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Internal Revenue Bulletin No.

2001–28
July 9, 2001

bulletin
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

INCOME TAX dated groups and by certain new members of consolidated
groups. The amendments also extend the period of time for
Rev. Rul. 2001-34, page 31. filing an application for a tentative carryback adjustment for
Federal rates; adjusted federal rates; adjusted feder- the separate return year created by a corporation becoming
al long-term rate, and the long-term exempt rate. For a new member of a consolidated group.
purposes of sections 382, 1274, 1288, and other sections
of the Code, tables set forth the rates for July 2001. Rev. Proc. 2001–39, page 38.
This procedure modifies the definitions of capitation fee and
T.D. 8947, page 36. per-unit fee in Rev. Proc. 97–13 (1997–1 C.B. 632) to per-
This T.D. removes certain final regulations under section mit automatic increases of those fees according to a speci-
6656 of the Code because amendments to the Code section fied, objective, and external standard such as the Consumer
have made these regulation sections obsolete. Price Index. Rev. Proc. 97–13 modified.
T.D. 8949, page 33.
Final regulations relate to the aggregation of stock owner- EMPLOYEE PLANS
ship in a corporation of members of a consolidated group.
Section 1.1502–34 generally provides that for purposes of T.D. 8948, page 27.
the consolidated return regulations, the stock ownership of Final regulations clarify the circumstances under which an
all members of a consolidated group in another corporation employer is considered to have significantly reduced retiree
is aggregated in determining the application of certain Code health coverage during the cost maintenance period defined
provisions. These regulations reflect a technical correction under section 420(c)(3) of the Code.
enacted in the Community Renewal Tax Relief Act of 2000
that, in substance, provides that the stock aggregation rules
under regulation section 1.1502–34 shall apply for purpos- EXEMPT ORGANIZATIONS
es of section 732(f) of the Code. Announcement 2001–72, page 39.
T.D. 8950, page 34. A list is provided of organizations now classified as private
Final regulations provide guidance as to the time for filing an foundations.
application for a tentative carryback adjustment by consoli-

(Continued on the next page)

Finding Lists begin on page ii.

Department of the Treasury
Internal Revenue Service
ESTATE TAX ADMINISTRATIVE
Announcement 2001–74, page 40.
This announcement contains revised filing locations for Announcement 2001-73, page 40.
some states for estate, gift, and generation-skipping trans- This document contains a correction to Rev. Proc. 2000–39
fer tax returns. (2000–41 I.R.B. 340) relating to business and traveling
expenses, and per diem allowances.

Announcement 2001-75, page 42.
GIFT TAX
This announcement describes the procedures for requesting
Announcement 2001–74, page 40. a waiver from electronic filing for partnerships that are
This announcement contains revised filing locations for required to electronically file Form 1065, but do not have
some states for estate, gift, and generation-skipping trans- the necessary software to file all forms and schedules.
fer tax returns.

July 9, 2001 2001–28 I.R.B.
The IRS Mission

Provide America’s taxpayers top quality service by help- and by applying the tax law with integrity and fairness to
ing them understand and meet their tax responsibilities all.

Introduction
The Internal Revenue Bulletin is the authoritative instrument dures must be considered, and Service personnel and oth-
of the Commissioner of Internal Revenue for announcing offi- ers concerned are cautioned against reaching the same con-
cial rulings and procedures of the Internal Revenue Service clusions in other cases unless the facts and circumstances
and for publishing Treasury Decisions, Executive Orders, Tax are substantially the same.
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained The Bulletin is divided into four parts as follows:
from the Superintendent of Documents on a subscription
basis. Bulletin contents are consolidated semiannually into
Cumulative Bulletins, which are sold on a single-copy basis. Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
Part II.—Treaties and Tax Legislation.
of the tax laws, including all rulings that supersede, revoke,
This part is divided into two subparts as follows: Subpart A,
modify, or amend any of those previously published in the
Tax Conventions, and Subpart B, Legislation and Related
Bulletin. All published rulings apply retroactively unless other-
Committee Reports.
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights Part III.—Administrative, Procedural, and Miscellaneous.
and duties of taxpayers are published. To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
Revenue rulings represent the conclusions of the Service on
istrative Rulings. Bank Secrecy Act Administrative Rulings
the application of the law to the pivotal facts stated in the
are issued by the Department of the Treasury’s Office of the
revenue ruling. In those based on positions taken in rulings
Assistant Secretary (Enforcement).
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and Part IV.—Items of General Interest.
to comply with statutory requirements. This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations, The first Bulletin for each month includes a cumulative index
but they may be used as precedents. Unpublished rulings for the matters published during the preceding months.
will not be relied on, used, or cited as precedents by Service These monthly indexes are cumulated on a semiannual basis,
personnel in the disposition of other cases. In applying pub- and are published in the first Bulletin of the succeeding semi-
lished rulings and procedures, the effect of subsequent leg- annual period, respectively.
islation, regulations, court decisions, rulings, and proce-
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

July 9, 2001 2001–28 I.R.B.
insert missing
children
Brianna
Winslow
and
David Gosnell
July 9, 2001 2001–28 I.R.B.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 42.—Low-Income tiree health coverage during the cost main- One of the conditions of a qualified sec-
Housing Credit tenance period does not satisfy the mini- tion 420 transfer was that the employer
mum cost requirement of section 420(c)(3). satisfy a maintenance of effort require-
The adjusted applicable federal short-term, mid- In addition, these regulations clarify the cir- ment in the form of a “minimum cost re-
term, and long-term rates are set forth for the month
of July 2001. See Rev. Rul. 2001–34, page 31.
cumstances under which an employer is quirement” under which the employer
considered to have significantly reduced re- was required to maintain employer-pro-
tiree health coverage during the cost main- vided retiree health expenditures for cov-
tenance period. ered retirees, their spouses, and depen-
Section 280G.—Golden
dents at a minimum dollar level for a
Parachute Payments DATES: Effective Date: These regula-
5-year cost maintenance period, begin-
tions are effective June 19, 2001.
Federal short-term, mid-term, and long-term ning with the taxable year in which the
Applicability Date: These regulations
rates are set forth for the month of July 2001. See qualified transfer occurs.
Rev. Rul. 2001–34, page 31. are applicable to transfers of excess pen-
The Uruguay Round Agreements Act
sion assets occurring on or after Decem-
(Public Law 103–465) (108 Stat. 4809)
ber 18, 1999. See the Effective Date por-
(December 8, 1994) extended the avail-
Section 382.—Limitation on Net tion of this preamble.
ability of section 420 through December
Operating Loss Carryforwards FOR FURTHER INFORMATION CON- 31, 2000. In conjunction with the exten-
and Certain Built-In Losses TACT: Janet A. Laufer or Vernon S. Carter sion, Congress modified the maintenance
Following Ownership Change (202) 622-6060 (not a toll-free number). of effort rules for plans transferring assets
for retiree health benefits so that employ-
The adjusted applicable federal long-term rate is SUPPLEMENTARY INFORMATION:
ers could take into account cost savings
set forth for the month of July 2001. See Rev. Rul.
2001–34, page 31.
Background realized in their health benefit plans. As a
result, the focus of the maintenance of ef-
This document contains final regula- fort requirement was shifted from health
tions (26 CFR Part 1) under section 420 costs to health benefits. Under this “ben-
Section 420.— Transfers of of the Internal Revenue Code of 1986 efit maintenance requirement,” which ap-
Excess Pension Assets to (Code). These regulations provide guid- plied to qualified transfers made after De-
Retiree Health Accounts ance concerning the minimum cost re- cember 8, 1994, an employer had to
quirement under section 420. The Rev- maintain substantially the same level of
26 CFR 1.420–1: Significant reduction in retiree enue Reconciliation Act of 1990 (Public
health coverage during the cost maintenance employer-provided retiree health cover-
period. Law 101–508) (104 Stat. 1388), section age for the taxable year of the transfer and
12011, added section 420 of the Code, a the following 4 years. The level of cover-
T.D. 8948 temporary provision permitting certain age required to be maintained was based
qualified transfers of excess pension as- on the coverage provided in the taxable
DEPARTMENT OF THE TREASURY sets from a non-multiemployer defined year immediately preceding the taxable
Internal Revenue Service benefit pension plan to a health benefits year of the transfer.
26 CFR Part 1 account. A health benefits account is de- The Tax Relief Extension Act of 1999
fined as an account established and main- (title V of H.R. 1180, the Ticket to Work
Minimum Cost Requirement tained under section 401(h) of the Code and Work Incentives Improvement Act of
Permitting the Transfer of (401(h) account) that is part of the plan.1 1999) (Public Law 106 – 170,113 Stat.
Excess Assets of a Defined 1860) (TREA-99) extended section 420
Benefit Pension Plan to a 1 Section 420(a)(1) and (2) provide that the trust that is
through December 31, 2005. In conjunc-
Retiree Health Account part of the plan is not treated as failing to satisfy the
tion with this extension, the minimum
qualification requirements of section 401(a) or (h) of cost requirement was reinstated as the ap-
AGENCY: Internal Revenue Service the Code, and no amount is includible in the gross plicable “maintenance of effort” provi-
(IRS), Treasury. income of the employer maintaining the plan, solely by sion (in lieu of requiring the maintenance
reason of such transfer. Also, section 420(a)(3) pro- of the level of coverage) for qualified
ACTION: Final regulations. vides that a qualified transfer is not treated as either an
employer reversion for purposes of section 4980 or a
transfers made after December 17, 1999.
SUMMARY: This document contains final prohibited transaction for purposes of section 4975. Because the minimum cost requirement
Income Tax Regulations relating to the In addition, Title I of the Employee Retirement In- relates to per capita cost, an employer
minimum cost requirement under section come Security Act of 1974 (88 Stat. 829), as amended could satisfy the minimum cost require-
(ERISA), provides that a qualified transfer pursuant to ment by maintaining the average cost
420, which permits the transfer of excess
section 420 is not a prohibited transaction under
assets of a defined benefit pension plan to a ERISA (ERISA section 408(b)(13)) or a prohibited re-
even though the employer defeats the pur-
retiree health account. Pursuant to section version of assets to the employer (ERISA section pose of the maintenance of effort require-
420(c)(3)(E), these regulations provide that 403(c)(1)). ERISA also provides certain notification ment by reducing the number of people
an employer who significantly reduces re- requirements with respect to such qualified transfers. covered by the health plan. In response to

