Part I. Rulings — Internal Revenue Bulletin 2001-53

Section 415(b)(2)(E)(v) provides that, for purposes of adjusting any benefit or limitation under § 415(b)(2)(B), (C), or (D), the mortality table used is the table prescribed by the Secretary. The statute further provides that the table is based on the prevailing commissioners’ standard table (described in § 807(d)(5)(A)) used to determine reserves for group annuity contracts issued on the date the adjustment is being made (without regard to any other subparagraph of § 807(d)(5)).

Section 417(e)(3) provides rules for the determination of the present value of plan benefits for purposes of § 417(e). Section 417(e)(3)(A)(i) generally provides that, for purposes of § 417(e)(1) and (e)(2), the present value is not less than the present value calculated by using the applicable mortality table and the applicable interest rate. In addition, § 411(a)(11)(B) provides that, the determination of present value for purposes of § 411(a)(11)(A) is calculated in accordance with § 417(e)(3). Sections 203(e)(1), 203(e)(2), and 205(g)(3) of the Employee Retirement Income Security Act of 1974 (ERISA) provide corresponding provisions to §§ 411(a)(11)(A), 411(a)(11)(B), and 417(e)(3) of the Code. Section 417(e)(3)(A)(ii)(I) defines the term “applicable mortality table” as the mortality table prescribed by the Secretary. The statute further provides that the table is based on the prevailing commissioners’ standard table (described in § 807(d)(5)(A)) used to determine reserves for group annuity contracts issued on the date the adjustment is being made (without regard to any other subparagraph of § 807(d)(5)).

Section 1.417(e)–1(d)(1) of the Income Tax Regulations provides that a defined benefit plan must provide that the present value of any accrued benefit and the amount (subject to §§ 411(c)(3) and 415) of any distribution, including a single sum, must not be less than the amount calculated using the applicable interest rate described in § 1.417(e)– 1(d)(3) (determined for the month described in § 1.417(e)–1(d)(4)) and the applicable mortality table described in § 1.417(e)–1(d)(2). The present value of any optional form of benefit cannot be less than the present value of the normal

Section 112.—Certain Combat Zone Compensation of Members of the Armed Forces

Executive Order 13239

Designation of Afghanistan and the Airspace Above as a Combat Zone

Pursuant to the authority vested in me as President by the Constitution and the laws of the United States of America, including section 112 of the Internal Revenue Code of 1986 (26 U.S.C. 112), I designate, for purposes of that section, Afghanistan, including the airspace above, as an area in which Armed Forces of the United States are and have been engaged in combat.

For purposes of this order, I designate September 19, 2001, as the date of the commencement of combatant activities in such zone.

George W. Bush The White House, December 12, 2001.

(Filed by the Office of the Federal Register on December 13, 2001, 11:38 a.m., and published in the issue of the Federal Register for December 14, 2001, 66 F.R. 64905)

Section 415.—Limitations on Benefits and Contributions Under Qualified Plans

Whether the limitations on benefits and contributions described in § 415 of the Code are exceeded as a result of the application of new mortality tables. See Rev. Rul. 2001–62, on this page.

Section 417.—Definitions and Special Rules for Purposes of Minimum Survivor Annuity Requirements

26 CFR 1.417(e)–1: Restrictions and valuations of distributions from plans subject to sections 401(a)(11) and 417. (Also, § 415.)

Mortality tables. This ruling describes changes to the mortality tables under section 417(e) of the Internal Revenue Code for employee plans purposes.

Rev. Rul. 2001–62

ISSUE

What mortality table is the prescribed table under § 415(b)(2)(E)(v) of the Internal Revenue Code (the “Code”) and the applicable mortality table under § 417(e)(3)(A)(ii)(I)?

