the capital of A under paragraph (a) of this section because it does not meet the expenditure rule described in paragraph (c)(1) of this section. However, this excess amount is not includible in A’s income pursuant to paragraph (c)(2)(ii) of this section since the amount is repaid to B within the required time period. The repayment of the $300,000 excess amount to B in 2001 is not treated as a capital expenditure by A. The $20,000 payment to B in 2002 is treated as a capital expenditure by A in 2002 resulting in an increase in the adjusted basis of the water facility from zero to $20,000.

(e) Statute of limitations —(1) Exten- sion of statute of limitations . Under section 118(d)(1), the statutory period for assessment of any deficiency attributable to a contribution to capital under paragraph (a) of this section does not expire before the expiration of 3 years after the date the taxpayer notifies the Secretary in the time and manner prescribed in paragraph (e)(2) of this section.

(2) Time and manner of notification . Notification is made by attaching a statement to the taxpayer’s federal income tax return for the taxable year in which any of the reportable items in paragraphs (e)(2)(i) through (iii) of this section occur. The statement must contain the taxpayer’s name, address, employer identification number, taxable year, and the following information with respect to contributions of property other than water or sewerage disposal facilities that are subject to the expenditure rule described in paragraph (c) of this section—

(i) The amount of contributions in aid of construction expended during the taxable year for property described in section 118(c)(2)(A) (qualified property) as required under paragraph (c)(1) of this section, identified by taxable year in which the contributions were received;

(ii) The amount of contributions in aid of construction that the taxpayer does not intend to expend for qualified property as required under paragraph (c)(1) of this section, identified by taxable year in which the contributions were received; and

(iii) The amount of contributions in aid of construction that the taxpayer failed to expend for qualified property as required under paragraph (c)(1) of this section, identified by taxable year in which the contributions were received.

(f) Effective date . This section is applicable for any money or other property received by a regulated public utility that provides water or sewerage disposal services on or after January 11, 2001.

PART 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Par. 3. The authority citation for part 602 continues to read as follows: Authority: 26 U.S.C. 7805. Par. 4. In §602.101, paragraph (b) is amended by adding an entry to the table in numerical order to read as follows:

§602.101 OMB Control numbers.

(b) * * *

CFR part or section where Current OMB identified and described control No.

1.118–2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–1639

* * * * *

Robert E. Wenzel, Deputy Commissioner

of Internal Revenue.

Approved December 20, 2000.

Jonathan Talisman, Acting Assistant Secretary

of the Treasury .

(Filed by the Office of the Federal Register on January 10, 2001, 8:45 a.m., and published in the issue of the Federal Register for January 11, 2001, 66 F.R. 2252)

Section 280F.—Limitation on Depreciation for Luxury Automobiles; Limitation Where

Certain Property Used for Personal Purposes

26 CFR 1.280F–7: Property leased after December 31, 1986.

This procedure provides owners and lessees of passenger automobiles (including electric automo

2001–9 I.R.B. 725 February 26, 2001

biles) with tables detailing the limitations on depreciation deductions for automobiles first placed in service during calendar year 2001 and the amounts to be included in income for automobiles first leased during calendar year 2001. See Rev. Proc. 2001–19, page 732.

Section 312.—Effect on Earnings and Profits

26 CFR 1.312–6: Earnings and profits. (Also §§ 56, 83; § 1.83–6.)

E & P adjustments on exercise of option. This revenue ruling announces that the earnings and profits of a corporate employer are reduced to reflect the deduction the corporation takes when an employee receives stock upon exercise of a nonstatutory stock option.

Rev. Rul. 2001–1

If a corporation transfers stock upon exercise of an option that was granted in connection with the performance of services and to which § 421 of the Internal Revenue Code does not apply (a nonstatutory stock option), and the option did not have a readily ascertainable fair market value at the time of grant, the earnings and profits of the service recipient are reduced by the amount of the deduction allowed to the service recipient under §§ 83(h) and 162 by reason of such exercise. Because this item reduces earnings and profits, § 56(g)(4)(C)(i) does not disallow the deduction of the item in computing adjusted current earnings for purposes of alternative minimum tax.

