Part I. Rulings — Internal Revenue Bulletin 2002-50

was due Employee F by $2,000. Employee F included the entire amount of the singlesum distribution in gross income in 2001. In 2002, Plan A’s administrator discovered the overpayment to Employee F. Pursuant to the plan’s procedures, the administrator of Plan A notified Employee F of the overpayment and demanded repayment with appropriate interest. In 2002, Employee F repaid $2,120 (the $2,000 overpayment plus $120 interest) to Plan A.

LAW AND ANALYSIS

Section 61(a) provides that, except as otherwise provided, gross income means all income from whatever source derived.

Section 402(a) provides that any amount actually distributed to any distributee from a qualified plan described in § 401(a) will be taxable to the distributee in the taxable year of distribution under § 72 (relating to annuities).

Section 165(a) provides that there shall be allowed as a deduction any loss sustained during the taxable year that is not compensated by insurance or otherwise. Section 165(c) limits the deduction under § 165(a) for individuals to losses incurred in a trade or business, losses incurred in transactions entered into for profit, and casualty losses. The performance of services as an employee is the carrying on of a trade or business. ( See Rev. Rul. 79–322, 1979–2 C.B. 76, and Rev. Rul. 82–178, 1982–2 C.B. 59.)

Section 67(a) provides that in the case of an individual, the miscellaneous itemized deductions for any taxable year shall be allowed only to the extent that the aggregate of such deductions exceeds 2-percent of adjusted gross income. Section 451(a) provides that the amount of any item of gross income shall be included in the taxable year in which received by the taxpayer unless the amount is to be properly accounted for in a different period.

Section 1.451–1(a) of the Income Tax Regulations provides that under the cash receipts and disbursements method of accounting, an item of income is included in gross income for the taxable year in which such item is actually or constructively received.

Section 1341(a) provides rules for the computation of tax where a taxpayer is en

Section 165.—Losses

Whether under the described facts, overpayments from qualified plans are deductible if the overpayment is offset or repaid to the qualified plan. See Rev. Rul. 2002–84, on this page.

Section 402.—Taxability of Beneficiary of Employees’ Trust

(Also: §§ 165 and 1341.)

Overpayment; offset and repayment. This ruling describes three situations where there are overpayments of benefits from a qualified plan within the meaning of section 401(a) of the Code, the tax consequences of those overpayments, and the subsequent offsets by the plan or repayment to the plan.

Rev. Rul. 2002–84

ISSUES

(1) Under the facts described below, what amount is required to be treated as a distribution in a year in which payments made to an individual by a qualified retirement plan described in § 401(a) of the Internal Revenue Code are reduced because, in a prior year, the individual received payments in excess of the amounts due to the individual?

(2) Under the facts described below, is an individual entitled to a deduction to reflect a payment to a qualified retirement plan described in § 401(a) to repay the plan for payments made by the plan to the individual in a prior year in excess of the amounts due to the individual in that prior year?

FACTS

Situation (1). Employer X maintains Plan A, a qualified defined benefit plan described in § 401(a). Plan A does not provide for employee contributions. At the beginning of 2001, Employee D retired and started to receive a straight life annual annuity of $36,000 from Plan A. Employee D included $36,000 in gross income in 2001. In June 2002, it was determined that Employee D’s annuity benefit had been

miscalculated and the annuity payment for 2001 should have been $35,000. Under the administrative procedures of Plan A, which are in accordance with the relevant correction procedures of the Employee Plans Compliance Resolution System (“EPCRS”), Rev. Proc. 2002–47, 2002–29 I.R.B. 133, erroneous payments from the plan can be corrected by recouping the entire excess payment made in 2001 from Employee D’s remaining benefit payments for 2002. Thus, Employee D’s annual straight life annuity benefit for 2002 of $35,000 is reduced to $33,940 to reflect the excess benefit amounts (increased by interest) that were paid from Plan A to Employee D during 2001. Situation (2). Employer Y maintains Plan B, a qualified defined benefit plan described in § 401(a). Plan B does not provide for employee contributions. Employee E, who is a participant in Plan B, retired in 1992 and started to receive an annual straight life annuity of $14,000 from Plan B. In November 2002, it was determined that Employee E’s annuity benefit had been miscalculated and that the annual payment for 1992 through 2001 should have been $13,000. Thus, Plan B overpaid Employee E by $1,000 per year for 10 years and Employee E included these amounts in gross income in the years received. Under the administrative procedures of Plan B, erroneous payments from the plan can be recouped by reducing future payments so that the actuarial present value of the reduction is equal to the erroneous overpayments plus interest attributable to the overpayment based on Plan B’s interest rate factors. Plan B’s correction method is consistent with the procedures of EPCRS. The administrator of Plan B determines that to recoup the overpayment, future payments should be reduced $900 annually for life commencing in 2002. Plan B adjusts Employee E’s annuity accordingly so that Employee E’s annual straight life annuity benefit of $13,000 is reduced for 2002 and subsequent years to $12,100 to reflect the excess benefit amounts (increased by interest) that were paid from Plan B to Employee E.

Situation (3). The facts are the same as in Situation (1), except that the benefit was paid to Employee F in a single-sum distribution in 2001. The amount of the singlesum distribution exceeded the amount that

2002–50 I.R.B. 953 December 16, 2002

cause the amount of the plan overpayment is attributable to compensation for services rendered to the employer. The deduction is allowable in the year that the single-sum repayment is paid by the taxpayer, but only if the taxpayer itemizes his deductions. A deduction under § 165(a) for an individual with losses that are incurred in a trade or business is considered a miscellaneous itemized deduction and, thus, is subject to the 2-percent floor established under § 67(a) for miscellaneous itemized deductions.

If the amount of the distribution in Situation (3) had instead exceeded the amount that was due Employee F by more than $3,000, the rules of § 1341 would apply in determining the taxpayer’s income tax liability for 2002. In applying the rules of § 1341, the deduction is determined without regard to the 2-percent floor as provided under § 67(b)(9).

