Part III. Administrative, Procedural, and Miscellaneous

List of Countries Requiring Cooperation with an International Boycott

Notice 95–41

In order to comply with the mandate of section 999(a)(3) of the Internal Revenue Code of 1986, the Department of the Treasury is publishing a current list of countries which may require partricipation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986).

On the basis of the best information currently available to the Department of the Treasury, the following countries may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986):

Bahrain Iraq Jordan Kuwait Lebanon Libya Oman Qatar Saudi Arabia Syria United Arab Emirates Yemen, Republic of

Dated: June 14, 1995.

Joseph Guttentag, International Tax Counsel

(Tax Policy).

(Filed by the Office of the Federal Register on

June 20, 1995, 8:45 a.m., and published in the issue of the Federal Register for June 21, 1995, 60 F.R. 32402)

90% to 110% Permissible

90% to 109% Permissible

Range

Month Year Average Range Range

July 1995 7.23 6.51 to 7.88 6.51 to 7.96

Month Year

Weighted

Average

Weighted Average Interest Rate Update

Notice 95–42

Notice 88–73 provides guidelines for determining the weighted average interest rate and the resulting permissible range of interest rates used to calculate current liability for the purpose of the full funding limitation of § 412(c)(7) of the Internal Revenue Code as amended by the Omnibus Budget Reconciliation Act of 1987 and as further amended by the Uruguay Round Agreements Act, Pub. L. 103–465 (GATT).

The average yield on the 30-year Treasury Constant Maturities for June 1995 is 6.57 percent. The following rates were determined for the plan years beginning in the month shown below.

ethanolamine, under § 4671(b)(3), is $3.85 per ton. This is based upon a conversion factor for ethylene of 0.70 and a conversion factor for ammonia of 0.17. The rate of tax prescribed for triethanolamine, under § 4671(b)(3), is $3.96 per ton. This is based upon a conversion factor for ethylene of 0.75 and a conversion factor for ammonia of 0.12. The rate of tax prescribed for monoisopropanolamine, under § 4671(b)(3), is $6.66 per ton. This is based upon a conversion factor for propylene of 0.62, a conversion factor for chlorine of 1.00, a conversion factor for sodium hydroxide of 1.20, and a conversion factor for ammonia of 0.23.

The rate of tax prescribed for diisopropanolamine, under § 4671(b)(3), is $7.08 per ton. This is based upon a conversion factor for propylene of 0.70, a conversion factor for chlorine of 1.10, a conversion factor for sodium hydroxide of 1.30, and a conversion factor for ammonia of 0.13.

Tax on Certain Imported Substances; Notice of Determination

Notice 95–43

This notice announces determinations, under Notice 89–61, 1989–1 C.B. 717, that the list of taxable substances in § 4672(a)(3) will be modified to include monoethanolamine, diethanolamine, triethanolamine, monoisopropanolamine, diisopropanolamine, triisopropanolamine, toluene diisocyanate, and chlorinated polyethylene. This modification is effective April 1, 1992.

Background

Under § 4672(a), an importer or exporter of any substance may request that the Secretary determine whether the substance should be listed as a taxable substance. The Secretary shall add the substance to the list of taxable substances in § 4672(a)(3) if the Secretary determines that taxable chem

328 1995–2 C.B.

icals constitute more than 50 percent of the weight, or more than 50 percent of the value, of the materials used to produce the substance. This determination is to be made on the basis of the predominant method of production. Notice 89–61 sets forth the rules relating to the determination process.

Determination

On July 10, 1995, the Secretary determined that monoethanolamine, diethanolamine, triethanolamine, monoisopropanolamine, diisopropanolamine, triisopropanolamine, toluene diisocyanate, and chlorinated polyethylene should be added to the list of taxable substances in § 4672(a)(3), effective April 1, 1992.

The rate of tax prescribed for monoethanolamine, under § 4671(b)(3), is $3.63 per ton. This is based upon a conversion factor for ethylene of 0.59 and a conversion factor for ammonia of 0.29. The rate of tax prescribed for di

The rate of tax prescribed for triisopropanolamine, under § 4671(b)(3), is $7.49 per ton. This is based upon a conversion factor for propylene of 0.74, a conversion factor for chlorine of 1.20, a conversion factor for sodium hydroxide of 1.40, and a conversion factor for ammonia of 0.10.

The rate of tax prescribed for toluene diisocyanate, under § 4671(b)(3), is $4.90 per ton. This is based upon a conversion factor for toluene of 0.53, a conversion factor for nitric acid of 0.7, and a conversion factor for chlorine of 0.8. The rate of tax prescribed for chlorinated polyethylene, under § 4671(b)(3), is $5.05 per ton. This is based upon a conversion factor for ethylene of 0.65 and a conversion factor for chlorine of 0.70. The petitioner is Dow Chemical Company, a manufacturer and exporter of these substances. No material comments were received on these petitions. The following information is the basis for the determinations.

Monoethanolamine HTS number: 2922.11.00.00 CAS number: 141–43–5

Monoethanolamine is derived from the taxable chemicals ethylene and ammonia and is a liquid produced predominantly by reacting ethylene oxide and aqueous ammonia.

The stoichiometric material consumption formula for this substance is:

2 C2H4 (ethylene) + 2 NH3 (ammonia) + O2 (oxygen) ----- - 2 C2H7NO (monoethanolamine)

Monoethanolamine has been determined to be a taxable substance because a review of its stoichiometric material consumption formula shows that, based on the predominant method of production, taxable chemicals constitute 73.7 percent by weight of the materials used in its production.

Diethanolamine HTS number: 2922.12.00.00 CAS number: 111–42–2

Diethanolamine is derived from the taxable chemicals ethylene and ammonia and is a solid produced predominantly by reacting ethylene oxide and aqueous ammonia.

The stoichiometric material consumption formula for this substance is:

2 C2H4 (ethylene) + NH3 (ammonia)

• O2 (oxygen) ----- - C4H11NO2 (diethanolamine)

Diethanolamine has been determined to be a taxable substance because a review of its stoichiometric material consumption formula shows that, based on the predominant method of production, taxable chemicals constitute 69.5 percent by weight of the materials used in its production.

Triethanolamine HTS number: 2922.13.00.00 CAS number: 102–71–6

Triethanolamine is derived from the taxable chemicals ethylene and ammonia and is a liquid produced predominantly by reacting ethylene oxide and aqueous ammonia.

The stoichiometric material consumption formula for this substance is:

6 C2H4 (ethylene) + 2 NH3 (ammonia) + 3 O2 (oxygen) ----- 2 C6H15NO3 (triethanolamine)

Triethanolamine has been determined to be a taxable substance because a review of its stoichiometric material consumption formula shows that, based on the predominant method of production, taxable chemicals constitute 67.7 percent by weight of the materials used in its production.

Monoisopropanolamine HTS number: 2922.19.60.00 CAS number: 78–96–6

Monoisopropanolamine is derived from the taxable chemicals propylene, chlorine, sodium hydroxide, and ammonia and is a liquid produced predominantly by the reaction of propylene oxide and ammonia.

The stoichiometric material consumption formula for this substance is:

2 C3H6 (propylene) + 2 Cl2 (chlorine) + 2 NaOH (sodium hydroxide) + NH3 (ammonia) + ----- - C3H9NO (monoisopropanolamine) + C3H6Cl2 (propylene dichloride) + 2 NaCl (sodium chloride) + H2O (water)

Monoisopropanolamine has been determined to be a taxable substance

because a review of its stoichiometric material consumption formula shows that, based on the predominant method of production, taxable chemicals constitute 100 percent by weight of the materials used in its production.

Diisopropanolamine HTS number: 2922.19.60.00 CAS number: 110–97–4

Diisopropanolamine is derived from the taxable chemicals propylene, chlorine, sodium hydroxide, and ammonia and is a solid produced predominantly by the reaction of propylene oxide and ammonia.

The stoichiometric material consumption formula for this substance is:

3 C3H6 (propylene) + 2 Cl2 (chlorine) + 2 NaOH (sodium hydroxide) + NH3 (ammonia) ----- C6H15NO2 (diisopropanolamine) + C3H6Cl2 (propylene dichloride) + 2 NaCl (sodium chloride) + H2 (hydrogen)

Diisopropanolamine has been determined to be a taxable substance because a review of its stoichiometric material consumption formula shows that, based on the predominant method of production, taxable chemicals constitute 100 percent by weight of the materials used in its production.

