Part III. — Internal Revenue Bulletin 2002-17

The uncertainty results in frequent, often repetitive examinations of the same issue.
The uncertainty results in significant taxpayer burden.
The issue is material and impacts a significant number of taxpayers, either within an industry or across industry lines.
Factual determination is a major component of the issue.

The following issues are not suitable :

Issues unique to one or a small number of taxpayers.
Issues under the jurisdiction of the Commissioner, Tax Exempt and Government Entities Division ( e.g., employee plans).
Issues regarding transactions that lack a bona fide business purpose or are done with a significant purpose of reducing or avoiding federal taxes.
Issues involving transfer pricing or international tax treaties.

REQUESTING CONSIDERATION UNDER THE IIR PROGRAM

No particular format is required for submissions in response to this Notice. However, submissions should briefly describe the proposed issue and explain why there is a need for guidance. Submissions may include an analysis of how the issue may be resolved. In addition, submissions should state the number of taxpayers estimated to be affected by the issue. All submissions will be available for public inspection and copying in their entirety. Therefore, comments should not include taxpayer-specific information of a confidential nature. Letters should include the name and telephone number of a person to contact should further clarification be needed. Issues previously submitted under the pilot program, but not selected, must be resubmitted to be considered for this permanent program.

Submission of issues for resolution under the IIR program should be e-mailed to PFTG2@IRS.gov . Alternatively, submissions may be faxed or mailed to:

Industry Issue Resolution Program

Notice 2002–20

INTRODUCTION

This Notice invites submission of issues by taxpayers, representatives and associations for resolution under the Internal Revenue Service’s Industry Issue Resolution (IIR) Program . Notice 2000–65 (2000–2 C.B. 599), announced the Industry Issue Resolution Pilot Program. The objective of the pilot program was to provide guidance to resolve frequently disputed tax issues common to a significant number of large or mid-size business taxpayers. This effort was part of the IRS’s strategy to resolve issues in a manner other than the traditional postfiling examination process. Seven issues of the twenty-four submitted were selected for the pilot program. Thus far, five of the projects have resulted in published guidance.

After evaluating the pilot program and concluding that it was highly successful, the Service has determined that the IIR program should be made permanent. The objective is to provide guidance to resolve frequently disputed or burdensome issues and the program is expanded to address issues common to any size business taxpayers. The Large and MidSize Business Division (LMSB) and Small Business/Self-Employed Division (SB/SE) will jointly undertake the operational responsibility for the projects in the program. Resolution of contentious issues other than by the examination process is a strategic goal of both LMSB and SB/SE.

Taxpayers, as well as industry associations and other groups representing taxpayers, are invited to suggest issues and possible options for resolution. Parties submitting suggestions may be asked to meet with government representatives and to provide additional information. After analysis and review, the Service, the Office of Chief Counsel, and Treasury intend to select issues to address in the IIR program.

The form of resulting guidance may vary depending on the issue. However, the most likely form of guidance will be a Revenue Ruling or a Revenue Procedure that permits taxpayers to adopt a recommended treatment of the issue on future returns. In many cases, this may require filing a request for a change in method of accounting. For examples of the types of guidance that could be issued under this permanent program, see those published as a result of the IIR pilot program on the Digital Daily at www.irs.gov .

Suggestions for issues for the IIR program should be forwarded as provided in section 3 of this Notice by April 30, 2002. LMSB, SB/SE, the Office of Chief Counsel and Treasury will evaluate the suggestions with a view to selecting issues drawn from diverse industries. In reviewing potential issues for the program, the selection criteria will include the suitability of the issue for the program, the likelihood that timely guidance can be provided, and the availability of appropriate staffing and other resources. Projects selected for the program are expected to be included on the Treasury and IRS Guidance Priorities List for the business plan year ending in 2003. The principal focus of the program is to resolve issues arising in future years. However, depending on the circumstances, resolution also may be provided for certain issues for prior years.

Parties whose topics are accepted will be notified and may be asked to provide additional information and legal analysis of the issue. The issues selected for the program will be announced publicly.

ISSUES APPROPRIATE FOR THE PROGRAM

The objective of the IIR program is to provide guidance to resolve frequently disputed or burdensome tax issues that are common to a significant number of business taxpayers. Therefore, issues most appropriate to the program generally will have two or more of the following characteristics:

There is uncertainty about the appropriate tax treatment of a given factual situation.

April 29, 2002 796 2002–17 I.R.B.

amount equal to its fair market value and as having been reacquired for an amount equal to its fair market value on the same date (mark-to-market election).

