SECTION 4. DRAFTING

INFORMATION

The principal author of this notice is Rebecca E. Asta of the Office of the Associate Chief Counsel (Financial Institutions and Products). For further information regarding this notice, contact Ms. Asta at (202) 622–3930 or Lane Damazo of the Office of the Associate Chief Counsel (Passthroughs and Special Industries) at (202) 622–3090 (not toll-free calls).

Reduced Maximum Exclusion of Gain From Sale or Exchange of Principal Residence for Taxpayers Affected by the September 11, 2001, Terrorist Attacks

Notice 2002–60

This notice informs taxpayers affected by the September 11, 2001, terrorist attacks of the circumstances under which they may qualify for the reduced maximum exclusion of gain on the sale or exchange of a principal residence provided by § 121(c) of the Internal Revenue Code for taxpayers who have not owned and used their principal residence for 2 of the 5 years preceding the sale or exchange or who have applied § 121 to the sale or exchange of a principal residence in the last 2 years. This treatment is consistent with the approach the Service intends to take in final regulations under § 121.

Reduced Maximum Exclusion by Reason of Unforeseen Circumstances

Section 121 allows a taxpayer to exclude up to $250,000 ($500,000 for certain joint returns) of gain realized on the sale or exchange of the taxpayer’s principal residence. For the maximum exclusion to apply, § 121(b) requires the taxpayer to have both owned and used the property as the taxpayer’s principal residence for at least 2 years during the 5-year period

nomic benefits received under an equity split-dollar life insurance arrangement under the economic benefit regime. However, for an equity split-dollar life insurance arrangement entered into on or before the date of publication of final regulations, in order for the parties to rely on the proposed regulations, the value of all economic benefits taken into account by the parties under the economic benefit regime must exceed the value of the current life insurance protection (determined using the life insurance premium factor designated in guidance published in the Internal Revenue Bulletin), thereby reflecting the fact that such an arrangement provides the nonowner with economic benefits that are more valuable than current life insurance protection.

The proposed regulations provide no new guidance on the valuation of current life insurance protection. In a footnote quoted immediately below, however, the preamble of those proposed regulations indicates that Part III.1 of Notice 2002–8 provides for only limited availability of the P.S. 58 rates for taxable years beginning after December 31, 2001:

Notice 2002–8 also provides that an employer and employee may continue to use the P.S. 58 rates set forth in Rev. Rul. 55–747 (1955–2 C.B. 228), which was revoked by Notice 2001–10, only with respect to splitdollar life insurance arrangements entered into before January 28, 2002, in which a contractual arrangement between the employer and employee provides that the P.S. 58 rates will be used to determine the value of the current life insurance protection provided to the employee (or to the employee and one or more additional persons). Taxpayers may not use the P.S. 58 rates for “reverse” split-dollar life insurance arrangements or for split-dollar life insurance arrangements outside of the compensatory context.