The principal author of this revenue ruling is Russell P. Subin of the Office of Associate Chief Counsel (Corporate). For further information regarding this revenue ruling, contact Mr. Subin at (202) 6227790 (not a toll-free call).

Section 446.—General Rule for Methods of Accounting

26 CFR 1.446–1: General rule for methods of accounting.

What are the procedures for a taxpayer subject to the jurisdiction of the Large and Mid-Size Business Division (LMSB) of the Service to request the examination of specific issues relating to a tax return before the return is timely filed and to obtain an LMSB Pre-Filing Agreement with respect to that issue. See Rev. Proc. 2001–22, page 745.

Section 471.—General Rule for Inventories

26 CFR 1.471–3: Inventories at cost. (Also §§ 61, 111, 472; 1.472–2.)

Rev. Rul. 2001–8

ISSUE

What is the proper method of accounting for payments made or received with respect to “floor stocks”?

BACKGROUND

A floor stocks provision, which applies to a designated type of goods held in inventory (floor stocks) on a particular date (the “floor stocks date”), is sometimes enacted in conjunction with a tax, change in tax rate, or subsidy that is imposed upon similar goods purchased or produced on or after that date. The purpose of a floor stocks provision is to ensure that all goods sold on or after the floor stocks date are subjected to the same total amount of tax or subsidy, regardless of whether the items sold were goods held as floor stocks on the floor stocks date or goods purchased or produced after that date. This equal treatment is achieved by imposing with respect to goods held on the floor stocks date an amount, to be either paid or received, that will serve to eliminate any differential in total tax or subsidy that would otherwise exist relative to goods subsequently purchased or produced.

The Internal Revenue Service, in two previous revenue rulings, has addressed the proper tax treatment of payments received with respect to floor stocks. Rev. Rul. 88–95, 1988–2 C.B. 28, and Rev. Rul. 85–30, 1985–1 C.B. 20, generally provide that payments received with respect to floor stocks should be treated as either an item of gross income or a reduction in inventory, depending on whether the cost of the goods to which the payments relate remains in ending inventory under the taxpayer’s cost flow assumption. However, questions continue to arise about how the “goods to which the payments relate” should be determined, particularly when the last-in, first-out (LIFO) inventory method is used.

The purpose of this revenue ruling is to clarify that payments made or received with respect to floor stocks must be accounted for as adjustments to the invoice

price or production cost of the goods physically held on the floor stocks date to which the payments relate, rather than as an adjustment to the tax basis (carrying value) of those goods. This revenue ruling also provides, for costing purposes, an optional simplifying assumption for LIFO taxpayers regarding identification of the goods physically held on the floor stocks date to which the floor stocks payments relate.

LAW

Section 471(a) of the Internal Revenue Code provides that inventories must be taken on such basis as the Secretary may prescribe as conforming as nearly as may be to the best accounting practice in the trade or business and as most clearly reflecting income.

Section 1.471–3 of the Income Tax Regulations provides rules for determining the cost of merchandise on hand at the beginning of the taxable year and the cost of merchandise purchased or produced since the beginning of the taxable year.

Section 472(a) provides that taxpayers may use the LIFO method of inventorying goods in accordance with such regulations as the Secretary may prescribe as necessary in order that the use of such method may clearly reflect income.

Section 472(b) and § 1.472–1 require taxpayers using the LIFO inventory method to treat goods remaining on hand at the close of the taxable year as being: first, those included in the opening inventory of the taxable year, in the order of acquisition and to the extent thereof; and second, those acquired during the taxable year. Section 472(b) and § 1.472–2 require taxpayers using the LIFO method to inventory their goods at cost.

Section 263A(a) provides, in the case of property that is inventory in the hands of the taxpayer, that the direct costs and an allocable share of the indirect costs (including taxes) of the property must be included in inventory costs.

Section 1.263A–1(e)(3)(i) provides that indirect costs are properly allocable to property produced or property acquired for resale when the costs directly benefit or are incurred by reason of the performance of production or resale activities.