Triisopropanolamine HTS number: 2922.19.60.00 CAS number: 122–20–3

Triisopropanolamine is derived from the taxable chemicals propylene, chlorine, sodium hydroxide, and ammonia and is a solid produced predominantly by the reaction of propylene oxide and ammonia.

The stoichiometric material consumption formula for this substance is:

4 C3H6 (propylene) + 3 Cl2 (chlorine) + 4 NaOH (sodium hydroxide) + NH3 (ammonia) ----- C9H21NO3 (triisopropanolamine) + C3H6Cl2 (propylene dichloride) + 4 NaCl (sodium chloride) + H2O (water) + H2 (hydrogen)

Triisopropanolamine has been determined to be a taxable substance because a review of its stoichiometric material consumption formula shows that, based on the predominant method of production, taxable chemicals constitute 100 percent by weight of the materials used in its production.

Toluene diisocyanate HTS number: 2929.10.15.00 CAS number: 584–84–9

Toluene diisocyanate is derived from the taxable chemicals toluene, nitric acid, and chlorine and is a liquid produced predominantly by the phosgenation of primary amines.

The stoichiometric material consumption formula for this substance is:

C7H8 (toluene) + 2 HNO3 (nitric acid) + 2 Cl2 (chlorine) + 2 CO (carbon monoxide) + 6 H2 (hydrogen) ----- - C9H6N2O2 (toluene diisocyanate) + 6 H2O (water) + 4 HCl (hydrogen chloride)

Toluene diisocyanate has been determined to be a taxable substance because a review of its stoichiometric material consumption formula shows that, based on the predominant method of production, taxable chemicals constitute 84 percent by weight of the materials used in its production.

Chlorinated polyethylene HTS number: 3901.90.50.00 CAS number: 064754–90–1

Chlorinated polyethylene is derived from the taxable chemicals ethylene and chlorine and is a solid produced predominantly by chlorination of polyethylene resins.

The stoichiometric material consumption formula for this substance is:

857 C2H4 (ethylene) + 375 Cl2 (chlorine) ----- - C1714H3053Cl375 (chlorinated polyethylene) + 375 HCl (hydrogen chloride)

Chlorinated polyethylene has been determined to be a taxable substance because a review of its stoichiometric material consumption formula shows that, based on the predominant method of production, taxable chemicals constitute 100 percent by weight of the materials used in its production.

330 1995–2 C.B.

Tax on Certain Imported Substances; Notice of Determination

Notice 95–44

This notice announces a determination, under Notice 89–61, 1989–1 C.B. 717, that the list of taxable substances in § 4672(a)(3) will be modified to include toluenediamine. This modification is effective October 1, 1995.

Background

Under § 4672(a), an importer or exporter of any substance may request that the Secretary determine whether that substance should be listed as a taxable substance. The Secretary shall add the substance to the list of taxable substances in § 4672(a)(3) if the Secretary determines that taxable chemicals constitute more than 50 percent of the weight, or more than 50 percent of the value, of the materials used to produce the substance. This determination is to be made on the basis of the predominant method of production. Notice 89–61 sets forth the rules relating to the determination process.

Determination

On July 10, 1995, the Secretary determined that toluenediamine should be added to the list of taxable substances in § 4672(a)(3), effective October 1, 1995.

The rate of tax prescribed for toluenediamine, under § 4671(b)(3), is $5.59 per ton. This is based upon a conversion factor for toluene of 0.78, a conversion factor for methane of 0.26, and a conversion factor for ammonia of 0.34. The petitioner is Air Products and Chemicals, Inc., a manufacturer and exporter of this substance. No material comments were received on this petition. The following information is the basis for the determination.

HTS number: 2921.51.10 CAS number: 95–80–7, 823–40–5, 2687–25–4, and 496– 72–0

Toluenediamine is derived from the taxable chemicals toluene, methane, and ammonia and is a solid produced predominantly by a two-step process. The first step is mixed-acid nitration of toluene to produce dinitrotoluene. The

second step is the catalytic reaction of hydrogen and dinitrotoluene to produce toluenediamine.

The stoichiometric material consumption formula for this substance is:

C7H8 (toluene) + 1.5 CH4 (methane)

• 2 NH3 (ammonia) + 4 O2 (oxygen) ----- - CH3C6H3(NH2)2 (toluenediamine) + 5 H2O (water) + 1.5 CO2 (carbon dioxide)

Toluenediamine has been determined to be a taxable substance because a review of its stoichiometric material consumption formula shows that, based on the predominant method of production, taxable chemicals constitute 53.95 percent by weight of the materials used in its production.

Suspension of Rev. Rul. 93–88

Notice 95–45

This notice invites public comment concerning areas requiring guidance under § 104(a)(2) of the Internal Revenue Code in light of the opinion of the Supreme Court of the United States in Commissioner v. Schleier, 115 S. Ct. 2159 (1995). This notice also (1) suspends Rev. Rul. 93–88, 1993–2 C.B. 61, and (2) amplifies Rev. Proc. 95–3, 1995–1 C.B. 385.

BACKGROUND

Section 104(a)(2) provides, generally, that gross income does not include the amount of any damages received (whether by suit or agreement) on account of personal injuries or sickness.

Section 1.104–1(c) of the Income Tax Regulations provides that the term ‘‘damages received (whether by suit or agreement)’’ means an amount received (other than workmen’s compensation) through prosecution of a legal suit or action based on tort or tort-type rights, or through a settlement agreement entered into in lieu of such prosecution.

In United States v. Burke, 504 U.S. 229 (1992), the Supreme Court held that back pay received for disparate impact gender discrimination under § 2000e–5(g) of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000e to 2000e–17, was not excludable as damages received on account of personal injury under § 104(a)(2). The Court concluded

that § 1.104–1(c) has ‘‘linked the identification of a personal injury for purposes of § 104(a)(2) to traditional tort principles.’’ Examining the nature of a traditional tort, the Court concluded that the most important characteristic is the availability of a broad range of damages, such as damages for emotional distress, pain and suffering, harm to reputation, and other compensatory damages. This broad range of damages was not available under Title VII prior to its amendment by 42 U.S.C. § 1981a in 1991.

Relying on Burke, Rev. Rul. 93–88 holds that compensatory damages and back pay recoveries are excludable from gross income as damages for personal injury under § 104(a)(2) when received for: (1) gender discrimination claims under the disparate treatment provisions of Title VII of the Civil Rights Act of 1964, as amended in 1991; (2) racial discrimination claims under § 16 of the Civil Rights Act of 1870, 42 U.S.C. § 1981, and Title VII; and (3) discrimination claims under the Americans With Disabilities Act, 42 U.S.C. §§ 12101–12213.

In Schleier, the Supreme Court held that back pay and liquidated damages received in settlement of a claim under the Age Discrimination in Employment Act of 1967, 29 U.S.C. §§ 621–634 (ADEA), are not excludable from gross income under § 104(a)(2). The Court concluded that § 104(a)(2) and its regulations set forth two requirements for a recovery to be excludable from gross income: (1) it must be based on tort or tort-type rights, and (2) it must be received ‘‘on account of personal injuries or sickness.’’ The Court held that back pay and liquidated damages received under the ADEA meet neither requirement because (1) the ADEA provides no compensation for any of the other traditional harms associated with personal injury, (2) the back pay is completely independent of the existence or extent of any personal injury, and (3) the ADEA liquidated damages are punitive in nature.

REQUEST FOR PUBLIC COMMENT

The Service requests public comment concerning areas requiring guidance under § 104(a)(2) in light of Schleier. In particular, comments are specifically requested regarding Schleier ’s impact on: (1) the treatment of recoveries, including those arising under the stat

utes described in Rev. Rul. 93–88; (2) the allocation of the excludable and nonexcludable portions of lump-sum awards and settlements; and (3) the extent to which § 7805(b) relief should be granted in the event that guidance previously issued by the Service is modified.

Written comments should be submitted by September 30, 1995. Written comments should be sent to: Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Attn: CC:CORP:T:R (IA–Branch 2), Room 5228, Washington, D.C. 20044. All materials submitted will be available for public inspection and copying.

SUSPENSION OF REV. RUL. 93–88

In light of the Supreme Court’s opinion in Schleier, Rev. Rul. 93–88 is suspended.

AMPLIFICATION OF REV. PROC. 95–3

This notice amplifies § 5 of Rev. Proc. 95–3, 1995–1 C.B. 385, relating to areas under extensive study in which rulings or determination letters will not be issued until the Service publishes guidance, by adding the following new paragraph:

Section 104.—Compensation for Injuries or Sickness.—Whether amounts received are excludable from gross income under § 104(a)(2) in situations affected by Commis- sioner v. Schleier, 115 S. Ct. 2159 (1995).

