Part I. Rulings — Internal Revenue Bulletin 2001-46

erson, 310 U.S. 554, 561–62 (1940).

A § 311(e) election confers tax benefits on the electing taxpayer (a holding period that begins after December 31, 2000, and a step-up in basis), but it imposes a tax cost as well (current recognition of gain resulting from any existing appreciation in the asset). Exclusion of the gain from the deemed sale would frustrate this balancing of benefits and burdens. For this reason, the statutory requirement that gain be recognized “notwithstanding any other provision” of the Code necessarily precludes application of the exclusion from gross income under § 121, or else the intended consequences of the mandated recognition (taxation of the gain) would be prevented. The legislative history of the § 311(e) election is consistent with this conclusion. “If the election is made, any gain is recognized (and any loss disallowed).” H.R. Conf. Rep. No. 220, 105th Cong., 1st Sess. 383 (1997)

HOLDING

If an individual elects under § 311(e) of TRA 97 to treat the individual’s principal residence as being both sold and reacquired on January 1, 2001, for an amount equal to its fair market value on that date, the individual cannot exclude from gross income under § 121 any of the gain resulting from the deemed sale.

DRAFTING INFORMATION

The principal author of this revenue ruling is Amy Pfalzgraf of the Office of the Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Ms. Pfalzgraf at (202) 622-7900 (not a tollfree call).

Section 42.—Low-Income Housing Credit

Low-income housing credit; satisfac- tory bond; “bond factor” amounts for the period October through December 2001. This ruling announces the monthly bond factor amounts to be used by taxpayers who dispose of qualified low-income buildings or interests therein during the period October through December

Section 1(h).—Maximum Capital Gains Rate

(Also: § 121)

Gross income; sale of principal resi- dence. If an individual elects under section 311(e) of the Tax Reform Act of 1997 to treat the individual’s principal residence as being both sold and reacquired on January 1, 2001, for an amount equal to its fair market value on that date, the individual cannot exclude from gross income under section 121 of the Code any of the gain from the deemed sale.

Rev. Rul. 2001–57

ISSUE

If an individual elects under § 311(e) of the Taxpayer Relief Act of 1997 (“TRA 97”), 1997–4 (Vol. 1) C.B. 1, 49-50, to treat the individual’s principal residence as being both sold and reacquired on January 1, 2001, for an amount equal to its fair market value on that date (“§ 311(e) election”), can the individual exclude from gross income under § 121 of the Internal Revenue Code any of the gain resulting from the deemed sale?

FACTS

A makes a § 311(e) election with respect to A ’s principal residence on A ’s federal income tax return for the year including January 1, 2001. On January 1, 2001, the residence had a fair market value that was $250,000 greater than A ’s basis. If, on that date, A had actually sold the residence for its fair market value, § 121 would have entitled A to exclude from gross income the full $250,000 of gain realized on the sale.

LAW AND ANALYSIS

Under § 121, a taxpayer may exclude from gross income up to $250,000 ($500,000 in the case of certain jointly filed returns) of gain realized on the sale or exchange of property, if that property was owned and used as the taxpayer’s principal residence for an aggregate period of two years or more during the 5year period ending on the date of the sale or exchange. The full exclusion is available only once every two years.

Under § 1(h)(1), gain resulting from the sale or exchange of most capital assets is taxed at a capital gains rate of 20 percent (10 percent for gain otherwise taxed at an ordinary rate of 15 percent or less).

Section 1(h)(2) provides reduced capital gains rates for qualified 5-year gain, generally defined in § 1(h)(9) as “the aggregate long-term capital gain from property held for more than 5 years.” Section 1(h)(2)(B) provides that the 20-percent capital gains rate is reduced to 18 percent for qualified 5-year gain resulting from the sale or exchange of property with a holding period beginning after December 31, 2000. Section 311(e) of TRA 97 allows a noncorporate taxpayer holding a capital asset on January 1, 2001, to elect to treat that asset as having been both sold and reacquired on that date for an amount equal to its fair market value. Thus, if the election is made, the holding period for the asset begins after December 31, 2000, making the asset eligible for the 18-percent rate if it is later sold when the taxpayer has a holding period of more than five years in the asset. Section 311(e)(2)(A) of TRA 97 provides, “Any gain resulting from [a § 311(e) election] shall be treated as received or accrued on the date the asset is treated as sold . . . and shall be recognized notwithstanding any provision of the . . . Code.”