LAW AND ANALYSIS

Section 415(b) provides for limitations on benefits payable under qualified defined benefit plans. Section 415(b)(1) provides, for limitation years ending on or before December 31, 2001, that the limitation on benefits, when expressed as an annual benefit ( i.e., a benefit payable annually in the form of a straight life annuity with no ancillary benefits) is the lesser of (a) $90,000 (as adjusted for increases in the cost of living) or (b) 100 percent of the participant’s average compensation for the high 3 years. Section 415(b)(2)(B) provides that, if the benefit under the plan is payable in any form other than a straight life annuity, the determination of whether the limitation of § 415(b)(1) has been satisfied is made by adjusting such benefit so that it is equivalent to a straight life annuity. Sections 415(b)(2)(C) and (D) provide, for limitation years ending on or before December 31, 2001, for adjustments to the $90,000 (as adjusted for increases in the cost of living) limit when benefits begin at an age other than at social security retirement age.

For limitation years ending after December 31, 2001, section 611(a) of the Economic Growth and Tax Relief Reconciliation Act of 2001, Public Law 107–16 (EGTRRA), made a number of changes to the limitations under § 415 of the Code. For limitation years ending after December 31, 2001, the adjustments under § 415(b)(2)(C) apply to benefits that commence before age 62 and the adjustments under § 415(b)(2)(D) apply to benefits that begin after age 65.

2001–53 I.R.B 632 December 31, 2001

adopted by, generally, the end of the first plan year beginning on or after January 1, 2002.

HOLDING

The following mortality table, based upon a fixed blend of 50 percent of the unloaded male mortality rates and 50 percent of the unloaded female mortality rates underlying the mortality rates in the 94 GAR, projected to 2002, is the applicable mortality table for purposes of adjusting benefits or limitations under § 415(b)(2) of the Code and for determining the present value of plan benefits under § 417(e)(3) and the corresponding provisions of ERISA. The table shows, for each age, the number living based upon a starting population of one million lives at age 1 ( lx ), and the annual rate of mortality ( qx ).

Plans may incorporate this table by reference to this revenue ruling. A plan amendment will not violate section 411(d)(6)(B) of the Code and the corresponding provision of ERISA solely because of a reduction in any annuity distribution with an annuity starting date on or after the later of the adoption date or the effective date of this amendment if the cause of such reduction is the substitution of the table in this revenue ruling for the table in Rev. Rul. 95–6. If the effective date is earlier than the adoption date of this plan amendment, § 415(b)(2)(B) of the Code will not be violated if such amendment provides that any payments made after the adoption date will be reduced actuarially by the value of the excess, if any, of annuity distributions paid before the adoption date of this amendment over annuity distributions that would have been permissible under section § 415(b)(2)(B) if the amendment had been adopted as of such effective date.

retirement benefit determined in accordance with the preceding sentence. Under § 1.417(e)–1(d)(1), these rules must also be used to compute the present value of the benefit for purposes of determining whether consent for a distribution is required.

Section 1.417(e)–1(d)(2) provides that the applicable mortality table is the mortality table based on the prevailing commissioners’ standard table (described in § 807(d)(5)(A)) used to determine reserves for group annuity contracts issued on the date as of which present value is being determined (without regard to any other subparagraph of § 807(d)(5)), that is prescribed by the Commissioner in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin. The Commissioner may also prescribe rules that apply in the case of a change to the prevailing commissioners’ standard table.

For purposes of § 807(d)(5) of the Code, Rev. Rul. 92–19 (1992–1 C.B. 227) sets forth the prevailing commissioners’ standard table for group annuities as the 1983 Group Annuity Mortality Table (83 GAM) for contracts issued after January 1, 1985. The U.S. Supreme Court, in Arizona v. Norris, 463 U.S. 1073, 1084–1086 (1983), held that the application of sexdistinct actuarial tables to employees based upon their gender in calculating the amount of retirement benefits violates Title VII of the Civil Rights Act of 1964.

Rev. Rul. 95–6 (1995–1 C.B. 80) provided a mortality table, based upon a fixed blend of 50 percent of the male mortality rates and 50 percent of the female mortality rates from the 83 GAM, as the applicable mortality table for purposes of adjusting benefits or limitations under § 415(b)(2) of the Code and determining the present value of plan benefits under § 417(e)(3). Rev. Rul. 98–1

(1998–1 C.B. 249) Q & A–6, provides that Rev. Rul. 95–6, provides the mortality table which generally must be used for the purposes of adjusting any benefit or limitation under § 415(b)(2)(B), (C), or (D).