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 93–88 is suspended. Rev. Proc. 95–3 is amplified.

Applicable Rate of Interest on Nonqualified Withdrawals From a Capital Construction Fund

Notice 95–46

Under the authority in Section 607(h)(4)(B) of the Merchant Marine Act, 1936, as amended (the Act, 46 U.S.C. 1177(h)(4)(B)), we hereby determine and announce that the applicable rate of interest on the amount of additional tax attributable to any nonqualified withdrawals from a Capital

Construction Fund established under Section 607 of the Act shall be 7.18 percent, with respect to nonqualified withdrawals made in the taxable year beginning in 1995. The determination of the applicable rate of interest with respect to nonqualified withdrawals was computed, according to the joint regulations issued under the Act (46 CFR 391.7(e)(2)(ii)), by multiplying eight percent by the ratio which (a) the average yield on 5-year Treasury securities for the calendar year immediately preceding the beginning of such taxable year bears to (b) the average yield on 5-year Treasury securities for the calendar year 1970. The applicable rate so determined was computed to the nearest one-hundredth of one percent.

So Ordered By: Maritime Administrator, Maritime Administration; Administrator, National Oceanic and Atmospheric Administration; Assistant Secretary for Tax Policy, Department of the Treasury.

Dated: July 27, 1995.

A.J. Herberger, Maritime Administrator.

D. James Baker, Administrator, National Oceanic

and Atmospheric Administration.

Leslie Samuels, Assistant Secretary

for Tax Policy.

(Filed by the Office of the Federal Register on

August 1, 1995, 8:45 a.m., and published in the issue of the Federal Register for August 2, 1995, 60 F.R. 39480)

Organizations Providing Relief to Victims of the Floods in Virginia

Notice 95–47

As a result of the devastation, personal injury and loss of life caused by the floods in the Commonwealth of Virginia during June and July, 1995, the President has declared the affected area to be eligible for Federal disaster assistance. The Internal Revenue Service has received questions regarding the tax consequences of private efforts to provide relief to disaster victims in this area.

Contributions earmarked for Virginia flood relief that are made to organizations currently recognized by the Service as tax exempt under section 501(c)

1995–2 C.B. 331

(3) of the Internal Revenue Code are fully deductible as charitable contributions. However, the tax law does not allow taxpayers to deduct contributions earmarked for relief of any particular individual or family.

Donors should exercise care before contributing to any organization. With increased public interest in making donations to charitable organizations to assist disaster victims, there is the increased possibility that some organizations (or their fundraisers) may make false or inaccurate claims regarding how contributions will be used or whether these contributions are tax deductible. Donors have advance assurance of deductibility only for contributions to organizations recognized as exempt by the Service under section 501(c)(3) of the Code. Charitable organizations formed to aid victims of the Virginia floods but not yet recognized as exempt can receive expedited consideration of their application for recognition of exemption by writing ‘‘VIRGINIA FLOOD RELIEF’’ at the top of Form 1023, which is the form they use to apply for exempt status. In addition, organizations should carefully follow the checklist in the Form 1023 package to insure the application is complete. Detailed information on the requirements for tax exempt status is contained in Publication 557, ‘‘Tax Exempt Status for Your

Organization.’’ The latest version of the Form 1023 package, Publication 557, Form SS–4, Application for Employer Identification Number, and Form 8718, User Fee for Exempt Organization Determination Request, may be obtained by calling the Service’s toll-free number 1-800-TAXFORM (1-800-829-3676), or by writing the nearest IRS Forms Distribution Center.

The expedited application processing does not modify or relax the requirement that tax exempt organizations operate exclusively for charitable purposes. However, to the extent that an organization is providing appropriate relief, in good faith, in the designated disaster area, the Service will not raise certain issues that might otherwise affect the organization’s qualification for exempt status or, in the case of a private foundation, liability for certain taxes under Chapter 42. Examples of these issues include an organization providing emergency assistance to its own employees or employees of related organizations who have been victimized by the floods (which raise the issue of prohibited inurement), and a private foundation providing emergency assistance to disqualified persons (as defined in section 4946 of the Code) victimized by the floods.

This relief is also granted to organizations exempt under other paragraphs

of section 501(c). For example, the Service will not raise the issue of particular services with respect to a business league exempt under section 501(c)(6) if the organization’s good faith relief efforts include aid provided to members victimized by the floods.

This relief is available to both new organizations and existing tax exempt organizations until December 31, 1995, or later if an extension by the Service is determined to be necessary or appropriate.

Weighted Average Interest Rate Update

Notice 95–48

Notice 88–73 provides guidelines for determining the weighted average interest rate and the resulting permissible range of interest rates used to calculate current liability for the purpose of the full funding limitation of § 412(c)(7) of the Internal Revenue Code as amended by the Omnibus Budget Reconciliation Act of 1987 and as further amended by the Uruguay Round Agreements Act, Pub. L. 103–465 (GATT).

The average yield on the 30-year Treasury Constant Maturities for July 1995 is 6.72 percent. The following rates were determined for the plan years beginning in the month shown below.

90% to 110% Permissible

90% to 109% Permissible

Range

Month Year

Weighted

Average

Month Year Average Range Range

August 1995 7.20 6.48 to 7.85 6.48 to 7.92

Notice 95–42, page 328, this Bulletin, provided the weighted average interest rate and the resulting permissible range of interest rates used to calculate current liability for the purpose of the full funding limitation of § 412(c)(7) for the month of July 1995. The 90% portion of the range for the 90% to 110% range was incorrect. The correct value is 6.51.

Weighted Average Interest Rate Update

Notice 95–49

Notice 88–73 provides guidelines for determining the weighted average interest rate and the resulting permissible range of interest rates used to calculate current liability for the purpose of the full funding limitation of § 412(c)(7) of

the Internal Revenue Code as amended by the Omnibus Budget Reconciliation Act of 1987 and as further amended by the Uruguay Round Agreements Act, Pub. L. 103–465 (GATT).

The average yield on the 30-year Treasury Constant Maturities for August 1995 is 6.86 percent.

The following rates were determined for the plan years beginning in the month shown below.

90% to 110% Permissible

90% to 109% Permissible

Range

Month Year Average Range Range

September 1995 7.19 6.47 to 7.84 6.47 to 7.91

Month Year

Weighted

Average

332 1995–2 C.B.

Substantiation Requirements for Travel and Entertainment Expenses

Notice 95–50

This notice provides information on a change that the Service will make to the substantiation rules in the regulations under § 274(d) of the Internal Revenue Code, and also invites public comment on possible additional changes to certain other substantiation rules under that section.

Receipt threshold to increase from $25 to $75. Section 274(d) disallows an otherwise allowable deduction under §§ 162 or 212 for any expense for traveling, entertainment, gifts, or listed property, unless the expense is substantiated by adequate records. Section 1.274–5T(c)(2)(iii) of the temporary Income Tax Regulations requires a taxpayer to maintain documentary evidence (such as receipts) for (A) any lodging expenditure, and (B) any other expenditure of $25 or more. The $25 receipt threshold was established in

1962. The Service will amend § 1.274– 5T(c)(2)(iii)(B) to increase the $25 receipt threshold to $75, effective for expenditures incurred on or after October 1, 1995.

Public comment invited. An employee who is reimbursed by his or her employer may substantiate expenses under the ‘‘adequate accounting’’ rules of § 1.274–5T(f). Under these rules, (1) the employee must furnish the employer with adequate records as provided in § 1.274–5T(c)(2), including documentary evidence (such as receipts), that establish each element ( e.g., amount, time, place, and business purpose) of the expenditure, and (2) the employer must maintain the documentary evidence and produce it if requested by the Service.

The Service is also reviewing § 1.274–5T(f) to determine whether changes should be made to the adequate accounting rules to provide alternative means of satisfying the substantiation requirements of § 274(d). The Service invites public comment on this matter. Written comments should be

submitted by December 15, 1995, to: Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Attn: CC:CORP:T:R (IA–Branch 2), Room 5228, Washington, D.C. 20044. All materials submitted will be available for public inspection and copying.

Regulatory Reinvention Initiative— Request for Comments

Notice 95–51

As part of the President’s Regulatory Reinvention Initiative, the Treasury Department and the Internal Revenue Service have identified obsolete regulations that relate to prior law, provide elections for prior years, or are otherwise outdated due to changes in the underlying statutory provisions. The Treasury Department and the Internal Revenue Service believe that the regulations listed below should be withdrawn or removed.