2001–28 I.R.B. 27 July 9, 2001
concerns regarding this possibility, Employer Action account health coverage that a buyer or
TREA-99 also added section 420(c) transferee provides to retired employees
The regulations retain the broad defini-
(3)(E), which requires the Secretary of the of the employer. Various approaches
tion of employer action contained in the
Treasury to prescribe such regulations as were suggested, most of them centering
proposed regulations. Thus, employer ac-
may be necessary to prevent an employer around allowing an employer to take
tion includes not only plan amendments
who significantly reduces retiree health credit for retiree health benefits provided
but also situations in which other em-
coverage during the cost maintenance pe- by a buyer or transferee that are substan-
ployer actions, such as the sale of all or
riod from being treated as satisfying the tially similar to the benefits provided by
part of the employer’s business, operate in
minimum cost requirement of section the employer.
conjunction with the existing plan terms
420(c)(3). If the minimum cost require- In cases in which a buyer acquires the
to have the indirect effect of ending an in-
ment of section 420(c)(3) is not satisfied, entire employer sponsoring the pension
dividual’s coverage.
the transfer of assets from the pension The proposed regulations contained no plan that is the subject of the maintenance
plan to the 401(h) account is not a “quali- exceptions from the rule that treats indi- of effort requirement under section
fied transfer” to which the provisions of viduals as losing health coverage by rea- 420(c)(3)(E), no special rule is required,
section 420(a) apply. son of employer action if those individu- because the buyer as the successor em-
On January 5, 2001, a notice of pro- als’ coverage ends by reason of a sale of ployer maintaining the plan is responsible
posed rulemaking (REG – 116468 – 00, all or part of the employer’s business, for continuing to satisfy the minimum
2001–6 I.R.B. 522) was published in the even if the buyer provides coverage for cost requirements of section 420(c)(3)
Federal Register (66 FR 1066). Written such individuals (on the implicit assump- with respect to that transfer. However,
comments were received on the proposed tion that a buyer of less than an entire cor- based upon comments received, these
regulations. A public hearing scheduled poration rarely undertakes to provide such final regulations include a special rule
for March 15, 2001, was canceled be- coverage to retirees in these transactions). that allows the employer responsible for
cause no one had requested to speak (66 The preamble to the proposed regulations satisfying the maintenance of effort re-
FR 13864). After consideration of all the specifically requested comments as to (1) quirement of section 420(c)(3)(E) to take
comments received on the proposed regu- the circumstances, if any, in which buyers credit for a buyer’s or transferee’s provi-
lations, the regulations are adopted as commonly provide the seller’s retirees, sion of retiree health benefits in certain
modified by this Treasury decision. and their spouses and dependents, with other situations.
health coverage following a corporate Under the final regulations, an em-
Explanation of Provisions ployer may, but is not required to, treat re-
transaction, and (2) in such cases, criteria
that should apply to the replacement cov- tiree health coverage as not having ended
General Framework
erage in determining whether to treat those for individuals whose coverage is pro-
Following the approach taken in the individuals as not having lost coverage. vided by a buyer. In such a case, for the
proposed regulations, these regulations Commentators disagreed with the as- year of the sale and future taxable years of
provide that the minimum cost require- sumption stated in the preamble to the the cost maintenance period, the em-
ment of section 420(c)(3) is not met if proposed regulations that a buyer acquir- ployer must apply the minimum cost re-
an employer significantly reduces re- ing a portion of a seller’s business rarely quirement contained in section 420(c)(3)
tiree health coverage during the cost undertakes to provide retiree health cov- by treating the individuals whose cover-
maintenance period. Whether an em- erage to retirees in these transactions and age is provided by the buyer as individu-
ployer has significantly reduced retiree expressed concern about the approach als to whom coverage for applicable
health coverage is determined by look- taken in the proposed regulations con- health benefits is provided during the year
ing at the number of individuals (re- cerning individuals who lose retiree (i.e., including all such individuals in the
tirees, their spouses, and dependents) health coverage in such situations. One denominator in the determination of ap-
who lose coverage during the cost main- commentator stated that in the case of plicable employer cost) and treating
tenance period as a result of employer business combinations involving organi- amounts the buyer spends on health bene-
actions, measured on both an annual zations that contract with the United fits for those individuals as qualified cur-
basis and a cumulative basis. States Government, the relevant procure- rent retiree health liabilities. After the
In determining whether an employer ment regulations encourage buyers to as- buyer commences providing the retiree
has significantly reduced retiree health sume a seller’s obligations for retirees’ health benefits, action of the buyer is at-
coverage, the regulations provide that the pension and retiree medical benefits. tributed to the employer for purposes of
employer does not satisfy the minimum Other commentators expressed a desire to determining whether an individual’s cov-
cost requirement if the percentage de- retain flexibility in structuring future erage ends by reason of employer action.
crease in the number of individuals pro- business dispositions so that a buyer or Accordingly, if a buyer initially provides
vided with applicable health benefits that transferee of a business could undertake retiree health benefits to individuals af-
is attributable to employer action exceeds to provide retiree health coverage for the fected by the sale, but later amends its
10 percent in any year, or if the sum of the seller’s employees. plan to stop providing benefits to those in-
annual percentage decreases during the Generally, commentators requested that dividuals, the employer must treat those
cost maintenance period exceeds 20 per- the regulations allow an employer who individuals as having lost coverage by
cent. sells or transfers a business to take into reason of employer action.

July 9, 2001 28 2001–28 I.R.B.
These final regulations also add a defi- percent, the employer can, before the end Special Analyses
nition of “sale” to clarify that the rule for of the initial period, resume providing
sales applies as well to other transfers of a coverage for individuals who lost cover- It has been determined that this Trea-
business. In the case of a transfer, the age and treat those individuals as not hav- sury decision is not a significant regula-
transferee is treated as the buyer. Thus, ing lost coverage. However, if an em- tory action as defined in Executive Order
for example, the rule applies in a situation ployer reduces retiree health coverage by 12866. Therefore, a regulatory assess-
in which an employer spins off all or part more than 20 percent during the initial pe- ment is not required. It has also been de-
of its business, and also applies when a riod and does not “correct” by again pro- termined that section 553(b) of the Ad-
contractor that operates a government- viding coverage for individuals who lost ministrative Procedure Act (5 U.S.C.
owned facility is replaced by another con- coverage, the employer would fail the cu- chapter 5) does not apply to these regula-
tractor and the replacement contractor mulative test. Also, the annual test of tions, and, because the regulations do not
hires the employees of the prior contrac- significant reduction applies only to tax- impose a collection of information on
tor to operate the facility. able years beginning on or after January small entities, the Regulatory Flexibility
1, 2002, which reflects a further delay Act (5 U.S.C. chapter 6) does not apply.
Effective Date from the date in the proposed regulation. Pursuant to section 7805(f) of the Code,
the notice of proposed rulemaking pre-
The proposed regulations provided that Additional changes ceding these regulations was submitted to
the 10 percent annual limit would not the Chief Counsel for Advocacy of the
apply to a taxable year beginning before The proposed regulations contained a Small Business Administration for com-
February 5, 2001 (30 days after publica- special rule that addresses situations in ment on its impact on small business.
tion of the proposed regulations in the which an employer adopts plan terms that
Federal Register). However, under the establish eligibility for health coverage Drafting Information
proposed regulations, the 20 percent cu- for some individuals, but provide that
mulative limit applied with respect to cost those same individuals lose health cover- The principal authors of these regula-
maintenance periods pertaining to any age upon the occurrence of a particular tions are Janet A. Laufer and Vernon S.
transfers made on or after December 18, event or after a stated period of time. In Carter, Office of Division Counsel/Associ-
1999. Thus, if an employer reduced cov- those cases, an individual is not counted ate Chief Counsel (Tax Exempt and Gov-
erage by more than 20 percent prior to is- as having lost health coverage by reason ernment Entities). However, other person-
suance of the proposed regulations, the of employer action merely because that nel from the IRS and Treasury Department
employer would have failed the cumula- individual’s coverage ends upon the oc- participated in their development.
tive test. currence of the event or after a certain pe- * * * * *
Several commentators expressed con- riod of time, such as when health benefits
Adoption of Amendments to the
cern about the proposed effective date of are provided to employees retiring as a re-
Regulations
transfers occurring on or after December sult of a plant closing only for the period
18, 1999. None of the comments indi- during which they receive severance pay Accordingly, 26 CFR part 1 is amended
cated that any employers had in fact re- (see example 2 of the regulations). As a as follows:
duced coverage by more than 20 percent result of the changes discussed above that
prior to issuance of the proposed regula- address “corrections” through restoration PART 1 – INCOME TAXES
tions, and one of the commentators stated of coverage during the initial period and
that as a practical matter, the issue of sale transactions, these final regulations Paragraph 1. The authority citation for
retroactivity is moot. However, a number contain two modifications of the special part 1 is amended by adding a new entry
of the commentators expressed concern rule for contemporaneously-adopted plan in numerical order to read in part as fol-
over retroactive effective dates in Trea- terms. First, the special rule is not avail- lows:
sury regulations as a matter of principle. able with respect to an amendment that Authority: 26 U.S.C. 7805, 26 U.S.C.
These final regulations, like the pro- restores coverage before the end of the 420(c)(3)(E)***
posed regulations, provide that the 20 per- initial period. Second, in the context of Par. 2. Section 1.420–1 is added under
cent cumulative test will apply with re- an amendment of a buyer’s health plan to the undesignated centerheading “Pension,
spect to transfers of excess pension assets provide retiree health coverage for a Profit-Sharing, Stock Bonus Plans, etc.”
occurring on or after December 18, 1999. seller’s employees, the special rule is to read as follows:
In order to address concerns raised by available only to the extent that any terms
§1.420–1 Significant reduction in retiree
commentators, however, the final regula- that have the effect of ending an individ-
health coverage during the cost
tions take into account any reinstatement ual’s coverage are the same as the terms
maintenance period.
of coverage that occurs during the portion of the plan maintained by the seller, and
of a cost maintenance period that pre- only if the terms of the seller’s plan that (a) In general. Notwithstanding sec-
cedes the first day of the first taxable year terminate coverage were adopted contem- tion 420(c)(3)(A), the minimum cost re-
beginning on or after January 1, 2002 (the poraneously with the provision under quirements of section 420(c)(3) are not
initial period). Thus, for purposes of the which the individual became eligible for met if the employer significantly reduces
cumulative test, if an employer reduced retiree health coverage under the seller’s retiree health coverage during the cost
retiree health coverage by more than 20 plan. maintenance period.