For purposes of § 807(d)(5) of the Code, Rev. Rul. 2001–38 (2001–33 I.R.B 124) supplements Rev. Rul. 92–19 by setting forth, for certain insurance products issued on or after January 1, 1999, the prevailing commissioners’ standard table for group annuities as the 1994 Group Annuity Reserving Table (94 GAR).

Section 411(d)(6) of the Code generally prohibits a plan amendment that decreases a participant’s accrued benefit. Section 411(d)(6)(B) provides that an amendment that eliminates an optional form of benefit is treated as reducing a participant’s accrued benefit, but permits the Secretary of Treasury to provide for the elimination of certain optional forms of benefits under regulations. Section 1.411(d)–4, Q & A–2(b) provides that the Commissioner may, through the publication of revenue rulings, notices, and other items of general applicability, provide for the elimination or reduction of certain § 411(d)(6) protected benefits that have already accrued.

Section 401(b) and the regulations thereunder provide a remedial amendment period during which an amendment to a disqualifying provision may be made retroactively effective, under certain circumstances, to comply with the requirements of § 401(a). In Notice 2001–42 (2001–30 I.R.B. 70) the Service provided that the remedial amendment period for changes in the plan qualification requirements made by EGTRRA would end no earlier than the end of the first plan year beginning on or after January 1, 2005. This “EGTRRA remedial amendment period” is available only if good faith EGTRRA plan amendments have been

December 31, 2001 633 2001–53 I.R.B.

Mortality Table for Sections 415 and 417(e)

Age lx qx 1 1000000.00 0.000514 2 999486.00 0.000341 3 999145.18 0.000270 4 998875.41 0.000207 5 998668.64 0.000188 6 998480.89 0.000179 7 998302.16 0.000170 8 998132.45 0.000154 9 997978.74 0.000148 10 997831.04 0.000150 11 997681.37 0.000158 12 997523.74 0.000171

13 997353.16 0.000192

14 997161.67 0.000225

15 996937.31 0.000262

16 996676.11 0.000296

17 996381.09 0.000324

18 996058.26 0.000343

19 995716.61 0.000357

20 995361.14 0.000368

21 994994.85 0.000381

22 994615.76 0.000396

23 994221.89 0.000418

24 993806.31 0.000441

25 993368.04 0.000468

26 992903.14 0.000500

27 992406.69 0.000523

28 991887.66 0.000543

29 991349.07 0.000564 30 990789.95 0.000588

Mortality Table for Sections 415 and 417(e)

Age lx qx 31 990207.37 0.000612 32 989601.36 0.000633 33 988974.94 0.000649 34 988333.10 0.000661 35 987679.81 0.000675 36 987013.13 0.000695 37 986327.16 0.000727 38 985610.10 0.000768 39 984853.15 0.000819 40 984046.56 0.000879 41 983181.58 0.000944 42 982253.46 0.001014

43 981257.45 0.001083

44 980194.75 0.001151

45 979066.55 0.001224

46 977868.17 0.001312

47 976585.21 0.001422

48 975196.51 0.001554

49 973681.05 0.001699

50 972026.77 0.001869

51 970210.05 0.002065

52 968206.57 0.002302

53 965977.76 0.002571

54 963494.23 0.002854

55 960744.42 0.003197

56 957672.92 0.003614

57 954211.89 0.004124

58 950276.72 0.004712

59 945799.02 0.005345 60 940743.72 0.006062

2001–53 I.R.B 634 December 31, 2001

Mortality Table for Sections 415 and 417(e)

Age lx qx 61 935040.93 0.006912 62 928577.93 0.007846 63 921292.31 0.008958 64 913039.37 0.010151 65 903771.11 0.011441 66 893431.06 0.012870 67 881932.60 0.014291 68 869328.90 0.015614 69 855755.20 0.017000 70 841207.36 0.018396 71 825732.51 0.020025 72 809197.22 0.022026

73 791373.84 0.024187

74 772232.88 0.026581

75 751706.16 0.029310

76 729673.65 0.032392

77 706038.06 0.036288

78 680417.35 0.040636

79 652767.91 0.045463

80 623091.12 0.050795

81 591441.21 0.056655

82 557933.11 0.063064

83 522747.62 0.069481

84 486426.59 0.076539

85 449195.99 0.084129

86 411405.58 0.092686

87 373274.04 0.103014

88 334821.59 0.114434

89 296506.62 0.126925 90 258872.52 0.140650

Mortality Table for Sections 415 and 417(e)

