Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Internal Revenue Bulletin 2004-24 · 2026-10-03 edition · updated 2026-10-04 · United States
Section 108.—Income From Discharge of Indebtedness
26 CFR 1.108–7: Reduction of attributes.
T.D. 9127
DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1
Reduction of Tax Attributes Due to Discharge of Indebtedness
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
SUMMARY: This document contains final regulations regarding the reduction of tax attributes under sections 108 and 1017 of the Internal Revenue Code. These final regulations affect taxpayers that realize income from the discharge of indebtedness that is excluded from gross income pursuant to section 108.
DATES: Effective Date : These final regulations are effective May 10, 2004.
Applicability Date : These final regulations apply to discharges of indebtedness occurring on or after May 10, 2004.
FOR FURTHER INFORMATION CONTACT: Theresa M. Kolish, (202) 622–7530, of the Office of Associate Chief Counsel (Corporate) (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of Provisions
On July 18, 2003, the IRS and Treasury Department promulgated temporary regulations providing guidance regarding the application of the attribute reduction rules of sections 108 and 1017. Those
temporary regulations clarified that, in the case of a transaction described in section 381(a) that ends a year in which the distributor or transferor corporation excludes income from the discharge of indebtedness from gross income under section 108(a) (excluded COD income), any tax attributes to which the acquiring corporation succeeds, including the basis of property acquired by the acquiring corporation in the transaction, must reflect the reductions required by sections 108 and 1017. For this purpose, all attributes listed in section 108(b)(2) of the distributor or transferor corporation immediately prior to the transaction described in section 381(a), including the basis of property, but after the determination of tax for the year of the discharge, are available for reduction under section 108(b)(2).
The temporary regulations (T.D. 9080, 2003–40 I.R.B. 696) were published in the Federal Register (68 FR 42590) for July 18, 2003, and a notice of proposed rulemaking (REG–113112–03, 2003–40 I.R.B. 761) cross-referencing the temporary regulations was published in the Federal Register for the same day (68 FR 42652). No public hearing was requested or held. One written comment was received. The following paragraphs describe the written comment received and the changes made to the temporary regulations in these final regulations.
The comment received argued that the rules of the temporary regulations are contrary to the relevant provisions of the Internal Revenue Code. The IRS and Treasury Department continue to believe that the rules of sections 108(b)(4)(A) and 1017 merely prescribe an ordering of calculations and that the rules of the temporary regulations are consistent with the policies underlying sections 108 and 1017 and the corporate reorganization provisions, including “deferring, but eventually collecting within a reasonable period, tax on ordinary income realized from debt discharge.” S. Rep. No. 96–1035, at 10 (1980).
The IRS and Treasury Department, however, have become aware that taxpayers are taking the position that the rules
of the temporary regulations do not apply in certain cases to reduce the attributes to which the acquiring corporation succeeded as a result of certain transactions described in section 381(a). Therefore, these final regulations make certain modifications to the rules of the temporary regulations to ensure that, to the extent possible, the transferor corporation’s excluded COD income is applied to reduce attributes in a manner that will effect a deferral, rather than a permanent elimination, of income. In that regard, the final regulations apply in cases in which the taxpayer realizes excluded COD income either during or after the taxable year in which the taxpayer is the distributor or transferor of assets in a transaction described in section 381(a). In addition, it provides that the basis of stock or securities of the acquiring corporation received by the taxpayer in exchange for the transferred assets in the transaction described in section 381(a) is not available for reduction under section 108(b)(2).
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 also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding these regulations was 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 Theresa M. Kolish, Office of Associate Chief Counsel (Corporate). However, other personnel from the IRS and Treasury Department participated in their development.
2004-24 I.R.B. 1042 June 14, 2004
Section 165.—Losses
26 CFR 1.165–1: Losses. (Also § 1.165–2.)
Preproduction costs of creative prop- erty. This ruling provides that a taxpayer may not deduct as a loss under section 165 of the Code the costs of acquiring and developing creative property if the taxpayer does not establish an intention to abandon the property and an affirmative act of abandonment, or an identifiable event evidencing a closed and completed transaction establishing the worthlessness of the property.
Rev. Rul. 2004–58
ISSUE
May a taxpayer deduct the cost of acquiring and developing creative property as a loss under § 165(a) of the Internal Revenue Code in the situations described below?
FACTS
X is a corporation that files returns on a calendar year basis for federal income tax purposes. X is engaged in the trade or business of producing motion pictures. As part of that trade or business, X routinely incurs costs to acquire and develop creative property such as screenplays, scripts, treatments, story outlines, motion picture production rights to books, plays, and other literary works, and similar property for purposes of potential development, production, and exploitation. The type of rights X acquires in creative property varies from property to property and may include exclusive rights of ownership or limited exploitation rights, and may include rights for the entire remaining copyright term of the property or rights for a limited period of time.
X ultimately sets for production only a small percentage of the creative property that X acquires. Most of the creative property that X sets for production is set within three years of X ’s acquisition of the property. However, X does set some property for production that X has held for longer than three years. Additionally, X may sell to a third party X ’s rights to a creative property not set for production. X does not discard, release to the public domain, or otherwise dispose of the creative properties
- - - -
Final Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by removing the entry for “1.108–7T” and continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.108–7T is redesignated as §1.108–7 and amended as follows:
The language “(temporary)” is removed from the section heading.
Paragraphs (c) and (e) are revised. The revisions read as follows:
§1.108–7 Reduction of attributes.
- (c) Transactions to which section 381 applies . If a taxpayer realizes COD income that is excluded from gross income under section 108(a) either during or after a taxable year in which the taxpayer is the distributor or transferor of assets in a transaction described in section 381(a), any tax attributes to which the acquiring corporation succeeds, including the basis of property acquired by the acquiring corporation in the transaction, must reflect the reductions required by section 108(b). For this purpose, all attributes listed in section 108(b)(2) immediately prior to the transaction described in section 381(a), but after the determination of tax for the year of the distribution or transfer of assets, including basis of property, will be available for reduction under section 108(b)(2). However, the basis of stock or securities of the acquiring corporation, if any, received by the taxpayer in exchange for the transferred assets shall not be available for reduction under section 108(b)(2).
- (e) Effective date . This section applies to discharges of indebtedness occurring on or after May 10, 2004.
Par. 3. Section 1.1017–1 is amended by revising paragraph (b)(4) to read as follows:
§1.1017–1 Basis reductions following a discharge of indebtedness.
- (b) - - (4) Transactions to which section 381 applies . If a taxpayer realizes COD income that is excluded from gross income under section 108(a) either during or after a taxable year in which the taxpayer is the distributor or transferor of assets in a transaction described in section 381(a), the basis of property acquired by the acquiring corporation in the transaction must reflect the reductions required by section 1017 and this section. For this purpose, the basis of property of the distributor or transferor corporation immediately prior to the transaction described in section 381(a), but after the determination of tax for the year of the distribution or transfer of assets, will be available for reduction under section 108(b)(2). However, the basis of stock or securities of the acquiring corporation, if any, received by the taxpayer in exchange for the transferred assets shall not be available for reduction under section 108(b)(2). See §1.108–7. This paragraph (b)(4) applies to discharges of indebtedness occurring on or after May 10, 2004.
Par. 4. In section §1.1017–1T, paragraph (b)(4) is removed.
§1.1017–1T Basis reductions following a discharge of indebtedness (temporary).
Paragraphs (a) through (b)(4) [Reserved]. For further guidance, see §1.1017–(a) through (b)(4).
Mark E. Matthews, Deputy Commissioner for Services and Enforcement .
Approved May 4, 2004.
Gregory F. Jenner, Acting Assistant Secretary of the Treasury .
(Filed by the Office of the Federal Register on May 10, 2004, 8:45 a.m., and published in the issue of the Federal Register for May 11, 2004, 69 F.R. 26038)
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identifiable event, and, except as provided in § 165(h) and § 1.165–11, actually sustained during the taxable year. Section 1.165–1(d)(1) provides that a loss is treated as sustained during the taxable year in which the loss occurs, as evidenced by a closed and completed transaction, and as fixed by an identifiable event occurring in such taxable year.
Section 1.165–2(a) allows a deduction under § 165(a) for a loss incurred in a business or in a transaction entered into for profit and arising from the sudden termination of the usefulness in such business or transaction of any nondepreciable property, when such business or transaction is discontinued or when such property is permanently discarded from use therein. Section 1.165–2(a) further provides that the taxable year in which a loss is sustained is not necessarily the taxable year in which the overt act of abandonment, or the loss of title to the property, occurs.