Section 1.263A–2(a)(3)(iii) provides that producers must capitalize all indirect costs incurred subsequent to completion of production that are properly allocable to the property produced.

February 26, 2001 726 2001–9 I.R.B.

under the taxpayer’s inventory cost flow assumption increase gross income, consistent with operation of the tax benefit rule as illustrated in Turtle Wax, 43 T.C. at 466. For taxpayers using a LIFO inventory method, this treatment ensures that payments made or received with respect to floor stocks do not affect historical LIFO cost increments that contain the cost of unrelated goods.

Similarly, to the extent that the cost of the goods associated with the floor stocks payments remains in ending inventory under the taxpayer’s inventory cost flow assumption, payments made (or received) with respect to floor stocks increase (or decrease) ending inventory. For taxpayers using a LIFO inventory method, payments made or received with respect to floor stocks affect ending inventory only when one or more LIFO cost increments that remain in ending inventory, as computed under § 472(b) and § 1.472–1, include the cost of the goods physically held on the floor stocks date. For taxpayers using a FIFO inventory method, payments made or received with respect to floor stocks generally are included in cost of goods sold and not ending inventory because the goods physically held on the floor stocks date to which the payments relate usually do not remain in FIFO inventory at the end of the year.

Mohawk Liqueur was decided on grounds of consistency in inventory practice and did not address the issue considered in this revenue ruling, i.e., the proper method of accounting for floor stocks taxes under a particular inventory cost flow assumption.

EXAMPLES

The following four examples illustrate the proper income tax accounting treatment of payments made and received with respect to floor stocks:

Example 1 . X files returns on a calendar year basis using an accrual method of accounting and the double-extension, dollar-value LIFO method of inventorying goods. X has only one item, Product 1, in its dollar-value LIFO pool. The federal excise tax on Product 1 decreases on January 1, 2000, from 10¢ to 8¢ per unit. Simultaneously, a floor stocks provision is implemented that entitles merchants holding Product 1 in inventory on January 1, 2000, upon which an excise tax of 10¢ per unit had previously been paid, to a refund of 2¢ per unit. X held 10,000 units of Product 1 on January 1, 2000, and received an associated $200 excise tax refund in 2000. The 10,000 units of Product 1 that X physically held on January 1, 2000, were purchased in 1999. X ’s December 31, 1999, LIFO inventory consists of a

Section 61(a) provides generally that gross income means all income from whatever source derived.

Rev. Rul. 85–30 addresses the income tax treatment of payments received by a retail dealer of highway vehicle tires as a reimbursement of federal excise taxes previously paid with respect to floor stocks of certain tires held on the floor stocks date. Rev. Rul. 85–30 holds that the excise tax reimbursement should be treated as a reduction in ending inventory to the extent that it relates to tires the cost of which remains in ending inventory. Rev. Rul. 85–30 further holds that the excise tax reimbursement should be treated as an item of gross income to the extent that it relates to tires the cost of which does not remain in ending inventory and has been included in cost of goods sold.

income to the extent that the taxpayer had derived a tax benefit related to the payment of such taxes from deductions taken in prior years.

ANALYSIS

The inventory accounting rules generally require a taxpayer to first determine the cost of goods purchased or produced during a taxable year and then to allocate that cost between goods sold during that taxable year and goods that remain in ending inventory based on the taxpayer’s inventory cost flow assumption. See §§ 1.471–3 and 1.263A–1(c)(1).