HOLDINGS

Issue 1:

Under Situations (1) and (2), in which an individual’s payments from a qualified retirement plan are reduced in one or more taxable years to recoup overpayments made in prior taxable years and properly included in gross income in such prior years, only the amounts received by the individual after the plan’s required reduction to recoup an earlier plan overpayment are includible in the individual’s gross income in the taxable year of distribution. The individuals under Situations (1) and (2), with respect to the offset or adjustment, are not eligible for a deduction under § 165(a) for a loss incurred in a trade or business. Accordingly, in Situation (1), Employee D includes $33,940 as a distribution from Plan A under § 402(a) for 2002. Similarly, in Situation (2), Employee E includes $12,100 as a distribution from Plan B under § 402(a) for 2002 and for each subsequent year in which a distribution is received.

Issue 2:

Under Situation (3), when an individual repays in the current year an overpayment made by a qualified retirement plan in a previous year, the amount actually paid in the previous year was properly included in gross income. The amount of the repayment is deductible under § 165(a). Accord

titled to a deduction in excess of $3,000 as a result of restoring an amount included in gross income for a prior taxable year because it appeared that the taxpayer had an unrestricted right to such amount. The amount of the tax imposed on the taxpayer under § 1341 is the lesser of the tax for the taxable year computed with the deduction or an amount equal to the tax for the taxable year computed without the deduction but minus the decrease in tax for the prior tax year or years after excluding the income. Under § 67(b)(9), a deduction under § 1341 is not a miscellaneous itemized deduction subject to the 2-percent adjusted gross income floor of § 67(a).

Rev. Rul. 67–350, 1967–2 C.B. 58, which addresses the income tax treatment of a reduction in military retirement pay to offset a previously received lump-sum readjustment payment, holds that only the remainder of the retired reservist’s military retirement pay is includible in the retiree’s gross income. Thus, the retiree included in gross income only amounts that he actually or constructively received based on the principles of §§ 61 and 451.

Rev. Rul. 80–9, 1980–1 C.B. 11, holds that a taxpayer who had amounts withheld from his disability pay to repay a lump-sum readjustment payment is considered as never having received the amounts withheld. The ruling concluded that there was no constructive receipt of the withheld disability pay.

Rev. Rul. 82–178 holds that repayment of amounts by a rehired employee in order that certain employee benefits would be restored to the level that they were at the time the rehired employee was laid off is a loss incurred under § 165(c)(1).

Rev Rul. 79–322 holds that a repayment of amounts received by an employee for sick leave that was includible in the employee’s gross income in a prior taxable year is deductible as a business loss under § 165.

Sections 402(a) and 403(a) specifically address the tax treatment of distributions from qualified retirement plans. Under these provisions, amounts payable under a qualified retirement plan are included in gross income of the participant in the taxable year of distribution. The amounts are taxable to a distributee at the time of receipt, even though the distributee may be later obligated to repay amounts attributable to a plan overpayment in subsequent taxable years,

either by direct payment or by payment reduction. Consequently, in Situations (1), (2), and (3), the amounts attributable to a plan overpayment are distributions taxable under § 402(a) in the year of receipt.

In years after the year of the plan overpayment, under the facts presented in Situations (1) and (2), only the amounts received by the distributee after the plan’s required reduction to recoup an earlier plan overpayment are included in the distributee’s gross income in the taxable year of distribution. This ruling is consistent with Rev. Ruls. 67–350 and 80–9, which held that there was no constructive receipt of withheld military retirement pay that was used to offset amounts previously received as a lump-sum readjustment pay for reserve officers.

Consequently, the qualified retirement plan participants in Situations (1) and (2) who received distributions that included overpayments, and included the full amount of these distributions in gross income in the year of distribution, are in subsequent years only required to treat as distributions taxable under § 402(a) amounts distributed by the plan after offset or adjustment to correct for the prior overpayments. Because the participants in Situations (1) and (2) are not treated as receiving the amounts attributable to the offset or adjustment, these participants cannot take a loss deduction under § 165(a) as a result of such offset or adjustment. See Rev. Rul. 80–9. The tax result for Situations (1) and (2) is limited to situations in which the amount of the plan overpayment was included in the gross income of the participant for the year the overpayment was distributed to the participant and the qualified retirement plan has demanded the adjustment or offset to recoup the plan overpayment.

In contrast to Situations (1) and (2), in Situation (3), the overpayment is not recouped by a reduction in the amount of benefits paid to a participant but instead is repaid by the taxpayer directly in a singlesum payment. For overpayments repaid to a qualified retirement plan in the same taxable year as the overpayment, the amount repaid reduces the taxable amount received as a distribution by the participant from the plan in the taxable year. For overpayments repaid to a qualified retirement plan in a taxable year or years subsequent to the year of the overpayment, a participant would be entitled to a deduction under § 165(a) be

December 16, 2002 954 2002–50 I.R.B.

should be allowed to claim treaty benefits without obtaining an individual taxpayer identification number (ITIN).

This comment is not directly related to these proposed regulations. Exemptions from the requirement to furnish a TIN were addressed in final regulations promulgated under section 1441 (T.D. 8734, 1997–2 C.B. 109). The IRS and Treasury do not believe that there has been any change in circumstances that warrants a change of the rules contained in § 1.1441–6(c).

B. § 1.1441–1(e)(4)(ii)(B)(1) Indefinite Validity of a Withholding Certificate Provided Certain Conditions are Met

Under § 1.1441–1(e)(4)(ii)(A), a Form W–8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, generally will expire either at the end of the third calendar year following the date the certificate was signed or when a change in circumstances occurs that makes any information on the Form W–8BEN incorrect, whichever is earlier. Section 1.1441–1(e)(4)(ii)(B)( 1 ) permits a Form W–8BEN to remain valid indefinitely, provided the withholding agent reports at least one payment annually and the certificate contains a TIN.

