Internal Revenue Bulletin 1998-52 (PDF rendition): IRS Notices

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

INCOME TAX
Rev. Rul. 98–58, page 6.
Section 1274A inflation-adjusted numbers for 1999.
This ruling provides the dollar amounts, increased by the
1999 inflation-adjustment, for section 1274A of the Code.
Rev. Rul. 97–56 supplemented and superseded.
Rev. Rul. 98–59, page 8.
CPI adjustment for below-market loans for 1999.The
amount that section 7872(g) of the Code permits a taxpayer
to lend to a qualified continuing care facility without incurring
imputed interest is published and adjusted for inflation for
years 1987 – 1999. Rev. Rul. 97–57 supplemented and su-
perseded.
EMPLOYEE PLANS
Notice 98–64, page 10.
Weighted average interest rate update.The weighted
average interest rate for December 1998 and the resulting
permissible range of interest rates used to calculate current
liability for purposes of the full funding limitation of section
412(c)(7) of the Code are set forth.
EXEMPT ORGANIZATIONS
Announcement 98–114, page 88.
A list is provided of organizations that no longer qualify as
organizations to which contributions are deductible under
section 170 of the Code.
EMPLOYMENT TAX
Page 87.
1999 social security contribution and benefit base;
domestic employee coverage threshold.The Commis-
sioner of the Social Security Administration has announced
the OASDI contribution and benefit base paid in 1999, the
self-employment income earned in taxable years beginning
in 1999, and the domestic employee coverage amount for
1999.
ADMINISTRATIVE
Rev. Proc. 98–61, page 18.
Cost-of-living adjustments for 1999.The Service pro-
vides cost-of-living adjustments for the tax rate tables for in-
dividuals, estates, and trusts, the standard deduction
amounts, the personal exemption, and several other items
that use the adjustment method provided for the tax rate ta-
bles. The Service also provides the adjustment for eligible
long-term care premiums and another item that uses the ad-
justment method provided for eligible long-term care premi-
ums.
Rev. Proc. 98–62, page 23.
Penalties; substantial understatement.Guidance is pro-
vided concerning when information shown on a return in ac-
cordance with the applicable forms and instructions will be
adequate disclosure for purposes of reducing an understate-
ment of income tax under section 6662(d) of the Code.
Rev. Proc. 98–63, page 25.
Option standard mileage rates.This procedure an-
nounces 31 cents as the optional rate for deducting or ac-
counting for expenses for business use of an automobile,
14 cents as the optional rate for deducting or accounting for
use of an automobile as a charitable contribution, and 10
cents as the optional rate for deducting or accounting for
use of an automobile as a medical or moving expense for
1999. It provides rules for substantiating the deductible ex-
penses of using an automobile for business, moving, med-
ical, or charitable purposes. Rev. Proc. 97–58 superseded.
Internal Revenue
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Bulletin No. 1998–52
December 28, 1998
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.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page 90.
Announcement of Declaratory Judgment Proceedings Under Section 7428 begins on page 88.
(Continued on page 4)

The IRS Mission
Provide America’s taxpayers top quality service by help-
ing them understand and meet their tax responsibilities
and by applying the tax law with integrity and fairness to
all.
2
Statement of Principles
of Internal Revenue
Tax Administration
The function of the Internal Revenue Service is to adminis-
ter the Internal Revenue Code. Tax policy for raising revenue
is determined by Congress.
With this in mind, it is the duty of the Service to carry out that
policy by correctly applying the laws enacted by Congress;
to determine the reasonable meaning of various Code provi-
sions in light of the Congressional purpose in enacting them;
and to perform this work in a fair and impartial manner, with
neither a government nor a taxpayer point of view.
At the heart of administration is interpretation of the Code. It
is the responsibility of each person in the Service, charged
with the duty of interpreting the law, to try to find the true
meaning of the statutory provision and not to adopt a
strained construction in the belief that he or she is “protect-
ing the revenue.” The revenue is properly protected only
when we ascertain and apply the true meaning of the statute.
The Service also has the responsibility of applying and
administering the law in a reasonable, practical manner.
Issues should only be raised by examining officers when
they have merit, never arbitrarily or for trading purposes.
At the same time, the examining officer should never hesi-
tate to raise a meritorious issue. It is also important that
care be exercised not to raise an issue or to ask a court to
adopt a position inconsistent with an established Service
position.
