Part IV. Items of General Interest

New Form 8876, Excise Tax on Structured Settlement Factoring Transactions

Announcement 2003–33

The IRS has released new Form 8876, Excise Tax on Structured Settlement Fac- toring Transactions . Use Form 8876 to report and pay the 40% excise tax imposed under section 5891 on the factoring discount.

You can obtain Form 8876 by telephone or by using IRS electronic information services.

Request by Number or Address

Telephone 1–800–TAX–FORM (1–800–829–3676) Personal computer:

IRS web site www.irs.gov File transfer protocol ftp.irs.gov

Brentwood Area Soccer Association

BASA, Pittsburgh, PA Bridge to Tomorrow Housing, Inc.,

Foundations Status of Certain Organizations

Announcement 2003–34

The following organizations have failed to establish or have been unable to maintain their status as public charities or as operating foundations. Accordingly, grantors and contributors may not, after this date, rely on previous rulings or designations in the Cumulative List of Organizations (Publication 78), or on the presumption arising from the filing of notices under section 508(b) of the Code. This listing does not indicate that the organizations have lost their status as organizations described in section 501(c)(3), eligible to receive deductible contributions.

Former Public Charities. The following organizations (which have been treated as organizations that are not private foundations described in section 509(a) of the Code) are now classified as private foundations:

Apex Financial Support Group, Inc.,

Long Beach, CA Baldwyn Childrens Home, Saltillo, MS Bean Station PTO, Bean Station, TN Bible Research Study Institute,

Lansing, MI Christian Faculty and Staff Fellowship,

East Meadow, NY Appalachian Focus, Inc.,

Middlesboro, KY Arizona Education Academy,

Phoenix, AZ Arkansas Friends for Better Schools,

Mineola, NY British Film Festival, West Jordan, UT Broadreach Foundation, Raleigh, NC Burlington Iowa Stepperettes &

Travelers, Burlington, IA Byron Center Band and Orchestra

Little Rock, AR Arrowhead Elementary Parents and

Boosters, Kentwood, MI Capital Area Resource Center of the

Teachers Organization, Lewis Center, OH Arsenal Football Associates, Ltd.,

Mt. Lake Park, MD Arts for Art, Inc., New York, NY Asheville Puppetry Alliance,

Deaf and Hard of Hearing, Inc., Richmond, VA Caprock Childrens Services,

Fairview, NC Ashland United Soccer, Ashland, OH Asylum, Las Vegas, NV Baker Brownsfield Athletic Association,

Lubbock, TX Center for Youth Activism,

Orlando, FL Cfec-Chorus, Myrtle Beach, SC Chance Youth Foundation, Inc.,

State College, PA Central Florida Riptide, Inc.,

Baton Rouge, LA Baldwin RHF Housing, Inc.,

Richmond, VA Childrens Assistance Organization,

Fargo, ND Christian Ministries United,

4 Bar M Coach, Inc., Decatur, TX 11th Hour Company, Inc., Brooklyn, NY Academy of Artistic Gymnastics TAAG

Mesquite, TX Blackman TKD Parents Association,

Santa Cruz, CA Bittenbender Jr. Ballet Co., Inc.,

Richmond, VA Chronic Fatigue Syndrome Foundation

Parents Club, San Antonio, TX Actors Project Theatre Company, Inc.,

Coral Springs, FL African Cultural Center, Incorporated,

Rockville, MD American Childrens Ice Theatre, Inc.,

Monroe, WI Breakaway Ministries, Burnsville, MN Breakers of Rocky River, Inc.,

Inc., Albuquerque, NM Bloomfield Youth Basketball League,

Bloomfield, CT Borderline Volunteer Caregivers, Inc.,

of Greater Baton Rouge, Inc., Baton Rouge, LA Church Multiplication International, Inc.,

Duluth, GA Civic Health Institute, Inc.,

Pittsburgh, PA Clear Ink Foundation, Alamo, CA Coastal Bend Resource Group, Inc.,

Corpus Christi, TX

Saugus, MA Angell School PTO, Ann Arbor, MI Another Byte, Inc., Flagstaff, AZ

Rocky River, OH

2003–21 I.R.B. 953 May 27, 2003

Green Ridge Booster Club,

Green Ridge, MO Gymnastrum Parents Association, Inc.,

Colton C A R E Coalition, Colton, OR Columbia School PTO,

East End Swim Club, Inc., Shirley, NY East Falmouth Elementary Parent

Teacher Organization, East Falmouth, MA East Union Grad Night, Manteca, CA Edmond Figure Skating Club,