One commentator requested that a Form W–8BEN remain valid indefinitely without regard to the requirement that it contain a TIN. The commentator also proposed that a Form W–8BEN remain valid indefinitely, even if the withholding agent reports no annual payments to the beneficial owner.

This comment is not directly related to these proposed regulations. The period of validity of a beneficial owner’s withholding certificate was addressed in final regulations promulgated under section 1441 (T.D. 8734). The IRS and Treasury do not believe that there has been any change in circumstances that warrants a change of the rules contained in § 1.1441–1(e)(4)(ii)(B)( 1 ). The IRS and Treasury continue to believe that it is important for taxpayers to recertify status periodically when no payments are reported because withholding agents would be unaware of any change in the taxpayer’s status.

C. § 1.1441–6(h)(2)(i) Special Acceptance Agent Requirement

The proposed regulations provide that a withholding agent, who is also an accep

ingly, the $2,120 repaid to Plan A is deductible for 2002, subject to the rules of § 67(a).

DRAFTING INFORMATION

The principal author of this revenue ruling is Michael Rubin of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this revenue ruling, please contact the Employee Plans’ taxpayer assistance telephone service at 1–877–829–5500 (a toll-free number), between the hours of 8:00 a.m. and 6:30 p.m. Eastern time, Monday through Friday. Mr. Rubin may be reached at 1–202–283–9888 (not a toll-free number).

Section 1341.—Computation of Tax Where Taxpayer Re- stores Substantial Amount Held Under Claim of Right

Whether under the described facts, an overpayment from a qualified plan is deductible as a claim of right when the overpayment from the qualified plan is offset. See Rev. Rul. 2002–84, page 953.

Section 1441.—Withholding of Tax on Nonresident Aliens

26 CFR 1.1441–1: Requirement for the deduction and withholding of tax on payments to foreign persons.

T.D. 9023

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 301

Taxpayer Identification Number Rule Where Taxpayer Claims Treaty Rate and Is Entitled to an Unexpected Payment

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

SUMMARY: This document contains final regulations that provide additional guid

ance needed to comply with the withholding rules under section 1441 and conforming changes to the regulations under section 6109. Specifically, these final regulations provide rules that facilitate compliance by withholding agents where foreign individuals who are claiming reduced rates of withholding under an income tax treaty receive an unexpected payment from the withholding agent and do not possess the required individual taxpayer identification number.

DATES: Effective date : These regulations are effective November 22, 2002.

Applicability date : For dates of applicability, see §§ 1.1441–6(h)(1) and 301.6109–1(g)(3).

FOR FURTHER INFORMATION CONTACT: Jonathan A. Sambur (202) 622–3840 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

On January 17, 2002, the IRS and Treasury published a notice of proposed rulemaking by cross reference to temporary regulations (REG–159079–01, 2002–6 I.R.B. 493) in the Federal Register (67 FR 2387), and temporary regulations in T.D. 8977, 2002–6 I.R.B. 463 (67 FR 2327), under section 1441 and conforming changes to the regulations under section 6109 of the Internal Revenue Code (Code). Written comments and requests for a public hearing were solicited. Several comments were received and are discussed below. No public hearing was requested. After consideration of all the comments, the proposed and temporary regulations under sections 1441 and 6109 are adopted as final regulations with no changes.

Summary of Public Comments and Explanation of Revisions

A. § 1.1441–6(c) Exemption from Requirement to Furnish a Taxpayer Identifying Number

Section 1.1441–6(c) provides an exemption from the requirement to furnish a taxpayer identifying number (TIN) for certain types of income.

One commentator suggested that a foreign individual receiving a distribution of a death benefit from a U.S. retirement plan

2002–50 I.R.B. 955 December 16, 2002

(g) Special taxpayer identifying number rule for certain foreign individuals claiming treaty benefits. (1) General rule. (2) Special rule. (3) Requirement that an ITIN be requested during the first business day following payment. (4) Definition of unexpected payment. (5) Examples. (h) Effective dates.

* * * * * Par. 3. Section 1.1441–1 is amended by adding paragraph (b)(7)(i)(D) to read as follows:

§ 1.1441–1 Requirement for the deduction and withholding of tax on payments to foreign persons.

* * * * * (b) * * * (7) * * * (i) * * * (D) The withholding agent has complied with the provisions of § 1.1441– 6(c) or (g).

* * * * *

§ 1.1441–1T [Removed]

Par. 4. Section 1.1441–1T is removed. Par. 5. Section 1.1441–6 is amended as follows:

The fifth sentence of paragraph (b)(1) is amended by removing the language “and § 1.1441–6T(h)” and adding “and § 1.1441– 6(g)” in its place.
Paragraph (g) is redesignated as paragraph (h) and new paragraph (g) is added.
Newly designated paragraph (h) section heading is revised.
Newly designated paragraph (h)(1) is revised.
Newly designated paragraph (h)(2) is amended by removing the language “(g)(2)” and adding “(h)(2)” in its place each place it appears in the third and fourth sentences.

The addition and revisions read as follows:

§ 1.1441–6 Claim of reduced withholding under an income tax treaty.

* * * * * (g) Special taxpayer identifying num- ber rule for certain foreign individuals claiming treaty benefits —(1) General rule. Except as provided in paragraph (c) or (g)(2) of this section, for purposes of para

tance agent, may enter into an agreement with the IRS that permits the acceptance agent to request an ITIN on an expedited basis because of the circumstances of payment or the unexpected nature of payments required to be made by the payor (special acceptance agent agreement). One commentator requested that certifying acceptance agents, as described in Rev. Proc. 96–52 (1996–2 C.B. 372), be permitted to utilize the expedited process, described in § 1.1441–6(h)(2), without entering into a special acceptance agent agreement with the IRS.