Administration should be both reasonable and vigorous. It
should be conducted with as little delay as possible and
with great courtesy and considerateness. It should never
try to overreach, and should be reasonable within the
bounds of law and sound administration. It should, howev-
er, be vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax devices and
fraud.

The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents of a permanent nature are consoli-
dated semiannually into Cumulative Bulletins, which are sold
on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
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
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
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
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying pub-
lished rulings and procedures, the effect of subsequent leg-
islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
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-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking
and the disbarment and suspension list included in this part,
none of these announcements are consolidated in the Cumu-
lative Bulletins.
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a semiannual basis
and are published in the first Bulletin of the succeeding semi-
annual period, respectively.
3
Introduction
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.

December 28, 199841998–52 I.R.B.
HIGHLIGHTS
OF THIS ISSUE—Continued
ADMINISTRATIVE—Continued
Rev. Proc. 98–64, page 32.
Per diem allowances.This procedure provides optional
rules for deeming substantiated the amount of certain reim-
bursed traveling expenses of an employee as well as for de-
termining the amount of deductible meals while traveling
away from home. Rev. Proc. 97–59 superseded.
Rev. Proc. 98–65, page 40.
Substitute printed, computer-prepared, and com-
puter-generated tax forms and schedules for 1998.
Requirements are set forth for privately designed and
printed federal tax forms and conditions under which the
Service will accept computer-prepared and computer-gener-
ated tax forms and schedules. Rev. Proc. 97–54 super-
seded.
Notice 98–65, page 10.
Advance Pricing Agreements.Special procedures for
small business taxpayers to obtain Advance Pricing Agree-
ments are finalized. Rev. Proc. 96–53 modified.
Notice 98–66, page 17.
Qualified Funeral Trusts.This notice provides information
and guidance on amendments make by the Internal Revenue
Service Restructuring and Reform Act of 1998 to the Quali-
fied Funeral Trust (QFT) provisions of section 685 of the
Code.
Notice 98–67, page 18.
Early closing of courier’s desk.Guidance is provided for
when the Courier’s Desk at the national office of the Service
closes early on the last day prescribed for filing an applica-
tion to change an accounting method or accounting period
with the national office.

1998–52 I.R.B.5December 28, 1998
Section 1.—Tax Imposed
26 CFR 1.1–1: Income tax on individuals.
The Service provides adjusted tax tables for indi-
viduals, trusts, and estates for taxable years begin-
ning in 1999 to reflect changes in the cost of living.
Also adjusted is the amount of certain reductions al-
lowed against the unearned income of minor chil-
dren in computing the “kiddie tax,” either on the
child’s return or, in the alternative, on a parent’s re-
turn. The amounts used to determine whether a par-
ent may elect to report the “kiddie tax” on the par-
ent’s return are also adjusted. See Rev. Proc. 98–61,
page 18.
Section 32.—Earned Income
26 CFR 1.32–2: Earned income credit for taxable
years beginning after December 31, 1978.
The Service provides inflation adjustments to the
limitations on the earned income tax credit for tax-
able years beginning in 1999. See Rev. Proc. 98–61,
page 18.
Section 59.—Other Definitions
and Special Rules for the
Alternative Minimum Tax
The Service provides an inflation adjustment to
the exemption amount used in computing the alter-
native minimum tax for a minor child subject to the
“kiddie tax” for taxable years beginning in 1999.
See Rev. Proc. 98–61, page 18.
Section 62.—Adjusted Gross
Income Defined
26 CFR 1.62–2: Reimbursements and other expense
allowance arrangements.
Rules under which a reimbursement or other ex-
pense allowance arrangement for the cost of operat-
ing an automobile for business purposes will satisfy
the requirements of section 62(c) of the Code as to
business connection, substantiation, and returning
amounts in excess of expenses. See Rev. Proc.
98–63, page 25.
Rules are set forth under which a reimbursement
or other expense allowance arrangement for the cost
of lodging, meal, and incidental expenses or meal
and incidental expenses incurred by an employee
while traveling away from home will satisfy the re-
quirements of § 62(c) of the Code as to substantia-
tion of the amount of the expenses. See Rev. Proc.
98–64, page 32.
26 CFR 1.62–2T: Reimbursements and other
expense allowance arrangements (temporary).