Section 165 losses have been referred to as abandonment losses to reflect that some act is required that evidences a taxpayer’s intent to permanently discard or discontinue use. Gulf Oil Corp. v. Commis- sioner, 914 F.2d 396, 402 (3d Cir. 1990). To establish the abandonment of an asset for purposes of § 165, a taxpayer must show both (1) an intention to abandon the asset, and (2) an affirmative act of abandonment. A.J. Indus., Inc. v. United States, 503 F.2d 660, 670 (9 th Cir. 1974); CRST, Inc. v. Commissioner, 92 T.C. 1249, 1257 (1989), aff’d, 909 F.2d 1146 (8 th Cir. 1990); Rev. Rul. 93–80, 1993–2 C.B. 239. A deduction is not allowable if a taxpayer intends to hold and preserve property for possible future use or to realize potential future value from the property. A.J. Indus., 503 F.2d at 670. Abandonment of an intangible property interest should be accompanied by some express manifestation. Citron v. Commissioner, 97 T.C. 200, 209 (1991). See also Echols v. Commissioner, 935 F.2d 703, 706–08 (5 th Cir. 1991) (finding both an intent to abandon and an affirmative act of abandonment when taxpayers called a partnership meeting at which they tendered their 75% partnership interest to another partner, or anyone else, “ gratis,” and announced that they would contribute no further funds to the partnership), reh’g denied, 950 F.2d 209 (5 th Cir. 1991).
not set for production or sold. Generally these properties are retained indefinitely.
In order to preserve the properties in a condition that allows for future use, X maintains facilities for storing creative property retained but not set for production. X retains these properties for various reasons, including, but not limited to, the following:
- To exercise X’s ownership or other contractual rights at any time in the future by, among other things, a. selling or setting a property for production if, for example, the subject matter becomes more popular or the writer becomes well known; b. preventing or defending against a possible future copyright infringement lawsuit; and c. keeping competitors from developing the property; and
- To maintain good relations with the seller of the property.
For financial accounting purposes, X applies generally accepted accounting principles (GAAP) to the cost of acquiring and developing creative property. For creative property that has not been set for production, X recognizes a loss for financial accounting purposes in the earliest of: (1) the year in which X decides not to set the property for production; (2) the year in which X sells or otherwise disposes of the property; or (3) the third year following the year in which X acquires the property.
Situation 1
In 2003, X purchases the exclusive rights for the remainder of the copyright term to script a . In 2004, an X executive decides that X will not set script a for production. In accordance with X ’s financial accounting practice, in 2004 X writes off for financial accounting purposes the cost of acquiring and developing script a . Although X writes off the cost of script a for financial accounting purposes and does not set script a for production, X retains all rights to script a indefinitely.
Situation 2
In 2003, X purchases limited exploitation rights to use screenplay b in the production of a motion picture. Under the terms of the purchase agreement, all of X ’s rights in screenplay b expire if screenplay b is not set for production within four
years from the date of the agreement. X executives do not make a specific decision not to set screenplay b for production, but screenplay b is not set for production by the time X ’s rights in screenplay b expire in 2007. In accordance with X ’s financial accounting practice, in 2006 X writes off for financial accounting purposes the cost of acquiring and developing screenplay b . Although X writes off the cost of screenplay b for financial accounting purposes and does not set screenplay b for production, X continues to retain exploitation rights to screenplay b until 2007, at which time those rights expire. X does not attempt to renew, extend, or otherwise reacquire any rights to screenplay b .
Situation 3
In 2003, X purchases motion picture rights c, the exclusive rights to produce motion pictures based on a particular novel, from A, the author of the novel. Under the terms of the contract, A has an option to reacquire motion picture rights c if X does not set them for production within two years of acquisition. In 2005, X decides not to set motion picture rights c for production in the foreseeable future. X informs A that A has the right to reacquire the rights pursuant to the option. A contacts other studios to determine if they are interested in acquiring motion picture rights c, but is unable to find another studio to purchase the rights for a satisfactory price. Therefore, A declines to exercise the option. In accordance with X ’s financial accounting practice, in 2005 X writes off for financial accounting purposes the cost of acquiring and developing motion picture rights c . X retains motion picture rights c indefinitely.
LAW AND ANALYSIS
Section 165(a) allows a deduction for any loss sustained during the taxable year and not compensated for by insurance or otherwise. Section 165(b) states that the amount of the deduction for a loss is the adjusted basis as provided in § 1011. See also § 1.165–1(c) of the Income Tax Regulations.
Section 1.165–1(b) provides that, to be allowable as a deduction under § 165(a), a loss must be evidenced by a closed and completed transaction, fixed by an
2004-24 I.R.B. 1044 June 14, 2004
The “identifiable event” required by § 1.165–1(b) and (d)(1) “must be observable to outsiders and constitute ‘some step which irrevocably cuts ties to the asset.’” United Dairy Farmers, Inc. v. U.S., 267 F.3d 510, 522 (6 th Cir. 2001) (quoting Corra Resources, Ltd. v. Com- missioner, 945 F.2d 224, 226 (7 th Cir. 1991)). Mere non-use of an asset is not sufficient to establish an act of abandonment. Standley v. Commissioner, 99 T.C. 259, 272 (1992), aff’d without published opinion, 24 F.3d 249 (9 th Cir. 1994); Jones Beach Theatre Corp. v. Commissioner, T.C.M. 1966–100. Similarly, internal communications or decisions within a taxpayer’s organization are not sufficient affirmative acts of abandonment. See Corra Resources, 945 F.2d at 226.
A taxpayer need not relinquish legal title to property in all cases to establish abandonment, provided there is an intent to abandon and an affirmative act of abandonment. See Echols, 935 F.2d at 706; Middleton v. Commissioner, 77 T.C. 310, 322 (1981), aff’d per curiam, 693 F.2d 124 (11 th Cir. 1982). Retention of bare legal title to property does not preclude a deduction under § 165(a) in certain cases in which property has become worthless. See Helvering v. Gordon, 134 F.2d 685, 689 (4 th Cir. 1943), acq., 1951–1 C.B. 2; Rhodes v. Commissioner, 100 F.2d 966, 970 (6 th Cir. 1939); Rev. Rul. 54–581, 1954–2 C.B. 112. In such cases the courts have adopted the rule that a taxpayer may claim a loss on property without being required to divest legal title if the taxpayer does not intend to hold the property and the taxpayer proves by identifiable events that the property has become worthless. A.J. Indus., 503 F.2d at 670. The taxpayer’s conduct in regarding the property as worthless and not intending to preserve or hold it may be the practical equivalent of abandonment. See id.; Lockwood v. Com- missioner, 94 TC 252, 258 (1990) (leaving master recordings on a closet shelf instead of storing in a necessary climatecontrolled environment was tantamount to throwing them in the trash).
A deduction for worthlessness under § 165 is allowable only if there is a closed and completed transaction fixed by identifiable events establishing that the property is worthless in the taxable year for which the deduction is claimed. § 1.165–1(b) and (d)(1). Although the taxpayer is not
required to be an “incorrigible optimist,” United States v. S.S. White Dental Manu- facturing Co., 274 U.S. 398, 403 (1927), a mere diminution in the value of an asset is not sufficient to establish worthlessness. Proesel v. Commissioner, 77 T.C. 992, 1006 (1981). Assets may not be considered worthless, even when they have no liquidated value, if there is a reasonable hope and expectation that they will become valuable in the future. See Lawson v. Commissioner, 42 B.T.A. 1103, 1108 (1940); Morton v. Commissioner, 38 B.T.A. 1270, 1278 (1938), aff’d, 112 F.2d 320 (7 th Cir. 1940); Rev. Rul. 77–17, 1977–1 C.B. 44. Abandonment and other transactions that divest the taxpayer’s title are identifiable events that support a closed and completed transaction. Additionally, identifiable events may include “other acts or events which reflect the fact that the property is worthless.” Proesel, 77 T.C. at 1005. To the extent that the transactions do not include divestitures of title or abandonment, the essential element for tax purposes is that a particular event destroyed the potential value and usefulness of the asset to the taxpayer. See Echols, 950 F.2d at 213 (partnership’s insolvency, third party developer’s default, and inability of partners to restructure the underlying debt were identifiable events that evidenced worthlessness); Corra Resources, 945 F.2d at 226–27 (loss realized in the year in which coal mining lease expired); George Freitas Dairy, Inc. v. United States, 582 F.2d 500, 502 (9 th Cir. 1978) (cancellation of production quota contract was identifiable event that evidenced the closed and completed transaction); Proesel, 77 T.C. at 998–99, 1006–07 (finding insufficient evidence of worthlessness despite unsuccessful attempts to sell or find distributor for a motion picture by contacting all major studios and major independent distributors; however, contract to produce the motion picture could have been found worthless upon settled litigation with respect to breach of contract or demonstration that litigation would be fruitless); Oak Har- bor Freight Lines, Inc. v. Commissioner, T.C.M. 1999–291 (an act of Congress rendered motor carrier authorities worthless because all rights associated with the authorities were eliminated); Spring- field Productions, Inc. v. Commissioner, T.C.M. 1979–23 (testimony by taxpayer’s
president that film was worthless because taxpayer had unsuccessfully submitted it for sale or distribution to all major studios and small distribution companies was not substantial proof of worthlessness); Golden State Towel and Linen Service, Ltd. v. United States, 179 Ct. Cl. 300, 310 (1967) (finding that it is only when all or a substantial, identifiable, vendible portion of a customer list is terminated permanently, either through extraneous causes or the sudden and involuntary inability of the owner to serve them, that a tax loss may be claimed, and then only if the loss may be adequately measured.)