The commentator’s suggestion was not adopted. The purpose of entering into a special acceptance agent agreement with the IRS is to provide notice to the IRS that the acceptance agent is seeking to utilize the expedited process and to have the acceptance agent agree to follow the special procedures necessary to complete that process. In contrast, a certifying acceptance agent agreement permits the acceptance agent to review and certify the applicant’s ability to qualify for an ITIN. Because the purpose and scope of a certifying acceptance agent agreement differ from the purpose and scope of the special acceptance agent agreement, a separate agreement permitting the use of the expedited process must be entered into between the acceptance agent and the IRS.

D. § 1.1441–6(h)(2)(ii) Unexpected Payment Requirement

In order to lessen the administrative burden on foreign individuals receiving unexpected payments, the proposed regulations provide a limited exception to the requirement that a foreign individual provide a TIN to the withholding agent before obtaining a reduced rate of withholding tax under an income tax treaty. One commentator requested that the IRS should eliminate the unexpected payment requirement of § 1.1441–6(h)(2)(ii) and permit the use of the expedited process by any foreign individual regardless of whether the payor or payee knows of the impending payment.

The commentator’s suggestion was not adopted. The expedited process has been initiated in limited circumstances in order to lessen the administrative burden on foreign individuals receiving unexpected payments. Although the IRS is continuing to consider increasing the availability of this expedited process in the future, the par

ticular administrative issue addressed in these regulations generally does not exist with respect to expected payments. Thus, there is not a compelling reason to extend the expedited process at this time.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. These regulations impose no new collection of information on small entities; therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, the proposed regulations preceding these regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Drafting Information

The principal author of these regulations is Jonathan A. Sambur, Office of the Associate Chief Counsel (International). However, other personnel from the IRS and Treasury Department participated in their development.

* * * * *

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 301 are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.1441–0 is amended by redesignating the entries for paragraph (g) of § 1.1441–6 as paragraph (h) and revising the entry for newly designated paragraph (h), and adding new entries for paragraphs (g) through (g)(5) to read as follows:

§ 1.1441–0 Outline of regulations provisions for section 1441.

* * * * *

December 16, 2002 956 2002–50 I.R.B.

dependent personal services from U.S. tax. It is P’s first visit to the United States. On Saturday, prior to the start of the seminar, Professor Q, one of the lecturers at the seminar, cancels his lecture. That same day the Dean of University U offers P $5000, to replace Professor Q at the seminar, payable at the conclusion of the seminar on Monday. P agrees. P gives her lecture Sunday afternoon. ITINs are not available from the IRS on that Saturday, Sunday, or Monday. After the seminar ends on Monday, P, who does not have an ITIN, requests payment for her teaching. P furnishes a beneficial owner withholding certificate, described in § 1.1441–1(e)(2), to University U that represents that P is a resident of Country Z (within the meaning of the U.S. - Z tax treaty) and meets all applicable requirements for claiming benefits under the U.S. - Z tax treaty. The beneficial owner withholding certificate does not, however, contain an ITIN for P. On Tuesday, University U faxes a completed Form W–7, including the required certification, for P, to the IRS for an expedited ITIN. Pursuant to paragraph (b) and (g)(2) of this section, absent actual knowledge or reason to know otherwise, University U may rely on the documentation furnished by P and pay $5000 to P without withholding U.S. tax based on the treaty exemption.

(h) Effective dates —(1) General rule . This section applies to payments made after December 31, 2000, except for paragraph (g) of this section which applies to payments made after December 31, 2001.

* * * * *

Section 1.1441–6T [Removed]

Par. 6. Section 1.1441–6T is removed.

PART 301—PROCEDURE AND ADMINISTRATION

Par. 7. The authority for part 301 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 8. In § 301.6109–1, paragraph (g)(3) is revised to read as follows:

§ 301.6109–1 Identifying numbers.

* * * * * (g) * * * (3) Waiver of prohibition to disclose tax- payer information when acceptance agent acts. As part of its request for an IRS individual taxpayer identification number or submission of proof of foreign status with respect to any taxpayer identifying number, where the foreign person acts through an acceptance agent, the foreign person will agree to waive the limitations in section 6103 regarding the disclosure of certain taxpayer information. However, the waiver will apply only for purposes of permitting the Internal Revenue Service and the acceptance agent to communicate with each other regarding matters related to the assign

graph (b)(1) of this section, a withholding agent may not rely on a beneficial owner withholding certificate, described in paragraph (b)(1) of this section, that does not include the beneficial owner’s taxpayer identifying number (TIN).

(2) Special rule. For purposes of satisfying the TIN requirement of paragraph (b)(1) of this section, a withholding agent may rely on a beneficial owner withholding certificate, described in such paragraph, without regard to the requirement that the withholding certificate include the beneficial owner’s TIN, if (i) A withholding agent, who is also an acceptance agent, as defined in § 301.6109– 1(d)(3)(iv) of this chapter (the payor), has entered into an acceptance agreement that permits the acceptance agent to request an individual taxpayer identification number (ITIN) on an expedited basis because of the circumstances of payment or unexpected nature of payments required to be made by the payor;

(ii) The payor was required to make an unexpected payment to the beneficial owner who is a foreign individual;

(iii) An ITIN for the beneficial owner cannot be received by the payor from the Internal Revenue Service (IRS) because the IRS is not issuing ITINs at the time of payment or any time prior to the time of payment when the payor has knowledge of the unexpected payment;

(iv) The unexpected payment to the beneficial owner could not be reasonably delayed to permit the payor to obtain an ITIN for the beneficial owner on an expedited basis; and

(v) The payor satisfies the provisions of paragraph (g)(3) of this section.

(3) Requirement that an ITIN be re- quested during the first business day fol- lowing payment. The payor must submit a beneficial owner payee application for an ITIN (Form W–7, Application for IRS In- dividual Taxpayer Identification Number ) that complies with the requirements of § 301.6109–1(d)(3)(ii) of this chapter, and also the certification described in § 301.6109–1(d)(3)(iv)(A)( 4 ) of this chapter, to the IRS during the first business day after payment is made.