Rules under which a reimbursement or other ex-
pense allowance arrangement for the cost of operat-
ing an automobile for business purposes will satisfy
the requirements of section 62(c) of the Code as to
business connection, substantiation, and returning
amounts in excess of expenses. See Rev. Proc.
98–63, page 25.
Rules are set forth under which a reimbursement
or other expense allowance arrangement for the cost
of lodging, meal, and incidental expenses or meal
and incidental expenses incurred by an employee
while traveling away from home will satisfy the re-
quirements of § 62(c) of the Code as to Substantia-
tion of the amount of the expenses. See Rev. Proc.
98–64, page 32.
Section 63.—Taxable Income
Defined
26 CFR 1.63–1: Change of treatment with respect
to the zero bracket amount and itemized deductions.
The Service provides inflation adjustments to the
standard deduction amounts (including the limita-
tion in the case of certain dependents, and the addi-
tional standard deduction for the aged or blind) for
taxable years beginning in 1999. See Rev. Proc.
98–61, page 18.
Section 68.—Overall Limitation
on Itemized Deductions
The Service provides inflation adjustments to the
overall limitation on itemized deductions for taxable
years beginning in 1999. See Rev. Proc. 98–61, page
18.
Section 135.—Income From
United States Savings Bonds
Used To Pay Higher Education
Tuition and Fees
The Service provides an inflation adjustment to
the limitation on the exclusion of income from
United States savings bonds for taxpayers who pay
qualified higher education expenses for taxable
years beginning in 1999. See Rev. Proc. 98–61, page
18.
Section 151.—Allowance of
Deductions for Personal
Exemptions
26 CFR 1.151–4: Amount of deduction for each
exemption under section 151.
The Service provides inflation adjustments to the
personal exemption and to the threshold amounts of
adjusted gross income above which the exemption
amount phases out for taxable years beginning in
1999. See Rev. Proc. 98–61, page 18.
Section 162.—Trade or Business
Expenses
26 CFR 1.162–17: Reporting and substantiation of
certain business expenses of employees.
Rules are set forth for substantiating the amount
of a deduction or an expense for business use of an
automobile that most nearly represents current costs.
See Rev. Proc. 98–63, page 25.
Rules are set forth for substantiating the amount
of a deduction or an expense for lodging, meal, and
incidental expenses or meal and incidental expenses
incurred while traveling away from home that most
nearly represents current costs. See Rev. Proc.
98–64, page 32.
Section 170.—Charitable, Etc.,
Contributions and Gifts
26 CFR 1.170–1: Charitable, etc., contributions
and gifts; allowance of deductions.
The Service provides inflation adjustments to the
“insubstantial benefit” guidelines for calendar year
1999. Under the guidelines, a charitable contribution
is fully deductible even though the contributor re-
ceives “insubstantial benefits” from the charity. See
Rev. Proc. 98–61, page 18.
26 CFR 1.170A–1: Charitable, etc., contributions
and gifts; allowance of deduction.
Rules are set forth for substantiating the amount
of a deduction or an expense for charitable use of an
automobile. See Rev. Proc. 98–63, page 25.
Section 213.—Medical, Dental,
Etc., Expenses
The Service provides an inflation adjustment to the
limitation on the amount of eligible long-term care
premiums includible in the term “medical care” for
taxable years beginning in 1999. See Rev. Proc.
98–61, page 18.
26 CFR 1.213–1: Medical, dental, etc., expenses.
Rules are set forth for substantiating the amount
of a deduction or an expense for use of an automo-
bile to obtain medical services. See Rev. Proc.
98–63, page 25.
Section 217.—Moving Expenses
26 CFR 1.217–2: Moving expenses.
Rules are set forth for substantiating the amount
of a deduction or an expense for use of an automo-
bile as part of a move. See Rev. Proc. 98–63, page
25.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

Section 220.—Medical Saving
Accounts
The Service provides inflation adjustments to the
amounts used to determine whether a health plan is a
“high deductible health plan” for purposes of deter-
mining whether an individual is eligible for a deduc-
tion for cash paid to a medical savings account for
taxable years beginning in 1999. See Rev. Proc.
98–61, page 18.