2001–28 I.R.B. 29 July 9, 2001
(b) Significant reduction—(1) In gen- individual by the end of the initial period. (B) For purposes of determining
eral. An employer significantly reduces (4) Employer action—(i) General rule. whether a subsequent termination of cov-
retiree health coverage during the cost For purposes of paragraph (b)(2) of this erage is by reason of employer action
maintenance period if, for any taxable section, an individual’s coverage for ap- under this paragraph (b)(4), the purchaser
year beginning on or after January 1, plicable health benefits ends during a tax- is treated as the employer. However, the
2002, that is included in the cost mainte- able year by reason of employer action, if special rule in paragraph (b)(4)(ii) of this
nance period, either — on any day within the taxable year, the in- section applies only to the extent that any
(i) The employer-initiated reduction dividual’s eligibility for applicable health terms of the plan maintained by the pur-
percentage for that taxable year exceeds benefits ends as a result of a plan amend- chaser that have the effect of ending re-
10 percent; or ment or any other action of the employer tiree health coverage for an individual are
(ii) The sum of the employer-initiated (e.g., the sale of all or part of the em- the same as terms of the plan maintained
reduction percentages for that taxable year ployer’s business) that, in conjunction by the employer that were adopted con-
and all prior taxable years during the cost with the plan terms, has the effect of end- temporaneously with the provision under
maintenance period exceeds 20 percent. ing the individual’s eligibility. An em- which the individual became eligible for
(2) Employer-initiated reduction per- ployer action is taken into account for this retiree health coverage under the plan
centage. The employer-initiated reduction purpose regardless of when the employer maintained by the employer.
percentage for any taxable year is the action actually occurs (e.g., the date the (c) Definitions. The following defini-
fraction B/A, expressed as a percentage, plan amendment is executed), except that tions apply for purposes of this section:
where: employer actions occurring before the (1) Applicable health benefits. Applic-
later of December 18, 1999, and the date able health benefits means applicable
A= The total number of individuals
that is 5 years before the start of the cost health benefits as defined in section
(retired employees plus their
maintenance period are disregarded. 420(e)(1)(C).
spouses plus their dependents)
(ii) Special rule. Notwithstanding (2) Cost maintenance period. Cost
receiving coverage for applica-
paragraph (b)(4)(i) of this section, cover- maintenance period means the cost main-
ble health benefits as of the day
age for an individual will not be treated as tenance period as defined in section
before the first day of the taxable
having ended by reason of employer ac- 420(c)(3)(D).
year.
tion merely because such coverage ends (3) Sale. A sale of all or part of an em-
B= The total number of individuals under the terms of the plan if those terms ployer’s business means a sale or other
included in A whose coverage were adopted contemporaneously with transfer in connection with which the em-
for applicable health benefits the provision under which the individual ployees of a trade or business of the em-
ended during the taxable year by became eligible for retiree health cover- ployer become employees of another per-
reason of employer action. age. This paragraph (b)(4)(ii) does not son. In the case of such a transfer, the
apply with respect to plan terms adopted term purchaser means a transferee of the
(3) Special rules for taxable years be-
contemporaneously with a plan amend- trade or business.
ginning before January 1, 2002. The fol-
ment that restores coverage for applicable (d) Examples. The following examples
lowing rules apply for purposes of com-
health benefits before the end of the initial illustrate the application of this section:
puting the amount in paragraph (b)(1)(ii) Example 1. (i) Employer W maintains a defined
of this section if any portion of the cost period in accordance with paragraph
benefit pension plan that includes a 401(h) account
maintenance period precedes the first day (b)(3)(ii) of this section. and permits qualified transfers that satisfy section
of the first taxable year beginning on or (iii) Sale transactions. If a purchaser 420. The number of individuals receiving coverage
after January 1, 2002— provides coverage for retiree health bene- for applicable health benefits as of the day before
fits to one or more individuals whose cov- the first day of Year 1 is 100. In Year 1, Employer
(i) Aggregation of taxable years. The W makes a qualified transfer under section 420.
portion of the cost maintenance period erage ends by reason of a sale of all or part There is no change in the number of individuals re-
that precedes the first day of the first tax- of the employer’s business, the employer ceiving health benefits during Year 1. As of the last
able year beginning on or after January 1, may treat the coverage of those individuals day of Year 2, applicable health benefits are pro-
2002 (the initial period), is treated as a as not having ended by reason of employer vided to 99 individuals, because 2 individuals be-
action. In such a case, for the remainder of came eligible for coverage due to retirement and 3
single taxable year and the employer-ini- individuals died in Year 2. During Year 3, Employer
tiated reduction percentage for the initial the year of the sale and future taxable years W amends its health plan to eliminate coverage for 5
period is computed as set forth in para- of the cost maintenance period — individuals, 1 new retiree becomes eligible for cov-
graph (b)(2) of this section, except that (A) For purposes of computing the ap- erage and an additional 3 individuals are no longer
the words “initial period” apply instead of covered due to their own decision to drop coverage.
plicable employer cost under section
Thus, as of the last day of Year 3, applicable health
“taxable year.” 420(c)(3), those individuals are treated as benefits are provided to 92 individuals. During Year
(ii) Loss of coverage. If coverage for individuals to whom coverage for applica- 4, Employer W amends its health plan to eliminate
applicable health benefits for an individ- ble health benefits was provided (for as coverage under its health plan for 8 more individu-
ual ends by reason of employer action at long as the purchaser provides retiree als, so that as of the last day of Year 4, applicable
health benefits are provided to 84 individuals. Dur-
any time during the initial period, an em- health coverage to them), and any amounts
ing Year 5, Employer W amends its health plan to
ployer may treat that coverage as not hav- expended by the purchaser of the business eliminate coverage for 8 more individuals.
ing ended if the employer restores cover- to provide for health benefits for those indi- (ii) There is no significant reduction in retiree
age for applicable health benefits to that viduals are treated as paid by the employer; health coverage in either Year 1 or Year 2, because

July 9, 2001 30 2001–28 I.R.B.
there is no reduction in health coverage as a result of However, the terms of the health plan that limit cov- Section 483.—Interest on
employer action in those years. erage for employees who retired from Division B as
(iii) There is no significant reduction in Year 3. a result of the 2000 plant shutdown (to the 2-year Certain Deferred Payments
The number of individuals whose health coverage period) were adopted contemporaneously with the
The adjusted applicable federal short-term, mid-
ended during Year 3 by reason of employer action provision under which those employees became eli-
term, and long-term rates are set forth for the month
(amendment of the plan) is 5. Since the number of gible for retiree coverage under the health plan. Ac-
of July 2001. See Rev. Rul. 2001–34, on this page.
individuals receiving coverage for applicable health cordingly, under the rule provided in paragraph
benefits as of the last day of Year 2 is 99, the em- (b)(4)(ii) of this section, coverage for those 20 re-
ployer-initiated reduction percentage for Year 3 is tirees from Division B is not treated as having ended
5.05 percent (5/99), which is less than the 10 percent by reason of employer action. Thus, the number of Section 642.—Special Rules for
annual limit. individuals whose health benefits ended by reason
Credits and Deductions
(iv) There is no significant reduction in Year 4. of employer action in 2002 is 10. Since the number
The number of individuals whose health coverage of individuals receiving coverage for applicable Federal short-term, mid-term, and long-term
ended during Year 4 by reason of employer action is health benefits as of the last day of 2001 is 200, the rates are set forth for the month of July 2001. See
8. Since the number of individuals receiving cover- employer-initiated reduction percentage for 2002 is Rev. Rul. 2001–34, on this page.
age for applicable health benefits as of the last day 5 percent (10/200), which is less than the 10 percent
of Year 3 is 92, the employer-initiated reduction per- annual limit.
centage for Year 4 is 8.70 percent (8/92), which is (e) Regulatory effective date. This sec-
less than the 10 percent annual limit. The sum of the
tion is applicable to transfers of excess Section 807.—Rules for Certain
employer-initiated reduction percentages for Year 3 Reserves
and Year 4 is 13.75 percent, which is less than the 20 pension assets occurring on or after De-
percent cumulative limit. cember 18, 1999. The adjusted applicable federal short-term, mid-
(v) In Year 5, there is a significant reduction term, and long-term rates are set forth for the month
under paragraph (b)(1)(ii) of this section. The num- David A. Mader, of July 2001. See Rev. Rul. 2001–34, on this page.
ber of individuals whose health coverage ended dur- Acting Deputy Commissioner
ing Year 5 by reason of employer action (amend- of Internal Revenue.
ment of the plan) is 8. Since the number of
individuals receiving coverage for applicable health Section 846.—Discounted
benefits as of the last day of Year 4 is 84, the em- Approved June 12, 2001.
Unpaid Losses Defined
ployer-initiated reduction percentage for Year 5 is
9.52 percent (8/84), which is less than the 10 percent Mark A. Weinberger, The adjusted applicable federal short-term, mid-
annual limit. However, the sum of the employer-ini- Assistant Secretary term, and long-term rates are set forth for the month
tiated reduction percentages for Year 3, Year 4, and of the Treasury (Tax Policy). of July 2001. See Rev. Rul. 2001–34, on this page.
Year 5 is 5.05 percent + 8.70 percent + 9.52 percent
= 23.27 percent, which exceeds the 20 percent cu- (Filed by the Office of the Federal Register on June
mulative limit. 14, 2001, at 2:45 p.m., and published in the issue of
Example 2. (i) Employer X, a calendar year tax- the Federal Register for June 19, 2001, 66 FR Section 1274.—Determination
payer, maintains a defined benefit pension plan that 32897) of Issue Price in the Case of
includes a 401(h) account and permits qualified
transfers that satisfy section 420. X also provides
Certain Debt Instruments Issued
lifetime health benefits to employees who retire from for Property
Division A as a result of a plant shutdown, no health Section 467.—Certain Payments
benefits to employees who retire from Division B, for the Use of Property or (Also sections 42, 280G, 382, 412, 467, 468, 482,
and lifetime health benefits to all employees who re- 483, 642, 807, 846, 1288, 7520, 7872.)
tire from Division C. In 2000, X amends its health Services
plan to provide coverage for employees who retire Federal rates; adjusted federal rates;
The adjusted applicable federal short-term, mid-
from Division B as a result of a plant shutdown, but
only for the 2-year period coinciding with their sev-
term, and long-term rates are set forth for the month adjusted federal long-term rate, and
of July 2001. See Rev. Rul. 2001–34, on this page. the long-term exempt rate. For purposes
erance pay. Also in 2000, X amends the health plan
to provide that employees who retire from Division of sections 382, 1274, 1288, and other
A as a result of a plant shutdown receive health cov- sections of the Code, tables set forth the
erage only for the 2-year period coinciding with their Section 468.—Special Rules for rates for July 2001.
severance pay. A plant shutdown that affects Divi-
sion A and Division B employees occurs in 2000.
Mining and Solid Waste
The number of individuals receiving coverage for ap- Reclamation and Closing Costs Rev. Rul. 2001–34
plicable health benefits as of the last day of 2001 is
200. In 2002, Employer X makes a qualified transfer The adjusted applicable federal short-term, mid- This revenue ruling provides various
under section 420. As of the last day of 2002, applic- term, and long-term rates are set forth for the month prescribed rates for federal income tax
able health benefits are provided to 170 individuals, of July 2001. See Rev. Rul. 2001–34, on this page.
purposes for July 2001 (the current
because the 2-year period of benefits ends for 10 em- month). Table 1 contains the short-term,
ployees who retired from Division A and 20 employ-
ees who retired from Division B as a result of the
mid-term, and long-term applicable fed-
plant shutdown that occurred in 2000.
Section 482.—Allocation of eral rates (AFR) for the current month for
(ii) There is no significant reduction in retiree Income and Deductions Among purposes of section 1274(d) of the Inter-
health coverage in 2002. Coverage for the 10 re- Taxpayers nal Revenue Code. Table 2 contains the
tirees from Division A who lose coverage as a result short-term, mid-term, and long-term ad-
of the end of the 2-year period is treated as having Federal short-term, mid-term, and long-term
ended by reason of employer action, because cover- rates are set forth for the month of July 2001. See justed applicable federal rates (adjusted
age for those Division A retirees ended by reason of Rev. Rul. 2001–34, on this page. AFR) for the current month for purposes
a plan amendment made after December 17, 1999. of section 1288(b). Table 3 sets forth the ad-