Pursuant to A ’s § 311(e) election, A is deemed to have both sold and reacquired A ’s principal residence for an amount equal to its fair market value on January 1, 2001. As stated above, § 121 would entitle A to exclude from gross income gain from an actual sale. Thus, the question presented is how to reconcile the requirement that the gain from the deemed sale be “recognized notwithstanding any other provision” of the Code and the mandate in § 121 that “[g]ross income shall not include gain” from a qualifying sale or exchange of a principal residence.

In interpreting an internal revenue statute, it is necessary to infer legislative intent from all of the facts and circumstances. These factors include the role that the provision at issue plays in the structure of the internal revenue law, the statutory language, and all relevant legislative history. See U.S. v. Amer. Trucking Ass’ns, 310 U.S. 534, 542–45 (1940); U.S. v. Dick-

November 13, 2001 488 2001–46 I.R.B.

This ruling also provides a summary of the bond factor amounts for dispositions occurring during the period January through September 2001.

Rev. Rul. 2001–53

In Rev. Rul. 90–60 (1990–2 C.B. 4), the Internal Revenue Service provided guidance to taxpayers concerning the general methodology used by the Treasury Department in computing the bond factor amounts used in calculating the amount of bond considered satisfactory by the Secretary under § 42(j)(6) of the

Internal Revenue Code. It further announced that the Secretary would publish in the Internal Revenue Bulletin a table of “bond factor” amounts for dispositions occurring during each calendar month.

Rev. Proc. 99–11 (1999–1 C.B. 275) established a collateral program as an alternative to providing a surety bond for taxpayers to avoid or defer recapture of the low-income housing tax credits under § 42(j)(6). Under this program, taxpayers may establish a Treasury Direct Account and pledge certain United States Treasury securities to the Internal Revenue Service

as security.

This revenue ruling provides in Table 1 the bond factor amounts for calculating the amount of bond considered satisfactory under § 42(j)(6) or the amount of United States Treasury securities to pledge in a Treasury Direct Account under Rev. Proc. 99–11 for dispositions of qualified low-income buildings or interests therein during the period October through December 2001. Table 1 also provides a summary of the bond factor amounts for dispositions occurring during the period January through September 2001.

Table 1 Rev. Rul. 2001–53 Monthly Bond Factor Amounts for Dispositions

Expressed As a Percentage of Total Credits

Calendar Year Building Placed in Service or, if Section 42(f)(1)

Election Was Made, the Succeeding Calendar Year

Month of 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Disposition

Jan ’01 21.53 39.56 54.68 67.46 78.28 81.29 84.62 87.92 91.31 94.99 98.92 103.25 107.67 111.85 112.52 Feb ’01 21.53 39.56 54.68 67.46 78.28 81.05 84.36 87.65 91.02 94.68 98.57 102.87 107.22 111.28 112.52 Mar ’01 21.53 39.56 54.68 67.46 78.28 80.81 84.11 87.38 90.73 94.37 98.24 102.50 106.80 110.79 112.52 Apr ’01 20.36 37.41 51.71 63.80 74.03 75.46 77.76 79.98 82.22 84.67 87.27 90.15 93.01 95.60 97.21 May ’01 20.36 37.41 51.71 63.80 74.03 75.25 77.54 79.75 81.98 84.42 87.01 89.87 92.71 95.31 97.21 Jun ’01 20.36 37.41 51.71 63.80 74.03 75.05 77.32 79.52 81.75 84.18 86.76 89.61 92.44 95.05 97.21 Jul ’01 19.30 35.47 49.02 60.48 70.18 70.27 71.68 72.99 74.30 75.75 77.30 79.07 80.80 82.36 83.98 Aug ’01 19.30 35.47 49.02 60.48 70.18 70.09 71.49 72.80 74.10 75.55 77.10 78.86 80.60 82.19 83.98 Sep ’01 19.30 35.47 49.02 60.48 70.18 69.91 71.31 72.61 73.91 75.36 76.91 78.67 80.41 82.05 83.98 Oct ’01 19.30 35.47 49.02 60.48 70.18 69.73 71.12 72.42 73.72 75.17 76.72 78.48 80.24 81.91 83.98 Nov ’01 19.30 35.47 49.02 60.48 70.18 69.55 70.94 72.24 73.54 74.99 76.54 78.31 80.07 81.79 83.98 Dec ’01 19.30 35.47 49.02 60.48 70.18 69.38 70.77 72.06 73.36 74.81 76.37 78.14 79.92 81.68 83.98

For a list of bond factor amounts applicable to dispositions occurring during other calendar years, see: Rev. Rul. 98–3 (1998–1 C.B. 248), and Rev. Rul. 2001–2 (2001–2 I.R.B. 255).