Section 267.—Losses,
Expenses, and Interest With
Respect to Transactions
Between Related Taxpayers
26 CFR 1.267(a)–1: Deductions disallowed.
When a payor provides a per diem allowance to
an employee who is a related party, the rules set
forth for the deemed substantiation to the payor of
the amount of the employee’s ordinary and neces-
sary business expenses for lodging, meal, and inci-
dental expenses or meal and incidental expenses in-
curred while traveling away from home do not
apply. See Rev. Proc. 98–64, page 32.
Section 274.—Disallowance of
Certain Entertainment, Etc.,
Expenses
26 CFR 1.274(d)–1T: Substantiation requirements
(temporary).
Simplified optional method for substantiating the
amount of the ordinary and necessary business ex-
penses of an employee for business use of an auto-
mobile when a payor provides a mileage allowance
for such expenses. See Rev. Proc. 98–63, page 25.
Rules are set forth for an optional method for
substantiating the amount of ordinary and necessary
business expenses of an employee for lodging, meal,
and incidental expenses or meal and incidental ex-
penses incurred while traveling away from home
when a payor provides a per diem allowance under a
reimbursement or other expense allowance arrange-
ment to pay for such expenses. See Rev. Proc.
98–64, page 32.
26 CFR 1.274–5T: Substantiation requirements
(temporary).
Simplified optional method for substantiating the
amount of the ordinary and necessary business ex-
penses of an employee for business use of an auto-
mobile when a payor provides a mileage allowance
for such expenses. See Rev. Proc. 98–63, page 25.
Rules are set forth for an optional method for
substantiating the amount of ordinary and necessary
business expenses of an employee for lodging, meal,
and incidental expenses or meal and incidental ex-
penses incurred while traveling away from home
when a payor provides a per diem allowance under a
reimbursement or other expense allowance arrange-
ment to pay for such expenses. Rules are also set
forth for an optional method for employees and self-
employed individuals to use in computing the de-
ductible costs of business meal and incidental ex-
penses paid or incurred while traveling away from
home. See Rev. Proc. 98–64, page 32.
Section 482.—Advance Pricing
Agreements
Notice 98–10, 1998–6 I.R.B. 9, is updated and fi-
nalized providing guidance regarding special proce-
dures for small business taxpayers to obtain an
advance pricing agreement. See Notice 98–65, on
page 10.
Section 483.—Interest on
Certain Deferred Payments
26 CFR 1.483–1: Computation of interest on
certain deferred payments.
As defined by section 1274A, the definitions for
both “qualified debt instruments” and “cash method
debt instruments” have dollar ceilings on the stated
principal amount. The limits to the stated principal
amount are adjusted for inflation for sales or ex-
changes occurring in the 1999 calendar year. See
Rev. Rul. 98–58, page. 6.
Section 512.—Unrelated
Business Taxable Income
The Service provides an inflation adjustment to
the maximum amount of annual dues that can be
paid to certain agricultural or horticultural organiza-
tions without any portion being treated as unrelated
trade or business income by reason of any benefits
or privileges available to members for taxable years
beginning in 1999. See Rev. Proc. 98–61, page 18.
Section 685.—Treatment of
Funeral Trusts
The Service provides an inflation adjustment to
the maximum amount of contributions that may be
made to a qualified funeral trust for contracts en-
tered in calendar year 1999. See Rev. Proc. 98–61,
page 18.
Section 877.—Expatriation to
Avoid Tax
The Service provides an inflation adjustment to
amounts used to determine whether an individual’s
loss of United States citizenship had the avoidance
of United States taxes as one of its principal pur-
poses for calendar year 1999. See Rev. Proc. 98–61,
page 18.
Section 1274.—Determination
of Issue Price in the Case of
Certain Debt Instruments Issued
for Property
26 CFR 1.1274A–1: Special rules for certain
transactions where stated principal amount does
not exceed $2,800,000.
As defined by section 1274A, the definitions for
both “qualified debt instruments” and “cash method
debt instruments” have dollar ceilings on the stated
principal amount. The limits to the stated principal
amount are adjusted for inflation for sales or ex-
changes occurring in the 1999 calendar year. See
Rev. Rul. 98–58, page 6.
Section 1274A.—Special Rules
for Certain Transactions Where
Stated Principal Amount Does
Not Exceed $2,800,000
(Also Sections 1274, 483; 1.1274A–1.)