Section 469(g)(1)(A) provides that, if a taxpayer disposes of the taxpayer’s entire interest in any passive activity (or former passive activity) in a fully taxable transaction that does not involve a disposition to a related party, then the excess of the loss from the activity for the taxable year (including any suspended passive activity loss) over any net income or gain for the taxable year from all other passive activities shall be treated as a loss which is not from a passive activity. As a result, if § 469(g)(1)(A) applies, the excess loss from the activity over any net income from all passive activities is no longer subject to the limitations of § 469.

A question has arisen whether electing a deemed sale of property under § 311(e) of TRA 97 is treated as a disposition of that property under § 469(g)(1)(A).

In a technical correction to § 311(e), § 414(a)(2) of the Job Creation and Worker Assistance Act of 2002, Pub. L. No. 107–147, 116 Stat. 21, clarifies that a mark-to-market election is not a disposition for purposes of § 469(g)(1)(A). Thus, the gain included in gross income by reason of a mark-to-market election may be passive activity gross income that can be offset by passive activity deductions, but the election does not otherwise affect the determination of the passive activity loss that is disallowed under § 469.

The principal author of this notice is Tara P. Volungis of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this notice, contact Ms. Volungis at (202) 622–3080 (not a toll-free call).

Nonconventional Source Fuel Credit, Section 29 Inflation Adjustment Factor, and Section 29 Reference Price

Notice 2002–30

This notice publishes the nonconventional source fuel credit, inflation adjustment factor, and reference price under § 29 of the Internal Revenue Code for calendar year 2001. These are used to

Internal Revenue Service Att’n: Alex Shojay Office of Pre-filing and Technical

inspection, any such inspection will be voluntary. Any inspection of a taxpayer’s records under this program, whether at the initiative of the taxpayer or the team, will not preclude or impede (under § 7605(b) of the Internal Revenue Code or any IRS administrative provisions) a later examination or inspection of records with respect to any tax year nor subject the IRS to any procedural restrictions (such as providing notice under § 7605(b)) that otherwise might apply before beginning such examination or inspection.

Disclosure of information provided by interested parties . Interested parties are encouraged to provide whatever information is necessary to permit the Service and Treasury to reach an appropriate resolution of an issue. However, this information may be subject to disclosure under the Freedom of Information Act (FOIA).

FURTHER INFORMATION

For further information regarding this notice, contact Susan Blake, Senior Program Analyst, of the LMSB Pre-filing and Technical Services Office at (202) 283–8414 (not a toll-free number).

Section 469 and Gain Recognition Election Notice

Notice 2002–29

This notice explains the effect under § 469 of the Internal Revenue Code of a deemed sale of property on January 1, 2001, pursuant to an election under § 311(e) of the Taxpayer Relief Act of 1997 (TRA 97) (1997–4 (Vol. 1) C. B. 1, 49–50). Section 1(h), as amended in 1997, provides for a reduced capital gains rate for qualified 5-year gain. Section 1(h)(2)(B)(ii) limits the amount of qualified 5-year gain to that determined by taking into account only property for which the holding period begins after December 31, 2000. Section 311(e) of TRA 97 provides that a noncorporate taxpayer may elect to treat a capital asset or property used in the trade or business (as defined in § 1231(b) of the Code) held by the taxpayer on January 1, 2001, as having been sold on January 1, 2001, for an

Services Large and Mid-Size Business

Division LM:PFTG Mint Building. 3 ^rd Floor M-3-330 1111 Constitution Avenue NW Washington, DC 20224 Fax: 202–283–8406

ADDITIONAL INFORMATION ABOUT THE PROGRAM

Project staffing . The Service and Treasury will staff each project with a team (the IIR team) that will analyze such information as may be appropriate and propose a resolution. This resolution will require the approval of those officials normally responsible for approving the type of guidance to be issued. IIR team members will include appropriate personnel from LMSB and SB/SE, the Office of Chief Counsel, Appeals and Treasury. Other Service personnel, as needed, also may be team members. In some circumstances, the Service may find it necessary to hire outside experts.

Communication with requesting tax- payer or group and other interested parties . As part of its efforts to formulate a recommendation for a resolution position, the IIR team may meet with the submitting taxpayer or group, and possibly with other interested parties. It is anticipated that the submitting party and other interested parties will be given the opportunity to present factual data and legal analysis. The IIR team may seek additional factual development or legal analysis from the submitting party or other sources.