A taxpayer’s treatment of the costs of acquiring property for financial accounting purposes does not control the treatment of those costs for federal income tax purposes. See Thor Power Tool Co. v. Com- missioner, 439 U.S. 522, 542–44 (1979).
X has not performed an affirmative act of abandoning creative property merely because: (1) an X executive decides not to actively pursue the development or production of the property, see Corra Re- sources, 945 F.2d at 226; (2) X does not set the property for production within three taxable years of acquiring that property (notwithstanding that it is unlikely that X will ever set for production property that X retains for three years or more), see Standley, 99 T.C. at 272; and (3) X writes off for financial accounting purposes the cost of acquiring and developing the property, see Thor Power Tool, 439 U.S. at 542–44. Although the above facts may be relevant factors to consider, an affirmative act to abandon must be ascertained from all the facts and surrounding circumstances, Citron, 97 T.C. at 210. X retains creative properties for potential future exercise of ownership or other contractual rights, whether by sale or use, or to enforce those rights by preventing X ’s competitors from using the property. In fact, X does sell or set for production some creative property after writing off the costs of such property for financial accounting purposes and having made a decision not to set the property for production. These facts are inconsistent with an intent to permanently abandon property and with an affirmative act of abandonment, both of which are required for an abandonment loss deduction under § 165(a).
Furthermore, X is not entitled to a worthlessness deduction in the absence
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the property and an affirmative act of abandonment, or identifiable event(s) evidencing a closed and completed transaction establishing worthlessness.
DRAFTING INFORMATION
The principal author of this revenue ruling is Joy Spies of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Ms. Spies at (202) 622–5020 (not a toll-free call).
Section 263A.—Capital- ization and Inclusion in Inventory Costs of Cer- tain Expenses
26 CFR 1.263A–9: The avoided cost method.
T.D. 9129
DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1
Uniform Capitalization of Interest Expense in Safe Harbor Sale and Leaseback Transactions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
SUMMARY: This document contains regulations relating to the capitalization of interest expense incurred in sale and leaseback transactions under the Economic Recovery Tax Act of 1981 (ERTA) safe harbor leasing provisions. The regulations affect taxpayers that provide purchase money obligations in connection with these transactions. The text of the temporary regulations also serves as the text of the proposed regulations (REG–148399–02) set forth in the notice of proposed rulemaking on this subject in this issue of the Bulletin. The final regulations consist of technical revisions to reflect the issuance of the temporary regulations.
of evidence of a closed and completed transaction fixed by an identifiable event establishing worthlessness. A creative property that X acquires may not be presumed worthless simply because X does not set that property for production, either by a specific internal decision or by inaction, as these are not identifiable events that irrevocably cut ties to the asset. See Corra Resources, 945 F.2d at 226. In addition, the facts indicate that the creative properties that X retains after writing off their costs for financial accounting purposes are not worthless to X . X maintains proper storage facilities for the properties, thereby preserving the properties in a condition that allows for future exercise of ownership or other contractual rights. By retaining its rights in a property, X can prevent a competitor from exploiting that property or prevent or defend against potential copyright infringement lawsuits. In some cases, X retains creative property to maintain good relations with the seller from whom X acquired the property. Finally, X retains some property in the hope that the property will have future value if the subject matter becomes more popular, if the writer becomes better known, or for various other reasons. These facts indicate that X has an intention to hold and preserve property because of a bona fide belief that the property has value due to the possibility that the property will be of future use. Thus, without an identifiable event that destroys the potential value and usefulness of the property to X, the property may not be considered worthless.
In Situation 1, an X executive’s decision in 2004 not to set script a for production, the write-off for financial accounting purposes, and the fact that the script has not been set for production by the end of 2004 do not constitute affirmative acts of abandonment of script a for purposes of § 165(a), nor are they identifiable events evidencing a closed and completed transaction establishing worthlessness. To the contrary, X ’s retention of script a in order to keep the potential to exercise ownership or other contractual rights in the future is evidence that the script is not worthless. Thus, in the absence of any affirmative act of abandonment or showing of worthlessness in 2004, X may not deduct in that year as a loss under § 165(a) the cost of acquiring and developing script a .
In Situation 2, the facts do not indicate an affirmative act of abandonment or identifiable events evidencing a closed and completed transaction establishing worthlessness until 2007. X may deduct X ’s adjusted basis in screenplay b under § 165(a) in 2007 because X ’s rights to screenplay b expire in that year. See Rev. Rul. 81–160, 1981–1 C.B. 312. In the absence of any affirmative act of abandonment or showing of worthlessness in an earlier taxable year, X may not deduct in any earlier taxable year as a loss under § 165(a) the cost of acquiring and developing screenplay b .
In Situation 3, the facts do not indicate an affirmative act of abandonment or identifiable events evidencing a closed and completed transaction establishing worthlessness. X ’s notification to A of A ’s right to reacquire motion picture rights c pursuant to the contract between X and A does not constitute an affirmative act of abandonment by X of motion picture rights c for purposes of § 165(a). Rather, X is merely complying with its contractual obligations. When A declines to exercise its option, X continues to retain motion picture rights c in order to keep the potential to exercise its ownership or other contractual rights in the future. Furthermore, A ’s failure to exercise the option to reacquire motion picture rights c does not establish that those rights are worthless in 2005. That A was unable to find another studio to purchase motion picture rights c at a satisfactory price is also insufficient to establish the worthlessness of motion picture rights c in 2005. See Proesel, 77 T.C. at 998–99, 1006–07. Neither of these acts is an identifiable event establishing that motion picture rights c are valueless in 2005 and without reasonable expectation of future value. X ’s retention of motion picture rights c in order to keep the potential to exercise ownership or other contractual rights in the future is evidence that the script is not worthless. Thus, in the absence of any affirmative act of abandonment or showing of worthlessness in 2005, X may not deduct in that year as a loss under § 165(a) the cost of acquiring and developing motion picture rights c .
HOLDING
A taxpayer may not deduct the costs of acquiring and developing creative property as a loss under § 165(a) if the taxpayer does not establish an intention to abandon
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lations to interest incurred in taxable years beginning on or after January 1, 1995, or, in the case of property that is inventory in the hands of the taxpayer, to taxable years beginning on or after January 1, 1995 (the general effective date of the interest capitalization regulations).
For purposes of §1.263A–15(a)(2), the exclusion of purchase money obligations given by the lessor to the lessee (or a party related to the lessee) in a sale and leaseback transaction under former section 168(f)(8) as enacted by ERTA will be considered to be a reasonable position for the application of section 263A(f) in taxable years beginning before January 1, 1995. Consequently, a taxpayer changing a method of accounting for property that is not inventory in the hands of the taxpayer to conform to the temporary regulations may elect to include interest incurred after December 31, 1986, in taxable years beginning on or after December 31, 1986 (the general effective date of section 263A), and before January 1, 1995, in the determination of its adjustment under section 481(a). A taxpayer changing a method of accounting for property that is inventory in the hands of the taxpayer to conform to the temporary regulations must revalue its beginning inventory in the year of change as if the new method of accounting had been in effect during all prior years.
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 also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. Please refer to the cross-referenced notice of proposed rulemaking published elsewhere in this issue of the Bulletin for applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6). Pursuant to section 7805(f) of the Code, these temporary regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.
Drafting Information
The principal author of these regulations is Grant Anderson of the Office of
DATES: Effective Date : These regulations are effective May 20, 2004.
Applicability Dates : For dates of applicability, see §1.263A–15T(a)(3).
FOR FURTHER INFORMATION CONTACT: Grant Anderson, 202–622–4930 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to 26 CFR part 1 under section 263A(f) of the Internal Revenue Code (Code) relating to the treatment of certain interest expense incurred by the lessor in a sale and leaseback transaction under the ERTA safe harbor leasing provisions (former section 168(f)(8), as enacted by section 201(a) of ERTA, Public Law 97–34, 95 Stat. 214).