Section 1274A inflation-adjusted
numbers for 1999.This ruling provides
the dollar amounts, increased by the 1999
inflation-adjustment, for section 1274A of
the Code. Rev Rul. 97–56 supplemented
and superseded.
Rev. Rul. 98–58
This revenue ruling provides the dollar
amounts, increased by the 1999 inflation
adjustment, for § 1274A of the Internal
Revenue Code.
BACKGROUND
In general, §§ 483 and 1274 determine
the principal amount of a debt instrument
given in consideration for the sale or ex-
change of nonpublicly traded property. In
addition, any interest on a debt instrument
subject to § 1274 is taken into account
under the original issue discount provi-
sions of the Code. Section 1274A, how-
ever, modifies the rules under §§ 483 and
1274 for certain types of debt instru-
ments.
In the case of a “qualified debt instru-
ment,” the discount rate used for purposes
of §§ 483 and 1274 may not exceed 9 per-
cent, compounded semiannually. Section
1274A(b) defines a qualified debt instru-
ment as any debt instrument given in con-
sideration for the sale or exchange of
property (other than new § 38 property
December 28, 199861998–52 I.R.B.

within the meaning of § 48(b), as in effect
on the day before the date of enactment of
the Revenue Reconciliation Act of 1990)
if the stated principal amount of the in-
strument does not exceed the amount
specified in § 1274A(b). For debt instru-
ments arising out of sales or exchanges
before January 1, 1990, this amount is
$2,800,000.
In the case of a “cash method debt in-
strument,” as defined in § 1274A(c), the
borrower and lender may elect to use the
cash receipts and disbursements method
of accounting. In particular, for any cash
method debt instrument, § 1274 does not
apply, and interest on the instrument is ac-
counted for by both the borrower and the
lender under the cash method of account-
ing. A cash method debt instrument is a
qualified debt instrument that meets the
following additional requirements: (A) In
the case of instruments arising out of sales
or exchanges before January 1, 1990, the
stated principal amount does not exceed
$2,000,000; (B) the lender does not use an
accrual method of accounting and is not a
dealer with respect to the property sold or
exchanged; (C) § 1274 would have ap-
plied to the debt instrument but for an
election under § 1274A(c); and (D) an
election under § 1274A(c) is jointly made
with respect to the debt instrument by the
borrower and lender. Section 1.1274A–
1(c)(1) of the Income Tax Regulations
provides rules concerning the time for,
and manner of, making this election.
Section 1274A(d)(2) provides that, for
any debt instrument arising out of a sale
or exchange during any calendar year
after 1989, the dollar amounts stated in
§ 1274A(b) and § 1274A(c)(2)(A) are in-
creased by the inflation adjustment for the
calendar year. Any increase due to the in-
flation adjustment is rounded to the near-
est multiple of $100 (or, if the increase is
a multiple of $50 and not of $100, the in-
crease is increased to the nearest multiple
of $100). The inflation adjustment for
any calendar year is the percentage (if
any) by which the CPI for the preceding
calendar year exceeds the CPI for calen-
dar year 1988. Section 1274A(d)(2)(B)
defines the CPI for any calendar year as
the average of the Consumer Price Index
as of the close of the 12-month period
ending on September 30 of that calendar
year.
INFLATION-ADJUSTED AMOUNTS
For debt instruments arising out of
sales or exchanges after December 31,
1989, the inflation-adjusted amounts
under § 1274A are shown in Table 1.
1998–52 I.R.B.7December 28, 1998
Rev. Rul. 98–58 Table 1
Inflation-Adjusted Amounts Under § 1274A
Calendar Year1274A(b) Amount1274A(c)(2)(A) Amount
of Sale(qualified debt(cash method debt
or Exchangeinstrument)instrument)
1990$2,933,200$2,095,100
1991$3,079,600$2,199,700
1992$3,234,900$2,310,600
1993$3,332,400$2,380,300
1994$3,433,500$2,452,500
1995$3,523,600$2,516,900
1996$3,622,500$2,587,500
1997$3,723,800$2,659,900
1998$3,823,100$2,730,800
1999$3,885,500$2,775,400
Note:These inflation adjustments were computed using the All-Urban, Consumer Price Index, 1982–
1984 base, published by the Bureau of Labor Statistics.