Age lx qx 91 222462.10 0.154664 92 188055.22 0.170190 93 156050.10 0.186631 94 126926.31 0.203518 95 101094.52 0.222123 96 78639.10 0.240233 97 59747.39 0.259380 98 44250.11 0.278936 99 31907.16 0.297614 100 22411.14 0.316630 101 15315.10 0.338758 102 10126.99 0.358830

103 6493.12 0.380735

104 4020.96 0.404426

105 2394.78 0.427883

106 1370.09 0.449085

107 754.80 0.466012

108 403.05 0.478582

109 210.16 0.488140

110 107.57 0.494813

111 54.34 0.498724

112 27.24 0.500000

113 13.62 0.500000

114 6.81 0.500000

115 3.41 0.500000

116 1.71 0.500000

117 0.86 0.500000

118 0.43 0.500000

119 0.22 0.500000 120 0.11 1.000000

2002, if the effective date is between January 1, 2002, and June 30, 2002. If such a plan is amended during its July 1, 2002, to June 30, 2003, plan year, the plan’s 94 GAR effective date may be no earlier than July 1, 2002.

For a plan amendment adopted to comply with this revenue ruling no later than the last day of the plan year that contains the plan’s 94 GAR effective date, the remedial amendment period under § 401(b) will end at the end of the EGTRRA remedial amendment period.

EFFECTIVE DATE

The required use of the mortality table in this revenue ruling is effective for distributions with annuity starting dates on or after December 31, 2002, except that a plan may specify any earlier date during calendar year 2002 as the effective date for the required use of the mortality table in this revenue ruling under the plan. The effective date for the required use of the mortality table set forth in this revenue ruling for a plan is referred to as the

plan’s 94 GAR effective date. A plan’s 94 GAR effective date must apply uniformly for purposes of §§ 415 and 417(e) of the Code and § 205(g)(3) of ERISA.

PLAN AMENDMENT

The latest date by which a plan may be amended to comply with this revenue ruling is the last day of the plan year that contains the plan’s 94 GAR effective date. Thus, a plan with a July 1 to June 30 fiscal plan year ending June 30, 2002, must be amended no later than June 30,

December 31, 2001 635 2001–53 I.R.B.

after the earlier of December 31, 2002, or the date specified in the plan for which the use of the mortality table set forth in this revenue ruling is specified (which may be no earlier than January 1, 2002).

Rev. Rul. 98–1 is modified.

COMMENTS REQUESTED

The 94 GAR is designed as a generational table that incorporates mortality improvements on an annual basis. The table in this revenue ruling is based on the 94 GAR projected, using Scale AA, to 2002. Comments are requested in regard to how often the mortality table for §§ 415 and 417(e) of the Code should be updated. Comments should be sent to Commissioner of Internal Revenue Service, Attention T:EP:RA:T:A1, Washington, D.C. 20224.

DRAFTING INFORMATION

The principal author of this revenue ruling is Lawrence Isaacs of Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this revenue ruling, please contact the Employee Plans’ taxpayer assistance telephone service at 1–877–829– 5500 between the hours of 8:00 a.m. and 6:30 p.m. Eastern time, Monday through Friday (a toll-free number). Mr. Isaacs may be reached at 1–202–283–9710 (not a toll-free number).

DETERMINATION LETTERS

Determination letter applications filed on or after the last day of the plan year that contains the plan’s 94 GAR effective date will be reviewed with respect to whether the form of the plan satisfies the requirements of this revenue ruling. Determination letter applications filed before the last day of the plan year that contains the plan’s 94 GAR effective date will be reviewed with respect to whether the form of the plan satisfies the requirements of this revenue ruling if an amendment to comply with the ruling is submitted with the request for the determination letter. In either case, determination letters issued with respect to such applications may be relied on with respect to the requirements of this revenue ruling.