Section 263A (the uniform capitalization rules) generally requires the capitalization of direct costs and indirect costs properly allocable to real property and tangible personal property produced by a taxpayer.
Section 263A(f) and the regulations thereunder provide special rules for capitalizing interest to property produced by a taxpayer. In general, section 263A(f) only requires the capitalization of interest that is paid or incurred during the production period of certain property (referred to as designated property). Designated property includes all real property and certain tangible personal property. See §1.263A–8(b) of the Income Tax Regulations.
In general, interest incurred on debt that is directly attributable to production expenditures with respect to designated property (traced debt) is capitalized first. See section 263A(f)(2)(A)(i). If production expenditures with respect to designated property exceed the amount of traced debt, interest on any other debt of the taxpayer is capitalized to the extent that the interest could have been reduced if production expenditures had not been incurred. See section 263A(f)(2)(A)(ii). The amount of interest required to be capitalized under section 263A(f) is calculated by reference to eligible debt. See §1.263A–9(a)(4). Eligible debt generally includes all outstanding debt of the taxpayer. Certain types of debt (listed in paragraphs (i) to (viii) of § 1.263A–9(a)(4)), however, are
excluded from the definition of eligible debt.
The ERTA safe harbor leasing provisions were intended to permit owners of property to transfer the tax benefits of ownership (depreciation and the investment credit) to other persons. The ERTA safe harbor leasing provisions operate by guaranteeing that, for federal tax purposes, (i) a transaction meeting certain stated qualifications (a qualifying transaction) will be treated as a lease even though the qualifying transaction otherwise would not be considered a lease, and (ii) the nominal lessor will be treated as the owner of the property even though the nominal lessee is in substance the owner of the property.
Regulations issued under the ERTA safe harbor leasing provisions clarify that a qualifying transaction may be part of a sale and leaseback transaction, in which the nominal lessee sells the underlying property for Federal tax purposes to the nominal lessor for a cash payment and an interest bearing note (purchase money note), and the nominal lessor simultaneously leases the property back to the nominal lessee. See §5c.168(f)(8)–1(e) Example 2 . Generally, the nominal lessor deducts, and the nominal lessee includes in income, the interest accruing on the purchase money note, subject to certain limitations. See §5c.168(f)(8)–7.
Explanation of Provisions
The temporary regulations provide that eligible debt under section 263A(f) does not include a purchase money obligation given by the lessor to the lessee (or a party related to the lessee) in a sale and leaseback transaction under former section 168(f)(8) as enacted by ERTA. Accordingly, these obligations are excluded from the definition of eligible debt, and the interest accruing on the obligations is not subject to capitalization with respect to designated property under section 263A(f). The temporary regulations apply to interest incurred in taxable years beginning on or after May 20, 2004, except that, in the case of property that is inventory in the hands of the taxpayer, the temporary regulations apply to taxable years beginning on or after May 20, 2004. However, taxpayers may elect to apply the temporary regu
June 14, 2004 1047 2004-24 I.R.B.
Section 457.—Deferred Compensation Plans of State and Local Governments and Tax-Exempt Organizations
26 CFR 1.457–2: Definitions.
Governmental plan; union; section 457(b). This ruling holds that a deferred compensation plan does not fail to be an eligible governmental plan under section 457(b) of the Code merely because the plan is created, offered, and administered by a union, provided adoption of the plan meets certain criteria set forth in the ruling.
Rev. Rul. 2004–57
ISSUE
Does a plan fail to be an eligible governmental plan under § 457(b) of the Internal Revenue Code solely because the plan is offered and administered by a labor union for the benefit of those State employees who are union members?
FACTS
An organization (including its local affiliates) that is a labor organization described in § 501(c)(5) (Union) represents professional firefighters employed by various city, municipal, and other local governments in State X (“Governmental Employers”) under collective bargaining agreements between the Union and the Governmental Employers.
State X maintains an eligible governmental § 457(b) plan (Plan A). Plan A is available to employees of State X and employees of any political subdivision of State X, including both unionized and non-unionized public safety employees and civilians.
The Union would like to offer an additional eligible governmental § 457(b) plan (Plan B) that is available only to members of the collective bargaining units represented by the Union who are employed by the Governmental Employers.
Under Plan B, the members of the Union who are employees of the Governmental Employers that adopt Plan B are eligible to participate and elect to have the Governmental Employers make contributions on their behalf to Plan B out
Associate Chief Counsel (Income Tax and Accounting). However, other personnel from the IRS and the Treasury Department participated in their development.
- - - -
Amendments to the Regulations
Accordingly, 26 CFR part 1 is 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 1.263A–9 is amended by revising paragraphs (a)(4)(vii), and (viii) and adding paragraph (a)(4)(ix) to read as follows:
§1.263A–9 The avoided cost method.
(a) - - (4) - - (vii) Reserves, deferred tax liabilities, and similar items that are not treated as debt for Federal income tax purposes, regardless of the extent to which the taxpayer’s applicable financial accounting or other regulatory reporting principles require or support treating these items as debt;
(viii) Federal, State, and local income tax liabilities, deferred tax liabilities under section 453A, and hypothetical tax liabilities under the look-back method of section 460(b) or similar provisions; and (ix) [Reserved]. For further guidance, see §1.263A–9T(a)(4)(ix).
- Par. 3. Section 1.263A–9T is added to read as follows:
§1.263A–9T The avoided cost method (temporary).
(a)(1) through (3) [Reserved]. For further guidance, see §1.263A–9(a)(1) through (3).
(4) Definition of eligible debt . Except as provided in this paragraph (a)(4), el- igible debt includes all outstanding debt (as evidenced by a contract, bond, debenture, note, certificate, or other evidence of indebtedness). Eligible debt does not include—
(i) through (viii) [Reserved]. For further guidance, see §1.263A–9(a)(4)(i) through (viii).
(ix) A purchase money obligation given by the lessor to the lessee (or a party that is related to the lessee) in a sale and leaseback transaction involving an agreement qualifying as a lease under §5c.168(f)(8)–1 through §5c.168(f)(8)–11 of this chapter. See §5c.168(f)(8)–1(e) Example (2) of this chapter.
(b) through (g) [Reserved]. For further guidance, see §1.263A–9(b) through (g).
Par. 4. Section 1.263A–15T is added to read as follows:
§1.263A–15T Effective dates, transitional rules, and anti-abuse rule (temporary).
(a)(1) and (2) [Reserved]. For further guidance, see §1.263A–15(a)(1) and (2).
(3) Section 1.263A–9T applies to interest incurred in taxable years beginning on or after May 20, 2004, except that, in the case of property that is inventory in the hands of the taxpayer, §1.263A–9T applies to taxable years beginning on or after May 20, 2004. However, taxpayers may elect to apply §1.263A–9T to interest incurred in taxable years beginning on or after January 1, 1995, or, in the case of property that is inventory in the hands of the taxpayer, to taxable years beginning on or after January 1, 1995. A change in a taxpayer’s treatment of interest to a method consistent with §1.263A–9T is a change in method of accounting to which sections 446 and 481 apply.
(b) and (c) [Reserved]. For further guidance, see §1.263A–15(b) and (c).
Mark E. Matthews, Deputy Commissioner for Services and Enforcement .
Approved May 10, 2004.
Gregory F. Jenner, Acting Assistant Secretary of the Treasury .
(Filed by the Office of the Federal Register on May 19, 2004, 8:45 a.m., and published in the issue of the Federal Register for May 20, 2004, 69 F.R. 29066)
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vision of a State, and any agency or instrumentality of a State or political subdivision of a State and (B) any other organization (other than a governmental unit) exempt under Subtitle A of the Internal Revenue Code. Section 1.457–2(e) of the Income Tax Regulations further defines the term “eligible employer” as including an entity that is a State that establishes a plan and § 1.457–2(l) provides that State means a State (treating the District of Columbia as a State as provided under § 7701(a)(10)), a political subdivision of a State, and any agency or instrumentality of a State.
Section 1.457–5(b) provides that for purposes of determining the amount of annual deferrals under a § 457 plan that are excluded from a participant’s gross income in any taxable year, the participant’s annual deferrals under all § 457 plans must be determined on an aggregate basis. For example, under § 1.457–5, all annual deferrals under all eligible plans (whether or not with the same employer) are combined for purposes of determining whether the limitations of § 457(b) have been exceeded. In this regard, § 1.457–4(e)(2) treats all deferrals under all eligible plans in which an individual participates by virtue of his or her relationship with a single employer as a single plan for purposes of determining excess deferrals.