Columbus, OH Hands From Heaven, San Francisco, CA Haralson Coalition for Children Youth

McGuire AFB, NJ Com Scribe Service, Inc.,

East Lansing, MI Communities Handling Alterns Needs

for Cont. Education, Memphis, TN Community Outreach and Youth

Newberg, OR Elegance in Style, Incorporated,

Allentown, PA Hall of Fame Charitable Foundation,

Development Services, Inc., Macon, GA Community Preschool Inclusion

Program, Virginia Beach, VA Copii House Foundation, Inc.,

Edmond, OK Edwards Volunteer Organization,

Ellicott City, MD Empowering Residents to Achieve

and Families, Inc., Bremen, GA Harbor Arts, Inc., Union Pier, MI Hard Hat Theater Company,

Toluca Lake, CA Harvested Seeds, Inc., Birmingham, AL Haude Elementary Parent Teacher

Organization, Inc., Spring, TX Health Resource Center for Palestine,

Inc., Sarasota, FL Heart of the City Neighborhoods, Inc.,

Buffalo, NY Help Under Direct Care Organization,

Cohocton, NY Copper Basin Baseball Diamond Club,

Inc., Copperhill, TN Copper Basin Cougar Basketball Club,

Scenic Excellence Foundation, Inc., Charleston, WV Encampment Riverside Youth Baseball,

Encampment, WY Epiphany Place, Marshall, MN Express Youth Baseball, Waco, TX Family Tyme, Madrid, IA Fantasia Arts of York Maine (FAYM),

York, ME FCW, Defiance, MO First Night Newark, Inc., Newark, NJ For FEMALES, Houston, TX For the Love of Children,

Program, Kansas City, MO Hep C Advocated Network,

Inc., Copperhill, TN Copper Basin Lady Cougars Softball

Club, Inc., Copperhill, TN Copper Basin Touch Down Club, Inc.,

Copperhill, TN Coterie Club, Senatobia, MS Cottonwood-Granite Baseball League,

Cape Coral, FL Helping Hands Helping Hearts, Inc.,

Tampa, FL Helzberg Entrepreneurial Mentoring

Salt Lake City, UT Cougar Haven, Gore Springs, MS Crisis Pregnancy Center,

Greenwood, MS Cy-Fair Special Olympic Booster Club,

Colleyville, TX Fort Lauderdale Childrens Ballet

Theatre, Inc., Ft. Lauderdale, FL Fort Wellington Hopetown Belair

Charity Association, Brooklyn, NY Foundation for United Neighborhood

Longview, TX Home Scholars, Richmond, CA Homeschoolers Support Network, Inc.,

Cypress, TX Cypress Housing Foundation,

Trenton, NJ House of Hope of Northeast Tennessee,

Levi, Inc., New York, NY Houston Justice & Peace Center,

Downey, CA Dan Adders, Incorporated,

Las Vegas, NV David Binn Foundation, San Diego, CA Dazzle Song & Dance Company,

Development Opportunities, Concord, CA Framingham Community Development

Stevens Point, WI GE Federation Booster Club,

Elizabethton, TN House of Levi Keter Kehuna Shevet

Houston, TX Hudson River Community Counseling

Williamsburg, VA Deer Park FFA Booster Club,

Corporation, Framingham, MA Front Forty Productions, Inc.,

Alliance, Mount Kisco, NY Hurlbutt Elementary School PTO,

Deer Park, TX Denton Youth Basketball, Inc.,

Denton, TX Desert Coyote Youth Hockey Assn.,

Weston, CT Huron High School PTSO,

Bermuda Dunes, CA Deutschland Michigan-Exchange,

West Bloomfield, MI Diabetes Youth Support Foundation,

Meraux, LA George Jenkins High School Chorus

Booster Club, Inc., Lakeland, FL Georgia Std. Coalition, Inc.,

Gainesville, GA Get Up On It, Inc., Philadelphia, PA Global Unity, La Jolla, CA Gold Coast Basketball, Inc.,

Santa Barbara, CA Gourmet Gala, Slidell, LA Grace Little Peoples Learning Center,