(4) Definition of unexpected payment. For purposes of this section, an unexpected payment is a payment that, because of the nature of the payment or the circumstances in which it is made, could not reasonably

have been anticipated by the payor or beneficial owner during a time when the payor or beneficial owner could obtain an ITIN from the IRS. For purposes of this paragraph (g)(4), a payor or beneficial owner will not lack the requisite knowledge of the forthcoming payment solely because the amount of the payment is not fixed.

(5) Examples. The rules of this paragraph (g) are illustrated by the following examples:

Example 1. G, a citizen and resident of Country Y, a country with which the United States has an income tax treaty that exempts U.S. source gambling winnings from U.S. tax, is visiting the United States for the first time. During his visit, G visits Casino B, a casino that has entered into a special acceptance agent agreement with the IRS that permits Casino B to request an ITIN on an expedited basis. During that visit, on a Sunday, G wins $5000 in slot machine play at Casino B and requests immediate payment from Casino B. ITINs are not available from the IRS on Sunday and would not again be available until Monday. G, who does not have an individual taxpayer identification number, furnishes a beneficial owner withholding certificate, described in § 1.1441–1(e)(2), to the Casino upon winning at the slot machine. The beneficial owner withholding certificate represents that G is a resident of Country Y (within the meaning of the U.S. - Y tax treaty) and meets all applicable requirements for claiming benefits under the U.S. - Y tax treaty. The beneficial owner withholding certificate does not, however, contain an ITIN for G. On the following Monday, Casino B faxes a completed Form W–7, including the required certification, for G, to the IRS for an expedited ITIN. Pursuant to paragraph (b) and (g)(2) of this section, absent actual knowledge or reason to know otherwise, Casino B, may rely on the documentation furnished by G at the time of payment and pay the $5000 to G without withholding U.S. tax based on the treaty exemption.

Example 2. The facts are the same as Example 1, except G visits Casino B on Monday. G requests payment Monday afternoon. In order to pay the winnings to G without withholding the 30 percent tax, Casino B must apply for and obtain an ITIN for G because an expedited ITIN is available from the IRS at the time of the $5000 payment to G.

Example 3. The facts are the same as Example 1, except G requests payment fifteen minutes before the time when the IRS begins issuing ITINs. Under these facts, it would be reasonable for Casino B to delay payment to G. Therefore, Casino B must apply for and obtain an ITIN for G if G wishes to claim an exemption from U.S. withholding tax under the U.S. - Y tax treaty at the time of payment.

Example 4. P, a citizen and resident of Country Z, is a lawyer and a well-known expert on real estate transactions. P is scheduled to attend a three-day seminar on complex real estate transactions, as a participant, at University U, a U.S. university, beginning on a Saturday and ending on the following Monday, which is a holiday. University U has entered into a special acceptance agent agreement with the IRS that permits University U to request an ITIN on an expedited basis. Country Z is a country with which the United States has an income tax treaty that exempts certain income earned from the performance of in

2002–50 I.R.B. 957 December 16, 2002

interest rates to be used for overpayments and underpayments of tax under § 6621, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with § 6621 which, pursuant to § 6622, is subject to daily compounding.

Rounded to the nearest full percent, the federal short-term rate based on daily compounding determined during the month of October 2002 is 2 percent. Accordingly, an overpayment rate of 5 percent (4 percent in the case of a corporation) and an underpayment rate of 5 percent are established for the calendar quarter beginning January 1, 2003. The overpayment rate for the portion of a corporate overpayment exceeding $10,000 for the calendar quarter beginning January 1, 2003, is 2.5 percent. The underpayment rate for large corporate underpayments for the calendar quarter beginning January 1, 2003, is 7 percent. These rates apply to amounts bearing interest during that calendar quarter.

The 5 percent rate also applies to estimated tax underpayments for the first calendar quarter in 2003 and for the first 15 days in April 2003.

Interest factors for daily compound interest for annual rates of 2.5 percent, 4 percent, 5 percent, and 7 percent are published in Tables 10, 13, 15, and 19 of Rev. Proc. 95–17, 1995–1 C.B. 556, 564, 567, 569, and 573. Annual interest rates to be compounded daily pursuant to § 6622 that apply for prior periods are set forth in the tables accompanying this revenue ruling.

DRAFTING INFORMATION

The principal author of this revenue ruling is Raymond Bailey of the Office of Associate Chief Counsel (Procedure & Administration), Administrative Provisions & Judicial Practice Division. For further information regarding this revenue ruling, contact Mr. Bailey at (202) 622– 6226 (not a toll-free call).

ment of a taxpayer identifying number, including disclosure of any taxpayer identifying number previously issued to the foreign person, and change of foreign status. This paragraph (g)(3) applies to payments made after December 31, 2001.

* * * * *

§ 301.6109–1T [Removed]

Par. 9. Section 301.6109–1T is removed.

Robert E. Wenzel, Deputy Commissioner of

Internal Revenue.

Approved November 13, 2002.

Pamela F. Olson, Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register on November 21, 2002, 8:45 a.m., and published in the issue of the Federal Register for November 22, 2002, 67 F.R. 70310)

Section 6621.—Determina- tion of Interest Rate

26 CFR 301.6621–1: Interest rate.

Interest rates; underpayments and overpayments. The rate of interest determined under section 6621 of the Code for the calendar quarter beginning January 1, 2003, will be 5 percent for overpayments (4 percent in the case of a corporation), 5 percent for underpayments, and 7 percent for large corporate underpayments. The rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 2.5 percent.

Rev. Rul. 2002–70

Section 6621 of the Internal Revenue Code establishes the rates for interest on tax overpayments and tax underpayments. Under § 6621(a)(1), the overpayment rate beginning January 1, 2003, is the sum of the

federal short-term rate plus 3 percentage points (2 percentage points in the case of a corporation), except the rate for the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the sum of the federal short-term rate plus 0.5 of a percentage point for interest computations made after December 31, 1994. Under § 6621(a)(2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points. Section 6621(c) provides that for purposes of interest payable under § 6601 on any large corporate underpayment, the underpayment rate under § 6621(a)(2) is determined by substituting “5 percentage points” for “3 percentage points.” See § 6621(c) and § 301.6621–3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date. Section 6621(c) and § 301.6621–3 are generally effective for periods after December 31, 1990.