Under § 1.457–10(b)(4), a plan-to-plan transfer from one eligible governmental plan to another eligible governmental plan of the same employer is permitted without a separation from employment if certain conditions are satisfied, including that the transfer is from an eligible governmental plan to another eligible governmental plan of the same employer (and, for this purpose, the employer is not treated as the same employer if the participant’s compensation is paid by a different entity).
Section 457(g) provides that a plan maintained by an eligible governmental employer is not to be treated as an eligible deferred compensation plan unless all amounts of compensation deferred under the plan, all property and rights purchased with such deferred compensation amounts, and all income attributable to such amounts, property, or rights of the plan are held in trust for the exclusive benefit of participants and their beneficiaries. In order to be an eligible plan of a tax-exempt entity, § 457(b)(6) provides that the plan must be unfunded and plan assets
of their compensation from the Governmental Employers. Plan B states that the plan is established and maintained by the Governmental Employers and participants are informed of this. Only investments approved by the Union are offered under Plan B and amounts deferred by employees of Governmental Employers that adopt Plan B, plus any amounts transferred directly from any other eligible governmental § 457(b) plan, provide Plan B’s exclusive source of funding.
Union members employed by Governmental Employers that do not adopt Plan B are not eligible to participate in Plan B, and no contributions may be made on their behalf regardless of whether their Governmental Employer is part of any collective bargaining agreement with the Union or its affiliates and regardless of whether the employees are union members. Employees of the Union are not eligible to participate in Plan B.
Plan B provides that all annual deferrals for a participant under the plan are combined with the participant’s annual deferrals under Plan A and all other eligible plans of the same employer for purposes of the Plan B limitations designed to comply with the limitations of § 457(b), and are combined with annual deferrals under eligible plans of other employers to the extent information concerning such plans is provided by the participant. Thus, Plan B treats all deferrals under all eligible plans in which an individual participates by virtue of his or her relationship with a single employer as a single plan for purposes of determining whether deferrals in excess of the § 457(b) limitations have been made.
Because both Plan A and Plan B must comply with these limitations, they each include terms providing for correction of any excess deferrals under all plans. Plan B provides that if an excess deferral arises which is only an excess amount as a result of the combined annual deferrals under both Plan A and Plan B, then the excess amount will be corrected by Plan B (even though there would be no excess if only annual deferrals under Plan B were taken into account). By adoption of Plan B, each Governmental Employer agrees not only to forward payroll amounts representing annual deferrals under Plan B, but also to inform Plan B of the amount of the annual deferrals made under Plan A
by participants in Plan A who also participate in Plan B and such other information known to the Governmental Employers as Plan B may need for proper administration. The adoption agreement also requires the Union to provide to the Governmental Employers such information from Plan B as the Governmental Employers may need to complete tax returns for their employees and to administer Plan A.
In addition, for purposes of Plan B’s special catch-up contribution rules for participants who are within the three-year period ending before the year they reach normal retirement age, Plan B provides a normal retirement age which is the same as the normal retirement age under Plan A. Further, Plan B permits a plan-to-plan transfer of assets from Plan A (or any other eligible governmental plan) to Plan B for employees who have not had a separation from employment only if the following conditions are satisfied: (i) the transfer is from Plan A or any other plan that is an eligible governmental plan of State X; (ii) the transferring plan provides for the transfer; (iii) the participant whose deferred amounts are being transferred is performing services for a Governmental Employer that has adopted Plan B (and, for this purpose, Plan B treats the employer as the same employer only if the participant’s compensation is paid by the same entity); and (iv) the participant or beneficiary whose amounts deferred are being transferred must have an amount deferred immediately after the transfer at least equal to the amount deferred with respect to that participant or beneficiary immediately before the transfer.
LAW AND ANALYSIS
Section 457 provides rules for the deferral of compensation by an individual participating in an eligible deferred compensation plan as defined in § 457(b). Section 457(b)(1) provides that the term “eligible deferred compensation plan” means a plan “established and maintained by an eligible employer” in which only individuals who perform services for the employer may be participants. The performance of services includes performance of services as an employee or as an independent contractor. Section 457(e)(2).
Section 457(e)(1) defines an “eligible employer” as (A) a State, political subdi
June 14, 2004 1049 2004-24 I.R.B.
must not be set aside for participants or their beneficiaries.
An arrangement does not fail to constitute a single eligible governmental plan for purposes of § 457(b) merely because the arrangement is funded through more than one trustee, custodian, or insurance carrier. See § 1.457–8 of the regulations and Notice 98–8, 1998–1 C.B. 355.
Under § 457, therefore, different rules apply depending on whether the entity establishing and maintaining the plan is a tax-exempt entity or a State government entity. A union that is a tax-exempt entity may establish and maintain an eligible § 457(b) plan, but only if the plan is unfunded and is for its employees or other individuals who perform services for the union. A State (including an agency or instrumentality thereof) may establish and maintain an eligible § 457(b) plan, but only if it is funded and only for employees of the State or other individuals who perform services for the State. A union may not establish and maintain a funded plan for its employees or for individuals who do not perform services for the union. However, an eligible governmental employer may adopt, for its collectively-bargained employees, a plan created by the union for employees of the governmental employer and offered and administered by the union, provided that the plan is “established and maintained by” the governmental employer. Thus, if the plan is established and maintained by a governmental employer, it can qualify as an eligible governmental § 457(b) plan, assuming that the plan satisfies all of the other requirements of § 457(b).
If the governmental employer has adopted the plan in a manner that reflects the employer as having established and maintained the plan, a plan does not fail to be an “eligible governmental § 457(b) plan” merely because the plan is created, offered and administered by a union even if it is in addition to another plan that is offered and administered by the governmental employer.
Under these facts, Plan B includes special provisions designed to comply with the rules for eligible governmental § 457 plans of the same employer, including coordination of limitations and corrections under § 1.457–5 and plan-to-plan transfer provisions that comply with § 1.457–10(b)(4). These facts are con
sistent with the plan being established and maintained by the Governmental Employers. The Union’s involvement in administering the plan to be offered to employees of the Governmental Employers, such as coordinating the information necessary to determine whether any excess contributions are made for a participant and responsibility in providing information necessary for completing wage statements that reflect Plan B, is comparable to the involvement associated with a third party administrator who invests annual deferrals and administers the plan provisions for the employer. In this case, the Union is in effect administering Plan B for the Governmental Employers, as a plan that is established and maintained by the Governmental Employers as the actual employers of the union members.
HOLDING
Plan B does not fail to be an eligible governmental plan under § 457(b) solely because the plan is offered and administered by the Union, but only with respect to employees of the Governmental Employers that have adopted Plan B as described in these facts.
For § 457(b) plans that do not satisfy the requirements of this revenue ruling, see Announcement 2004–52, page 1071.
DRAFTING INFORMATION
The principal author of this revenue ruling is Vernon S. Carter of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this revenue ruling contact Vernon S. Carter at (202) 622–6060 (not a toll-free call).
Section 708.—Continuation of Partnership
26 CFR 1.708–1: Continuation of a partnership. (Also: §§ 7701, 301.7701–1, 301.7701–2, 301.7701–3.)
State law conversion from partner- ship to corporation. This ruling explains the federal tax consequences when an entity classified as a partnership for federal tax purposes converts into a state law corporation under a state statute that does not
require an actual transfer of the unincorporated entity’s assets or interests.
Rev. Rul. 2004–59
ISSUE
If an unincorporated state law entity that is classified as a partnership for federal tax purposes (partnership) converts to a state law corporation under a state statute that does not require an actual transfer of the unincorporated entity’s assets or interests (state law formless conversion statute), how is the conversion treated for federal tax purposes?
FACTS
On January 1, 2003, A is organized in State as an unincorporated entity that is classified as a partnership for federal tax purposes. A elects to convert under a state law formless conversion statute into a state law corporation, effective January 1, 2004. As a result of the conversion, A is classified as a corporation for federal tax purposes.
LAW AND ANALYSIS
Section 7701(a)(2) of the Internal Revenue Code provides that the term partnership includes a syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this title, a trust or estate or a corporation.
Section 7701(a)(3) provides that the term corporation includes associations, joint-stock companies, and insurance companies.
Section 301.7701–2(b)(1) defines the term corporation to include a business entity organized under a federal or state statute, or under a statute of a federally recognized Indian tribe, if the statute describes or refers to the entity as incorporated or as a corporation, body corporate, or body politic.
Section 301.7701–3(a) provides that a business entity that is not classified as a corporation under § 301.7701–2(b)(1), (3), (4), (5), (6), (7) or (8) (an eligible entity), can elect its classification for federal tax purposes.