Public comments are requested prior to December 1, 1995 regarding whether any of these regulations should be retained.

Section Subject 1.103–12 Transitional provisions—application of regulations under section 103(c) 1.110–1 and 1.114–1 Income taxes paid by lessee corporation; Proceeds from certain sports programs conducted for the benefit of the American National Red Cross 1.115–1 Bridges to be acquired by state or political subdivisions 1.116–1 and 1.116–2 Partial exclusion of dividends and effective date; taxable years ending after July 31, 1954, subject to the Internal Revenue Code of 1939 1.367(a)–7T Temporary regulations providing a transitional rule for certain transfers of intangibles (temporary) 1.383–1A Special limitations on carryovers of unused investment credits, work incentive program credits, foreign taxes, and capital losses (pre-Tax Reform Act of 1986) 1.383–2A Purchase of a corporation and change in its trade or business (pre-Tax Reform Act of 1986) 1.383–3A Change in ownership as the result of a reorganization (pre-Tax Reform Act of 1986) 1.673(a)–1 Reversionary interests; Income payable to beneficiaries other than charitable organizations; General rule 1.804–1 and –2 Taxable years affected; Taxable investment income 1.805–1 through –8 Tax on life insurance companies in the case of a taxable year beginning in 1954; Reserve interest credits; Taxable Years Affected; Policy and other contract liability requirements; Adjusted reserves rate and earnings rates; Adjusted life insurance reserves; Pension plan reserves; Interest paid 1.820–1 through –3 Taxable years affected; Optional treatment of policies reinsured under modified coinsurance contracts; Special rules 1.824–1 through –3 Adjustments to provide protection against losses; Termination of taxability under section 821; Election to subtract amount from protection against loss account 1.907(a)–0A through 1.907(f)–1A Limitation on creditable taxes 1.907(e)–1 Transitional rules for amounts carried between a taxable year beginning before January 1, 1983, and a taxable year beginning after December 31, 1982 (carryover of FOGEI and FORI taxes) 1.995–7 Taxable income attributable to base period export gross receipts 1.1301–0 and –1 Taxable years affected; Limitation on tax 1.1302–1 through –3 Definition of averageable income; Average Base Period Income; Other related definitions

1995–2 C.B. 333

Section Subject

1.1303–1 Eligible individuals 1.1304–1 through –6 Choice of income averaging by taxpayer; Provisions inapplicable if income averaging is chosen; Special rules for computing base period income; Dollar limitations in case of joint returns; Determination of total tax for the computation year; Short taxable years 20.2035–1 Transactions in contemplation of death 23.1 Election and eligibility to treat interest in property held jointly on December 31, 1976, as qualified joint interests 24.1T Special rules applicable in the case of certain wills and trusts in existence on September 21, 1974 25.2517–1 Employees’ annuities 27.642–1T Reports of transfer of public housing bonds 33.1 Constructive filing of waivers of exemption from Social Security taxes by certain tax-exempt organizations 1.32–1 Earned income credit for taxable years beginning before January 1, 1979 38.3507–1 and –2, and 38.6302–1 Advance payments of earned income credit; Earned income credit advance payment certificates; Use of government depositions in connection with taxes under Federal Insurance Contributions Act and income tax withheld 301.6676–1 Penalty for failure to supply identifying number 301.7424–1 Civil action to clear title to property

Federal Register Cite and Project Number

Section Subject

49 FR 2794 (1/23/84) (EE–148–81) 1.409–1(b)(2)(i) Retirement bonds

Weighted Average Interest Rate Update

Notice 95–52

Notice 88–73 provides guidelines for determining the weighted average interest rate and the resulting permissible

range of interest rates used to calculate current liability for the purpose of the full funding limitation of § 412(c)(7) of the Internal Revenue Code as amended by the Omnibus Budget Reconciliation Act of 1987 and as further amended by the Uruguay Round Agreements Act, Pub. L. 103–465 (GATT).

The average yield on the 30-year Treasury Constant Maturities for September 1995 is 6.55 percent.

The following rates were determined for the plan years beginning in the month shown below.

90% to 110% Permissible

90% to 109% Permissible

Range

Month Year Average Range Range

October 1995 7.16 6.45 to 7.81 6.45 to 7.88

Month Year

Weighted

Average

transaction intended to qualify as a transferred basis transaction, for example, a transaction described in § 351 of the Internal Revenue Code. The transferee often is not identified until after the transferor has assigned the future payments. Typically, the transferor (or a partner in a partnership that is a transferor) is generally not subject to federal income tax or has available net operating losses, and the equity of the transferee is owned predominantly by persons other than the transferor.

(b) Other stripping transactions may be effected through a transfer of an interest in a partnership (or other passthrough entity). In exchange for cash, notes, or other consideration, the part

Accounting for Lease Strips and Other Stripping Transactions

Notice 95–53

The Internal Revenue Service understands that certain persons have entered into, or may be considering, multipleparty transactions intended to allow one party to realize rental or other income from property or service contracts and to allow another party to report deductions related to that income (for example, depreciation or rental expenses). Transactions of this type are sometimes referred to as ‘‘lease strips’’ or ‘‘stripping transactions.’’ This notice discusses certain tax consequences of

334 1995–2 C.B.

stripping transactions, both under current law and under regulations to be issued.

The stripping transactions covered by this notice include a variety of forms. For example:

(a) Some typical stripping transactions are effected through a transferred basis transaction. In exchange for cash, notes, or other consideration, one party sells, assigns, or otherwise transfers (‘‘assigns’’) the right to receive future payments under a lease of tangible property, and treats the amount realized from the assignment as its current income. The party later transfers the property (subject to the lease) in a

nership assigns its right to receive future payments under a lease of tangible property and allocates the amount realized from the assignment to its current partners (many of whom are generally not subject to federal income tax or have available net operating losses). The partnership retains the underlying property, and thereafter, there is a transfer or redemption of a partnership interest by one or more partners to whom the partnership allocated the income that it reported from the assignment. The transfer or redemption is structured to avoid a reduction in the basis of partnership property.

(c) Other variations of stripping transactions might involve, among other things, licenses of intangible property; service contracts; leaseholds or other non-fee interests in property; or prepayment, front-loading, or retention (rather than assignment) of rights to receive future payments.

The Service understands that the parties to stripping transactions generally claim that one party realizes the income from property or services and that another party is entitled to take related depreciation, rental expense, or other deductions. The Service believes, however, that the claimed tax treatment improperly separates income from related deductions and that stripping transactions generally do not produce the tax consequences desired by the parties.

For example, in the case of stripping transactions structured in a manner similar to that described in paragraph (a) above (including transactions with variations like those described in paragraph (c) above), the Service intends to exercise its authority under § 482 to reallocate gross income, deductions, credits, or allowances between the parties as appropriate. Section 482 permits reallocation between two or more organizations owned or controlled directly or indirectly by the same interests if necessary to clearly reflect income or to prevent the evasion of taxes. For purposes of § 482, the parties in these stripping transactions generally are ‘‘controlled ... by the same interests’’ because, among other factors, they act in concert with the common goal of arbitrarily shifting income or deductions between the transferor and the transferee. See, e.g., § 1.482–1(i)(4) of the Income Tax Regulations. The Service will not apply § 482 to other transactions where not necessary to clearly reflect income or

to prevent the evasion of taxes. See Rev. Rul. 80–198, 1980–2 C.B. 113 (subject to the limitations described therein).

Depending on the facts of a particular case, the Service also may determine that one or more of the following authorities (among others) apply to a stripping transaction: (i) sections 269, 382, 446(b), 701, or 704, and the regulations thereunder; (ii) authorities that recharacterize certain assignments or accelerations of future payments as financings; (iii) assignment-of-income principles; (iv) the business-purpose doctrine; or (v) the substance-over-form doctrines (including the step transaction and sham doctrines).

In addition, regulations will be issued pursuant to § 7701( l ) (and, as appropriate, other sections of the Code) recharacterizing stripping transactions. Under § 7701( l ), the Secretary has the authority to prescribe regulations recharacterizing any multiple-party financing arrangement as a transaction directly among two or more of the parties in order to prevent the avoidance of tax. The regulations will be effective with respect to stripping transactions any significant element of which is entered into or undertaken on or after October 13, 1995. For example, the regulations will apply to the stripping transaction described in paragraph (a) above if the property is transferred to the transferee on or after October 13, 1995, even if the rights to receive future rental payments were assigned by the transferor prior to that date.

The Service requests comments with respect to the regulations that will be issued. Written comments should be sent in duplicate to: CC:DOM:FI&P, Room 4300, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, D.C. 20224. The Service will make these comments available for public inspection.