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 97–56, 1997–2 C.B. 107 is
supplemented and superseded.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Diana A. Inhof of the Office of
the Assistant Chief Counsel (Financial In-
stitutions and Products). For further in-
formation regarding this revenue ruling
contact Ms. Inhof on (202) 622-3930 (not
a toll-free call).
Section 2032A.—Valuation of
Certain Farm, etc., Real
Property
The Service provides an inflation adjustment to
the maximum amount by which the value of quali-
fied real property included in a decedent’s gross es-
tate may be decreased for the estate of a decedent
dying in calendar year 1999. See Rev. Proc. 98–62,
page 18.
Section 2503.—Taxable Gifts
The Service provides an inflation adjustment to
the amount of gifts that may be made to a person in a
calendar year without including the amount in tax-
able gifts for calendar year 1999. See Rev. Proc.
98–61, page 18.

Section 2523.—Gift to Spouse
The Service provides an inflation adjustment to
the amount of gifts that may be made to a spouse
who is not a citizen of the United States in a calendar
year without including the amount in taxable gifts for
calendar year 1999. See Rev. Proc. 98–61, page 18.
Section 2631.—GST Exemption
The Service provides an inflation adjustment to
the amount of the generation-skipping transfer tax
exemption for calendar year 1999. See Rev. Proc.
98–61, page 18.
Section 4001.—Passenger
Vehicles
The Service provides an inflation adjustment to
the price above which a passenger vehicle becomes
subject to an excise tax for transactions occurring in
calendar year 1999. See Rev. Proc. 98–61, page 18.
Section 4003.—Special Rules
The Service provides an inflation adjustment to
the price above which a passenger vehicle becomes
subject to an excise tax for transactions occurring in
calendar year 1999. (Price includes the price of in-
stallation of parts or accessories on a passenger ve-
hicle within six months of the date after the vehicle
was first placed in service.) See Rev. Proc. 98–61,
page 18.
Section 4261.—Transportation
by Air
The Service provides an inflation adjustment to
the amount of the excise tax on passenger air trans-
portation beginning or ending in the United States
for calendar year 1999. See Rev. Proc. 98–61, page
18.
Section 6033.—Returns by
Exempt Organizations
The Service provides an inflation adjustment to
the amount of dues certain exempt organizations can
charge and still be excepted from the reporting re-
quirements for exempt organizations with nonde-
ductible lobbying expenditures for taxable years be-
ginning in 1999. See Rev. Proc. 98–61, page 18.
Section 6039F.—Notice of Large
Gifts Received From Foreign
Persons
The Service provides an inflation adjustment to
the amount of gifts in a taxable year from certain
foreign person(s) that may trigger a reporting re-
quirement for a United States person for taxable
years beginning in 1999. See Rev. Proc. 98–61, page
18.
Section 6323.—Validity and
Priority Against Certain Persons
The Service provides inflation adjustments for
calendar year 1999 to the maximum amount of a ca-
sual sale of personal property below which a federal
tax lien will not be valid against a purchaser of the
property, and to the maximum amount of a contract
for the repair or improvement of certain residential
property at or below which a federal tax lien will not
be valid against a mechanic’s lienor. See Rev. Proc.
98–61, page 18.
Section 6601.—Interest on
Underpayment, Nonpayment, or
Extension of Time for Payment
of Tax
The Service provides an inflation adjustment to
the amount used to determine the amount of interest
charged on a certain portion of the estate tax payable
in installments for the estate of a decedent dying in
calendar year 1999. See Rev. Proc. 98–61, page 18.
Section 6662.—Imposition of
Accuracy-Related Penalty
When information shown on a return in accor-
dance with the applicable forms and instructions
will be adequate disclosure for purposes of reducing
an understatement of income tax. See Rev. Proc.
98–62, page 23.
Section 7430.—Awarding of
Costs and Certain Fees
The Service provides an inflation adjustment to
the hourly limit on attorney fees that may be
awarded in a judgment or settlement of an adminis-
trative or judicial proceeding concerning the deter-
mination, collection, or refund of tax, interest, or
penalty for calendar year 1999. See Rev. Proc.
98–61, page 18.
Section 7702B.—Treatment of
Qualified Long-Term Care
Insurance
The Service provides an inflation adjustment to
the stated dollar amount of the per diem limitation
regarding periodic payments received under a quali-
fied long-term care insurance contract or periodic
payments received under a life insurance contract
that are treated as paid by reason of the death of a
chronically ill individual for calendar year 1999. See
Rev. Proc. 98–61, page 18.