2001–28 I.R.B. 31 July 9, 2001
justed federal long-term rate and the long- for buildings placed in service during the est for purposes of section 7520. Finally,
term tax-exempt rate described in section current month. Table 5 contains the federal Table 6 contains the blended annual rate for
382(f). Table 4 contains the appropriate per- rate for determining the present value of an 2001 for purposes of section 7872
centages for determining the low-income annuity, an interest for life or for a term of
housing credit described in section 42(b)(2) years, or a remainder or a reversionary inter-

REV. RUL. 2001–34 TABLE 1
Applicable Federal Rates (AFR) for July 2001
Period for Compounding
Annual Semiannual Quarterly Monthly
Short-Term
AFR 4.07% 4.03% 4.01% 4.00%
110% AFR 4.48% 4.43% 4.41% 4.39%
120% AFR 4.90% 4.84% 4.81% 4.79%
130% AFR 5.31% 5.24% 5.21% 5.18%
Mid-Term
AFR 5.12% 5.06% 5.03% 5.01%
110% AFR 5.65% 5.57% 5.53% 5.51%
120% AFR 6.16% 6.07% 6.02% 5.99%
130% AFR 6.69% 6.58% 6.53% 6.49%
150% AFR 7.73% 7.59% 7.52% 7.47%
175% AFR 9.06% 8.86% 8.76% 8.70%
Long-Term
AFR 5.82% 5.74% 5.70% 5.67%
110% AFR 6.41% 6.31% 6.26% 6.23%
120% AFR 7.01% 6.89% 6.83% 6.79%
130% AFR 7.60% 7.46% 7.39% 7.35%

REV. RUL. 2001–34 TABLE 2
Adjusted AFR for July 2001
Period for Compounding
Annual Semiannual Quarterly Monthly
Short-term
adjusted AFR 3.16% 3.14% 3.13% 3.12%
Mid-term
adjusted AFR 3.87% 3.83% 3.81% 3.80%
Long-term
adjusted AFR 5.00% 4.94% 4.91% 4.89%

REV. RUL. 2001–34 TABLE 3
Rates Under Section 382 for July 2001
Adjusted federal long-term rate for the current month 5.00%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the
adjusted federal long-term rates for the current month and the prior two months.) 5.01%

July 9, 2001 32 2001–28 I.R.B.
REV. RUL. 2001–34 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for July 2001
Appropriate percentage for the 70% present value low-income housing credit 8.28%
Appropriate percentage for the 30% present value low-income housing credit 3.55%

REV. RUL. 2001–34 TABLE 5
Rate Under Section 7520 for July 2001
Applicable federal rate for determining the present value of an annuity, an interest for life or a term
of years, or a remainder or reversionary interest 6.2%

REV. RUL. 2001–34 TABLE 6
Blended Annual Rate for 2001
Section 7872(e)(2) blended annual rate for 2001 4.98%

Section 1288.—Treatment of special aggregate stock ownership rules ration, (2) the corporate partner has con-
Original Issue Discounts of Tax- shall apply for purposes of section 732(f) trol of the distributed corporation imme-
Exempt Obligations of the Code. These final regulations may diately after the distribution or at any time
affect all consolidated groups. thereafter, and (3) the partnership’s ad-
The adjusted applicable federal short-term, mid- justed basis in such stock immediately be-
term, and long-term rates are set forth for the month DATES: Effective Date: June 19, 2001.
fore the distribution exceeded the corpo-
of July 2001. See Rev. Rul. 2001–34, on page 31.
FOR FURTHER INFORMATION CON- rate partner’s adjusted basis in such stock
TACT: Frances L. Kelly or David H. immediately after the distribution, then an
Kessler (202) 622-7770 (not a toll-free amount equal to such excess shall reduce
Section 1502.—Regulations
number). the basis of the property held by the dis-
26 CFR 1.1502–34: Special aggregate stock tributed corporation at such time.
ownership rules. SUPPLEMENTARY INFORMATION: On December 21, 2000, Congress en-
acted section 311(c) of the Community
T.D. 8949 Background
Renewal Tax Relief Act of 2000 (Public
This document contains amendments to Law 106–554, 114 Stat. 2763) (the 2000
DEPARTMENT OF THE TREASURY the Income Tax Regulations (26 CFR Part Act), a technical correction to section 538
Internal Revenue Service 1) under section 1502 of the Internal Rev- of the 1999 Act. Section 311(c) of the
26 CFR Part 1 enue Code of 1986 (Code).Section 2000 Act states “[t]he reference to section
1.1502–34 generally provides that, for pur- 332(b)(1) of the Internal Revenue Code of
Special Aggregate Stock poses of the consolidated return regulations, 1986 in Treasury Regulation section
Ownership Rules the stock ownership of all members of a 1.1502–34 shall be deemed to include a
consolidated group in another corporation is reference to section 732(f) of such Code.”
AGENCY: Internal Revenue Service aggregated in determining the application of The Conference Report states that the rule
(IRS), Treasury. certain Code provisions, including section in the consolidated return regulations
332(b)(1), in a consolidated return year. (§1.1502–34) aggregating stock owner-
ACTION: Final regulations. ship for purposes of section 332 (relating
Section 538 of the Ticket to Work and
SUMMARY: This document contains Work Incentives Improvement Act of to a complete liquidation of a subsidiary
final regulations relating to the aggrega- 1999 (Public Law 106–170, 113 Stat. that is a controlled corporation) also ap-
tion of stock ownership in a corporation 1939) (the 1999 Act) enacted section plies for purposes of section 732(f) (relat-
of members of a consolidated group. 732(f) on December 17, 1999. With cer- ing to basis adjustments to assets of a con-
These regulations reflect a technical cor- tain exceptions, section 732(f) generally trolled corporation received in a
rection enacted in section 311(c) of the provides that if (1) a corporate partner of partnership distribution). H.R. Conf.
Community Renewal Tax Relief Act of a partnership receives a distribution from Rep. No. 1033, 106th Cong., 2d Sess.
2000 that, in substance, provides that the that partnership of stock in another corpo- 1022 (2000).

2001–28 I.R.B. 33 July 9, 2001
Section 311(d) of the 2000 Act pro- that prior notice and comment are unnec- T.D. 8950
vides that section 311(c) of the 2000 Act essary and contrary to the public interest.
takes effect as if included in the provi- For the same reason, good cause exists for DEPARTMENT OF THE TREASURY
sions of the 1999 Act to which it relates. not delaying the effective date of this final Internal Revenue Service
Thus, the effective date of section 311(c) rule. 26 CFR Part 1
of the 2000 Act is the same as that for sec- * * * * *
tion 538(a) of the 1999 Act, which is con- Guidance on Filing an
tained in section 538(b) of the 1999 Act. Adoption of Amendments to the Application for a Tentative
Regulations
Explanation of Provisions
Carryback Adjustment in a
Accordingly, 26 CFR part 1 is amended Consolidated Return Context
These final regulations conform as follows:
§ 1.1502–34 to a technical correction en- AGENCY: Internal Revenue Service
acted in section 311(c) of the 2000 Act PART 1 — INCOME TAXES (IRS), Treasury.
and add a regulation under section 732 re- ACTION: Final regulations.
Paragraph 1. The authority citation for
flecting that correction. These regulations
part 1 is amended by adding entries in nu- SUMMARY: This document contains
reflect this statutory provision clarifying
merical order to read in part as follows: final regulations relating to the filing of
that the stock aggregation rules under
Authority: 26 U.S.C. 7805 * * * an application for a tentative carryback
§ 1.1502–34 apply for purposes of section
Section 1.732–3 also issued under 26 adjustment. These regulations provide
732(f).
U.S.C. 732(f). * * * guidance as to the time for filing such ap-
Because section 311(d) of the 2000 Act
Section 1.1502–34 also issued under 26 plication by a consolidated group and by
provides that section 311(c) of the 2000
U.S.C. 1502. * * * certain corporations for the separate re-
Act shall take effect as if it had been in-
Par. 2. Section 1.732–3 is added to read turn year created by their becoming a
cluded in the provisions of the 1999 Act,
as follows: member of a consolidated group. These
the effective date provisions of section
538(b) of the 1999 Act apply to these reg- § 1.732–3 Corresponding adjustment to final regulations may affect all consoli-
ulations. Section 538(b) generally pro- basis of assets of a distributed dated groups.
vides that the amendments made by sec- corporation controlled by a corporate DATES: Effective Date: June 22, 2001.
tion 538(a) of the 1999 Act apply to partner. Applicability Date: For dates of applic-
distributions made after July 14, 1999. In
ability, see §1.1502–78(e)(2)(v) of these
the case of a corporation that was a part- The determination of whether a corpo-
regulations.
ner in a partnership as of July 14, 1999, rate partner has control of a distributed
the amendments made by section 538(a) corporation for purposes of section 732(f) FOR FURTHER INFORMATION CON-
of the 1999 Act apply to distributions shall be made by applying the special ag- TACT: Christopher M. Bass or Frances
made (or treated as made) to that partner gregate stock ownership rules of L. Kelly (202) 622-7770 (not a toll-free
from that partnership after June 30, 2001. § 1.1502–34. number).
In the case of any such distribution made
after December 17, 1999, and before July § 1.1502–34 [Amended] SUPPLEMENTARY INFORMATION:
1, 2001, the rule of the preceding sentence Par. 3. In §1.1502–34, the first sentence Background
does not apply unless that partner makes is amended by adding “732(f),” immedi-
an election to have the rule apply to the ately after “351(a),”. This document contains amendments to
distribution on the partner’s income tax the Income Tax Regulations (26 CFR Part
return for the year in which the distribu- Robert E. Wenzel, 1) under section 1502 of the Internal Rev-
tion occurs. Deputy Commissioner of enue Code of 1986 (Code) relating to the
Internal Revenue. filing of an application for a tentative car-
Special Analyses
ryback adjustment. The amendments pro-
It has been determined that this Trea- Approved June 8, 2001.
vide guidance as to the time for filing an
sury decision is not a significant regula- Mark A. Weinberger, application for a tentative carryback ad-
tory action as defined in Executive Order Assistant Secretary justment by a consolidated group. The
12866. Therefore, a regulatory assess- of the Treasury. amendments also extend the time for fil-
ment is not required. Because no notice ing an application for a tentative carry-
of proposed rulemaking is required for back adjustment by certain corporations
this final regulation, the provisions of the (Filed by the Office of the Federal Register on June for the separate return year created by
Regulatory Flexibility Act (5 U.S.C. 13, 2001, at 8:45 a.m., and published in the issue of their becoming new members of a consol-
the Federal Register for June 19, 2001, 66 FR
chapter 6) do not apply. idated group.
32901)
This final rule merely conforms On January 4, 2001, a temporary regu-
§ 1.1502–34 to the statutory amendment lation (T.D. 8919, 2001–6 I.R.B. 505) was
made by section 311(c) of the 2000 Act. 26 CFR 1.1502–78: Tentative carryback published in the Federal Register (66 FR
Pursuant to 5 U.S.C. 553, it is determined adjustments. 713). On this same day, a notice of pro-