Household Employers—How To Correct 1994 and Prior Year Forms 942, Employer’s Quarterly Tax Return for Household Employees

Notice 95–54

If a household employer finds an error on a previously filed 1994 or prior year Form 942 and that error resulted in reporting more than or less than the correct amount of social security or Medicare tax or wages, the

employer must file a corrected Form 942 by following these steps:

1. Use a 1994 Form 942 (Rev. November 1994).

2. Print or type ‘‘CORRECTED’’ across the top of the return, complete it with the correct information, and sign and date the return.

3. Prepare and attach an explanation of the correction to the return. In addition to the explanation, the attachment must contain the following information: the date(s) of the return period (quarter) for which the corrected information is being provided and the date(s) the error was discovered. Also, if filing for a refund include one of the following statements: (1) I have not withheld social security and Medicare taxes from the employee’s pay, (2) I have returned to the employee any over-payment of social security and Medicare taxes withheld from the employee’s pay, or (3) I have obtained the employee’s written consent to claim a refund on the employee’s behalf of the social security and Medicare taxes withheld from the employee’s pay. The employer should obtain a written statement indicating that the employee has not claimed a refund or credit of the overpayment.

4. Send the corrected return, attachment, and any payment to the Internal Revenue Service at the address given in the instructions for Form 942 (Rev. November 1994).

Generally, a corrected return must be filed within 3 years after the original return was filed or within 2 years after the date the tax was paid, whichever is later. Each quarterly Form 942 is considered filed on April 15 following the tax year.

Instead of filing a corrected Form 942 for a refund, the employer can file Form 843, Claim for Refund and Request for Abatement. If Form 843 is filed, include the information in item 3.

If household employers correct previously reported wage, social security tax, or Medicare tax amounts, they will need to file Form W–2c, Statement of Corrected Income and Tax Amounts, and Form W–3c, Transmittal of Corrected Income and Tax Statements, to correct the employee’s Form W–2.

The forms listed in this notice, and their instructions, can be obtained by calling 1-800-TAX-FORM (1-800829-3676).

1995–2 C.B. 335

butions. However, the tax law does not allow taxpayers to deduct contributions earmarked for relief of any particular individual or family.

Donors should exercise care before contributing to any organization. With increased public interest in making donations to charitable organizations to assist disaster victims, there is the increased possibility that some organizations (or their fundraisers) may make false or inaccurate claims regarding how contributions will be used or whether these contributions are tax deductible. Donors have advance assurance of deductibility only for contributions to organizations recognized as exempt by the Service under section 501(c)(3) of the Code. Charitable organizations formed to aid victims of Hurricane Marilyn but not yet recognized as exempt can receive expedited consideration of their application for recognition of exemption by writing ‘‘HURRICANE MARILYN RELIEF’’ at the top of Form 1023, which is the form they use to apply for exempt status. In addition, organizations should carefully follow the checklist in the Form 1023 package to insure the application is complete. Detailed information on the requirements for tax exempt status is contained in Publication 557, ‘‘Tax Exempt Status for Your Organization.’’ The latest version of the Form 1023 package, Publication 557, Form SS–4, Application for Employer Identification Number, and Form 8718, User Fee for Exempt Organization Determination Request, may be obtained by calling the Service’s toll-free number 1-800-TAX-FORM (1-800-829-3676), or by writing the nearest IRS Forms Distribution Center.

The expedited application processing does not modify or relax the requirement that tax exempt organizations operate exclusively for charitable purposes. However, to the extent that an organization is providing appropriate relief, in good faith, in the designated disaster area, the Service will not raise certain issues that might otherwise affect the organization’s qualification for exempt status or, in the case of a private foundation, liability for certain taxes under Chapter 42. Examples of these issues include an organization providing emergency assistance to its own employees or employees of related organizations who have been victimized by the hurricane (which raise the issue of prohibited inurement), and a private foundation providing emer

1996 Pension Plan Limitations ¹

Notice 95–55

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified plans. Section 415 also requires that the Commissioner annually adjust these limits for cost-of-living increases. Other limitations applicable to such plans are also affected by these adjustments.

Effective January 1, 1996, the maximum limitation for the annual benefit under § 415(b)(1)(A) for defined benefit plans remains unchanged at $120,000. For participants who separated from service before January 1, 1996, the limitation for defined benefit plans under § 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 1995 by 1.0264. The limitation for defined contribution plans under § 415(c)(1)(A) remains unchanged at $30,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of § 415(b)(1)(A) is adjusted. These dollar amounts and the adjusted amounts are as follows:

The special limitation for qualified police or firefighters under § 415(b)(2)(G) remains unchanged at $66,000.

The limitation on the exclusion for elective deferrals under § 402(g)(1) is increased from $9,240 to $9,500.

The dollar amount under § 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5-year distribution period is increased from $670,000 to $690,000, while the dollar amount used to determine the lengthening of the 5-year distribution period is increased from $132,000 to $135,000.

The threshold amount under § 4980A(c)(1)(B) regarding excess distributions is increased from $150,000 to $155,000.

The limitation used in the definition of highly compensated employee under § 414(q)(1)(B) remains unchanged at $100,000, while the limitation used in § 414(q)(1)(C) remains unchanged at $66,000.

1Based on News Release IR–95–57, dated October 17, 1995.

336 1995–2 C.B.

The annual compensation limit under §§ 401(a)(17) and 404(l) for plans for which the amendments made by § 13212 of the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93) are effective for the plan years beginning in 1994, 1995 or 1996 remains unchanged at $150,000. For collectively bargained plans for which the amendments made by § 13212 of OBRA ’93 are not effective for the plan years beginning in 1994, 1995, and 1996, the annual compensation limit under §§ 401(a)(17) and 404(l) of the Code is increased from $245,000 to $250,000.

The compensation amount under § 408(k)(2)(C) regarding simplified employee pension plans (SEPs) remains unchanged at $400. The compensation amount under § 408(k)(3)(C) for SEPs for which the amendments made by § 13212 of OBRA ’93 are effective for the plan year beginning in 1994, 1995, or 1996 remains unchanged at $150,000. For collectively bargained SEPs for which the amendments made by § 13212 of OBRA ’93 are not effective for the plan years beginning in 1994, 1995, and 1996, the compensation amount under § 408(k)(3)(C) of the Code is increased from $245,000 to $250,000.

Administrators of defined benefit or defined contribution plans that have received favorable determination letters should not request new determination letters solely because of yearly amendments to adjust maximum limitations in the plans.

Organizations Providing Relief to Victims of Hurricane Marilyn

Notice 95–56

As a result of the devastation, personal injury and loss of life caused by Hurricane Marilyn in the Virgin Islands and portions of Puerto Rico in September, 1995, the President has declared the affected area to be eligible for Federal disaster assistance. The Internal Revenue Service has received questions regarding the tax consequences of private efforts to provide relief to disaster victims in the affected areas.

Contributions earmarked for Hurricane Marilyn relief that are made to organizations currently recognized by the Service as tax exempt under section 501(c)(3) of the Internal Revenue Code are fully deductible as charitable contri

gency assistance to disqualified persons (as defined in section 4946 of the Code) victimized by the hurricane.

This relief is also granted to organizations exempt under other paragraphs of section 501(c). For example, the Service will not raise the issue of particular services with respect to a business league exempt under section 501(c)(6) if the organization’s good faith relief efforts include aid provided to members victimized by the hurricane.

This relief is available to both new organizations and existing tax exempt organizations until December 31, 1995, or later if an extension by the Service is determined to be necessary or appropriate.

Method of Accounting for Cash Method Banks for Stated Interest on Short-term Loans Made in the Ordinary Course of Business

Notice 95–57

This notice provides guidance on how the Service will process applications for a change in accounting method and claims for refund filed as a result of the decision in Security Bank Minnesota v. Commissioner, 994 F.2d 432 (8th Cir. 1993), aff’g 98 T.C. 33 (1992).

Section 446(e) of the Internal Revenue Code and § 1.446–1(e) of the Income Tax Regulations provide that a taxpayer must secure the consent of the Commissioner before changing a method of accounting for federal income tax purposes. Rev. Proc. 92–20, 1992–1 C.B. 685, contains procedures for obtaining the consent of the Commissioner to change a method of accounting for federal income tax purposes.

Section 481(a) generally requires a taxpayer changing its method of accounting to take into account those adjustments that are determined to be necessary solely by reason of the change in order to prevent amounts from being duplicated or omitted.

