SECTION 2. BACKGROUND AND

SCOPE OF APPLICATION

.01 Background. Whenever appropriate in the interest of sound tax administration, it is the policy of the Service to answer inquiries of individuals and organizations regarding their status for tax purposes and the tax effects of their acts or transactions, prior to the filing of returns or reports that are required by the revenue laws.

There are, however, certain areas in which, because of the inherently factual nature of the problems involved, or for other reasons, the Service will not issue rulings or determination letters. These areas are set forth in four sections of this revenue procedure. Section 3 reflects those areas in which rulings and determinations will not be issued. Section 4 sets forth those areas in which they will not ordinarily be issued. “Not ordinarily” means that unique and compelling reasons must be demonstrated to justify the

2002–1 I.R.B 117 January 7, 2002

the contract is treated for federal tax purposes. (Also §§ 61, 163, 1275, 2501, and 7701.) (10) Section 115.—Income of states, municipalities, etc.–Whether the income of membership organizations established by states exclusively to reimburse members for losses arising from workmen’s compensation claims is excluded from gross income under § 115.

(11) Section 117.—Qualified Scholarships.—Whether an employerrelated scholarship or fellowship grant is excludible from the employee’s gross income, if there is no intermediary private foundation distributing the grants, as there was in Rev. Proc. 76–47, 1976–2 C.B. 670.

(12) Section 119.—Meals or Lodging Furnished for the Convenience of the Employer.—Whether the value of meals or lodging is excludible from gross income by an employee who is a controlling shareholder of the employer.

(13) Section 121 and former § 1034.— Exclusion of Gain from Sale of Principal Residence; Rollover of Gain on Sale of Principal Residence.—Whether property qualifies as the taxpayer’s principal residence.

(14) Section 125.—Cafeteria Plans.— Whether amounts used to provide groupterm life insurance under § 79, accident and health benefits under §§ 105 and 106, and dependent care assistance programs under § 129 are includible in the gross income of participants and considered “wages” for purposes of §§ 3401, 3121, and 3306 when the benefits are offered through a cafeteria plan.

(15) Section 162.—Trade or Business Expenses.—Whether compensation is reasonable in amount.

(16) Section 163.—Interest.—The income tax consequences of transactions involving “shared appreciation mortgage” (SAM) loans in which a taxpayer, borrowing money to purchase real property, pays a fixed rate of interest on the mortgage loan below the prevailing market rate and will also pay the lender a percentage of the appreciation in value of the real property upon termination of the mortgage. This applies to all SAM arrangements where the loan proceeds are used for commercial or business activities, or where used to finance a personal residence, if the facts are not similar to

state in the request to the best of the taxpayer’s knowledge and belief the tax consequences of the no-rule issue. The Service’s ruling or determination letter will state that the Service did not consider, and no opinion is expressed upon, that issue. In appropriate cases the Service may decline to issue rulings or determinations on such larger transactions due to the relevance of the no-rule issue, despite the taxpayer’s representation.