Ann Arbor, MI Inner-City Scholarship Endowment

Fund, New York, NY International Electronic Library, Incorp.,

Fontana, CA International Professional Assoc. for

AIDS and Childrens Charities, New York, NY Intertribal Arts Project, Inc.,

Santa Monica, CA Discovery Learning Fund, Inc.,

Newark, NJ District Resource Investments, Inc.,

Brackettville, TX Diversity in Literature for Kids (DLK),

Inc., University Cy, MO Great Hills Swim Team, Inc.,

Austin, TX Great Lakes Puppetry Center,

Inc., Atlanta, GA Dobson Crew Chiefs, Chandler, AZ Dobyns Bennett Orchestra Guild,

Falmouth, MA Iowa City Music Auxiliary, Inc.,

Iowa City, IA Irvine Girls Softball Association,

Irvine, CA Island University Foundation,

Corpus Christi, TX

Kingsport, TN Domenica Enrichment Center for Special

Chicago, IL Greater Roanoke Basketball Union,

Roanoke, VA Greater Rochesters Kingdom Bound

Kids, Inc., Penfield, NY

Needs, Inc., Ridgewood, NJ

May 27, 2003 954 2003–21 I.R.B.

Norman Park Educational Foundation,

Jackys Recreation and Family Life

Center, Inc., Kilgore, TX Jenkins Wrestling Club, Lakeland, FL Jim Ned Project Graduation,

Mahalick Charitable TR 1519013272,

Charlotte, NC Maine Property Rights Alliance, Inc.,

Sullivan, ME Manchester High School Band Boosters,

Chula Vista, CA North Louisiana Gospel Association,

Inc., New Orleans, LA North Warren Elementary School PTO,

N. Warren, PA Northland College Lumberjack Hockey

Tuscola, TX Jimmy Raye Youth Foundation, Inc.,

Fayetteville, NC Jo Ella Ellison Ministries DBA Therapon

Chesterfield, VA Manhigim Hadashim Foundation, Inc.,

San Diego, CA March for Jesus of South Bend,

Counseling Center, Austin, TX Joseph House Ministries, Tega Cay, SC Joyful Choices Institute,

Organization, Cincinnati, OH Mariemont Junior High PTO,

Booster Club, Inc., Ashland, WI Northwestern Choral Boosters,

Rock Hill, SC Nueva Vida Por Nueva Mexico,

Santa Fe, NM Nursing Education Alumni Association,

Sierra Madre, CA Juice Guys Care, Inc., Nantucket, MA K C Youth Sports Inc.,

Mishawaka, IN Mariemont High School Parent Teacher

Inc., Astoria, NY Oakland Community Theatre, Inc.,

Oakland, NJ Octopi, Richmond, VA Offering an Entrance to Him Ministries,

Overland Park, KS Kairos Academy, Newark, OH Kansas City Globe 100 Most Influential

Cincinnati, OH Marx Toy Museum, Inc., Erie, PA Maryland Arts Den, Inc.,

Baltimore, MD Mascotas Jibaras, San Juan, PR Maui Dolphins Swim Club,

Charitable Fund, Inc., Kansas City, MO Kenya Shoe Expedition, Houston, TX Keren Chaverim, Inc., Brooklyn, NY Kids Campus Daycare and Learning

Kimball, WV Mid South Gospel Association,

Pukalani, HI McArts Fine Art Organization Limited,

Inc., St. Louis, MO Ohio F C, Dublin, OH Ohr Hadash Jewish Healing Center, Inc.,

Dallas, TX Owasso Cheerleader Booster Club

Center, Inc., Florence, NJ Kinney County Youth Development

Association, Brackettville, TX Korima Foundation of the Big Bend

New Orleans, LA Mililani High School Spada, Inc.,

(OCBC), Owasso, OK P S 11 Programs, Inc., New York, NY Pacific Justice Institute,

Citrus Heights, CA Peoples Princess Charitable Foundation,

Ranch, Inc., Houston, TX Lady Bug Booster Club, Muncie, IN Lafayette Youth Amateur Ice Hockey

Mililani, HI Millington Area Education Foundation,

Millington, TN Miracle Network, Inc., Dallas, TX Miracle Star Womens Recovering

Tampa, FL Perimeter Global Associates, Inc.,

Association, Inc., Carencro, LA Lagrange Ball Association, Inc.,

Canton, MO Lake Country Ami, Inc., Pittsburg, TX Lake Unified Visitation Center, Inc.,