Section 1281, in part, requires certain holders of short-term obligations to include in gross income any interest income on the obligations as it accrues, regardless of the holder’s overall method of accounting. In Security Bank Minnesota, the Eighth Circuit held that § 1281 does not require a bank using the overall cash receipts and disbursements method of accounting to include

in gross income stated interest on short-term loans made in the ordinary course of business as it accrues. The Service disagrees with the Eighth Circuit’s interpretation of § 1281 in Security Bank Minnesota and intends to pursue this issue in other circuits.

In light of Security Bank Minnesota, however, cash method banks in the Eighth Circuit will be granted permission to change to the cash method of accounting for stated interest on shortterm loans made in the ordinary course of business. If the change in method is made after November 6, 1995, cash method banks in the Eighth Circuit that comply with the provisions of this notice will be considered to have obtained the consent of the Commissioner to make that change. If the change in method was made on or before November 6, 1995, the Service will not seek to deny cash method banks in the Eighth Circuit the use of the cash method on the ground that there was an unauthorized change in method of accounting. If the Service is later successful in further litigation on this issue in other circuits, or there is a change in law, then cash method banks in the Eighth Circuit may be required to use an accrual method of accounting for any taxable year not barred by the statute of limitations.

A taxpayer is permitted to make a change in method of accounting under this notice for (1) its current taxable year, or (2) any earlier open taxable year after which there is no closed taxable year. If the tax return for the year of change has not been filed, a taxpayer making a change must attach a current Form 3115 to its timely filed (including extensions) federal income tax return for the year of change. If the tax return for the year of change has already been filed, a taxpayer making a change must attach a current Form 3115 to an amended return for the year of change, and must file, on or before June 30, 1996, that amended return and amended returns for all subsequent affected taxable years, if any. Also, any applicable § 481(a) adjustment must be taken into account in the year of change. In addition, a copy of the Form 3115 must be filed with the national office no later than when the original Form 3115 is filed with the federal income tax return or the amended return. The copy should be sent to the Commissioner of Internal Revenue, Attention: Office of Assistant Chief Counsel (Financial Institutions and

Products) CC:DOM:FI&P, P.O. Box 7604, Benjamin Franklin Station, Washington, D.C. 20024.

This notice provides the exclusive procedures for a cash method bank in the Eighth Circuit to use in making a change to the cash method of accounting for stated interest on short-term loans made in the ordinary course of business. The national office will return any Form 3115 (and user fee) submitted by a cash method bank in the Eighth Circuit that is based on Security Bank Minnesota and does not comply with the procedures of this notice.

The Service will deny any request for a change in accounting method and any claim for refund based on Security Bank Minnesota that is filed by a taxpayer outside the Eighth Circuit.

Tax on Certain Imported Substances; Notice of Determination

Notice 95–58

This notice announces a determination, under Notice 89–61, 1989–1 C.B. 717, that the list of taxable substances in § 4672(a)(3) will be modified to include methyl methacrylate. This modification is effective October 1, 1995.

Background

Under § 4672(a), an importer or exporter of any substance may request that the Secretary determine whether that substance should be listed as a taxable substance. The Secretary shall add the substance to the list of taxable substances in § 4672(a)(3) if the Secretary determines that taxable chemicals constitute more than 50 percent of the weight, or more than 50 percent of the value, of the materials used to produce the substance. This determination is to be made on the basis of the predominant method of production. Notice 89– 61 sets forth the rules relating to the determination process.

Determination

On October 12, 1995, the Secretary determined that methyl methacrylate should be added to the list of taxable substances in § 4672(a)(3), effective October 1, 1995.

The rate of tax prescribed for methyl methacrylate, under § 4671(b)(3), is $10.12 per ton. This is based upon a conversion factor for methane of 0.47, a conversion factor for ammonia of 0.22, a conversion factor for propylene of 0.6, a conversion factor for benzene of 0.94, and a conversion factor for sulfuric acid of 1.63.

The petitioner is Rohm and Haas Texas, Inc., a manufacturer and exporter of this substance. No material comments were received on this petition. The following information is the basis for the determination.

HTS number: 2916.14.00.20 CAS number: 80–62–6

Methyl methacrylate is derived from the taxable chemicals methane, ammonia, propylene, benzene, and sulfuric acid and is a liquid produced predominantly by the catalytic reaction of acetone cyanohydrin and methyl alcohol. The methyl methacrylate is then purified by distillation.

The stoichiometric material consumption formula for this substance is:

3 CH4 (methane) + NH3 (ammonia) + C3H6 (propylene) + C6H6 (benzene) + H2SO4 (sulfuric acid) + 2.5 O2 (oxygen) ---- - C5H8O2 (methyl methacrylate) + NH4HSO4 (ammonium bisulfate) + C6H6O (phenol) + CH3OH (methanol) + H2O (water) + 2 H2 (hydrogen)

Methyl methacrylate has been determined to be a taxable substance because a review of its stoichiometric material consumption formula shows that, based on the predominant method of production, taxable chemicals constitute 77.9 percent by weight of the materials used in its production.

Tax on Certain Imported Substances; Notice of Determination

Notice 95–59

This notice announces a determination, under Notice 89–61, 1989–1 C.B. 717, that the list of taxable substances in § 4672(a)(3) will be modified to include poly 1,4 butyleneterephthalate. This modification is effective April 1, 1991.

Background

Under § 4672(a), an importer or exporter of any substance may request that the Secretary determine whether that substance should be listed as a

338 1995–2 C.B.

taxable substance. The Secretary shall add the substance to the list of taxable substances in § 4672(a)(3) if the Secretary determines that taxable chemicals constitute more than 50 percent of the weight, or more than 50 percent of the value, of the materials used to produce the substance. This determination is to be made on the basis of the predominant method of production. Notice 89– 61 sets forth the rules relating to the determination process.

Determination

On October 12, 1995, the Secretary determined that poly 1,4 butyleneterephthalate should be added to the list of taxable substances in § 4672(a)(3), effective April 1, 1991.

The rate of tax prescribed for poly 1,4 butyleneterephthalate, under § 4671(b)(3), is $3.92 per ton. This is based upon a conversion factor for acetylene of 0.1186, a conversion factor for methane of 0.2920, and a conversion factor for xylene of 0.4816.

The petitioner is GE Plastics, a manufacturer and exporter of this substance. No material comments were received on this petition. The following information is the basis for the determination.

HTS number: 3907.91.00 CAS number: 26062–94–2

Poly 1,4 butyleneterephthalate is derived from the taxable chemicals acetylene, methane, and xylene and is a solid produced predominantly by the melt polycondensation process.

The stoichiometric material consumption formula for this substance is:

176 C2H2 (acetylene) + 702 CH4 (methane) + 175 C8H10 (xylene) + 352 H2 (hydrogen) + 701 O2 (oxygen) + 350 H2O (water) + 0.08 Ti(OC3H7)4 (tetra iso-propyl titanate) ---- HO(CH 2) 4O(C 8H 4O 2) 175(C 4H 8O 2) 175 (poly 1,4 butyleneterephthalate) + 0.08 Ti (titanium) + 0.32 C3H80 (isopropanol) + 350 CH3OH (methanol) + 700 H2O (water) + 702 H2 (hydrogen)

Poly 1,4 butyleneterephthalate has been determined to be a taxable substance because a review of its stoichiometric material consumption formula shows that, based on the predominant method of production, taxable chemicals constitute 53.8 per

cent by weight of the materials used in its production.

Suspension of FSC Requirements Due to Hurricane Marilyn

Notice 95–60

The Internal Revenue Service in this notice temporarily suspends certain of the regulations governing foreign sales corporations (‘‘FSC’’) due to major disruptions in the United States Virgin Islands caused by Hurricane Marilyn on September 16 and 17, 1995.

1. FSCs were created by the Tax Reform Act of 1984, 1984–3 (Vol. 1) C.B. 1. These corporations, in order to qualify as a FSC for any taxable year, must satisfy certain requirements set forth in section 922 of the Internal Revenue Code of 1986.