Payments made with respect to floor stocks ( e.g., taxes) represent an inventoriable cost of the goods to which the payments relate under §§ 471 and 263A. See § 263A(a). Similarly, payments received with respect to floor stocks ( e.g., tax refunds or subsidy payments) represent a reduction in the purchase price or production cost of the goods giving rise to the payments. See Rev. Rul. 85–30; Rev. Rul. 88–95. Thus, consistent with the requirements of §§ 1.471–3 and 1.263A–1, payments made or received with respect to floor stocks must be accounted for as adjustments to the cost of the goods physically held on the floor stocks date to which the payments relate. “Cost” for this purpose means invoice price or production cost. The resultant effect on either gross income or inventory depends on the extent to which the cost of the goods physically held on the floor stocks date remains in ending inventory. Whether the cost of the goods physically held on the floor stocks date remains in ending inventory is determined by applying the taxpayer’s inventory cost flow assumption ( e.g., LIFO, first-in, first-out (FIFO), or a specific-goods method) to identify the particular costs that are deemed to be contained in ending inventory. See Rev. Rul. 85–30; Rev. Rul. 88–95. Therefore, to the extent that the cost of the goods associated with the floor stocks payments has been included in cost of goods sold under the taxpayer’s inventory cost flow assumption, payments made (or received) with respect to floor stocks increase (or decrease) cost of goods sold. However, payments received that relate to goods the cost of which has been included in cost of goods sold in a previous year

Rev. Rul. 88–95 addresses the income tax treatment of two types of payments received by a textile manufacturer that were attributable to domestically produced raw cotton that was either held as of a specific date ( i.e., floor stocks) or purchased subsequent to that date. Rev. Rul. 88–95 holds that both types of payments should be treated as a reduction in the inventory cost of the cotton giving rise to the payments to the extent that the cost is deemed to remain in inventory at the date the payments are accrued under the taxpayer’s method of accounting. Rev. Rul. 88–95 further holds that the payments should be treated as an item of gross income to the extent that the cost of the cotton giving rise to the payments is deemed to have been relieved from inventory and accounted for through cost of goods sold as of the date the payments are accrued under the taxpayer’s method of accounting.

Mohawk Liqueur Corp. v. United States, 324 F.2d 241 (6th Cir. 1963), cert. denied, 377 U.S. 905 (1964), addressed the specific question of whether the taxpayer, a manufacturer of alcoholic beverages, could deduct floor stocks taxes on distilled spirits instead of including them in inventory in accordance with its previous practice. The court held that consistency in inventory practice is required. As a result, the taxpayer was not allowed to deviate from its prior practice of including floor stocks taxes in inventory.

Turtle Wax, Inc. v. Commissioner, 43 T.C. 460 (1965), held that refunds of federal excise taxes on watches were taxable

2001–9 I.R.B. 727 February 26, 2001

1995 LIFO cost increment that includes the cost of 3,000 units of Product 1 and a 1999 LIFO cost increment that contains the cost associated with an additional 7,000 units. These 1995 and 1999 increments remain in X ’s 2000 LIFO ending inventory.

X must account for the $200 excise tax refund in 2000 as follows: The $200 refund represents a reduction in the invoice price of the 10,000 units of Product 1 purchased in 1999 and held on January 1, 2000. Of these 10,000 units, only the cost of 7,000 units remains in X ’s 2000 ending inventory under X ’s LIFO inventory cost flow assumption as part of a 1999 increment; thus, $140 of the $200 refund (7,000/10,000 x $200 = $140) is allocated to these units, resulting in a $140 decrease in 2000 ending inventory. ($140 must be subtracted from the current-year cost of the 1999 LIFO cost increment and the index ( i.e., the ratio of total current-year cost to total base-year cost) for the 1999 increment would be recalculated). The cost of the remaining 3,000 of these 10,000 units was included in cost of goods sold in 1999 under X ’s LIFO inventory cost flow assumption. Thus, $60 of the refund (3,000/10,000 x $200 = $60) must be included in gross income in 2000.

Example 2 . Y files returns on a calendar year basis using an accrual method of accounting and the double-extension, dollar-value LIFO method of inventorying goods. A floor stocks provision is implemented on July 1, 2000, that entitles merchants holding Product 2 in inventory on that date to receive inventory protection (subsidy) payments of $1 per unit. Y held 50,000 units of Product 2 on July 1, 2000, and received an associated $50,000 inventory protection payment in 2000. The 50,000 units of Product 2 that Y physically held on July 1, 2000, were purchased in 2000. The cost of these units does not remain in Y ’s 2000 LIFO ending inventory, which consists of 1996, 1997, and 1998 LIFO cost increments. Y must include the entire $50,000 inventory protection payment as a decrease in 2000 cost of goods sold because the cost of the associated goods was included in 2000 cost of goods sold and thus does not remain in 2000 ending inventory under Y ’s LIFO inventory cost flow assumption.