July 9, 2001 34 2001–28 I.R.B.
posed rulemaking (REG–119352–00, The proposed regulation (66 FR 747) *****
2001–6 I.R.B. 525) cross-referencing the was issued as §1.1502–78T(g). This final (e) Time for filing application—(1)
temporary regulation and a notice of pub- regulation adopts the substance of the General rule. The provisions of section
lic hearing were published in the Federal proposed regulation and renumbers such 6411(a) apply to the filing of an applica-
Register (66 FR 747). No comments or provision as §1.1502–78(e). tion for a tentative carryback adjustment
requests to speak were received from the by a consolidated group.
public in response to the notice of pro- Special Analyses (2) Special rule for new members—(i)
posed rulemaking. Accordingly, the pub- It has been determined that this Trea- New member. A new member is a corpo-
lic hearing scheduled for April 26, 2001 sury decision is not a significant regula- ration that, in the preceding taxable year,
was canceled in the Federal Register (66 tory action as defined in Executive Order did not qualify as a member, as defined in
FR 19104) on April 13, 2001. The pro- 12866. Therefore, a regulatory assess- §1.1502–1(b), of the consolidated group
posed regulation is adopted as amended ment is not required. It is hereby certified that it now joins.
by this Treasury Decision, and the corre- that this regulation will not impose a sig- (ii) End of taxable year. Solely for the
sponding temporary regulation is re- nificant economic impact on a substantial purpose of complying with the twelve-
moved. number of small entities because it affects month requirement for making an appli-
a relatively small number of corporations cation for a tentative carryback adjust-
Explanation of Provisions
and few, if any, of those corporations are ment under section 6411(a), the separate
The amendments adopted by this Trea- likely to be small businesses. Therefore, return year of a qualified new member
sury decision provide a general rule for all a Regulatory Flexibility Analysis under shall be treated as ending on the same
corporations filing consolidated returns the Regulatory Flexibility Act (5 U.S.C. date as the end of the current taxable year
stating that the provisions of section chapter 6) is not required. Pursuant to of the consolidated group that the quali-
6411(a) shall apply to determine the time section 7805(f) of the Code, the notice of fied new member joins.
for filing an application for a tentative proposed rulemaking that preceded these (iii) Qualified new member. A new
carryback adjustment by a consolidated regulations was submitted to the Chief member of a consolidated group qualifies
group. In addition, the amendments pro- Counsel for Advocacy of the Small Busi- for purposes of the provisions of this
vide a special rule for applications filed ness Administration for comment on its paragraph (e)(2) if, immediately prior to
by certain corporations that become new impact on small business. becoming a new member, either—
members of a consolidated group, extend- (A) It was the common parent of a con-
ing the period of time for filing an appli- Drafting Information solidated group; or
cation for a tentative carryback adjust- (B) It was not required to join in the fil-
ment resulting from losses or credits The principal authors of these regula- ing of a consolidated return.
arising in the new member’s last separate tions are Christopher M. Bass and (iv) Examples. The provisions of this
return year. For these purposes, the sepa- Frances L. Kelly, Office of the Associate paragraph (e)(2) may be illustrated by the
rate return year is treated as ending on the Chief Counsel (Corporate). However, following examples:
same date as the end of the current taxable other personnel from the IRS and Trea- Example 1. Individual A owns 100 percent of the
year of the consolidated group. sury Department participated in their de- stock of X, a corporation that is not a member of a
velopment. consolidated group and files separate tax returns on
Until Form 1139 (Application for a a calendar year basis. On January 31 of year 1, X
Tentative Carryback Adjustment) is modi- * * * * *
becomes a member of the Y consolidated group,
fied to reflect the changes made by this Adoption of Amendments to the which also files returns on a calendar year basis. X
regulation, an application for a tentative is a qualified new member as defined in paragraph
Regulations (e)(2)(iii)(B) of this section because, immediately
carryback adjustment filed under the spe-
prior to becoming a new member of the Y consoli-
cial rule must include additional informa- Accordingly, 26 CFR part 1 is amended dated group, X was not required to join in the filing
tion in the form of a statement, “Filed as follows: of a consolidated return. As a result of its becoming
pursuant to Treas. Reg. section a new member of Group Y, X’s separate return for
1.1502–78(e)(2),” in red, at the top of the PART 1 — INCOME TAXES the short taxable year (January 1 of year 1 through
January 31 of year 1) is due September 15 of year 2
current Form 1139. In addition, the Form
Paragraph 1. The authority citation for (with extensions). See §1.1502–76(c). Group Y’s
1139 must state, in red, the “year end” of consolidated return is also due September 15 of year
part 1 is amended by removing the entries
the consolidated group that the new mem- 2 (with extensions). See §1.1502–76(c). Solely for
for sections 1.1502–78(b) and
ber joins. In response to the changes the purpose of complying with the twelve-month re-
1.1502–78T and by adding an entry in nu- quirement for making an application for a tentative
made by this regulation, IRS Service Cen-
merical order to read in part as follows: carryback adjustment under section 6411(a), X’s
ters developed a procedure to assist in
Authority: 26 U.S.C. 7805 * * * taxable year for the separate return year is treated as
processing applications filed under ending on December 31 of year 1. X’s application
Section 1.1502–78 also issued under 26
§1.1502–78(e)(2). This procedure re- for a tentative carryback adjustment is therefore due
U.S.C. 1502, 6402(k), and 6411(c). * * *
quires that the additional information, as on or before December 31 of year 2.
Par. 2. Section 1.1502–78 is amended by Example 2. Assume the same facts as in Example
set forth above, be included on the Form
adding paragraph (e) to read as follows: 1 except that immediately prior to becoming a new
1139. This procedure supplements exist-
member of Group Y, X was a member of the Z con-
ing guidelines for filing and processing §1.1502–78 Tentative carryback solidated group. Because X was required to join in
Form 1139. adjustments. the filing of the consolidated return for Group Z, X

2001–28 I.R.B. 35 July 9, 2001
is not a qualified new member as defined in para- SUMMARY: This document makes con- to impose a ten percent penalty for under-
graph (e)(2)(iii) of this section. X’s items for the forming amendments to certain final reg- payment. The Omnibus Budget Reconcil-
one-month period will be included in the consoli-
dated return for Group Z. Group Z’s application for
ulations to reflect the removal of final iation Act of 1989 further amended this
a tentative carryback adjustment, if any, continues to regulations, relating to the penalty for un- section to provide for a penalty that is
be due within 12 months of the end of its taxable derpayment of deposits of taxes and the equal to an applicable percentage of the
year, which is not affected by X’s change in status as penalty for overstated deposit claims. amount of the underpayment based on the
a new member of Group Y. These regulations are obsolete due to duration of the underpayment. This regu-
(v) Effective date. The provisions of amendments to section 6656 of the Inter- lation does not reflect the most recent
this paragraph (e)(2) apply for applica- nal Revenue Code. The removal of these amendments to section 6656. Further-
tions by new members of consolidated regulations will not affect taxpayers. more, all relevant information regarding
groups for tentative carryback adjust- underpayment penalties is put forth in the
ments resulting from net operating losses, DATES: The amendments and removal of
code section or in other published guid-
net capital losses, or unused business these regulations is effective June 15, 2001.
ance. This regulation does not provide
credits arising in separate return years of any additional guidance regarding the
FOR FURTHER INFORMATION CON-
new members that begin on or after Janu- current underpayment penalties as set
TACT: Robin M. Tuczak (202) 622-4940
ary 1, 2001. forth in section 6656 and therefore may
(not a toll-free number).
§1.1502–78T [Removed] be removed.
SUPPLEMENTARY INFORMATION: Section 301.6656–2 explains and ex-
Par. 3. Section 1.1502–78T is removed. pands upon former section 6656(b), Over-
Background and Explanation of stated Deposit Claims. The Omnibus
Robert E. Wenzel, Provisions Budget Reconciliation Act of 1989 re-
Deputy Commissioner moved former section 6656(b), making
of Internal Revenue. This document removes two sections
from the Procedure and Administration this regulation obsolete.
Approved June 13, 2001. Regulations (26 CFR part 301) relating to In addition, §301.6656–3 is redesignated
penalties for underpayment of Federal tax as §301.6656–1. Further, §§1.6302–1(d)
Mark A. Weinberger, deposits and overstated deposit claims and 1.6302–2(d) of the Income Tax Regula-
Assistant Secretary under section 6656 of the Internal Rev- tions and §§31.6302–1(m)(1) and
of the Treasury. enue Code.The Omnibus Budget Recon- 31.6302(c)–4(a) of the Employment Tax
ciliation Act of 1989, Public Law Regulations are revised to remove refer-
101–239 (103 Stat. 2106, 1989) amended ences to the removed regulations under sec-
(Filed by the Office of the Federal Register on June tion 6656.
21, 2001, at 8:45 a.m., and published in the issue of section 6656, modifying the penalty rates
the Federal Register for June 22, 2001, 66 FR relating to a failure to make a Federal tax Effect on other Documents
33462) deposit and removing the penalty relating
to overstatement of Federal tax deposits. The final regulations §§301.6656–1
These changes have rendered and 301.6656–2 published in the Federal
Section 6302.—Mode or Time of §§301.6656–1 and 301.6656–2 obsolete. Register for December 13, 1983
Collection Section 301.6656–1 was revised and (LR–311–81, 48 FR 5453), are removed
§301.6656–2 was added by T.D. 7925 as of June 15, 2001.
26 CFR 1.6302–1: Use of Government depositaries (1984–1 C.B. 261), published in the Fed-
in connection with corporation income and Special Analyses
estimated income taxes and certain taxes of tax-
eral Register for December 13, 1983
exempt organizations. (LR–311–81, 1982–1 C.B. 570), 48 FR
It has been determined that the removal
5453). Section 301.6656–2 was added to
of these regulations is not a significant
implement changes made by the Eco-
T.D. 8947 nomic Recovery Tax Act of 1981, Public
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
Law 97–34 (95 Stat. 172, 1981). Section
DEPARTMENT OF THE TREASURY sessment is not required. Because this rule
301.6656–1 was revised to remove out-
Internal Revenue Service dated provisions relating to deposits made
merely removes regulatory provisions
26 CFR Parts 1, 31, 301, and before January 1, 1970, based on the law
made obsolete by statute, prior notice and
602 comment and a delayed effective date are
in effect for those deposits.
unnecessary and contrary to the public in-
Section 301.6656–1 reflects that, at the
Penalties for Underpayments of time it was revised, the penalty for under-
terest. 5 U.S.C. 553(b)(B) and (d) Because
Deposits and Overstated no notice of proposed rulemaking is re-
payment of deposits was five percent of
Deposit Claims quired, the Regulatory Flexibility Act (5
the amount of the underpayment without
U.S.C. chapter 6) does not apply.
regard to the period during which the un-
AGENCY: Internal Revenue Service
derpayment continued, absent reasonable Drafting Information
(IRS), Treasury.
cause. The Omnibus Budget Reconcilia-
ACTION: Final regulations and removal tion Act of 1986, Public Law 99–509 (100 The principal author of the removal of
of final regulations. Stat. 1874, 1986) amended section 6656 the regulations is Robin M. Tuczak of the