Community, Lancaster, CA Montour Antique Farm Machine

Mountain View, MO Multi-County Child and Family

Duluth, GA Philanthropic Charities,

Castro Valley, CA PHP Ministries, Inc., Ridgewood, NJ Piece of Work Theater Company, Inc.,

Griffith, IN Learning Link, Palm Springs, CA Lee County MHMR Board, Inc.,

Collectors Association, Danville, PA Mountain View Family Youth Center,

New York, NY Piihonua EA, Hilo, HI Pine Tree High School Theater Booster

Giddings, TX Life Builders Ministries, Irvine, CA Literacy Connection, Kennewick, WA Literature for Humanity Foundation,

Services, Forrest City, AR My Sisters Closet, Baltimore, MD Nashville Fencing Academy,

Club, Longview, TX Pioneer Lyric Theatre, Denton, TX Planet ECO, San Diego, CA Point Dujour Renel, Brooklyn, NY Pondering the Documentary,

Santa Monica, CA Presbyterian Learning Center, Inc.,

Richmond, CA Living Books Literacy Center, Inc.,

Nashville, TN Natick on Ensemble Theater,

Austin, TX Local Active Women LAW Association,

Incorporated, Natick, MA National Catholic Forensic League, Inc.,

Milford, MA Nederland Educational Foundation, Inc.,

Morganton, NC Pride Productions, Port Isabel, TX Project Vision, Inc., Port St. Lucie, FL Prospect Historical Society,

Brownsville, TX Lone Star Behavioral Health Services,

Inc., Round Rock, TX Los Amigos Del Fortin, Presidio, TX Los Angeles Youth Hockey Association,

Long Beach, CA MacArthur-Eisenhower Scholastic Chess

Nederland, TX Network of Indian Professionals-New

York Foundation, Inc., New York, NY New Faith New Beginning,

Resource Center, Inc., Concord, NH New Neighbors Charitable Tr.,

Club, Schaumburg, IL Madge and Raford Martin Charitable

National City, CA New Hampshire Criminal Justice

Rancho Palos Verdes, CA Newtowne Court-Washington Elms

Foundation, Inc., Indian Rocks Beach, FL Magic Valley Volleyball Club, Inc.,

Tenant Council, Cambridge, MA Nicolet Soccer Club, Inc., Glendale, WI

Omaha, NE

Prospect, VA Rancho Selah, Inc., Harwood, TX Red River Foundation,

Grand Forks, ND Relief Effort Act Charitable Trust

(REACT), Quakertown, PA River City Junior Volleyball, Inc.,

Buhl, ID

2003–21 I.R.B. 955 May 27, 2003

Rock Youth Ministries, Inc.,

Boynton Beach, FL Rocks Coordinating Committee,

TDDJ, Inc., Loxahatchee, FL Team First Volleyball Club,

Windy City P. A. W. S., Chicago, IL Wing & Groove Theatre Company,

Chicago, IL Women in Gods Word Ministries,

Chicago, IL Rolling Plains Industrial Foundation,

Cameron, TX Technological Instruction International,

Culver City, CA Templeton Grad Night Committee,

Haskell, TX Rush-Henrietta Soccer Club, Inc.,

Templeton, CA Ten Thousand Villages Tucson, Inc.,

Rialto, CA World Historical Society for

Henrietta, NY S F Striders, San Francisco, CA Salazar Park Youth Association,

Thoroughbred Horses, Las Vegas, NV Young Artist With Integrity Destine to

Succeed, Brooklyn, NY Youth Soccer Development Fund, Inc.,

Norwalk, CT

Los Angeles, CA Salt Council of Triad of Jefferson

Tucson, AZ Texas Alternative Certification

County Alabama, Birmingham, AL San Jose Coral Project, Sunnyvale, CA Sanders Enterprise Community

Association, Katy, TX Texas Music Library & Research Center,

Houston, TX Third Eye, San Diego, CA Together Education Accomplish More

Development, Brooklyn, NY SCDF Loan and Technical Assistance

Fund, Inc., Lafayette, LA Seaside High School Instrumental Music

Success, Seattle, WA Training and Restoring Urban

Empowerment, Cape Girardeau, MO Trampoline and Tumbling Team

Association, Blue Springs, MO T R I P Plus, Riverside, CA Union of Siguiri People, Inc.,