MODEL PLAN AMENDMENTS

The Appendix provides two alternative model plan amendments that a plan sponsor, or a sponsor of a pre-approved plan, may adopt to comply with this revenue ruling. The first model amendment is intended to have the effect of adopting the mortality table set forth in this revenue ruling for purposes of adjusting any benefit or limitation under § 415(b)(2)(B), (C), or (D) and the applicable mortality table used for purposes of satisfying the requirements of § 417(e). The second model amendment is intended to have the effect of substitut

ing the mortality table set forth in this revenue ruling for the mortality table set forth in Rev. Rul. 95–6 for all purposes under the plan for which the use of the mortality table set forth in Rev. Rul. 95–6 is specified. A plan sponsor should consider which of these two approaches is appropriate for the particular plan, or whether some other approach should be chosen for the plan.

A pre-approved plan (that is, a master or prototype or volume submitter plan) may be amended by the document’s sponsor to comply with this revenue ruling to the extent authorized. Alternatively, adopting employers may adopt a plan amendment as an addendum to the plan or adoption agreement. The inclusion of either of the model plan amendments below in an addendum to a plan adopted to comply with EGTRRA will not cause a pre-approved plan to be treated as an individually designed plan.

A plan sponsor that adopts either of the model amendments verbatim (or with only minor changes) will have reliance that the form of its plan satisfies the requirements of this revenue ruling, and the adoption of such an amendment will not adversely affect the plan sponsor’s reliance on a favorable determination, opinion, or advisory letter.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 95–6 is superseded for distributions with annuity starting dates on or

Appendix — MODEL AMENDMENTS

The following are amendments that sponsors of qualified defined benefit plans may adopt to comply with §§ 415 and 417(e), as required under Rev. Rul. 2001–62. MODEL PLAN AMENDMENT 1

Effective date. This section shall apply to distributions with annuity starting dates on or after .
Notwithstanding any other plan provisions to the contrary, the applicable mortality table used for purposes of adjusting any benefit or limitation under § 415(b)(2)(B), (C), or (D) of the Internal Revenue Code as set forth in section of the plan and the applicable mortality table used for purposes of satisfying the requirements of § 417(e) of the Internal Revenue Code as set forth in section of the plan is the table prescribed in Rev. Rul. 2001–62.
For any distribution with an annuity starting date on or after the effective date of this section and before the adoption date of this section, if application of the amendment as of the annuity starting date would have caused a reduction in the amount of any distribution, such reduction is not reflected in any payment made before the adoption date of this section. However, the amount of any such reduction that is required under § 415(b)(2)(B) must be reflected actuarially over any remaining payments to the participant.

2001–53 I.R.B 636 December 31, 2001

Note: This amendment should be used for plans that reference the applicable mortality table only for the purposes of adjusting any benefit or limitation under § 415(b)(2)(B), (C), or (D) of the Internal Revenue Code and satisfying the requirements of § 417(e) of the Internal Revenue Code. Paragraph 3 of this amendment should be used only if the effective date of the amendment is earlier than the adoption date of the amendment. MODEL PLAN AMENDMENT 2

Effective date. This section shall apply to distributions with annuity starting dates on or after .
Notwithstanding any other plan provisions to the contrary, any reference in the plan to the mortality table prescribed in Rev. Rul. 95–6 shall be construed as a reference to the mortality table prescribed in Rev. Rul. 2001- 62 for all purposes under the plan.
For any distribution with an annuity starting date on or after the effective date of this section and before the adoption date of this section, if application of the amendment as of the annuity starting date would have caused a reduction in the amount of any distribution, such reduction is not reflected in any payment made before the adoption date of this section. However, the amount of any such reduction that is required under § 415(b)(2)(B) must be reflected actuarially over any remaining payments to the participant. Note: This amendment should be used for plans that specifically reference the mortality table provided in Rev. Rul. 95–6 and apply that table for other purposes as well as for purposes of adjusting any benefit or limitation under § 415(b)(2)(B), (C), or (D) and satisfying the requirements of § 417(e), where the plan sponsor wishes to replace the mortality table provided in Rev. Rul. 95–6 with the mortality table provided in Rev. Rul. 2001–62 for all purposes. If the plan references the mortality table prescribed in Rev. Rul. 95–6 using some other label (such as, for example, the GAM 83 blended mortality table), the plan’s term should be used in place of the reference to the mortality table prescribed in Rev. Rul. 95–6. Paragraph 3 of this amendment should be used only if the effective date of the amendment is earlier than the adoption date of the amendment.