Section 922(a)(1)(D)(i) of the Code requires the FSC to maintain an office located outside the United States in a qualifying foreign country or United States possession. Section 1.922–1(h), Q & A 9, of the Income Tax Regulations sets forth certain requirements (including the required type of structure, required communication and information retention equipment and required activities) that must be met in order for the FSC to have a qualifying office. These requirements will be waived with respect to FSCs having their office in the United States Virgin Islands during the period September 16, 1995, through June 30, 1996. Section 922(a)(1)(D)(ii) of the Code requires the FSC to maintain in its office located outside the United States a set of permanent books of account (including invoices) of the corporation. With regard to this requirement, section 1.922–1(i), Q & A 13, of the regulations sets forth certain dates by which the required books of account must be maintained at the FSC’s office. These dates were modified by Notice 88–93, 1988–2 C.B. 419, to provide, in general, that all records required by the regulations must be maintained at the FSC’s foreign office no later than 30 days after the due date, including extensions, of the tax return of the FSC for the applicable taxable year. Records that under the regulations would have been required to be maintained at the FSC office in the United States Virgin Islands by September 16, 1995, or by any date between September 16, 1995 through June 30, 1996, need not be

maintained at that office until July 1, 1996. In addition, records maintained at the FSC’s United States Virgin Islands office that were damaged or destroyed by Hurricane Marilyn do not have to be replaced.

Section 922(a)(1)(E) of the Code requires that at least one member of the FSC’s board of directors be an individual who is not a resident of the United States. If a FSC incorporated in the United States Virgin Islands no longer has a non-resident director because of Hurricane Marilyn, the FSC will have until July 1, 1996, to appoint a new non-resident director.

2. Section 924(c)(2) of the Code provides that the principal bank account of the FSC must be maintained at all times during the taxable year in a qualifying foreign country or United States possession. Although the bank in the United States Virgin Islands in which the bank account is maintained may have been destroyed or damaged by Hurricane Marilyn, the bank account would still be maintained because it is intangible personal property and is not subject to physical destruction like tangible personal property. In the case of a newly created or organized FSC, the requirement that the principal bank account must be ‘‘maintained at all times during the taxable year’’ is satisfied under section 1.924(c)–1(c)(4) if a principal bank account is opened not later than 30 days after the effective date of the corporation’s election to be treated as a FSC. Due to the lack of functioning of some banking institutions in the United States Virgin Islands due to hurricane damage to physical structures and the loss of electrical power, some newly established FSCs may not be able to establish a principal bank account in the appropriate time period. This notice provides that newly established FSCs required to establish a principal bank account between August 17, 1995 and January 1, 1996, will meet this requirement by establishing a principal bank

account in the United States Virgin Islands no later than January 31, 1996.

Section 1.924(c)–1(d)(1) of the regulations provides that disbursements of dividends, legal and accounting fees, and salaries of officers and directors must be disbursed from the FSC’s principal bank account. Section 1.924(c)–1(d)(1) further provides that inadvertent payments from a bank account other than the FSC’s principal bank account may be counted as qualified payments out of the principal bank account if, on determination that such payment was made from such other account, reimbursement from the principal bank account is made within a reasonable period from the date of the determination. Section 1.924(c)–1(d)(2) permits a related person to the FSC to pay certain expenses on behalf of the FSC if the related person is reimbursed no later than the last date prescribed for filing the FSC’s tax return (including extensions) for the taxable year to which the reimbursement relates. Finally, section 1.924(c)– 1(d)(3) provides that upon a determination by the Commissioner that all or part of certain expenses were paid by a related person without receiving reimbursement, the FSC may satisfy the requirements if such expenses were paid by the related person in good faith and the reimbursement is made within 90 days after the determination. The time requirement for each of these regulations is extended to July 1, 1996. Thus, if a good faith reimbursement otherwise would have been required to be made on a day during the period September 16, 1995, through June 30, 1996, the date by which the good faith reimbursement must be made is July 1, 1996. 3. Section 924(b)(1)(B) of the Code provides that a FSC will have foreign trading gross receipts from a transaction only if economic processes with respect to that transaction take place outside the United States. Section 1.924(e)–1(d)(2)(iii) of the regulations

provides that the receipt of payment economic process requirement of section 924(e)(4) of the Code with regard to a transaction will be satisfied if payment is made by the purchaser directly to the FSC or the related supplier in the United States, and the FSC or the related supplier transfers the gross receipts amount associated with the transaction to the FSC’s bank account outside the United States within 35 calendar days after receipt of good funds. If a FSC uses for this requirement a bank account in a bank located in the United States Virgin Islands, this requirement will be met with regard to funds that would have been required to have been transferred during the period September 16, 1995, through June 30, 1996, if the funds are transferred by July 1, 1996.

4. All Forms 1120 FSC of FSCs that rely on any provision in this Notice should be clearly marked ‘‘Marilyn’’ on the top center of the return. A statement should be included with the FSC’s Form 1120 FSC describing the extent to which the Notice applies.

This document serves as an ‘‘administrative pronouncement’’ as that term is described in section 1.6661–3(b)(2) of the regulations and may be relied on to the same extent as a revenue ruling or revenue procedure.

Tables for Figuring Amount Exempt from Levy on Wages, Salary, and Other Income

Notice 95–61

1. Table for Figuring Amount Exempt from Levy on Wages, Salary, and Other Income (Forms 668–W, 668–W(c), & 668–W(c)(DO)) 1996 Publication 1494, shown below, provides tables which show the amount of an individual’s income that is exempt from a notice of levy used to collect delinquent tax in 1996.

1995–2 C.B. 339

Filing Status: Unmarried Head of Household

Filing Status: Married Filing Joint (and Qualifying Widow(er)s)

340 1995–2 C.B.

Filing Status: Married Filing Separate

2. Table for Figuring Additional Exempt Amount for Taxpayers at Least 65 Years Old and/or Blind

Additional Exempt Amount

• ADDITIONAL STANDARD DEDUCTION claimed on Parts 3, 4, & 5 of levy.

Examples These tables show the amount exempt from a levy on wages, salary, and other income. For example:

1. A single taxpayer who is paid weekly and claims three exemptions (including one for the taxpayer) has $224.04 exempt from levy.

2. If the taxpayer in number 1 is over 65 and writes 1 in the ADDITION STANDARD DEDUCTION space on Parts 3, 4, & 5 of the levy, $243.27 is exempt from this levy ($224.04 plus $19.23).

3. A taxpayer who is married, files jointly, is paid bi-weekly, and claims two exemptions (including one for the taxpayer) has $453.85 exempt from levy.

4. If the taxpayer in number 3 is over 65 and has a spouse who is blind, this taxpayer should write 2 in the ADDITIONAL STANDARD DEDUCTION space on Parts 3, 4, & 5 of the levy. Then, $515.39 is exempt from this levy ($453.85 plus $61.54).

lished proposed regulations (IA–4–92

[1992–2 C.B. 735]) in the Federal Register (57 FR 39379) under section 6109 of the Internal Revenue Code, relating to the authority of the FCIC to collect employer identification numbers. Although written comments and requests for a public hearing were solicited, no written or oral comments were received and no public hearing was requested or held. Because the proposed regulations merely restate the rules in section 6109, the IRS has decided, in the interest of simplifica

1995–2 C.B. 341

Authority of the Federal Crop Insurance Corporation to Require Employer Identification Numbers from Policyholders and Reinsured Companies for Purposes of the Federal Crop Insurance Act

Notice 95–62

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Withdrawal of notice of proposed rulemaking.

SUMMARY: This document withdraws the notice of proposed rulemaking published in the Federal Register on August 31, 1992, that relates to the authority of the Federal Crop Insurance Corporation (FCIC) to require policyholders and reinsured companies to furnish employer identification numbers for purposes of administering the Federal Crop Insurance Act.

SUPPLEMENTARY INFORMATION:

Background

On August 31, 1992, the IRS pub

tion, to withdraw those proposed regulations.

List of Subjects in 26 CFR Part 301

Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements.

Withdrawal of Notice of Proposed Rulemaking

Accordingly, under the authority of 26 U.S.C. 7805, the notice of proposed rulemaking that was published in the

Federal Register on August 31, 1992, (57 FR 39379) is withdrawn.

(Filed by the Office of the Federal Register on

October 27, 1995, 8:45 a.m., and published in the issue of the Federal Register for October 30, 1995, 60 F.R. 55228)

Weighted Average Interest Rate Update

Notice 95–63

Notice 88–73 provides guidelines for

Margaret Milner Richardson,

Commissioner of

Internal Revenue.

determining the weighted average interest rate and the resulting permissible range of interest rates used to calculate current liability for the purpose of the full funding limitation of § 412(c)(7) of the Internal Revenue Code as amended by the Omnibus Budget Reconciliation Act of 1987 and as further amended by the Uruguay Round Agreements Act, Pub. L. 103–465 (GATT).

The average yield on the 30-year Treasury Constant Maturities for October 1995 is 6.37 percent.

The following rates were determined for the plan years beginning in the month shown below.