Boosters, Marina, CA Seguin Project, Buffalo, NY Servants of Society Foundation, Inc.,

New York, NY United Rescue Groups, Inc., Austin, TX United Scholarship America Foundation,

If an organization listed above submits information that warrants the renewal of its classification as a public charity or as a private operating foundation, the Internal Revenue Service will issue a ruling or determination letter with the revised classification as to foundation status. Grantors and contributors may thereafter rely upon such ruling or determination letter as provided in section 1.509(a)–7 of the Income Tax Regulations. It is not the practice of the Service to announce such revised classification of foundation status in the Internal Revenue Bulletin.

Safe Harbor for Satisfying Statutory Requirements for Valuation Under Section 475 for Certain Securities and Commodities

Announcement 2003–35

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Advance notice of proposed rulemaking.

SUMMARY: This document describes and explains a possible framework for a safe harbor (including recordkeeping and record retention requirements) that would satisfy the statutory requirement to value certain securities and commodities under section 475 of the Internal Revenue Code. This document also invites comments from the public on this safe harbor and other alternative valuation methodologies. All materials submitted will be available for public inspection and copying.

DATES: Written or electronic comments must be submitted by August 4, 2003.

Portland, OR Shaarei Zion Day Care, Inc.,

Baltimore, MD Share Mothers Program, Inc.,

Madison, TN Shared Technologies, Incorporated,

Pleasant Grove, UT United States Service Agency USSA,

Buena Park, CA United Success-Ful Ministries, Inc.,

Norfolk, VA Sierra Housing Foundation,

Downey, CA Sierra Leone Charitable Foundation,

Tacoma, WA Unity Network and Counseling Center,

Detroit, MI Sign of the Times-the Recycle Manland

Atlanta, GA Universal Concert Association, Inc.,

Buffalo, NY Upward Community Builders, Inc.,

Project, Inc., Waco, TX Silhouettes School of Construction,

Mineola, NY UW-Random Acts of Kindness,

Oakland, CA Simple Way, Philadelphia, PA Somali Community Service, Inc.,

Chelse, MA Sonoma Creek Adopt-a-Watershed,

Madison, WI Veterans Refuge Center,

Long Beach, CA Village Project, Seattle, WA Virginia Citizenship Institute,

Sonoma, CA South Newton Music Boosters,

Kentland, IN Southern Senior High School Sports

Booster Club, Inc., Tracys Lndg, MD Squires League Rockies Baseball

Organization, Inc., Baton Rouge, LA SRI Sadguru Swayam Prakasha

Arlington, VA Virginia Raptors, Virginia Beach, VA Vox Populi, Philadelphia, PA Wagner Middle School Parents

Foundation, Reno, NV Wax Fruit Theatre Company,

Association, New York, NY Washoe County Assess to Justice

Avadhootha Swamigal Intl. Mission, Jackson Heights, NY St. Louis Gator AAU Basketball,

Chesterfield, MO Students for DC, Salinas, CA Talk Afterschool, Inc., Smoketown, PA Tao of Holy Confucius Association, Inc.,

Chicago, IL WCV, Inc., Brooklyn, NY We Assist, Inc., Brooklyn, NY Westchester Chinese School, Inc.,

Scarsdale, NY Western Institute for Nature Resources

Education and Policy, Rickreall, OR Westfield Baseball Association, Inc.,

Oceanside, NY Tarkington Community Baseball

Association, Inc., Cleveland, TX

Houston, TX

May 27, 2003 956 2003–21 I.R.B.

the types of adjustments that are currently used for financial statement purposes and an explanation of these adjustments. Comments are requested on the Financial Accounting Standards Board’s consideration of fair value reporting of derivatives and the valuation of projected cash flows and any impact that has on how taxpayers are reporting any valuation adjustments for fair value purposes.

C. Principle Two: Financial Statements and Business Use

Two factors are relevant in establishing that the taxpayer has a strong incentive to report values of the securities and commodities fairly on the financial statement: (i) reporting of values on a financial statement; and (ii) significant use of those reported values in the taxpayer’s business.