July 9, 2001 36 2001–28 I.R.B.
Office of Associate Chief Counsel, Proce- Par. 5. In §31.6302–1, paragraph Par. 11. In §602.101, paragraph (b) is
dure and Administration (Administrative (m)(1) is revised to read as follows: amended by removing the entries for
Provisions and Judicial Practice Division). 301.6656–1 and 301.6656–2 from the table.
* * * * * §31.6302–1 Federal tax deposit rules for
withheld income taxes and taxes under Robert E. Wenzel,
Adoption of Amendments to the the Federal Insurance Contributions Act Deputy Commissioner
Regulations (FICA) attributable to payments made of Internal Revenue.
after December 31, 1992.
Accordingly, 26 CFR parts 1, 31, 301, Approved June 1, 2001.
and 602 are amended as follows: *****
(m) * * *(1) Failure to deposit penalty. Mark A. Weinberger,
PART 1—INCOME TAXES For provisions relating to the penalty for Assistant Secretary
failure to make a deposit within the pre- of the Treasury.
Paragraph 1. The authority citation for
part 1 continues to read in part as follows: scribed time, see section 6656. (Filed by the Office of the Federal Register on June
Authority: 26 U.S.C. 7805 * * * ***** 14, 2001, at 8:45 a.m., and published in the issue of
Par. 2. In §1.6302–1, paragraph (d) is Par. 6. In §31.6302(c)–4, paragraph (a) the Federal Register for June 15, 2001, 66 FR
is revised to read as follows: 32541)
revised to read as follows:

§1.6302–1 Use of Government §31.6302(c)–4 Cross references.
depositaries in connection with Section 7520.—Valuation Tables
(a) Failure to deposit. For provisions
corporation income and estimated
relating to the penalty for failure to make The adjusted applicable federal short-term, mid-
income taxes and certain taxes of tax- term, and long-term rates are set forth for the month
a deposit within the prescribed time, see
exempt organizations. of July 2001. See Rev. Rul. 2001–34, page 31.
section 6656.
***** *****
(d) Failure to deposit. For provisions
PART 301—PROCEDURE AND Section 7872.—Treatment of
relating to the penalty for failure to make
a deposit within the prescribed time, see ADMINISTRATION Loans With Below-Market
section 6656. Interest Rates
Par. 7. The authority citation for part
Par. 3. In §1.6302–2, paragraph (d) is 301 continues to read in part as follows: The adjusted applicable federal short-term, mid-
revised to read as follows: Authority: 26 U.S.C. 7805 * * * term, and long-term rates are set forth for the month
of July 2001. See Rev. Rul. 2001–34, page 31.
§1.6302–2 Use of Government
§§301.6656–1 and 301.6656–2
depositaries for payment of tax withheld
[Removed]
on nonresident aliens and foreign
corporations. Par. 8. Sections 301.6656–1 and
301.6656–2 are removed.
*****
(d) Penalties for failure to make de- §301.6656–3 [Redesignated as
posits. For provisions relating to the §301.6656–1]
penalty for failure to make a deposit within
the prescribed time, see section 6656. Par. 9. Section 301.6656–3 is redesig-
***** nated as new §301.6656–1.
PART 31—EMPLOYMENT TAXES PART 602—OMB CONTROL
AND COLLECTION OF INCOME TAX NUMBERS UNDER THE
AT SOURCE PAPERWORK REDUCTION ACT
Par. 4. The authority citation for part Par. 10. The authority citation for part
31 continues to read in part as follows: 602 continues to read as follows:
Authority: 26 U.S.C. 7805 * * * Authority: 26 U.S.C. 7805.

2001–28 I.R.B. 37 July 9, 2001
Part III. Administrative, Procedural, and Miscellanous
26 CFR 601.601: Rules and regulations. tive, external standard that is not linked to .02 Section 3.06 of Rev. Proc. 97–13 is
(Also Part I, §§ 103, 141, 145; 1.141–3, 1.145–2.)
the output or efficiency of a facility. modified to add the following text at the
.05 Section 3.06 of Rev. Proc. 97–13 end:
Rev. Proc. 2001–39 defines a per-unit fee as a fee based on a
A fee that is a stated dollar amount
SECTION 1. PURPOSE unit of service provided specified in the
specified in the contract does not fail to
contract or otherwise specifically deter-
This revenue procedure modifies the be a per-unit fee as a result of a provi-
mined by an independent third party, such
definitions of capitation fee and per-unit sion under which the fee may automati-
as the administrator of the Medicare pro-
fee in Rev. Proc. 97–13, 1997–1 C.B. 632, cally increase according to a specified,
gram, or the qualified user.
to permit an automatic increase of those objective, external standard that is not
.06 Neither the capitation fee definition
fees according to a specified, objective, linked to the output or efficiency of a
nor the per-unit fee definition expressly
external standard that is not linked to the facility. For example, the Consumer
contemplates an automatic increase based
output or efficiency of a facility (for ex- Price Index and similar external indices
on a specified, objective, external stan-
ample, the Consumer Price Index). that track increases in prices in an area
dard not linked to the output or efficiency
or increases in revenues or costs in an
of the facility.
SECTION 2. BACKGROUND industry are objective, external stan-
.07 This revenue procedure clarifies
dards.
.01 Rev. Proc. 97–13 sets forth condi- that a capitation fee and a per-unit fee
tions under which a management contract may be determined using an automatic in-
crease according to a specified, objective, SECTION 5. INQUIRIES
does not result in private business use
under § 141(b) of the Internal Revenue external standard that is not linked to the For further information regarding this
Code. The revenue procedure also ap- output or efficiency of a facility (for ex- revenue procedure, contact David White
plies to determinations of whether a man- ample, the Consumer Price Index). at (202) 622-3980 (not a toll-free call).
agement contract causes the test in
SECTION 3. SCOPE SECTION 6. EFFECT ON OTHER
§ 145(a)(2)(B) to be met.
.02 Section 3 of Rev. Proc. 97–13 de- This revenue procedure applies when, DOCUMENTS
fines various terms, including capitation under a management contract, a service This revenue procedure modifies Rev.
fee, periodic fixed fee, and per-unit fee. provider provides management or other Proc. 97–13, 1997–1 C.B. 632.
.03 Section 3.02 of Rev. Proc. 97–13 services involving property financed
defines a capitation fee as a fixed periodic with proceeds of an issue of state or SECTION 7. EFFECTIVE DATE
amount for each person for whom the ser- local bonds subject to § 141 or
vice provider or the qualified user as- § 145(a)(2)(B). This revenue procedure is effective for
sumes the responsibility to provide all any management contract entered into,
needed services for a specified period so SECTION 4. MODIFICATIONS materially modified, or extended (other
long as the quantity and type of services than pursuant to a renewal option) on or
.01 Section 3.02 of Rev. Proc. 97–13 is after July 9, 2001. In addition, an issuer
actually provided to covered persons
modified to add the following text imme- may apply this revenue procedure to any
varies substantially. A capitation fee may
diately before the last sentence: management contract entered into prior to
include a variable component of up to 20
percent of the total capitation fee de- A fixed periodic amount may include July 9, 2001.
signed to protect the service provider an automatic increase according to a
DRAFTING INFORMATION
against risks such as catastrophic loss. specified, objective, external standard
.04 Section 3.05 of Rev. Proc. 97–13 that is not linked to the output or effi- The principal authors of this revenue
defines a periodic fixed fee as a stated ciency of a facility. For example, the procedure are Mary Truchly and Rebecca
dollar amount for services rendered for a Consumer Price Index and similar Harrigal, Office of Chief Counsel.
specified period of time. The definition external indices that track increases in
of periodic fixed fee provides that the prices in an area or increases in rev-
stated dollar amount may automatically enues or costs in an industry are objec-
increase according to a specified, objec- tive, external standards.

July 9, 2001 38 2001–28 I.R.B.
Part IV. Items of General Interest
Foundations Status of Certain Christopher Foundation, Burnsville, MN Friends of the Saint Paul Riverfront
Organizations Clay Central Everly Community School Stadium, St. Paul, MN
District Foundation, Everly, IA Fully Reciprocal Theatre Company,
Announcement 2001–72 C.O.I.N. Betterment, Coin, IA Minneapolis, MN
Committed by Choice Ministries, Gateway Center for Development and
The following organizations have
Minneapolis, MN Learning, Inc., St. Louis, MO
failed to establish or have been unable to
Community Development University and Great Northern Ball Association,
maintain their status as public charities
Entertainment Center, Inc., Boone, IA Minneapolis, MN
or as operating foundations. Accord-
Community Health Resources, Hale Mahaolu Ehiku, Inc., Kahului, HI
ingly, grantors and contributors may not,
Woodbury, MN Hopkins Varsity Basketball College
after this date, rely on previous rulings
Compass Institute, Springfield, MO Scholarship Fund, Minnetonka, MN
or designations in the Cumulative List of
Computer Information Age Expo, Inc., House of Pain, Inc., Waterloo, IA
Organizations (Publication 78), or on the
St. Louis, MO H.R. Services of St. Paul, St. Paul, MN
presumption arising from the filing of
Concerned Citizens for the Emergency Hurricanes E.S.A., Edina, MN
notices under section 508(b) of the Code.
Room & Spelman Hospital, Immaculate Heart of Mary Our Lady
This listing does not indicate that the or-
Smithville, MO Queen of Heaven, Minnetonka, MN
ganizations have lost their status as orga-
Council Bluffs Parenting Coalition, Inc., Interfaith Council of Greater Sun Lakes,
nizations described in section 501(c)(3),
Council Bluffs, IA Inc., Sun Lakes, AZ
eligible to receive deductible contribu-
Crossroads Ministries, Goldfield, IA Interns, Inc., Pleasant Hill, CA
tions.
Do the Right Thing of Greater St. Louis, Iowa Citizens for the Arts Education,
Former Public Charities. The follow-
Inc., St. Louis, MO Inc., Des Moines, IA
ing organizations (which have been
Doug Stanton Ministries International, Jazz Partners, Des Moines, IA
treated as organizations that are not pri-
Big Lake, MN Joplin Area Aids Resource Center, Inc.,
vate foundations described in section
Duluth Woodland Community Center, Joplin, MO
509(a) of the Code) are now classified as
Inc., Duluth, MN Juneteenth Historical Commemoration
private foundations:
Dutchmen Dutchgirl Athletic Booster Association, St. Louis, MO
1st Generation Community Development Club, Owensville, MO Karaoke Kare of Missouri, Inc.,
Corporation, Jefferson City, MO Eden Prairie ABC Foundation, Marthasville, MO
Academy, Cedar Rapids, IA Eden Prairie, MN Keenes Creek Youth Organization,
Afro-American Military Historical A Education & Housing Equity Project, Duluth, MN
Association, Inc., Kansas City, MO Minneapolis, MN Koshkonong Volunteer Fire Dept.,
Akwaaba, Inc., St. Louis, MO Egbe Omo Oduduwa, Inc., Koshkonong, MO
American Research Center, Minneapolis, MN Lakeville Area Historical Society,
Mt. Pleasant, IA Equipment Replacement Fund, Lakeville, MN
Americharities, Eden Prairie, MN St. Louis, MO Lee County Rabbitary, Inc.,
Athletics for Disadvantaged and Disabled Evangelical Human Care, Bishopville, SC
Athletes, Inc., White Bear Lake, MN St. Paul, MN Legion of Friends, Carmel, CA
Aware Committee, St. James, MO Exchange Club Foundation of Brainerd, Library of Lives, Lees Summit, MO
Before and After School Services, Inc., Brainerd, MN L.O.V.E. Home, Inc., Hermantown, MN
Spirit Lake, IA Family Life Skills Learning Center, Inc., LRC Partners Foundation, Inc.,
Bernard Whittington Foundation, Plano, IA Troy, NY
St. Louis, MO Family YMCA of Muscatine Endowment Lubavitch of Iowa, Inc., Des Moines, IA
Black Belt Parents Association of Foundation, Muscatine, IA Luv-N-Care, Inc., Sedalia, MO
Missouri, Inc., St. Louis, MO Faribault Ice Arena Association, Mabel Youth, Inc., Mabel, MN
Brainerd South Housing Group, Inc., Faribault, MN Macon County Crisis Center,
Brainerd, MN Feed the Children, Inc., New Cambria, MO
Bridges Institute for Health Services University City, MO Main Stage Productions, Inc.,
Research, St. Louis, MO Foundation for Senior Housing Options, Kansas City, MO
Central Lakes Snowmobile Club, Minneapolis, MN Marathon Area Historical Society,
Watkins, MN Freedom Foundation, Inc., Marathon, IA
Cherryfest, Cherryville Community Lees Summit, MO Marquette Learning Institute,
Betterment Organization, Friends of Decorah Public Library, Inc., St. Louis, MO
Cherryville, MO Decorah, IA Matoska Neighborhood Association,
Christian Ministry Center, Willmar, MN Friends of Lacey-Keosauqua State Park, White Bear Lake, MN
Christian Teachers College St. John Under Keosauqua, IA Midwest Tarlton Institute of Marine
the Rock Fund, Chambersburg, PA Friends of the Green, Inc., Litchfield, CT Education, Bloomington, MN