Section 301.7701–3(g)(1)(i) provides that, if an eligible entity classified as a part
2004-24 I.R.B. 1050 June 14, 2004
nership elects under § 301.7701–3(c)(1)(i) to be classified as an association, the following is deemed to occur: the partnership contributes all its assets and liabilities to the association in exchange for stock in the association, and immediately thereafter, the partnership liquidates, distributing the stock of the association to its partners.
Rev. Rul. 84–111, 1984–2 C.B. 88, describes the tax consequences when steps are taken as parts of a plan to transfer partnership operations to a corporation organized for valid business reasons. For each of three methods of incorporating a partnership, Rev. Rul. 84–111 describes the differences in the basis and holding periods of the various assets received by the corporation and the basis and holding periods of the stock received by the former partners provided the steps described are actually undertaken and the underlying assumptions and purposes for the conclusions in the revenue ruling are applicable. If the partnership converts into a corporation in accordance with a state law formless conversion statute, however, Rev. Rul. 84–111 does not apply.
For federal tax purposes, a partnership that converts to a corporation under a state law formless conversion statute will be treated in the same manner as one that makes an election to be treated as an association under § 301.7701–3(c)(1)(i). Therefore, when unincorporated entity A converts, under state law, to corporation A, the following steps are deemed to occur: unincorporated entity A contributes all of its assets and liabilities to corporation A in exchange for stock in corporation A, and immediately thereafter, unincorporated entity A liquidates, distributing the stock of corporation A to its partners.
HOLDING
If an unincorporated state law entity that is classified as a partnership for federal tax purposes converts into a state law corporation under a state law formless conversion statute, the following is deemed to occur: the partnership contributes all its assets and liabilities to the corporation in exchange for stock in such corporation, and immediately thereafter, the partnership liquidates distributing the stock of the corporation to its partners.
DRAFTING INFORMATION
The principal author of this revenue ruling is Christopher L. Trump of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact Christopher L. Trump at (202) 622–3080 (not a toll-free call).
Section 3121.—Definitions
26 CFR 31.3121(a)–1: Wages. (Also: 31.3306(b)–1, 31.3401(a)–1.)
Federal Insurance Contributions Act (FICA); options and deferred compen- sation transfer on divorce. This ruling concludes that nonqualified stock options and nonqualified deferred compensation transferred by an employee to a former spouse incident to a divorce are subject to the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and income tax withholding to the same extent as if retained by the employee. The ruling also provides reporting requirements applicable to the wage payments. Notice 2002–31 modified.
Rev. Rul. 2004–60
ISSUES:
(1) What is the effect upon taxation under the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and the Collection of Income Tax at Source on Wages (income tax withholding) of a transfer of interests in a nonstatutory stock option and in nonqualified deferred compensation to a former spouse incident to a divorce?
(2) What is the appropriate reporting of income and/or wages recognized with respect to nonstatutory stock options and nonqualified deferred compensation transferred to a former spouse incident to a divorce?
FACTS
The facts are the same as in Rev. Rul. 2002–22, 2002–1 C.B. 849, and are restated here for convenience.
Prior to their divorce in 2002, A and B were married individuals residing in State
X who used the cash receipts and disbursements method of accounting.
A is employed by Corporation Y . Prior to the divorce, Y issued nonstatutory stock options to A as part of A ’s compensation. The nonstatutory stock options did not have a readily ascertainable fair market value within the meaning of § 1.83–7(b) of the Income Tax Regulations at the time granted to A, and thus no amount was included in A ’s gross income with respect to those options at the time of grant.
Y maintains two unfunded, deferred compensation plans under which A earns the right to receive post-employment payments from Y . Under one of the deferred compensation plans, participants are entitled to payments based on the balance of individual accounts of the kind described in § 31.3121(v)(2)–1(c)(1)(ii) of the Employment Tax Regulations. By the time of A ’s divorce from B, A had an account balance of $100 x under that plan. Under the second deferred compensation plan maintained by Y, participants are entitled to receive single sum or periodic payments following separation from service based on a formula reflecting their years of service and compensation history with Y . By the time of A ’s divorce from B, A had accrued the right to receive a single sum payment of $50 x under the plan following A ’s termination of employment with Y . A ’s contractual rights to the deferred compensation benefits under these plans were not contingent on A ’s performance of future services for Y .
Under the law of State X, stock options and unfunded deferred compensation rights earned by a spouse during the period of marriage are marital property subject to equitable division between the spouses in the event of divorce. Pursuant to the property settlement incorporated into their judgment of divorce, A transferred to B (1) one-third of the nonstatutory stock options issued to A by Y, (2) the right to receive deferred compensation payments from Y under the account balance plan based on $75 x of A ’s account balance under the plan at the time of the divorce, and (3) the right to receive a single sum payment of $25 x from Y under the other deferred compensation plan upon A ’s termination of employment with Y .
In 2006, B exercises all of the transferred stock options and receives Y stock
June 14, 2004 1051 2004-24 I.R.B.
nonemployee spouse. See also Rev. Rul. 86–109, 1986–2 C.B. 196, which holds that payments of remuneration for employment made after the death of an employee and in the calendar year of the death are wages for FICA tax purposes, although the amounts are includible in the gross income of the recipient and not the employee.
Rev. Rul. 2002–22 holds that, upon the exercise of a nonstatutory stock option obtained by a nonemployee spouse pursuant to divorce, the property transferred to the nonemployee spouse by the employer has the same character and is includible in the income of the nonemployee spouse under § 83(a) to the same extent as the property would have been includible in the income of the employee spouse had the option been retained and exercised by the employee spouse. Rev. Rul. 2002–22 further holds that nonqualified deferred compensation, the right to which is obtained by a nonemployee spouse pursuant to divorce, paid or made available to the nonemployee spouse has the same character and is includible in the income of the nonemployee spouse to the same extent as the compensation would have been includible in the income of the employee spouse had the compensation been paid or made available to the employee spouse. Nothing in § 1041, pertaining to transfers of property between spouses or incident to divorce, excludes payments to a person other than an employee from wages for purposes of FICA. In the absence of a specific provision that would exclude these payments from FICA wages, the compensation realized on the exercise of the stock options by the nonemployee spouse and the deferred compensation paid or made available to the nonemployee spouse retain their character as wages of the employee spouse for purposes of FICA. Thus, the payment of such remuneration is subject to FICA to the same extent as if paid to the employee spouse.
At the same time that the Service published Rev. Rul. 2002–22, it also published Notice 2002–31, 2002–1 C.B. 908, which included a proposed revenue ruling addressing the application of FICA, FUTA, and income tax withholding, and reporting of income and wages, with respect to nonstatutory stock options and nonqualified deferred compensation transferred to a former spouse incident to a divorce (as described in the Facts above),
with a fair market value in excess of the exercise price of the options. In 2011, A terminates employment with Y, and B receives a single sum payment of $150 x from the account balance plan and a single sum payment of $25 x from the other deferred compensation plan.
LAW AND ANALYSIS
Rev. Rul. 2002–22 concludes that a taxpayer who transfers interests in nonstatutory stock options and nonqualified deferred compensation to the taxpayer’s former spouse incident to divorce is not required to include an amount in gross income upon the transfer. The ruling also concludes that the former spouse, rather than the taxpayer, is required to include an amount in gross income when the former spouse exercises the stock options or when the deferred compensation is paid or made available to the former spouse.
FICA Wages
Sections 3101 and 3111 impose FICA taxes on “wages” as that term is defined in § 3121(a). FICA taxes consist of the OldAge, Survivors and Disability Insurance tax (social security tax) and the Hospital Insurance tax (Medicare tax). These taxes are imposed on both the employer and employee. Sections 3101(a) and 3101(b) impose the employee portions of the social security tax and the Medicare tax, respectively. Sections 3111(a) and (b) impose the employer portions of the social security tax and the Medicare tax, respectively.
Section 3102(a) provides that the employee portion of FICA taxes must be collected by the employer of the taxpayer by deducting the amount of the tax from wages as and when paid. Section 31.3102(a)–1(a) provides that the employer is required to collect the tax, notwithstanding that wages are paid in something other than money. Section 3102(b) provides that every employer required to deduct the FICA employee tax is liable for the payment of that tax, and is indemnified against the claims and demands of any person for the amount of any such payment made by such employer.
The term “wages” is defined in § 3121(a) for FICA purposes as all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than
cash, with certain specific exceptions. Section 3121(b) defines “employment” as any service, of whatever nature, performed by an employee for the person employing him, with certain specific exceptions.
Section 31.3121(a)–1(e) provides that in general the medium in which the remuneration is paid is immaterial. It may be paid in cash or other than in cash. Remuneration paid in any medium other than cash is computed on the basis of the fair market value of such items at the time of payment.