Section 6621(b)(1) provides that the Secretary will determine the federal shortterm rate for the first month in each calendar quarter.

Section 6621(b)(2)(A) provides that the federal short-term rate determined under § 6621(b)(1) for any month applies during the first calendar quarter beginning after such month.

Section 6621(b)(2)(B) provides that in determining the addition to tax under § 6654 for failure to pay estimated tax for any taxable year, the federal short-term rate that applies during the third month following such taxable year also applies during the first 15 days of the fourth month following such taxable year.

Section 6621(b)(3) provides that the federal short-term rate for any month is the federal short-term rate determined during such month by the Secretary in accordance with § 1274(d), rounded to the nearest full percent (or, if a multiple of 1/2 of 1 percent, the rate is increased to the next highest full percent).

Notice 88–59, 1988–1 C.B. 546, announced that, in determining the quarterly

December 16, 2002 958 2002–50 I.R.B.

TABLE OF INTEREST RATES PERIODS BEFORE JUL. 1, 1975 - PERIODS ENDING DEC. 31, 1986

OVERPAYMENTS AND UNDERPAYMENTS

In 1995–1 C.B.

PERIOD RATE DAILY RATE TABLE

Before Jul. 1, 1975 6% Table 2, pg. 557 Jul. 1, 1975—Jan. 31, 1976 9% Table 4, pg. 559 Feb. 1, 1976—Jan. 31, 1978 7% Table 3, pg. 558 Feb. 1, 1978—Jan. 31, 1980 6% Table 2, pg. 557 Feb. 1, 1980—Jan. 31, 1982 12% Table 5, pg. 560 Feb. 1, 1982—Dec. 31, 1982 20% Table 6, pg. 560 Jan. 1, 1983—Jun. 30, 1983 16% Table 37, pg. 591 Jul. 1, 1983—Dec. 31, 1983 11% Table 27, pg. 581 Jan. 1, 1984—Jun. 30, 1984 11% Table 75, pg. 629 Jul. 1, 1984—Dec. 31, 1984 11% Table 75, pg. 629 Jan. 1, 1985—Jun. 30, 1985 13% Table 31, pg. 585 Jul. 1, 1985—Dec. 31, 1985 11% Table 27, pg. 581 Jan. 1, 1986—Jun. 30, 1986 10% Table 25, pg. 579 Jul. 1, 1986—Dec. 31, 1986 9% Table 23, pg. 577

PERIOD RATE

TABLE OF INTEREST RATES FROM JAN. 1, 1987 - Dec. 31, 1998

OVERPAYMENTS UNDERPAYMENTS 1995–1 C.B. 1995–1 C.B. RATE TABLE PG RATE TABLE PG Jan. 1, 1987—Mar. 31, 1987 8% 21 575 9% 23 577 Apr. 1, 1987—Jun. 30, 1987 8% 21 575 9% 23 577 Jul. 1, 1987—Sep. 30, 1987 8% 21 575 9% 23 577 Oct. 1, 1987—Dec. 31, 1987 9% 23 577 10% 25 579 Jan. 1, 1988—Mar. 31, 1988 10% 73 627 11% 75 629 Apr. 1, 1988—Jun. 30, 1988 9% 71 625 10% 73 627 Jul. 1, 1988—Sep. 30, 1988 9% 71 625 10% 73 627 Oct. 1, 1988—Dec. 31, 1988 10% 73 627 11% 75 629 Jan. 1, 1989—Mar. 31, 1989 10% 25 579 11% 27 581 Apr. 1, 1989—Jun. 30, 1989 11% 27 581 12% 29 583 Jul. 1, 1989—Sep. 30, 1989 11% 27 581 12% 29 583 Oct. 1, 1989—Dec. 31, 1989 10% 25 579 11% 27 581 Jan. 1, 1990—Mar. 31, 1990 10% 25 579 11% 27 581 Apr. 1, 1990—Jun. 30, 1990 10% 25 579 11% 27 581 Jul. 1, 1990—Sep. 30, 1990 10% 25 579 11% 27 581 Oct. 1, 1990—Dec. 31, 1990 10% 25 579 11% 27 581 Jan. 1, 1991—Mar. 31, 1991 10% 25 579 11% 27 581 Apr. 1, 1991—Jun. 30, 1991 9% 23 577 10% 25 579 Jul. 1, 1991—Sep. 30, 1991 9% 23 577 10% 25 579 Oct. 1, 1991—Dec. 31, 1991 9% 23 577 10% 25 579 Jan. 1, 1992—Mar. 31, 1992 8% 69 623 9% 71 625 Apr. 1, 1992—Jun. 30, 1992 7% 67 621 8% 69 623 Jul. 1, 1992—Sep. 30, 1992 7% 67 621 8% 69 623 Oct. 1, 1992—Dec. 31, 1992 6% 65 619 7% 67 621 Jan. 1, 1993—Mar. 31, 1993 6% 17 571 7% 19 573 Apr. 1, 1993—Jun. 30, 1993 6% 17 571 7% 19 573