DRAFTING INFORMATION

The principal author of this revenue ruling is Gregory N. Doran of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact Mr. Doran at (202) 622-3040 (not a toll-free call).

Section 162.—Trade or Business Expenses

26 CFR 1.162–1: Business expenses.

How do federal income and employment taxes apply to payments by employers under certain leave-based donation programs established in the aftermath of the September 11, 2001, terrorist attacks. See Notice 2001–69, page 491.

Section 170.—Charitable, etc., Contributions and Gifts

26 CFR 1.170A–1: Charitable, etc., contributions and gifts; allowance of deduction.

Interim guidance is provided on the application of the rules on charitable deductions in connection with payments by employers under certain leavebased donation programs established in the aftermath of the September 11, 2001, terrorist attacks. See Notice 2001–69, page 491.

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

26 CFR 1.472–1: Last-in, first-out inventories.

LIFO; price indexes; department stores. The September 2001 Bureau of Labor Statistics price indexes are accepted for use by department stores em

2001–46 I.R.B. 489 November 13, 2001

and include (a) 23 major groups of departments, (b) three special combinations of the major groups - soft goods, durable goods, and miscellaneous goods, and (c) a store total, which covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco, and contract departments.

ploying the retail inventory and last-in, first-out inventory methods for valuing inventories for tax years ended on, or with reference to, September 30, 2001.

Rev. Rul. 2001–54

The following Department Store Inventory Price Indexes for September 2001 were issued by the Bureau of Labor Statistics. The indexes are accepted by the

Internal Revenue Service, under § 1.472–1(k) of the Income Tax Regulations and Rev. Proc. 86–46 (1986–2 C.B. 739), for appropriate application to inventories of department stores employing the retail inventory and last-in, first-out inventory methods for tax years ended on, or with reference to, September 30, 2001.

The Department Store Inventory Price Indexes are prepared on a national basis

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Percent Change Groups Sep. Sep. from Sep. 2000 2000 2001 to Sep. 2001 ¹

Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496.1 509.9 2.8
Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . 609.3 589.1 -3.3
Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . 660.6 668.9 1.3
Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 913.6 854.7 -6.4
Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 633.7 625.4 -1.3
Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . 584.9 571.0 -2.4
Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342.9 356.7 4.0
Women’s and Girls’Accessories . . . . . . . . . . . . . . . . . . 540.0 557.9 3.3
Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . . 400.2 392.0 -2.0
Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 606.3 578.4 -4.6
Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 624.8 603.1 -3.5
Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . 481.7 477.1 -1.0
Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 933.7 899.0 -3.7
Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 788.0 795.0 0.9
Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . 969.9 979.9 1.0
Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . 707.2 632.8 -10.5
Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 614.8 622.9 1.3
Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 777.5 767.5 -1.3
Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230.6 227.0 -1.6
Radio and Television . . . . . . . . . . . . . . . . . . . . . . . . . . . 58.3 52.9 -9.3
Recreation and Education ² . . . . . . . . . . . . . . . . . . . . . . . 92.3 89.3 -3.3
Home Improvements ² . . . . . . . . . . . . . . . . . . . . . . . . . . 128.3 125.6 -2.1
Auto Accessories ² . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.5 110.1 3.4

Groups 1 - 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . 600.3 588.6 -1.9

Groups 16 - 20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . 438.9 421.2 -4.0

Groups 21 - 23: Misc. Goods ² . . . . . . . . . . . . . . . . . . . . . . . . 99.8 98.3 -1.5

Store Total ³ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539.4 526.8 -2.3

1 Absence of a minus sign before the percentage change in this column signifies a price increase.

2 Indexes on a January 1986=100 base.

3 The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco, and contract departments.

DRAFTING INFORMATION

The principal author of this revenue ruling is Michael Burkom of the Office of Associate Chief Counsel (Income Tax and Ac

counting). For further information regarding this revenue ruling, contact Mr. Burkom at (202) 622-4930 (not a toll-free call).

November 13, 2001 490 2001–46 I.R.B.