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

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

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

LIFO; price indexes; department stores. The October 2001 Bureau of Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in, first-out inventory methods for valuing inventories for tax years ended on, or with reference to, October 31, 2001.

Rev. Rul. 2001–66

The following Department Store Inventory Price Indexes for October 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, October 31, 2001.

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

(January 1941 = 100, unless otherwise noted)

Groups Oct. 2000 Oct. 2001

Percent Change from Oct. 2000 to Oct. 2001 ¹

Piece Goods ......................................................................................................... 502.4 500.3 -0.4
Domestics and Draperies..................................................................................... 608.5 592.0 -2.7
Women’s and Children’s Shoes........................................................................... 661.5 675.5 2.1
Men’s Shoes......................................................................................................... 915.5 872.5 -4.7
Infants’ Wear ........................................................................................................ 649.0 631.1 -2.8

December 31, 2001 637 2001–53 I.R.B.

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

(January 1941 = 100, unless otherwise noted)

Groups Oct. 2000 Oct. 2001

Percent Change from Oct. 2000 to Oct. 2001 ¹

Women’s Underwear............................................................................................ 579.6 575.3 -0.7
Women’s Hosiery................................................................................................. 346.2 358.0 3.4
Women’s and Girls’ Accessories ......................................................................... 555.6 573.7 3.3
Women’s Outerwear and Girls’ Wear.................................................................. 414.1 398.4 -3.8
Men’s Clothing..................................................................................................... 601.0 587.3 -2.3
Men’s Furnishings................................................................................................ 632.7 628.2 -0.7
Boys’ Clothing and Furnishings.......................................................................... 494.4 490.5 -0.8
Jewelry ................................................................................................................. 937.1 919.6 -1.9
Notions ................................................................................................................. 792.8 797.1 0.5
Toilet Articles and Drugs..................................................................................... 971.1 981.6 1.1
Furniture and Bedding......................................................................................... 704.3 628.8 -10.7
Floor Coverings ................................................................................................... 627.7 616.0 -1.9
Housewares .......................................................................................................... 778.0 767.1 -1.4
Major Appliances................................................................................................. 228.6 224.1 -2.0
Radio and Television ........................................................................................... 57.9 52.6 -9.2
Recreation and Education ² .................................................................................. 92.6 89.2 -3.7
Home Improvements ² .......................................................................................... 128.9 125.4 -2.7
Auto Accessories ² ................................................................................................ 106.7 110.2 3.3

Groups 1 - 15: Soft Goods...................................................................................... 607.3 598.6 -1.4

Groups 16 - 20: Durable Goods................................................................................ 437.8 419.1 -4.3

Groups 21 - 23: Misc. Goods ² .................................................................................. 100.1 98.2 -1.9

Store Total ³ ........................................................................................................... 543.6 532.4 -2.1

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 Accounting). For further information regarding this revenue ruling, contact Mr. Burkom at (202) 622–7718 (not a tollfree call).

Section 483.—Interest on Certain Deferred Payments

26 CFR 1.483–1: Computation of interest on certain deferred payments.

As defined by section 1274A, the definitions for both “qualified debt instruments” and “cash method debt instruments” have dollar ceilings on the stated

principal amount. The limits to the stated principal amount are adjusted for inflation for sales or exchanges occurring in the 2002 calendar year. See Rev. Rul. 2001–65, page 639.

2001–53 I.R.B 638 December 31, 2001

ment is a qualified debt instrument that meets the following additional requirements: (A) In the case of instruments arising out of sales or exchanges before January 1, 1990, the stated principal amount does not exceed $2,000,000; (B) the lender does not use an accrual method of accounting and is not a dealer with respect to the property sold or exchanged; (C) § 1274 would have applied to the debt instrument but for an election under § 1274A(c); and (D) an election under § 1274A(c) is jointly made with respect to the debt instrument by the borrower and lender. Section 1.1274A– 1(c)(1) of the Income Tax Regulations provides rules concerning the time for, and manner of, making this election.