Under § 3121(v)(2), amounts deferred under a nonqualified deferred compensation plan generally are to be taken into account when the services are performed or, if later, when there is no substantial risk of forfeiture. To the extent benefit payments under a nonqualified deferred compensation plan are attributable to amounts deferred under the plan that have been taken into account for FICA tax purposes, the benefit payments are not treated as FICA wages. To the extent benefit payments are attributable to an amount deferred that has not been taken into account for FICA tax purposes, then the benefit payments are treated as FICA wages. See § 31.3121(v)(2)–1(d)(1)(ii).
In the Social Security Amendments of 1983, Public Law No. 98–21, 1983–2 C.B. 309, Congress added language to § 3121(a) providing that nothing in the income tax withholding regulations that provides an exclusion from wages for income tax withholding purposes is to be construed to require a similar exclusion from wages for FICA purposes. The legislative history in connection with this provision states that “[s]ince the [social] security system has objectives which are significantly different from the objective underlying the income tax withholding rules, the committee believes that amounts exempt from income tax withholding should not be exempt from FICA tax unless Congress provides an explicit tax exclusion.” S. Rep. No. 23, 98th Cong., 1st Sess. at 42 (1983).
The fact that payments are includible in the gross income of an individual other than an employee does not remove the payments from FICA wages. See Rev. Rul. 71–116, 1971–1 C.B. 277, holding that payments of wages to an employee in a community property state are FICA wages although one-half of the wages is includible in the gross income of the
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medium other than cash, with certain exceptions not pertinent to this ruling.
Under § 31.3402(a)–1(c), an employer is required to deduct and withhold the tax notwithstanding that the wages are paid in something other than money (for example, wages paid in stock or bonds) and to pay over the tax in money. If the wages are paid in property other than money, the employer should make necessary arrangements to insure that the amount of the tax required to be withheld is available for payment in money.
Section 31 provides that the amount withheld from wages as income tax withholding will be allowed to the “recipient of the income” as a credit against the income taxes imposed by Subtitle A. Section 1.31–1(a) of the Income Tax Regulations provides that the “recipient of the income” for purposes of the § 31 credit is the individual who is subject to income taxes upon the wages from which the tax was withheld. For example, if an employee spouse and nonemployee spouse are domiciled in a community property state and file separate income tax returns, each reporting for income tax purposes one-half of the wages received by the employee spouse, each spouse is entitled to one-half of the credit allowable for the tax withheld at the source with respect to the wages.
Because the compensatory interests transferred under §1041 to the nonemployee spouse pursuant to the divorce remain taxable for employment tax purposes to the same extent as if retained by the employee spouse, the income recognized by the nonemployee spouse with respect to the exercise of the nonstatutory stock options and the distributions from the nonqualified deferred compensation plans are remuneration for employment and wages for purposes of income tax withholding under § 3402. Pursuant to §1.31–1(a), because the income recognized with respect to this compensation is includible in the gross income of the nonemployee spouse, the nonemployee spouse is entitled to the credit for the income tax withheld with respect to these wage payments.
Employers are not required to collect Form W–4, Employee’s Withholding Allowance Certificate, from the nonemployee spouse, and should not base withholding on a Form W–4 submitted by the nonemployee spouse. Employers may treat the compensation includible in the
and requested comments on the proposal. In general, the proposed ruling included the conclusion that the exercise of the options and the nonqualified deferred compensation remain subject to FICA and FUTA taxes to the same extent as if they had been retained by the employee, and that the income recognized by the nonemployee spouse with respect to the exercise of the options and distributions of nonqualified deferred compensation are wages for purposes of income tax withholding. The proposed ruling also concluded that any employee FICA taxes and income tax withholding applicable to the exercise of the options or distribution of the nonqualified deferred compensation would be deducted from the payments to the nonemployee spouse.
Accordingly, the nonqualified deferred compensation paid or made available to the former spouse remains subject to the rules of § 3121, including § 3121(v)(2) and the regulations thereunder, to determine when and whether FICA tax is applicable. Thus, to the extent the amount deferred has been previously taken into account for FICA purposes, the distribution to the former spouse of the proceeds of the account balance plan would not be treated as wages for FICA tax purposes. However, to the extent the amount deferred has not been previously taken into account for FICA tax purposes, the distribution to the former spouse of the proceeds of the account balance plan would be wages of the employee for FICA tax purposes. Similarly, under § 3121 and the regulations thereunder, a former spouse’s exercise of a nonstatutory stock option results in FICA wages of the employee to the extent that the fair market value of the stock received pursuant to the exercise of the option exceeds the option exercise price.
To the extent the distributed payments are FICA wages, the employee FICA tax is deducted from the payment made to the transferee. The amount includible in the gross income of the transferee is not reduced by any FICA withholding from the payments (including transfers of property) to the transferee. See Rev. Rul. 86–109 and Rev. Rul. 71–116.
Because A was the service performer and the remuneration relates to A ’s service in employment with Y, the wages, although paid to B, are FICA wages of A . See Rev. Rul. 71–116. Thus, because the pay
ments are wages for FICA tax purposes, the payments are reportable by Y as social security wages and Medicare wages on a Form W–2, Wage and Tax Statement, issued to A, and the social security tax withheld and Medicare tax withheld are also reportable on the Form W–2 to A . Y may take into account other wages previously paid to A in that calendar year in determining whether these distributions are excepted from social security wages under § 3121(a)(1), the maximum social security wage base exception. The employee FICA tax for these wages should be deducted from the payment of these wages. Finally, these payments should not be included in Box 1, Wages, tips, other compensation, nor should any amount be reflected in Box 2, Federal income tax withheld, of the Form W–2 issued to A with respect to these payments.
FUTA
The FUTA taxation provisions applicable with respect to nonstatutory stock options and nonqualified deferred compensation plans are similar to the FICA provisions, except that only the employer pays the tax imposed under FUTA. See §§ 3301, 3306(b), and 3306(r)(2) and the regulations thereunder. Because of the similar statutory provisions, FUTA taxation applies at the same time and in the same manner as FICA. To the extent wage taxation applies, the wages are FUTA wages of the employee A, subject to the maximum wage base contained in § 3306(b)(1). As with FICA, wages previously paid to the employee during the calendar year may be taken into account in determining whether these amounts qualify for the FUTA maximum wage base exception.
Income Tax Withholding
Section 3402(a), relating to income tax withholding, generally requires every employer making a payment of wages to deduct and withhold upon those wages a tax determined in accordance with prescribed tables or computational procedures.
Section 3401(a) provides that “wages” for income tax withholding purposes means all remuneration for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any
June 14, 2004 1053 2004-24 I.R.B.
spouse from the nonqualified deferred compensation plans are also subject to withholding under § 3402. The amounts to be withheld for income tax withholding are deducted from the payments to the nonemployee spouse. The supplemental wage flat rate may be used to determine the amount of income tax withholding. Pursuant to § 31, the nonemployee spouse is entitled to the credit allowable for the income tax withheld at the source on these wages.
(2) The social security wages, Medicare wages, social security taxes withheld, and Medicare taxes withheld, if applicable, are reportable on a Form W–2 with the name, address, and social security number of the employee spouse. However, no amount is includible in Box 1 and Box 2 of the employee’s Form W–2 with respect to these payments. The income with respect to the exercise of the nonstatutory stock options by the nonemployee spouse and the distributions from the nonqualified deferred compensation plans to the nonemployee spouse are reportable in Box 3 as other income on a Form 1099–MISC with the name, address, and social security number of the nonemployee spouse. Income tax withholding with respect to these payments of wages is included in Box 4, Federal income tax withheld.
Income tax withholding on payments to the nonemployee spouse is included on a Form 945 filed by Y . The social security tax and Medicare tax are reported on Y ’s Form 941, and the FUTA tax is reported on Y ’s Form 940.
EFFECT ON OTHER PUBLISHED ITEMS
Notice 2002–31, 2002–1 C.B. 908, included a proposed revenue ruling addressing the application of FICA, FUTA, and income tax withholding, and reporting of income and/or wages with respect to nonstatutory stock options and nonqualified deferred compensation transferred to a former spouse incident to a divorce, and requested comments on the proposal. After consideration of the comments that were received, the proposed ruling is adopted as revised by this revenue ruling.
PROSPECTIVE APPLICATION
This revenue ruling is effective January 1, 2005. For periods before the effective
income of the nonemployee spouse as supplemental wages and apply the flat rate withholding method on supplemental wages in withholding income tax on these wages. The flat rate for withholding on supplemental wages is currently 25 percent. See § 101(c)(11) of the Economic Growth and Tax Relief Reconciliation Act of 2001 (Pub. L. No. 107–16), which provides that the flat rate for withholding on supplemental wages is the third lowest rate of tax applicable under § 1(c) of the Code, and §§ 1(c), 1(i)(1)(A)(i), and 1(i)(2) of the Code, which provide that the third lowest rate of tax applicable under § 1(c) is 25 percent.