2002–50 I.R.B. 959 December 16, 2002

TABLE OF INTEREST RATES FROM JAN. 1, 1987 - Dec. 31, 1998—Continued

OVERPAYMENTS UNDERPAYMENTS 1995—1 C.B. 1995—1 C.B. RATE TABLE PG RATE TABLE PG Jul. 1, 1993—Sep. 30, 1993 6% 17 571 7% 19 573 Oct. 1, 1993—Dec. 31, 1993 6% 17 571 7% 19 573 Jan. 1, 1994—Mar. 31, 1994 6% 17 571 7% 19 573 Apr. 1, 1994—Jun. 30, 1994 6% 17 571 7% 19 573 Jul. 1, 1994—Sep. 30, 1994 7% 19 573 8% 21 575 Oct. 1, 1994—Dec. 31, 1994 8% 21 575 9% 23 577 Jan. 1, 1995—Mar. 31, 1995 8% 21 575 9% 23 577 Apr. 1, 1995—Jun. 30, 1995 9% 23 577 10% 25 579 Jul. 1, 1995—Sep. 30, 1995 8% 21 575 9% 23 577 Oct. 1, 1995—Dec. 31, 1995 8% 21 575 9% 23 577 Jan. 1, 1996—Mar. 31, 1996 8% 69 623 9% 71 625 Apr. 1, 1996—Jun. 30, 1996 7% 67 621 8% 69 623 Jul. 1, 1996—Sep. 30, 1996 8% 69 623 9% 71 625 Oct. 1, 1996—Dec. 31, 1996 8% 69 623 9% 71 625 Jan. 1, 1997—Mar. 31, 1997 8% 21 575 9% 23 577 Apr. 1, 1997—Jun. 30, 1997 8% 21 575 9% 23 577 Jul. 1, 1997—Sep. 30, 1997 8% 21 575 9% 23 577 Oct. 1, 1997—Dec. 31, 1997 8% 21 575 9% 23 577 Jan. 1, 1998—Mar. 31, 1998 8% 21 575 9% 23 577 Apr. 1, 1998—Jun. 30, 1998 7% 19 573 8% 21 575 Jul. 1, 1998—Sep. 30, 1998 7% 19 573 8% 21 575 Oct. 1, 1998—Dec. 31, 1998 7% 19 573 8% 21 575

TABLE OF INTEREST RATES FROM JANUARY 1, 1999 - PRESENT NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS

1995–1 C.B. RATE TABLE PAGE Jan. 1, 1999—Mar. 31, 1999 7% 19 573 Apr. 1, 1999—Jun. 30, 1999 8% 21 575 Jul. 1, 1999—Sep. 30, 1999 8% 21 575 Oct. 1, 1999—Dec. 31, 1999 8% 21 575 Jan. 1, 2000—Mar. 31, 2000 8% 69 623 Apr. 1, 2000—Jun. 30, 2000 9% 71 625 Jul. 1, 2000—Sep. 30, 2000 9% 71 625 Oct. 1, 2000—Dec. 31, 2000 9% 71 625 Jan. 1, 2001—Mar. 31, 2001 9% 23 577 Apr. 1, 2001—Jun. 30, 2001 8% 21 575 Jul. 1, 2001—Sep. 30, 2001 7% 19 573 Oct. 1, 2001—Dec. 31, 2001 7% 19 573 Jan. 1, 2002—Mar. 31, 2002 6% 17 571 Apr. 1, 2002—Jun. 30, 2002 6% 17 571 Jul. 1, 2002—Sep. 30, 2002 6% 17 571 Oct. 1, 2002—Dec. 31, 2002 6% 17 571 Jan 1, 2003—Mar. 31, 2003 5% 15 569

December 16, 2002 960 2002–50 I.R.B.

TABLE OF INTEREST RATES FROM JANUARY 1, 1999 - PRESENT CORPORATE OVERPAYMENTS AND UNDERPAYMENTS

OVERPAYMENTS UNDERPAYMENTS 1995–1 C.B. 1995–1 C.B. RATE TABLE PG RATE TABLE PG Jan. 1, 1999—Mar. 31, 1999 6% 17 571 7% 19 573 Apr. 1, 1999—Jun. 30, 1999 7% 19 573 8% 21 575 Jul. 1, 1999—Sep. 30, 1999 7% 19 573 8% 21 575 Oct. 1, 1999—Dec. 31, 1999 7% 19 573 8% 21 575 Jan. 1, 2000—Mar. 31, 2000 7% 67 621 8% 69 623 Apr. 1, 2000—Jun. 30, 2000 8% 69 623 9% 71 625 Jul. 1, 2000—Sep. 30, 2000 8% 69 623 9% 71 625 Oct. 1, 2000—Dec. 31, 2000 8% 69 623 9% 71 625 Jan. 1, 2001—Mar. 31, 2001 8% 21 575 9% 23 577 Apr. 1, 2001—Jun. 30, 2001 7% 19 573 8% 21 575 Jul. 1, 2001—Sep. 30, 2001 6% 17 571 7% 19 573 Oct. 1, 2001—Dec. 31, 2001 6% 17 571 7% 19 573 Jan. 1, 2002—Mar. 31, 2002 5% 15 569 6% 17 571 Apr. 1, 2002—Jun. 30, 2002 5% 15 569 6% 17 571 Jul. 1, 2002—Sep. 30, 2002 5% 15 569 6% 17 571 Oct. 1, 2002—Dec. 31, 2002 5% 15 569 6% 17 571 Jan. 1, 2003—Mar. 31, 2003 4% 13 567 5% 15 569

TABLE OF INTEREST RATES FOR LARGE CORPORATE UNDERPAYMENTS

FROM JANUARY 1, 1991 - PRESENT

1995–1 C.B. RATE TABLE PG Jan. 1, 1991—Mar. 31, 1991 13% 31 585 Apr. 1, 1991—Jun. 30, 1991 12% 29 583 Jul. 1, 1991—Sep. 30, 1991 12% 29 583 Oct. 1, 1991—Dec. 31, 1991 12% 29 583 Jan. 1, 1992—Mar. 31, 1992 11% 75 629 Apr. 1, 1992—Jun. 30, 1992 10% 73 627 Jul. 1, 1992—Sep. 30, 1992 10% 73 627 Oct. 1, 1992—Dec. 31, 1992 9% 71 625 Jan. 1, 1993—Mar. 31, 1993 9% 23 577 Apr. 1, 1993—Jun. 30, 1993 9% 23 577 Jul. 1, 1993—Sep. 30, 1993 9% 23 577 Oct. 1, 1993—Dec. 31, 1993 9% 23 577 Jan. 1, 1994—Mar. 31, 1994 9% 23 577 Apr. 1, 1994—Jun. 30, 1994 9% 23 577 Jul. 1, 1994—Sep. 30, 1994 10% 25 579 Oct. 1, 1994—Dec. 31, 1994 11% 27 581 Jan. 1, 1995—Mar. 31, 1995 11% 27 581 Apr. 1, 1995—Jun. 30, 1995 12% 29 583 Jul. 1, 1995—Sep. 30, 1995 11% 27 581 Oct. 1, 1995—Dec. 31, 1995 11% 27 581