Any solicitation of input from affected persons will be done within the requirements of the Federal Advisory Committee Act (FACA). The Service does not intend to form advisory committees during this process. Input is welcome from interested parties, but they will not be invited to enter into negotiations or to participate in the decision-making process with respect to the proposed resolution of the issue.

Potential inspection of books and records . An IIR team may consider the inspection of an individual taxpayer’s records desirable as part of the factual research necessary to develop its position. Although a team may request such

2002–17 I.R.B. 797 April 29, 2002

determine the credit allowable on fuel produced from a nonconventional source under § 29. The calendar year 2001 inflation-adjusted credit applies to the sales of barrel-of-oil equivalent of qualified fuels sold by a taxpayer to an unrelated person during the 2001 calendar year, the domestic production of which is attributable to the taxpayer.

BACKGROUND

Section 29(a) provides for a credit for producing fuel from a nonconventional source, measured in barrel-of-oil equivalent of qualified fuels, the production of which is attributable to the taxpayer and sold by the taxpayer to an unrelated person during the tax year. The credit is equal to the product of $3.00 and the appropriate inflation adjustment factor.

Section 29(b)(1) and (2) provides for a phaseout of the credit. The credit allowable under § 29(a) must be reduced by an amount which bears the same ratio to the amount of the credit (determined without regard to § 29(b)(1)) as the amount by which the reference price for the calendar year in which the sale occurs exceeds $23.50 bears to $6.00. The $3.00 in § 29(a) and the $23.50 and $6.00 must each be adjusted by multiplying these amounts by the 2001 inflation adjustment factor. In the case of gas from a tight formation, the $3.00 amount in § 29(a) must not be adjusted.

Section 29(c)(1) defines the term “qualified fuels” to include oil produced from shale and tar sands; gas produced from geopressurized brine, Devonian shale, coal seams, or a tight formation, or biomass; and liquid, gaseous, or solid synthetic fuels produced from coal (including lignite), including such fuels when used as feedstocks.

Section 29(d)(1) provides that the credit is to be applied only for sale of qualified fuels the production of which is within the United States (within the meaning of § 638(1)) or a possession of the United States (within the meaning of § 638(2)).

Section 29(d)(2)(A) requires that the Secretary, not later than April 1 of each calendar year, determine and publish in the Federal Register the inflation adjustment factor and the reference price for the preceding calendar year.

Section 29(d)(2)(B) defines “inflation adjustment factor” for a calendar year as the fraction the numerator of which is the GNP implicit price deflator for the calendar year and the denominator of which is the GNP implicit price deflator for calendar year 1979. The term “GNP implicit price deflator” means the first revision of the implicit price deflator for the gross national product as computed and published by the Department of Commerce.

Section 29(d)(2)(C) defines “reference price” to mean with respect to a calendar year the Secretary’s estimate of the annual average wellhead price per barrel for all domestic crude oil the price of which is not subject to regulation by the United States.

Section 29(d)(3) provides that in the case of a property or facility in which more than one person has an interest, except to the extent provided in regulations prescribed by the Secretary, production from the property or facility (as the case may be) must be allocated among the persons in proportion to their respective interests in the gross sales from the property or facility.

Section 29(d)(5) and (6) provides that the term “barrel-of-oil equivalent” with respect to any fuel generally means that amount of the fuel which has a Btu content of 5.8 million.

INFLATION ADJUSTMENT FACTOR AND REFERENCE PRICE

The inflation adjustment factor for calendar year 2001 is 2.0917. The reference price for calendar year 2001 is $21.86. These amounts will be published in the Federal Register on April 5, 2002.

PHASEOUT CALCULATION

Because the calendar year 2001 reference price does not exceed $23.50 multiplied by the inflation adjustment factor, the phaseout of the credit provided for in § 29(b)(1) does not occur for any qualified fuel sold in calendar year 2001.

CREDIT AMOUNT

The nonconventional source fuel credit under § 29(a) is $6.28 per barrel-of-oil equivalent of qualified fuels ($3.00 x 2.0917). This amount will be published in the Federal Register on April 5, 2002.

DRAFTING INFORMATION CONTACT

The principal author of this notice is Jaime Park of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this notice, contact Ms. Park at (202) 622–3120 (not a toll-free call).

26 CFR 601.601: Rules and regulations. (Also Part I, §§ 25, 103, 143; 1.25–4T, 1.103–1, 6a.103A–2.)

Rev. Proc. 2002–24