Example 3. Z files returns on a calendar year basis using an accrual method of accounting and the doubleextension, dollar-value LIFO method of inventorying goods. Z has only one item, Product 3, in its dollarvalue LIFO pool. The federal excise tax on Product 3 increases on January 1, 2000, from 6¢ to 10¢ per unit. Simultaneously, a floor stocks tax provision is implemented that requires producers holding Product 3 in inventory on January 1, 2000, upon which an excise tax of 6¢ per unit had previously been paid, to pay an additional excise tax of 4¢ per unit. Z has 100,000 units of Product 3 on hand on January 1, 2000, and pays the additional excise tax of $4,000 in 2000. The 100,000 units of Product 3 that Z physically held on January 1, 2000, were produced in 1999 and subjected to a 6¢ per unit excise tax in 1999. Z ’s December 31, 1999, LIFO inventory consists of LIFO cost increments from 1990, 1993, and 1996. The cost of these 100,000 units does not remain in Z ’s 2000 LIFO ending inventory because Z did not add a LIFO cost increment in 1999.

Z must include the entire $4,000 floor stocks tax in cost of goods sold in 2000 because the production cost of the associated goods was included in cost of goods sold in 1999 and thus does not remain in 2000 ending inventory under Z ’s LIFO inventory cost flow assumption.

Example 4 . The facts are the same as Example 3, except that the cost of 60,000 of the 100,000 units of Product 3 that Z produced in 1999 and physically held on January 1, 2000, is included in a 1999 LIFO cost increment. The cost of these 60,000 units remains in Z ’s 2000 LIFO ending inventory because Z did not have an inventory decrement in 2000.

Z must account for the $4,000 floor stocks tax in 2000 as follows: $2,400 must be assigned as an increase in the production cost of the 60,000 units held on January 1, 2000, that were produced in 1999 the cost of which remains in 2000 ending inventory under Z ’s LIFO inventory cost flow assumption as part of a 1999 LIFO cost increment (60,000/100,000 x $4,000 = $2,400). This adjustment results in an increase in 2000 ending inventory ($2,400 must be added to the currentyear cost of the 1999 LIFO cost increment and the index ( i.e., the ratio of total current-year cost to total base-year cost) for the 1999 increment would be recalculated). The remaining $1,600 of the floor stocks tax must be included in cost of goods sold in 2000 because the production cost of the 40,000 units of Product 3 produced in 1999 with which it is associated was included in 1999 cost of goods sold and thus does not remain in 2000 ending inventory under Z ’s LIFO inventory cost flow assumption.

HOLDING

Payments made or received with respect to floor stocks must be accounted for as adjustments to the invoice price or production cost of the goods physically held on the floor stocks date to which the payments relate. Payments made or received with respect to floor stocks affect inventory valuation only to the extent that the invoice price or production cost of the goods on hand that gave rise to the payments has not been included in cost of goods sold but remains in ending inventory under the taxpayer’s inventory cost flow assumption. Payments made or received with respect to floor stocks affect gross income to the extent that the invoice price or production cost of the goods on hand that gave rise to the payments has been included in cost of goods sold and thus is not included in ending inventory under the taxpayer’s inventory cost flow assumption.

SIMPLIFYING ASSUMPTION REGARDING GOODS ON HAND

Identification of the goods that were physically held on the floor stocks date may be unduly burdensome for some taxpayers, particularly LIFO taxpayers with large inventories of fungible goods. As a matter of administrative convenience, the Service will permit LIFO taxpayers to assume that the goods physically held on the floor stocks date are those most recently purchased or produced. This

simplifying assumption for payments made or received with respect to floor stocks is a method of accounting that must be applied on a consistent basis and used only for the purpose of identifying the goods physically held on the floor stocks date for costing purposes.