90% to 110% Permissible

90% to 109% Permissible

Range

Month Year

Month Year Average Range Range

November 1995 7.13 6.42 to 7.77 6.42 to 7.85

Weighted

Average

Magnetic Media Filing Requirements for Employers Filing Wage and Tax Statements for Employees in Puerto Rico, U.S. Virgin Islands, Guam, and American Samoa

Notice 95–64

This notice provides information on magnetic media filing requirements that the Internal Revenue Service intends to prescribe for employers filing wage and tax statements for employees in Puerto Rico, U.S. Virgin Islands, Guam, and American Samoa, and also invites public comment on this matter.

Returns required on magnetic media . Under § 6011(e) of the Internal Revenue Code, the Secretary is authorized to issue regulations providing standards for determining which returns must be filed on magnetic media.

Currently, employers are encouraged, but are not required, to file the following wage and tax statements on magnetic media:

(1) Form 499R–2/W–2PR, Withholding Statement (Puerto Rico);

(2) Form W–2VI, U.S. Virgin Islands Wage and Tax Statement;

(3) Form W–2GU, Guam Wage and Tax Statement; and

(4) Form W–2AS, American Samoa Wage and Tax Statement.

342 1995–2 C.B.

The Service intends to issue proposed regulations that will require an employer to file these wage and tax statements on magnetic media if the employer is required to file 250 or more statements during the calendar year, unless a waiver for hardship is obtained. This magnetic media filing requirement will be effective for wage and tax statements required to be filed after December 31, 1996, with the Social Security Administration.

Information regarding magnetic me- dia specifications . Specifications for magnetic media filing may be obtained from the Social Security Administration by contacting:

(1) for Form W–2GU and Form W–

2AS, contact: Social Security Administration Regional Magnetic Media Coordinator, RSI 75 Hawthorne Street San Francisco, CA 94105 Telephone: (415) 744-4559

FAX: (415) 744-2849 (not toll-free calls) (2) for Form W–2VI and Form

499R–2/W–2PR, contact: Social Security Administration Wage Reporting Specialist Federal Office Bldg., Suite 751 San Juan, Puerto Rico 00918 Telephone: (809) 766-5574 FAX: (809) 766-5913 (not toll-free calls)

Public comment invited . The Service invites public comment on this matter. Written comments should be submitted by January 31, 1996, to:

Internal Revenue Service P.O. Box 7604 Ben Franklin Station Attn: CC:CORP:T:R (IA-Branch 1), Room 5228 Washington, D.C. 20044. All materials submitted will be available for public inspection and copying.

List of Countries Requiring Cooperation With an International Boycott

Notice 95–65

In order to comply with the mandate of section 999(a)(3) of the Internal Revenue Code of 1986, the Department of the Treasury is publishing a current list of countries which may require partricipation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986). The current list reflects a decision to remove Jordan as a result of its recent accords with Israel.

On the basis of the best information currently available to the Department of the Treasury, the following countries may require participation in, or cooper

This relief is available to both new organizations and existing tax exempt organizations until December 31, 1995, or later if an extension by the Service is determined to be necessary or appropriate.

Travel Expense Substantiation

Notice 95–67

The purpose of this notice is to inform taxpayers that the annual update of the revenue procedure regarding business travel expenses and per diem reimbursements (Rev. Proc. 94–77, 1994–2 C.B. 825) will be published as soon as possible in 1996. This revenue procedure, which is normally updated in the last Internal Revenue Bulletin of the year, provides rules under which the amount of business expenses of an employee or a self-employed individual incurred while traveling away from home will be deemed substantiated. This revenue procedure incorporates by reference rates for lodging, meals, and/ or incidental expenses set forth in Appendix A of 41 C.F.R., Chapter 301, as amended. Changes in these rates for 1996 were not available as of the date that this Bulletin 1995–52 went to print. Accordingly, when these rates become available, the Service will update Rev. Proc. 94–77, with the same effective date as the amended rates in Appendix A. Until that effective date, the rates deemed substantiated under Rev. Proc. 94–77 will continue in effect.

26 CFR 601.602: Tax forms and instructions.

Rev. Proc. 95–29A

This revenue procedure modifies and amplifies Rev. Proc. 95–29, 1995–1 C.B. 706, which provides specifications for filing Forms 1098, 1099, 5498, and W–2G. Revenue Procedure 95–29 is reprinted as Publication 1220, Specifications for Filing Forms 1098, 1099, 5498, and W–2G Magnetically or Electronically.

For TY95, the use of Amount Code 9 for Form 1099–R was changed from ‘‘State income tax withheld’’ to ‘‘Total employee contribution.’’ Therefore, state income tax must be reported in the Special Data Entries Field.

1995–2 C.B. 343

ation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986): Bahrain Iraq Kuwait Lebanon Libya Oman Qatar Saudi Arabia Syria United Arab Emirates Yemen, Republic of

Dated: November 6, 1995.

Joseph Guttentag, International Tax Counsel.

(Filed by the Office of the Federal Register on

November 14, 1995, 8:45 a.m., and published in the issue of the Federal Register for November 15, 1995, 60 F.R. 57480)

Organizations Providing Relief to Victims of Hurricane Opal

Notice 95–66

As a result of the devastation, personal injury and loss of life caused by Hurricane Opal in parts of Alabama, Florida and Georgia, starting October 4, 1995, the President has declared the affected area to be eligible for Federal disaster assistance. The Internal Revenue Service has received questions regarding the tax consequences of private efforts to provide relief to disaster victims in this area.

Contributions earmarked for Hurricane Opal relief that are made to organizations currently recognized by the Service as tax exempt under section 501(c)(3) of the Internal Revenue Code are fully deductible as charitable contributions. However, the tax law does not allow taxpayers to deduct contributions earmarked for relief of any particular individual or family.

Donors should exercise care before contributing to any organization. With increased public interest in making donations to charitable organizations to assist disaster victims, there is the increased possibility that some organizations (or their fundraisers) may make false or inaccurate claims regarding how contributions will be used or whether these contributions are tax

deductible. Donors have advance assurance of deductibility only for contributions to organizations recognized as exempt by the Service under section 501(c)(3) of the Code. Charitable organizations formed to aid victims of Hurricane Opal but not yet recognized as exempt can receive expedited consideration of their application for recognition of exemption by writing ‘‘HURRICANE OPAL RELIEF’’ at the top of Form 1023, which is the form they use to apply for exempt status. In addition, organizations should carefully follow the checklist in the Form 1023 package to insure the application is complete. Detailed information on the requirements for tax exempt status is contained in Publication 557, ‘‘Tax Exempt Status for Your Organization.’’ The latest version of the Form 1023 package, Publication 557, Form SS–4, Application for Employer Identification Number, and Form 8718, User Fee for Exempt Organization Determination Request, may be obtained by calling the Service’s toll-free number 1-800-TAXFORM (1-800-829-3676), or by writing the nearest IRS Forms Distribution Center.

The expedited application processing does not modify or relax the requirement that tax exempt organizations operate exclusively for charitable purposes. However, to the extent that an organization is providing appropriate relief, in good faith, in the designated disaster area, the Service will not raise certain issues that might otherwise affect the organization’s qualification for exempt status or, in the case of a private foundation, liability for certain taxes under Chapter 42. Examples of these issues include an organization providing emergency assistance to its own employees or employees of related organizations who have been victimized by the hurricane (which raise the issue of prohibited inurement), and a private foundation providing emergency assistance to disqualified persons (as defined in section 4946 of the Code) victimized by the hurricane.

This relief is also granted to organizations exempt under other paragraphs of section 501(c). For example, the Service will not raise the issue of particular services with respect to a business league exempt under section 501(c)(6) if the organization’s good faith relief efforts include aid provided to members victimized by the hurricane.

Note 5 under the 1099–R amount code field specifies ‘‘For the convenience of the payer, state and local income tax withheld may be reported in the Special Data Entries Field in the Payee ‘‘B’’ Record.’’ However, unique field positions in Special Data Entries Field were not designated for this purpose.

To assist in identifying state and local reporting for Form 1099–R, IRS/ MCC has designated two specific field

positions in both the Payee ‘‘B’’ Records and in the corresponding State ‘‘K’’ Records. If not reporting Form 1099–R, these fields may be used as continuation of the Special Data Entries Field.

For ease of reading, changes are identified by italics and double underline.

PART B CHANGES

Changes to specifications for tape,

tape cartridge, 5 ¹ ⁄4- and 3 ¹ ⁄2-inch diskettes found in Part B, Sec. 7.10(1) through Sec. 9 follow.