2001–28 I.R.B. 39 July 9, 2001
Minnesota Aviation History and Southwest Missouri Youth Baseball Club, sification of foundation status in the Inter-
Education Center, Inc., St. Paul, MN Carl Junction, MO nal Revenue Bulletin.
Mission-A Catholic Worker Community, Special Needs Association, Cresco, IA
St. Cloud, MN Springfield Community Theatre Group,
Missouri Black Bass Unlimited, Inc., Springfield, MN Rev. Proc. 2000–39, Business
Clinton, MO St. Andrews Assisted Living Services, and Traveling Expenses;
Mt. Pleasant Neighborhood, St. Louis, MO Correction
St. Louis, MO St. Charles Basketball Club,
National Native American War Memorial St. Charles, MO Announcement 2001–73
Complex, Incorporated, St. James Opera House Restoration This document contains a correction to
Chapter Oak, IA Project, Inc., St. James, MN Rev. Proc. 2000–39 (2000–41 I.R.B. 340)
Network for Prep., Inc., Bettendorf, IA St. Louis Northside Coaches Association, published on October 10, 2000, relating
New Harmony Care Center, Inc., St. Louis, MO to business and traveling expenses, and
Richfield, MN Starving Artists Entertainment Group, per diem allowances.
Nguzo Saba Community Studio, Inc., Edina, MN
St. Paul, MN Stewartsville Community Betterment Under SECTION 5. HIGH-LOW SUB-
Nisswa Enhanced Reading Foundation, Association, Stewartsville, MO STANTIATION METHOD, .01 General
Nisswa, MN Stoddard County Inter-Agency Council, rule., toward the end of the paragraph on
North Lilbourn Development, Inc., Dexter, MO page 343 of the Internal Revenue Bulletin,
Lilbourn, MO Suburban Documentation Project, the text below in brackets is missing.
Northland Opera Theater Experience, St. Paul, MN …substantiated for each calendar day is
Duluth, MN Summit Psych Care, Pleasant Hill, MO equal [to the lesser of the per diem al-
Northside Economic Development Teen Pregnancy Prevention Action lowance for such day or the amount com-
Council, Inc., Minneapolis, MN Council, Alexandria, MN puted at the rate set forth in section 5.02 of
One Small Step, St. Paul, MN Tom Peterson Memorial Foundation, this revenue procedure for the locality of
Parents Together Network, Inc., Sioux City, IA travel for such day (or partial day, see sec-
Marion, IA Trees for Tomorrow, Newton, IA tion 6.04 of this revenue procedure). Ex-
Patch, Ballwin, MO Tumwater Hardball Association, cept as provided in section 5.06 of this rev-
Paths Unlimited, Minneapolis, MN Tumwater, WA enue procedure, this high-low substantiation
People Place, Minneapolis, MN Twin Cities Business Foundation, method may be used in lieu of the per diem
Philip & Adeline Woods Memorial Fund, St. Paul, MN substantiation method provided in section
Yanceyville, NC United Neighborhoods of Jennings, Inc., 4.01 of this revenue procedure, but may not
Pilot Grove Community Athletic Jennings, MO be used in lieu of the meals] only substantia-
Association, Pilot Grove, MO Urban Hope Ministries, Inc., tion method provided in section 4.02 or 4.03
Playground, Inc., Buffalo, MO Minneapolis, MN of this revenue procedure.
Port Morris Neighborhood Development Voce Magna, Blaine, MN
Corporation, Bronx, NY West End Elderly Housing Corporation,
Presbyterian Homes-Wedum Affordable Saint Louis, MO New Filing Locations for Estate,
Housing, Inc., Arden Hills, MN Wild Rice Electric Trust, Mahnomen, MN Gift, and Generation-Skipping
Quite Light Opera Company, Willow Springs Medical Assistance Transfer Tax Returns
St. Joseph, MN Program, Willow Springs, MO
Ralls County Community 2000, Inc., Winterset Fire Fighters Association, Inc., Announcement 2001–74
Perry, MO Winterset, IA
Beginning with returns filed on or after
Recover America, Inc., Joplin, MO Youth Gospel Music Conference, Inc.,
January 1, 2001, the filing locations for
Recovery Road, Inc., St. Paul, MN St. Louis, MO
some states have changed for the follow-
Red Wing Public Schools Foundation,
ing tax returns:
Red Wing, MN If an organization listed above submits
Responsible Adults & Youths, Ofallon, MO information that warrants the renewal of Form 706, United States Estate (and
R.O.F. Reins of Freedom, Avon, MN its classification as a public charity or as a Generation-Skipping Transfer) Tax Re-
Roots Program, St. Paul, MN private operating foundation, the Internal turn
Save Iowas Civil War Monument Revenue Service will issue a ruling or de- Form 706–CE, Certificate of Payment
Foundation, W. Branch, IA termination letter with the revised classi- of Foreign Death Tax
Shelly Dorgan Memorial Scholarship fication as to foundation status. Grantors Form 706–GS(D), Generation-Skip-
Fund, Minneapolis, MN and contributors may thereafter rely upon ping Transfer Tax Return for Distribu-
Simien Foundation for Seniors, Inc., such ruling or determination letter as pro- tions
Kansas City, MO vided in section 1.509(a)–7 of the Income Form 706–GS(D–1), Notification of
Southern California Allstars, Tax Regulations. It is not the practice of Distribution From a Generation-Skip-
Garden Grove, CA the Service to announce such revised clas- ping Trust

July 9, 2001 40 2001–28 I.R.B.
Form 706–GS(T), Generation-Skip- Send these forms to the applicable IRS
ping Transfer Tax Return for Termina- address listed below. Note that all returns
tions filed in 2002 and thereafter, except those
Form 709, United States Gift (and Gen- with a foreign, APO, or FPO address, will
eration-Skipping Transfer) Tax Return be filed at the Cincinnati Service Center.
Form 709–A, United States Short Form
Gift Tax Return

For estates of decedents domiciled in, donees residing in, and Use the following Internal Revenue
settlors (now or at the time of death) residing in Service address —
For returns filed
During 2001 Beginning
January 1, 2002
New York (New York City and counties of Brookhaven USPS:
Nassau, Rockland, Suffolk, and Westchester) Service Center Cincinnati, OH
Holtsville, NY 00501 45999
New York (all other counties), Connecticut, Maine, Andover, MA 05501 Courier service:
Massachusetts, New Hampshire, Rhode Island, Vermont 201 W. Rivercenter
Blvd.
Florida, Georgia Atlanta, GA 39901 Covington, KY
41015
Arkansas, Delaware, District of Columbia, Hawaii, Indiana, Iowa, Cincinnati, OH
Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, 45999
Missouri, New Jersey, North Carolina, Ohio, Pennsylvania,
South Carolina, Texas, West Virginia, Wisconsin
Kansas, New Mexico, Oklahoma Austin, TX 73301
Alaska, Arizona, California (counties of Alpine, Amador, Butte, Ogden, UT 84201
Calaveras, Colusa, Contra Costa, Del Norte, El Dorado, Glenn,
Humboldt, Lake, Lassen, Marin, Mendocino, Modoc, Napa, Nevada,
Placer, Plumas, Sacramento, San Joaquin, Shasta, Sierra, Siskiyou,
Solona, Sonoma, Sutter, Tehama, Trinity, Yolo, and Yuba), Colorado,
Idaho, Montana, Nebraska, Nevada, North Dakota, Oregon,
South Dakota, Utah, Washington, Wyoming
California (all other counties) Fresno, CA 93888
Illinois Kansas City, MO
64999
Alabama, Tennessee Memphis, TN
37501
Virginia Philadelphia, PA
19255
American Samoa, Guam, the U.S. Virgin Islands, Puerto Rico, Philadelphia, PA Philadelphia, PA
a foreign address, or have an APO or FPO address 19255 19255

Important
Any return filed before the date this announcement is published in the Internal Revenue Bulletin will be considered correctly filed if
it was filed in accordance with the instructions for that return at the time it was filed. Do not file a duplicate of a return that has al-
ready been filed solely because the filing location has changed.

