INCOME TAX

REG–136311–01, page 485. Proposed regulations explain when a foreign corporation engaged in the international operation of ships or aircraft may exclude its U.S. source income from gross income for U.S. federal income tax purposes. The rule applies if such a corporation is organized in a foreign country that grants an equivalent exemption to corporations organized in the United States, and the foreign corporation satisfies certain ownership requirements. A public hearing is scheduled for November 12, 2002. REG–208280–86 withdrawn.

Notice 2002–55, page 481. Under Rev. Proc. 2002–41, certain employers in the pipeline construction industry may use an optional expense substantiation rule for certain employee business expenses. The Rev. Proc. is effective for reimbursements paid on or after January 1, 2003. In response to employer comments, this notice provides that these employers may elect to implement the provisions of Rev. Proc. 2002–41 as of the date this notice is published in the Internal Revenue Bulletin.

Notice 2002–59, page 481. Split-dollar life insurance arrangements . This notice explains the standards for valuing current life insurance protection under a split-dollar life insurance arrangement. This document also informs taxpayers that certain techniques being used to understate the value of certain policy benefits distort the income, employment, or gift tax consequences of the arrangement and does not conform to, and is not permitted by, any published guidance.