Section 1274A(d)(2) provides that, for any debt instrument arising out of a sale or exchange during any calendar year after 1989, the dollar amounts stated in § 1274A(b) and § 1274A(c)(2)(A) are increased by the inflation adjustment for the calendar year. Any increase due to the inflation adjustment is rounded to the nearest multiple of $100 (or, if the increase is a multiple of $50 and not of $100, the increase is increased to the nearest multiple of $100). The inflation adjustment for any calendar year is the percentage (if any) by which the CPI for the preceding calendar year exceeds the CPI for calendar year 1988. Section 1274A(d)(2)(B) defines the CPI for any calendar year as the average of the Consumer Price Index as of the close of the 12-month period ending on September 30 of that calendar year.

INFLATION-ADJUSTED AMOUNTS

For debt instruments arising out of sales or exchanges after December 31, 1989, the inflation-adjusted amounts under § 1274A are shown in Table 1.

Section 832.—Insurance Company Taxable Income

26 CFR 1.832–4: Gross income.

The salvage discount factors are set forth for the 2001 accident year. These factors will be used for computing estimated salvage recoverable for purposes of section 832 of the Code. See Rev. Proc. 2001–61, page 653.

Section 846.—Discounted Unpaid Losses Defined

26 CFR 1.846–1: Application of discount factors.

The loss payment patterns and discount factors are set forth for the 2001 accident year. These factors will be used for computing discounted unpaid losses under section 846 of the Code. See Rev. Proc. 2001–60, page 643.

Section 1274. —Determin- ation of Issue Price in the Case of Certain Debt Instruments Issued for Property

26 CFR 1.1274A–1: Special rules for certain trans- actions where stated principal amount does not exceed $2,800,000.

As defined by section 1274A, the definitions for both “qualified debt instruments” and “cash method debt instruments” have dollar ceilings on the stated principal amount. The limits to the stated principal amount are adjusted for inflation for sales or exchanges occurring in the 2002 calendar year. See Rev. Rul. 2001–65, on this page.

Section 1274A.—Special Rules for Certain Transactions Where Stated Principal Amount Does Not Exceed $2,800,000.

(Also §§ 1274, 483; 1.1274A–1, 1.483–1.)

Section 1274A—Inflation adjusted numbers for 2002. This ruling provides the dollar amounts, increased by the 2002 inflation adjustment, for section 1274A of the Code. Rev. Rul. 2000–55 supplemented and superseded.

Rev. Rul. 2001–65

This revenue ruling provides the dollar amounts, increased by the 2002 inflation adjustment, for § 1274A of the Internal Revenue Code.

BACKGROUND

In general, §§ 483 and 1274 determine the principal amount of a debt instrument given in consideration for the sale or exchange of nonpublicly traded property. In addition, any interest on a debt instrument subject to § 1274 is taken into account under the original issue discount provisions of the Code. Section 1274A, however, modifies the rules under §§ 483 and 1274 for certain types of debt instruments.

In the case of a “qualified debt instrument,” the discount rate used for purposes of §§ 483 and 1274 may not exceed 9 percent, compounded semiannually. Section 1274A(b) defines a qualified debt instrument as any debt instrument given in consideration for the sale or exchange of property (other than new § 38 property within the meaning of § 48(b), as in effect on the day before the date of enactment of the Revenue Reconciliation Act of 1990) if the stated principal amount of the instrument does not exceed the amount specified in § 1274A(b). For debt instruments arising out of sales or exchanges before January 1, 1990, this amount is $2,800,000.

In the case of a “cash method debt instrument,” as defined in § 1274A(c), the borrower and lender may elect to use the cash receipts and disbursements method of accounting. In particular, for any cash method debt instrument, § 1274 does not apply, and interest on the instrument is accounted for by both the borrower and the lender under the cash method of accounting. A cash method debt instru

December 31, 2001 639 2001–53 I.R.B.