2001–28 I.R.B. 41 July 9, 2001
Waivers for Form 1065 The Service has become aware that some The forms that may be attached to the
Electronic Filing Due to partnerships cannot file electronically be- Form 8453-P are listed later in this an-
Unavailability of the Necessary cause the necessary software for some re- nouncement. This announcement is not
Software quired forms is unavailable. This an- applicable to other types of waiver re-
nouncement describes how partnerships quests (i.e. economic hardship). An-
Announcement 2001–75 required to file electronically under sec- nouncement 2001–101 describes how to
tion 6011(e)(2) may request a section request waivers from filing electronically
Section 6011(e)(2) of the Internal Rev- 6724(a) reasonable cause waiver for fail- under section 6011(e) for other reasons.
enue Code and section 301.6011–3(a) of ing to file electronically.
the Regulations on Procedure and Admin- Waiver Request Procedures
istration require partnerships with more This announcement is applicable only
than 100 partners to file their partnership to waiver requests made by taxpayers Taxpayers are required to submit a waiver
returns (Form 1065 series) on magnetic who are required to file forms and request to the Memphis Submission Pro-
media. The regulations define “magnetic schedules that are not supported by cessing Center by October 1, 2001. To
media” to include electronic filing, if electronic filing software and who can- initiate a waiver request, the following in-
electronic filing is required by the Internal not file those forms and schedules as formation must be submitted for each
Revenue Service (“Service”). paper attachments to the Form 8453-P. partnership:

Partnership Federal Tax Number Of K-1’s Name Of Unavailable
Name Identification Software Being Forms And
Number Used Schedules

Taxpayers may mail or fax the waiver re- “Waiver Request: IRC Section request and assessing the penalty for fail-
quest to the following: 6011(e)(2)”; ure to file electronically.
2. The Waiver Request Attached must
Mail to: Internal Revenue Service Service Determination
contain:
P.O. Box 420 Within 30 days after receipt of the initial
a) A notation at the top “Waiver Re-
Memphis, TN 38101-0420 waiver request, the Service will notify the
quest: IRC Section 6011(e)(2)”;
Attn: Electronic Filing Unit, b) The name, federal tax identification partnership if the Service is denying the
Stop 2711 number, and mailing address of the waiver request. Partnerships may not ap-
or partnership; peal a denial of a waiver request at any
c) The taxable year for which the time. After verifying that a listed form is
Fax to: 901-546-2544
waiver is requested; unavailable and may not be filed with the
Requests from the partnerships’ tax ad- d) A detailed statement which lists: Form 8453-P, the Service will process ini-
visor/preparer do not have to be accom- (i) What steps the partnership has tial waiver requests to prevent the assess-
panied by a valid power of attorney. If taken in an attempt to meet its ment of the penalty for failure to file
a valid power of attorney is not on file, requirement to file its return eletronically. However, the Service must
the Service will address questions electronically, also receive the required waiver request
about the waiver to the partnership. (ii) Why the steps were unsuccess- attached to the filed Form 1065 to ensure
Also, partnerships need not file Form ful, the penalty will not be subsequently as-
8800 before submitting a waiver re- (iii) What steps the partnership sessed. If the Service processes an initial
quest under this procedure. However, will take to assure its ability waiver request and a form listed in the ini-
approval of a waiver request will not to electronically file its part- tial waiver request becomes available be-
relieve the partnership of a failure to nership return for the next tax fore the partnership files its Form 1065,
file penalty for returns filed after the year. the Service will not deny the waiver re-
original due date without a valid exten- e) A statement signed by the Tax Mat- quest based on the subsequent availability
sion. ters Partner, as defined in section of the form.
To complete the waiver request process, 6231(a)(7) of the Code, stating:
The Service will not grant waiver requests
taxpayers must attach a signed waiver “Under penalties of perjury, I declare
for the following forms that may be at-
request to the Form 1065 return at the that the information contained in this
tached to the 8453-P, allowing the rest of
time it is filed. The signed waiver re- waiver request is true, correct and com-
the return to be filed electronically:
quest must include the following infor- plete to the best of my knowledge and be-
Schedule A (Form 5713), Schedule A
mation: lief.”
(Form 8847), Schedule B (Form 5713),
1. A notation in large red letters at the Failure to complete the entire process will Schedule C (Form 5713), Schedule J
top of page 1 of the Form 1065 return, result in the Service denying the waiver (Form 5471), Schedule M (Form 5471),

July 9, 2001 42 2001–28 I.R.B.
Schedule N (Form 5471), Schedule O sessed. If a filer receives an improper ing requests to abate late-filing penalties
(Form 5471), Form T, Form 982, Form penalty notice, the filer should request an assessed on partnership returns.
4255, Form 5471, Form 6478, Form abatement of the penalties by sending a
For questions concerning a request for
8283, Form 8582-CR, Form 8594, Form letter to the IRS at the address provided in
waiver or a late filing penalty of an elec-
8820, Form 8861, Form 8866, Form this annoucement. Filers must include the
tronic Form 1065, contact the Memphis
8873. information requested in the CP Notice
Submission Processing Center at 901-
162 assessing the penalty.
Failure to File Penalty 546-2690 (not a toll-free call).
Late Filing Penalties
It is not the Service’s intent to assess
penalties for failure to file electronically The electronic postmark is not available
because the necessary software is not for the current tax year for electronic
available and the partnership cannot file Forms 1065. However, the IRS will ac-
the forms with the Form 8453-P. How- cept the transmitter’s date and time ac-
ever, penalties may inadvertently be as- knowledgement for purposes of evaluat-

2001–28 I.R.B. 43 July 9, 2001
Definition of Terms
Revenue rulings and revenue procedures plies to both A and B, the prior ruling is new ruling does more than restate the
(hereinafter referred to as “rulings”) modified because it corrects a published substance of a prior ruling, a combination
that have an effect on previous rulings position. (Compare with amplified and of terms is used. For example, modified
use the following defined terms to de- clarified, above). and superseded describes a situation
scribe the effect: Obsoleted describes a previously pub- where the substance of a previously pub-
Amplified describes a situation where lished ruling that is not considered deter- lished ruling is being changed in part and
no change is being made in a prior pub- minative with respect to future transac- is continued without change in part and it
lished position, but the prior position is tions. This term is most commonly used is desired to restate the valid portion of
being extended to apply to a variation of in a ruling that lists previously published the previously published ruling in a new
the fact situation set forth therein. Thus, rulings that are obsoleted because of ruling that is self contained. In this case
if an earlier ruling held that a principle changes in law or regulations. A ruling the previously published ruling is first
applied to A, and the new ruling holds may also be obsoleted because the sub- modified and then, as modified, is super-
that the same principle also applies to B, stance has been included in regulations seded.
the earlier ruling is amplified. (Compare subsequently adopted. Supplemented is used in situations in
with modified, below). Revoked describes situations where the which a list, such as a list of the names of
Clarified is used in those instances position in the previously published rul- countries, is published in a ruling and
where the language in a prior ruling is ing is not correct and the correct position that list is expanded by adding further
being made clear because the language is being stated in the new ruling. names in subsequent rulings. After the
has caused, or may cause, some confu- Superseded describes a situation where original ruling has been supplemented
sion. It is not used where a position in a the new ruling does nothing more than several times, a new ruling may be pub-
prior ruling is being changed. restate the substance and situation of a lished that includes the list in the original
Distinguished describes a situation previously published ruling (or rulings). ruling and the additions, and supersedes
where a ruling mentions a previously Thus, the term is used to republish under all prior rulings in the series.
published ruling and points out an essen- the 1986 Code and regulations the same Suspended is used in rare situations to
tial difference between them. position published under the 1939 Code show that the previous published rulings
Modified is used where the substance and regulations. The term is also used will not be applied pending some future
of a previously published position is when it is desired to republish in a single action such as the issuance of new or
being changed. Thus, if a prior ruling ruling a series of situations, names, etc., amended regulations, the outcome of
held that a principle applied to A but not that were previously published over a pe- cases in litigation, or the outcome of a
to B, and the new ruling holds that it ap- riod of time in separate rulings. If the Service study.

Abbreviations E.O.—Executive Order.
ER—Employer.
PHC—Personal Holding Company.
PO—Possession of the U.S.
The following abbreviations in current use and for- ERISA—Employee Retirement Income Security PR—Partner.
merly used will appear in material published in the
Act. PRS—Partnership.
Bulletin.
EX—Executor. PTE—Prohibited Transaction Exemption.
A—Individual. F—Fiduciary. Pub. L.—Public Law.
Acq.—Acquiescence. FC—Foreign Country. REIT—Real Estate Investment Trust.
B—Individual. FICA—Federal Insurance Contributions Act. Rev. Proc.—Revenue Procedure.
BE—Beneficiary. FISC—Foreign International Sales Company.
Rev. Rul.—Revenue Ruling.
BK—Bank. FPH—Foreign Personal Holding Company.
S—Subsidiary.
B.T.A.—Board of Tax Appeals. F.R.—Federal Register.
S.P.R.—Statements of Procedural Rules.
C—Individual. FUTA—Federal Unemployment Tax Act.
Stat.—Statutes at Large.
C.B.—Cumulative Bulletin. FX—Foreign Corporation.
T—Target Corporation.
CFR—Code of Federal Regulations. G.C.M.—Chief Counsel’s Memorandum.
T.C.—Tax Court.
CI—City. GE—Grantee.
COOP—Cooperative. T.D.—Treasury Decision.
GP—General Partner.
Ct.D.—Court Decision. TFE—Transferee.
GR—Grantor.
CY—County. TFR—Transferor.
IC—Insurance Company.
D—Decedent. I.R.B.—Internal Revenue Bulletin. T.I.R.—Technical Information Release.
DC—Dummy Corporation. LE—Lessee. TP—Taxpayer.
DE—Donee. LP—Limited Partner. TR—Trust.
Del. Order—Delegation Order. LR—Lessor. TT—Trustee.
DISC—Domestic International Sales Corporation. M—Minor. U.S.C.—United States Code.
DR—Donor. Nonacq.—Nonacquiescence. X—Corporation.
E—Estate. O—Organization. Y—Corporation.
EE—Employee. P—Parent Corporation. Z—Corporation.

July 9, 2001 i 2001–28 I.R.B.
Numerical Finding List1
Bulletin 2001–27
Announcements:
2001–69, 2001–27 I.R.B. 23
2001–70, 2001–27 I.R.B. 23
2001–71, 2001–27 I.R.B. 26

Notices:
2001–39, 2001–27 I.R.B. 3
2001–41, 2001–27 I.R.B. 2

Proposed Regulations:
REG–106917–99, 2001–27 I.R.B. 4

Railroad Retirement Quarterly Rates:
2001–27, I.R.B. 1

1 A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2001–1 through 2001–26
is in Internal Revenue Bulletin 2001–27, dated July
2, 2001.

2001–28 I.R.B. ii July 9, 2001
Finding List of Current Actions on
Previously Published Items1
Bulletin 2001–27
Proposed Regulations:
REG–107186–00
Corrected by
Ann. 2001–71, 2001–27 I.R.B. 26

Revenue Rulings:
57–589
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
65–316
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
68–125
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
69–563
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
74–326
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
78–179
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4

1A cumulative list of current actions on previously
published items in Internal Revenue Bulletins
2001–1 through 2001–26 is in Internal Revenue
Bulletin 2001–27, dated July 2, 2001.

July 9, 2001 iii 2001–28 I.R.B.
insert missing
children
Tyler Wright
and
Hannah
Zaccaglini
2001–28 I.R.B. July 9, 2001
insert missing
children
Brittani Dolbear
and
Jolene Dechert

July 9, 2001 2001–28 I.R.B.
INTERNAL REVENUE BULLETIN
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