2002–50 I.R.B. 961 December 16, 2002

TABLE OF INTEREST RATES FOR LARGE CORPORATE UNDERPAYMENTS FROM JANUARY 1, 1991 - PRESENT—Continued

1995–1 C.B. RATE TABLE PG Jan. 1, 1996—Mar. 31, 1996 11% 75 629 Apr. 1, 1996—Jun. 30, 1996 10% 73 627 Jul. 1, 1996—Sep. 30, 1996 11% 75 629 Oct. 1, 1996—Dec. 31, 1996 11% 75 629 Jan 1, 1997—Mar. 31, 1997 11% 27 581 Apr. 1, 1997—Jun. 30, 1997 11% 27 581 Jul. 1, 1997—Sep. 30, 1997 11% 27 581 Oct. 1, 1997—Dec. 31, 1997 11% 27 581 Jan. 1, 1998—Mar. 31, 1998 11% 27 581 Apr. 1, 1998—Jun. 30, 1998 10% 25 579 Jul. 1, 1998—Sep. 30, 1998 10% 25 579 Oct. 1, 1998—Dec. 31, 1998 10% 25 579 Jan. 1, 1999—Mar. 31, 1999 9% 23 577 Apr. 1, 1999—Jun. 30, 1999 10% 25 579 Jul. 1, 1999—Sep. 30, 1999 10% 25 579 Oct. 1, 1999—Dec. 31, 1999 10% 25 579 Jan. 1, 2000—Mar. 31, 2000 10% 73 627 Apr. 1, 2000—Jun. 30, 2000 11% 75 629 Jul. 1, 2000—Sep. 30, 2000 11% 75 629 Oct. 1, 2000—Dec. 31, 2000 11% 75 629 Jan. 1, 2001—Mar. 31, 2001 11% 27 581 Apr. 1, 2001—Jun. 30, 2001 10% 25 579 Jul. 1, 2001—Sep. 30, 2001 9% 23 577 Oct. 1, 2001—Dec. 31, 2001 9% 23 577 Jan. 1, 2002—Mar. 31, 2002 8% 21 575 Apr. 1, 2002—Jun. 30, 2002 8% 21 575 Jul. 1, 2002—Sep. 30, 2002 8% 21 575 Oct. 1, 2002—Dec. 30, 2002 8% 21 575 Jan. 1, 2003—Mar. 31, 2003 7% 19 573

TABLE OF INTEREST RATES FOR CORPORATE OVERPAYMENTS EXCEEDING $10,000

FROM JANUARY 1, 1995 - PRESENT

1995–1 C.B. RATE TABLE PG Jan. 1, 1995—Mar. 31, 1995 6.5% 18 572 Apr. 1, 1995—Jun. 30, 1995 7.5% 20 574 Jul. 1, 1995—Sep. 30, 1995 6.5% 18 572 Oct. 1, 1995—Dec. 31, 1995 6.5% 18 572 Jan. 1, 1996—Mar. 31, 1996 6.5% 66 620 Apr. 1, 1996—Jun. 30, 1996 5.5% 64 618 Jul. 1, 1996—Sep. 30, 1996 6.5% 66 620 Oct. 1, 1996—Dec. 31, 1996 6.5% 66 620 Jan. 1, 1997—Mar. 31, 1997 6.5% 18 572

December 16, 2002 962 2002–50 I.R.B.

TABLE OF INTEREST RATES FOR CORPORATE OVERPAYMENTS EXCEEDING $10,000

FROM JANUARY 1, 1995 - PRESENT—Continued

1995–1 C.B. RATE TABLE PG Apr. 1, 1997—Jun. 30, 1997 6.5% 18 572 Jul. 1, 1997—Sep. 30, 1997 6.5% 18 572 Oct. 1, 1997—Dec. 31, 1997 6.5% 18 572 Jan. 1, 1998—Mar. 31, 1998 6.5% 18 572 Apr. 1, 1998—Jun. 30, 1998 5.5% 16 570 Jul. 1, 1998—Sep. 30, 1998 5.5% 16 570 Oct. 1, 1998—Dec. 31, 1998 5.5% 16 570 Jan. 1, 1999—Mar. 31, 1999 4.5% 14 568 Apr. 1, 1999—Jun. 30, 1999 5.5% 16 570 Jul. 1, 1999—Sep. 30, 1999 5.5% 16 570 Oct. 1, 1999—Dec. 31, 1999 5.5% 16 570 Jan. 1, 2000—Mar. 31, 2000 5.5% 64 618 Apr. 1, 2000—Jun. 30, 2000 6.5% 66 620 Jul. 1, 2000—Sep. 30, 2000 6.5% 66 620 Oct. 1, 2000—Dec. 31, 2000 6.5% 66 620 Jan. 1, 2001—Mar. 31, 2001 6.5% 18 572 Apr. 1, 2001—Jun. 30, 2001 5.5% 16 570 Jul. 1, 2001—Sep. 30, 2001 4.5% 14 568 Oct. 1, 2001—Dec. 31, 2001 4.5% 14 568 Jan. 1, 2002—Mar. 31, 2002 3.5% 12 566 Apr. 1, 2002—Jun. 30, 2002 3.5% 12 566 Jul. 1, 2002—Sep. 30, 2002 3.5% 12 566 Oct. 1, 2002—Dec. 31, 2002 3.5% 12 566 Jan. 1, 2003—Mar. 31, 2003 2.5% 10 564

2002–50 I.R.B. 963 December 16, 2002