SECTION 1. PURPOSE — Internal Revenue Bulletin 2002-42

.01 This revenue procedure updates Rev. Proc. 2001–52, 2001–2 C.B. 491, and identifies circumstances under which the disclosure on a taxpayer’s return of a position with respect to an item is adequate for the purpose of reducing the understatement of income tax under § 6662(d) of the Internal Revenue Code (relating to the substantial understatement aspect of the accuracyrelated penalty), and for the purpose of avoiding the preparer penalty under § 6694(a) (relating to understatements due to unrealistic positions). This revenue procedure does not apply with respect to any other penalty provisions (including the negligence or disregard provisions of the § 6662 accuracy-related penalty).

.02 This revenue procedure applies to any return filed on 2002 tax forms for a taxable year beginning in 2002, and to any re

Nulato Village

Nunakauyarmiut Tribe (formerly the

Native Village of Toksook Bay)

Nunapitchuk, Native Village of Nunapitchuk

Ohogamiut, Village of Ohogamiut

Old Harbor, Village of Old Harbor

Orutsararmuit Native Village (aka Bethel)

Oscarville Traditional Village

Ouzinkie, Native Village of Ouzinkie

Paimiut, Native Village of Paimiut

Pauloff Harbor Village

Pedro Bay Village

Perryville, Native Village of Perryville

Petersburg Indian Association

Pilot Point, Native Village of Pilot Point

Pilot Station Traditional Village

Pitka’s Point, Native Village of Pitka’s Point

Platinum Traditional Village

Point Hope, Native Village of Point Hope

Point Lay, Native Village of Point Lay

Port Graham, Native Village of Port

Graham

Port Heiden, Native Village of Port Heiden

Port Lions, Native Village of Port Lions

Portage Creek Village (aka Ohgsenakale)

Pribilof Islands Aleut Communities of

St. Paul and St. George Islands

Qagan Tayagungin Tribe of Sand Point

Village

Qawalangin Tribe of Unalaska

Rampart Village

Red Devil, Village of Red Devil

Ruby, Native Village of Ruby

Saint George Island (See Pribilof Islands

Aleut Communities of St. Paul and St. George Islands)

Saint Michael, Native Village of Saint

Michael

Saint Paul Island (See Pribilof Islands Aleut

Communities of St. Paul and St. George Islands)

Salamatoff, Village of Salamatoff

Savoonga, Native Village of Savoonga

Saxman, Organized Village of Saxman

Scammon Bay, Native Village of

Scammon Bay

Selawik, Native Village of Selawik

Seldovia Village Tribe

Shageluk Native Village

Shaktoolik, Native Village of Shaktoolik

Sheldon’s Point, Native Village of

Sheldon’s Point

Shishmaref, Native Village of Shishmaref

Shoonaq’ Tribe of Kodiak

Shungnak, Native Village of Shungnak

Sitka Tribe of Alaska

Skagway Village

Sleetmute, Village of Sleetmute

Solomon, Village of Solomon

South Naknek Village

Stebbins Community Association

Stevens, Native Village of Stevens

Stony River, Village of Stony River

Takotna Village

Tanacross, Native Village of Tanacross

Tanana, Native Village of Tanana

Tatitlek, Native Village of Tatitlek

Tazlina, Native Village of Tazlina

Telida Village

Teller, Native Village of Teller

Tetlin, Native Village of Tetlin

Tlingit and Haida, Central Council of

the Tlingit and Haida Indian Tribes

Togiak, Traditional Village of Togiak

Tuluksak Native Community

Tuntutuliak, Native Village of

Tuntutuliak

Tununak, Native Village of Tununak

Twin Hills Village

Tyonek, Native Village of Tyonek

Ugashik Village

Umkumiute Native Village

Unalakleet, Native Village of Unalakleet

Unga, Native Village of Unga

Village of Venetie (See Native Village of

Venetie Tribal Government)

Venetie, Native Village of Venetie Tribal

Government (Arctic Village and Village of Venetie)

Wainwright, Village of Wainwright

Wales, Native Village of Wales

2002–42 I.R.B. 724 October 21, 2002

is made and the amount claimed as a deduction exceeds $500, attach a properly completed Form 8283, Noncash Chari- table Contributions, to the return.

(e) Casualty and Theft Losses: Complete Form 4684, Casualties and Thefts, and attach to the return. Each item or article for which a casualty or theft loss is claimed must be listed on Form 4684.

(2) Certain Trade or Business Expenses (including, for purposes of this section 4.01(2), the following six expenses as they relate to the rental of property):

(a) Casualty and Theft Losses: The procedure outlined in section 4.01(1)(e) above must be followed.

(b) Legal Expenses: The amount claimed must be stated. This section 4.01(2)(b) does not apply, however, to amounts properly characterized as capital expenditures, personal expenses, or non-deductible lobbying or political expenditures, including amounts that are required to be (or that are) amortized over a period of years.

(d) Reasonableness of Officers’ Compensation: Form 1120, Schedule E, Compensation of Officers, must be completed when required by its instructions. The time devoted to business must be expressed as a percentage as opposed to “part” or “as needed.” This section 4.01(2)(d) does not apply to “golden parachute” payments, as defined under § 280G. This section 4.01(2)(d) will not apply to the extent that remuneration paid or incurred exceeds the $1 million-employee-remuneration limitation, if applicable.

(e) Repair Expenses: The amount claimed must be stated. This section 4.01(2)(e) does not apply, however, to any repair expenses properly characterized as capital expenditures or personal expenses.

(f) Taxes (other than foreign taxes): The amount claimed must be stated.

(3) Form 1120, Schedule M–1, Recon- ciliation of Income (Loss) per Books With Income per Return, provided:

(a) The amount of the deviation from the financial books and records is not the result of a computation that includes the netting of items; and

(b) The information provided reasonably may be expected to apprise the Internal Revenue Service of the nature of the potential controversy concerning the tax treatment of the item.

turn filed on 2002 tax forms in 2003 for short taxable years beginning in 2003.