PROSPECTIVE APPLICATION

Pursuant to the authority contained in § 7805(b) of the Code, the conclusions in this revenue ruling will not be applied adversely to challenge a consistent treatment by taxpayers of payments made or received with respect to floor stocks on or before February 26, 2001.

CHANGE IN METHOD OF ACCOUNTING

A change to comply with this revenue ruling is a change in method of accounting to which the provisions of § 446 and the regulations thereunder apply. A taxpayer wanting to change its method of accounting to conform with the holding in this revenue ruling or to elect the simplifying assumption must follow the automatic change in accounting method provisions of Rev. Proc. 99–49, 1999–2 C.B. 725 (or its successor), provided the change is made for the first taxable year in which payments are made or received with respect to floor stocks subsequent to February 26, 2001, with the following modifications: (1) the scope limitations in section 4.02 of Rev. Proc. 99–49 do not apply (if the taxpayer is under examination, before an appeals office, or before a federal court with respect to any income tax issue, the taxpayer must provide a copy of the Form 3115, Application for Change in Accounting Method, to the examining agent, appeals officer, or counsel for the government, as appropriate, at the same time that it files the copy of the Form 3115 with the national office); (2) in lieu of the label required by section 6.02(3) of Rev. Proc. 99–49, a taxpayer should write “Filed pursuant to Rev. Rul. 2001–8” at the top of its Form 3115; (3) the change in method of accounting to comply with the holding in this revenue ruling is to be made using a cut-off method relative to payments made or received with respect to floor stocks on or before February 26, 2001 ( see section 2.06 of Rev. Proc. 99–49); (4) a taxpayer should clearly

February 26, 2001 728 2001–9 I.R.B.

indicate on its Form 3115 or in an attachment thereto if it is electing to use the simplifying assumption to identify the goods physically held on the floor stocks date for costing purposes.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 85–30 is clarified to reflect that the reimbursement of excise taxes is treated as a reduction in the invoice price of the tires physically held on the floor stocks date.

Rev. Rul. 88–95 is clarified to reflect that the inventory protection payments are treated as a reduction in the invoice price of the cotton physically held on the floor stocks date.

Rev. Proc. 99–49 is modified and amplified to include this automatic change in section 9 of the APPENDIX.

DRAFTING INFORMATION

The principal author of this revenue ruling is Alan J. Tomsic of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Mr. Tomsic at (202) 622-4970 (not a toll-free call).

Section 472.—Last-in, First-out Inventories

26 CFR 1.472–2: Requirements incident to adoption and use of LIFO inventory method.

Must payments made or received with respect to floor stocks be accounted for as adjustments to the invoice price or production cost of the goods physically held on the floor stocks date to which the payments relate, rather than as adjustment to the tax basis (carrying value) of those goods. See Rev. Rul. 2001–8, page 726.

Section 482.—Allocation of Income and Deductions Among Taxpayers

Section 1001.—Determination of Amount of and Recognition of Gain or Loss

26 CFR 1.1001–3: Modification of debt instruments.

The revenue procedure, which modifies and supersedes Rev. Proc. 99–18, provides for an elec

tion that will allow taxpayers to treat a debt substitution, in certain circumstances, as a realization event even though it does not result in a significant modification under section 1.1001–3 of the Income Tax Regulations. See Rev. Proc. 2001–21, page 742.

Section 1275.—Other Definitions and Special Rules

26 CFR 1.1275–2: Special rules relating to debt instruments.

The revenue procedure, which modifies and supersedes Rev. Proc. 99–18, provides for an election that will allow taxpayers to treat a debt substitution, in certain circumstances, as a realization event even though it does not result in a significant modification under section 1.1001–3 of the Income Tax Regulations. See Rev. Proc. 2001–21, page 742.

Section 7121.—Closing Agreements

26 CFR 301.7121–1: Closing agreements.

2001–9 I.R.B. 729 February 26, 2001