As to the reporting of values, the IRS and the Treasury Department are considering various types of financial statements for the safe harbor. Three classes of financial statements under consideration are:

(1) A financial statement required to be filed with the Securities and Exchange Commission (“SEC”) (the 10–K or the Annual Statement to Shareholders);

(2) A financial statement required to be provided to the federal government or any of its agencies (other than the SEC or the IRS); and

(3) A certified audited financial statement not required to be filed with the SEC or another federal agency.

In certain limited circumstances, it may also be appropriate to consider financial statements required to be filed with a state government or any of its agencies, a political subdivision of a state, or possibly a foreign regulator.

It may also be relevant whether a statement is provided to equity holders or creditors.

Comments are requested on the extent to which each of these various classes of financial statements is appropriate for the safe harbor and whether any other classes of financial statements may be as well.

As to significant use of reported values in the taxpayer’s business, potentially significant uses include guiding the taxpayer’s pricing and risk management decisions and determining employee compensation.

Special considerations arise if securities or commodities are held by a party re

ADDRESSES: Send submissions to: CC:PA:RU (REG–100420–03), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:RU (REG– 100420–03), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC. Alternatively, taxpayers may send electronic comments directly to the IRS Internet site at www.irs.gov/regs .

FOR FURTHER INFORMATION CONTACT: Concerning submissions, LaNita Van Dyke, (202) 622–7180; concerning the proposals, Marsha Sabin or John W. Rogers III, (202) 622–3950 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

A. Overview

Section 475(a) requires dealers in securities to mark their securities to market. If a security is inventory, it must be included in inventory at its fair market value. If a security is not inventory and is held at the end of the taxable year, it must be treated as if it were sold for its fair market value on the last business day of the taxable year. Markto-market treatment is available on an elective basis to commodities dealers and to traders in securities or commodities. See sections 475(e) and (f).

Although the meaning of the term “fair market value” has long been established, it has been difficult for both taxpayers and the IRS to determine fair market value in certain situations. To reduce the administrative burden on taxpayers and the IRS of determining fair market value under section 475, the IRS and the Treasury Department are considering the publication of a notice of proposed rulemaking that, by allowing values used on a financial statement to be used on the tax return, would provide an elective safe harbor for satisfying the statutory requirement to value securities and commodities.

Three broad principles guide eligibility for the safe harbor. First, any mark-tomarket methodology used on a financial statement submitted for financial reporting purposes would have to be sufficiently consistent with the mark-to-market methodology used under section 475. Second,

the financial statement would have to be one for which the taxpayer has a strong incentive to report values fairly. Third, if requested, the taxpayer would have to timely provide the IRS with the information and documents necessary to verify the relationship between the values reported on the financial statement and the values used for purposes of section 475.

B. Principle One: Mark-to-Market Methodology for Financial Reporting

To qualify for the safe harbor, a markto-market methodology used for financial reporting should be sufficiently consistent with the requirements of a mark-tomarket methodology used for section 475. Under section 475, a mark-to-market methodology must (i) value securities and commodities as of the last business day of each taxable year, (ii) recognize into income the gains and losses arising from changes in value each year, and (iii) compute gain or loss on disposition by reference to the value at the end of the prior year. To the extent that mark-to-market methodologies for financial reporting and section 475 differ, the IRS and the Treasury Department request comments identifying the differences and addressing whether and how the differences should affect the safe harbor.

The valuation standard under section 475 is fair market value, the price at which property would change hands between a willing buyer and willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. The IRS and the Treasury Department are considering whether to use the fair value standard under U.S. Generally Accepted Accounting Principles (“GAAP”) as a proxy for the fair market value standard required for tax purposes. In particular, the IRS and the Treasury Department seek comments on whether GAAP permits (i) valuation of securities at the bid price, (ii) downward adjustments from midmarket values for future administrative, hedging, or financing expenses, or (iii) one or more redundant downward adjustments from mid-market values for credit risk. (In other words, if future cash flows are discounted to present value using a rate, such as LIBOR (London Interbank Offered Rate), that corresponds to the credit quality of the counterparty, is there a need for any additional credit adjustment?)

The IRS and the Treasury Department are interested in receiving information on

2003–21 I.R.B. 957 May 27, 2003

would be in the best interests of tax administration and, therefore, would be encouraged.

E. Eligible Taxpayers

The safe harbor is being considered for dealers in securities under section 475(c)(1). Whether the safe harbor would also be extended to securities traders, dealers in commodities, and commodities traders would largely depend on whether the extension would comport with the principles described in the Overview.