Reporting of payments
Section 6051 requires payors of remuneration to an employee to report those payments on Form W–2, Wage and Tax Statement . Because the former spouse is not an employee, the reporting requirements of § 6051 do not apply.
Section 6041(a) and the accompanying regulations generally require that all persons engaged in a trade or business who make a payment to a third party during the course of such business must file an information return with the IRS, reporting all payments totaling $600 or more in a taxable year, of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits and income. In this case, pursuant to § 6041(a), Y must file an information return reporting both the income B realized from B ’s exercise of the nonstatutory stock options and the payments made to B from the deferred compensation plans.
Under § 31.6051–1(a)(1), the wages of an employee that are subject to social security and Medicare taxes are included in the appropriate boxes on the Form W–2 issued to the employee. See also Rev. Rul. 71–116. Because there is no provision for the issuance of Form W–2 in the name of a nonemployee spouse, the income realized upon the exercise of the nonstatutory stock options would be reportable to the nonemployee spouse by Y on Form 1099–MISC, Miscellaneous Income, issued to the nonemployee spouse, in Box 3, Other income, with the income tax withheld reported in Box 4, Federal income
tax withheld. The payments to the nonemployee spouse B from the nonqualified deferred compensation plans and the withholding thereon would also be reportable by Y on a Form 1099–MISC in Box 3, with the income tax withheld reported in Box 4.
Social security wages, social security tax withheld, Medicare wages, and Medicare taxes withheld, if applicable, are reported on the employee spouse’s Form W–2 as described above.
Employers would report the income tax withholding on wages paid to the nonemployee spouse on Form 945, Annual Re- turn of Withheld Federal Income Tax . The social security and Medicare tax paid with respect to these wages of the employee spouse would be reported on Form 941, Employer’s Quarterly Federal Tax Return . FUTA tax with respect to wages of the employee spouse would be reported on Form 940, Employer’s Annual Federal Unem- ployment (FUTA) Tax Return .
HOLDINGS
(1) The transfer of interests in nonstatutory stock options and in nonqualified deferred compensation from the employee spouse to the nonemployee spouse incident to a divorce does not result in a payment of wages for FICA and FUTA tax purposes.
The nonstatutory stock options are subject to FICA and FUTA taxes at the time of exercise by the nonemployee spouse to the same extent as if the options had been retained by the employee spouse and exercised by the employee spouse. The nonqualified deferred compensation also remains subject to FICA and FUTA taxes to the same extent as if the rights to the compensation had been retained by the employee spouse. To the extent FICA and FUTA taxation apply, the wages are the wages of the employee spouse. The employee portion of the FICA taxes is deducted from the wages as and when the wages are taken into account for FICA tax purposes. The employee portion of the FICA taxes is deducted from the payment to the nonemployee spouse.
The income recognized by the nonemployee spouse with respect to the exercise of the nonstatutory stock options is subject to withholding under § 3402. The amounts distributed to the nonemployee
2004-24 I.R.B. 1054 June 14, 2004
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 interest rates to be used for overpayments and underpayments of tax under section 6621, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with section 6621 which, pursuant to section 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 April 2004 is 1 percent. Accordingly, an overpayment rate of 4 percent (3 percent in the case of a corporation) and an underpayment rate of 4 percent are established for the calendar quarter beginning July 1, 2004. The overpayment rate for the portion of a corporate overpayment exceeding $10,000 for the calendar quarter beginning July 1, 2004, is 1.5 percent. The underpayment rate for large corporate underpayments for the calendar quarter beginning July 1, 2004, is 6 percent. These rates apply to amounts bearing interest during that calendar quarter.
Interest factors for daily compound interest for annual rates of 1.5 percent, 3 percent, 4 percent, and 6 percent are published in Tables 56, 59, 61, and 65 of Rev. Proc. 95–17, 1995–1 C.B. 556, 610, 613, 615, and 619.
Annual interest rates to be compounded daily pursuant to section 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 Crystal Foster of the Office of Associate Chief Counsel (Procedure & Administration). For further information regarding this revenue ruling, contact Ms. Foster at (202) 622–7326 (not a toll-free call).
date, employers may rely on a reasonable, good faith interpretation including the interpretations in the proposed revenue ruling in Notice 2002–31 and this revenue ruling. However, with respect to compensation transferred to a spouse incident to divorce, failure to treat nonstatutory stock option compensation, or amounts deferred under a nonqualified deferred compensation plan, as subject to FICA will not be considered a reasonable, good faith interpretation.
DRAFTING INFORMATION
The principal author of this revenue ruling is A. G. Kelley of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this revenue ruling, contact Mr. Kelley at (202) 622–6040 (not a toll-free call).
Section 3306.—Definitions
What is the effect upon taxation under the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and the Collection of Income Tax at Source on Wages (income tax withholding) of a transfer of interests in a nonstatutory stock option and in nonqualified deferred compensation to a former spouse incident to a divorce? See Rev. Rul. 2004-60, page 1051.
Section 3401.—Definitions
What is the effect upon taxation under the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and the Collection of Income Tax at Source on Wages (income tax withholding) of a transfer of interests in a nonstatutory stock option and in nonqualified deferred compensation to a former spouse incident to a divorce? See Rev. Rul. 2004-60, page 1051.
Section 6621.—Determina- tion of Rate of Interest
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 July 1,
2004, will be 4 percent for overpayments (3 percent in the case of a corporation), 4 percent for underpayments, and 6 percent for large corporate underpayments. The rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 1.5 percent.
Rev. Rul. 2004–56
Section 6621 of the Internal Revenue Code establishes the rates for interest on tax overpayments and tax underpayments. Under section 6621(a)(1), the overpayment rate beginning July 1, 2004, 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 section 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 section 6601 on any large corporate underpayment, the underpayment rate under section 6621(a)(2) is determined by substituting “5 percentage points” for “3 percentage points.” See section 6621(c) and section 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 section 301.6621–3 are generally effective for periods after December 31, 1990.
Section 6621(b)(1) provides that the Secretary will determine the federal short-term rate for the first month in each calendar quarter.
Section 6621(b)(2)(A) provides that the federal short-term rate determined under section 6621(b)(1) for any month applies during the first calendar quarter beginning after such month.
Section 6621(b)(3) provides that the federal short-term rate for any month is the federal short-term rate determined
June 14, 2004 1055 2004-24 I.R.B.
TABLE OF INTEREST RATES
PERIODS BEFORE JUL. 1, 1975 - PERIODS ENDING DEC. 31, 1986
OVERPAYMENTS AND UNDERPAYMENTS
PERIOD RATE
In 1995–1 C.B. 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
2004-24 I.R.B. 1056 June 14, 2004
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 Apr. 1, 2003—Jun. 30, 2003 5% 15 569 Jul. 1, 2003—Sep. 30, 2003 5% 15 569 Oct. 1, 2003—Dec. 31, 2003 4% 13 567 Jan. 1, 2004—Mar. 31, 2004 4% 61 615 Apr. 1, 2004—Jun. 31, 2004 5% 63 617 Jul. 1, 2004—Sep. 30, 2004 4% 61 615
June 14, 2004 1057 2004-24 I.R.B.
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
2004-24 I.R.B. 1058 June 14, 2004
TABLE OF INTEREST RATES FOR
LARGE CORPORATE UNDERPAYMENTS
FROM JANUARY 1, 1991 - PRESENT
1995–1 C.B.
RATE TABLE PG
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 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 Apr. 1, 2003—Jun. 30, 2003 7% 19 573 Jul. 1, 2003—Sep. 30, 2003 7% 19 573 Oct. 1, 2003—Dec. 31, 2003 6% 17 571 Jan. 1, 2004—Mar. 31, 2004 6% 65 619 Apr. 1, 2004—Mar. 31, 2004 7% 67 621 Jul. 1, 2004—Sep. 30, 2004 6% 65 619
June 14, 2004 1059 2004-24 I.R.B.
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 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 Apr. 1, 2003—Jun. 30, 2003 2.5% 10 564 Jul. 1, 2003—Sep. 30, 2003 2.5% 10 564 Oct. 1, 2003—Dec. 31, 2003 1.5% 8 562 Jan. 1, 2004—Mar. 31, 2004 1.5% 56 610 Apr. 1, 2004—Mar. 31, 2004 2.5% 58 612 Jul. 1, 2004—Sep. 30, 2004 1.5% 56 610
2004-24 I.R.B. 1060 June 14, 2004
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