Rev. Rul. 2001–65 Table 1 Inflation-Adjusted Amounts Under § 1274A

Calendar Year of Sale or Exchange

Year of 1274A(b) Amount 1274A(c)(2)(A) Amount Exchange (qualified debt instrument) (cash method debt instrument)

1990 $2,933,200 $2,095,100 1991 $3,079,600 $2,199,700 1992 $3,234,900 $2,310,600 1993 $3,332,400 $2,380,300 1994 $3,433,500 $2,452,500 1995 $3,523,600 $2,516,900 1996 $3,622,500 $2,587,500 1997 $3,723,800 $2,659,900 1998 $3,823,100 $2,730,800 1999 $3,885,500 $2,775,400 2000 $3,960,100 $2,828,700

1274A(b) Amount (qualified debt instrument)

2001 $4,085,900 $2,918,500

2002 $4,217,500 $3,012,500

Note: These inflation adjustments were computed using the All-Urban, Consumer Price Index, 1982–1984 base, published by

the Bureau of Labor Statistics.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 2000–55 (2000–52 I.R.B. 595) is supplemented and superseded.

DRAFTING INFORMATION

The principal author of this revenue ruling is Courtney Shepardson of the Office of the Assistant Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling, contact Ms. Shepardson at (202) 622–3930 (not a toll-free call).

Section 7872.—Treatment of Loans With Below-Market Interest Rates

CPI adjustment for below-market loans–2002. The amount that section 7872(g) of the Code permits a taxpayer to lend a qualified continuing care facility without incurring imputed interest is published and adjusted for inflation for years 1987–2002.

Rev. Rul. 2001–64

This revenue ruling publishes the amount that § 7872(g) of the Internal Revenue Code permits a taxpayer to lend to a qualifying continuing care facility without incurring imputed interest. The amount is adjusted for inflation for the years after 1986.

Section 7872 generally treats loans bearing a below-market interest rate as if they bore interest at the market rate.

Section 7872(g)(1) provides that, in general, § 7872 does not apply for any calendar year to any below-market loan made by a lender to a qualified continuing care facility pursuant to a continuing care contract if the lender (or the lender’s spouse) attains age 65 before the close of the year.

Section 7872(g)(2) provides that, in the case of loans made after October 11, 1985, and before 1987, § 7872(g)(1) applies only to the extent that the aggregate outstanding amount of any loan to which § 7872(g) applies (determined without regard to § 7872(g)(2)), when

added to the aggregate outstanding amount of all other previous loans between the lender (or the lender’s spouse) and any qualified continuing care facility to which § 7872(g)(1) applies, does not exceed $90,000.

Section 7872(g)(5) provides that, for loans made during any calendar year after 1986 to which § 7872(g)(1) applies, the $90,000 limit specified in § 7872(g)(2) is increased by an inflation adjustment. The inflation adjustment for any calendar year is the percentage (if any) by which the Consumer Price Index (CPI) for the preceding calendar year exceeds the CPI for calendar year 1985. Section 7872(g)(5) states that the CPI for any calendar year is the average of the CPI as of the close of the 12-month period ending on September 30 of that calendar year.

Table 1 sets forth the amount specified in § 7872(g)(2) of the Code. The amount is increased by the inflation adjustment for the years 1987–2002.

2001–53 I.R.B 640 December 31, 2001

REV. RUL. 2001–64 TABLE 1

Limit Under 7872(g)(2)

Year Amount

Before 1987 $ 90,000 1987 $ 92,200 1988 $ 94,800 1989 $ 98,800 1990 $103,500 1991 $108,600 1992 $114,100 1993 $117,500 1994 $121,100 1995 $124,300

1996 $127,800

1997 $131,300

1998 $134,800

1999 $137,000

2000 $139,700

2001 $144,100

2002 $148,800

Note: These inflation adjustments were computed using the All-Urban, Consumer Price Index 1982–1984 base, published

by the Bureau of Labor Statistics.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 2000–56 (2000–52 I.R.B. 598) is supplemented and superseded.

DRAFTING INFORMATION

The author of this revenue ruling is Courtney Shepardson of the Office of Assistant Chief Counsel (Financial Insti

tutions and Products). For further information regarding this revenue ruling, contact Ms. Shepardson at (202) 622–3940 (not a toll-free call).

December 31, 2001 641 2001–53 I.R.B.