F. Eligible Securities and Commodities

Section 475 applies to a wide variety of securities and commodities. It is relatively easy for both taxpayers and the IRS to determine the fair market value of positions for which pricing information is readily available, such as most actively traded personal property. The need for a safe harbor is most pressing for positions for which pricing information is not readily available, including more complex notional principal contracts and derivative instruments, and hedges described in sections 475(c)(2)(D), (E), and (F). Comments are requested on what securities should be included in the safe harbor.

Commodities raise problems similar to those for securities, so the need for a safe harbor is similarly pressing for commodities (including commodities derivatives) for which pricing information is not readily available. Comments are requested addressing application of a safe harbor for commodities.

G. Comments on Other Valuation Methodologies and Safe Harbors

Comments are requested on whether there are other methodologies for determining fair market values under section 475. Comments are also requested on whether other safe harbors could act as proxies for fair market value under section 475.

Lon B. Smith, Associate Chief Counsel (Financial Institutions and Products).

(Filed by the Office of the Federal Register on May 2, 2003, 8:45 a.m., and published in the issue of the Federal Register for May 5, 2003, 68 F.R. 23632)

lated to the issuer or if derivatives in securities or commodities (including forward contracts in cash markets) exist between related parties. Financial consolidation can cause these securities or commodities (including derivatives) to be either eliminated (because of netting) or incompletely reported on financial statements. Additionally, in certain circumstances, these related party transactions may not receive the same level of regulatory scrutiny. It is not clear, therefore, whether the safe harbor would be appropriate for securities or commodities held by a party related to the issuer or for derivatives in securities or commodities that exist between related parties.

D. Principle Three: Recordkeeping and Record Production

Under the safe harbor, examinations of returns would focus on how the values used in the financial statements relate to gain and loss on the tax returns. Consequently, records would have to clearly show: (1) that the same value used on the financial statement was used on the tax return; (2) that no security subject to section 475 and reported under the required methodology on the financial statement was excluded in the application of the safe harbor; and (3) that only securities or commodities subject to section 475 had been carried over to the tax return under the safe harbor.

Given the complexity of the business operations of many taxpayers, comparing a single line on the financial statement to a single line on the tax return will not suffice to verify that the same value used for the financial statement was used on the tax return. Therefore, a safe harbor will impose specific verification and reconciliation requirements.

The IRS and the Treasury Department are concerned about valuation issues that may arise from pooling of securities and commodities. Comments are requested on how securities and commodities are pooled for purposes of financial reporting, how they are pooled for tax reporting, and how the Commissioner can verify the basis determination of a single position contained in the pool if that position is sold or settled in the year following the mark and other positions in the pool are not sold.

The IRS and the Treasury Department are similarly concerned about the consolidation and de-consolidation of the business structure. Comments are requested on the impact of the consolidation and deconsolidation on determining whether the same securities and commodities will be reflected on both the financial statement and the tax return.

The IRS and the Treasury Department are considering rules that would require electing taxpayers to maintain and, if requested, provide to the Commissioner in a timely manner the following records: (1) books and records clearly establishing that the values used in determining gain or loss under section 475(a) for eligible securities or commodities were the values used in the financial statement; (2) for taxpayers filing a Form 1120, a reconciliation of the amount of net income reported on the financial statement to the amount reported on line 1 of the Schedule M–1 on the Form 1120, Corporate Income Tax Return ; and (3) for other taxpayers, a similar reconciliation schedule. The documents for reconciliation purposes include supporting schedules, exhibits, computer programs used in producing the values and schedules, and documentation of rules and procedures governing determination of the values. Books and records would include all those that are required to be maintained for financial or regulatory reporting purposes, even if those books and records are not specifically covered by section 6001. Comments are requested on whether less burdensome recordkeeping requirements could be developed that would still allow for effective verification of conformity.

The IRS and the Treasury Department are considering situations in which the Commissioner should enter into agreements with specific taxpayers establishing which records would have to be maintained, how the records would have to be maintained, and how long the records would have to be retained. Because an agreement would be tailored to a particular taxpayer’s operations and environment, it is expected that an agreement would arise only after individual negotiations. Although no taxpayer would be entitled to an agreement, an agreement based on an early understanding of a taxpayer’s operations

May 27, 2003 958 2003–21 I.R.B.