Section 7872.—Treatment of
Loans with Below-Market
Interest Rates
CPI adjustment for below-market
loans for 1999.The amount that section
7872(g) of the Code permits a taxpayer to
lend to a qualified continuing care facility
without incurring imputed interest is pub-
lished and adjusted for inflation for years
1987–1999. Rev. Rul. 97–57 supple-
mented and superseded.
Rev. Rul. 98–59
This revenue ruling publishes the
amount that § 7872(g) of the Internal
Revenue Code permits a taxpayer to lend
to a qualifying continuing care facility
without incurring imputed interest. The
amount is adjusted for inflation for the
years after 1986.
Section 7872 generally treats loans
bearing a below-market interest rate as if
they bore interest at the market rate.
Section 7872(g)(1) provides that, in
general, § 7872 does not apply for any
calendar year to any below-market loan
made by a lender to a qualified continuing
care facility pursuant to a continuing care
contract if the lender (or the lender’s
spouse) attains age 65 before the close of
the year.
Section 7872(g)(2) provides that, in the
case of loans made after October 11,
1985, and before 1987, § 7872(g)(1) ap-
plies only to the extent that the aggregate
outstanding amount of any loan to which
§ 7872(g) applies (determined without re-
gard to § 7872(g)(2)), when added to the
aggregate outstanding amount of all other
previous loans between the lender (or the
lender’s spouse) and any qualified contin-
uing care facility to which § 7872(g)(1)
applies, does not exceed $90,000.
Section 7872(g)(5) provides that, for
loans made during any calendar year after
1986 to which § 7872(g)(1) applies, the
$90,000 limit specified in § 7872(g)(2) is
increased by an inflation adjustment. The
inflation adjustment for any calendar year
is the percentage (if any) by which the
Consumer Price Index (CPI) for the pre-
ceding calendar year exceeds the CPI for
December 28, 199881998–52 I.R.B.

calendar year 1985. Section 7872(g)(5)
states that the CPI for any calendar year is
the average of the CPI as of the close of
the 12-month period ending on September
30 of that calendar year.
Table 1 sets forth the amount specified
in § 7872(g)(2) of the Code. The amount
is increased by the inflation adjustment
for the years 1987-99.
1998–52 I.R.B.9December 28, 1998
REV. RUL. 98–59 TABLE 1
Limit under 7872(g)(2)
YearAmount
Before 1987$ 90,000
1987$ 92,200
1988$ 94,800
1989$ 98,800
1990$103,500
1991$108,600
1992$114,100
1993$117,500
1994$121,100
1995$124,300
1996$127,800
1997$131,300
1998$134,800
1999$137,000
Note: These inflation adjustments were computed using the All-Urban, Con-
sumer Price Index 1982–1984 base, published by the Bureau of Labor Statistics.
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 97–57, 1997–2 C.B. 275, is
supplemented and superseded.
DRAFTING INFORMATION
The author of this revenue ruling is
Diana A. Inhof of the Office of Assistant
Chief Counsel (Financial Institutions and
Products). For further information regard-
ing this revenue ruling, contact Ms. Inhof
on (202) 622-3930 (not a toll-free call).

December 28, 1998101998–52 I.R.B.
Weighted Average Interest Rate
Update
Notice 98–64
Notice 88–73 provides guidelines for
determining the weighted average interest
rate and the resulting permissible range of
interest rates used to calculate current lia-
bility for the purpose of the full funding
limitation of § 412(c)(7) of the Internal
Revenue Code as amended by the Om-
nibus Budget Reconciliation Act of 1987
and as further amended by the Uruguay
Round Agreements Act, Pub. L. 103–465
(GATT).
The average yield on the 30-year Trea-
sury Constant Maturities for November
1998 is 5.25 percent. Notice 98–58,
1998–47 I.R.B. 9, contains a printing
error. It should have read that the average
yield on 30-year Treasury Constant Matu-
rities for October 1998 is 5.01 percent.
The following rates were determined
for the plan years beginning in the month
shown below.
Part III. Administrative, Procedural, and Miscellaneous
90% to 106%90% to 110%
WeightedPermissiblePermissible
MonthYearAverage RangeRange
December19986.295.66 to 6.675.66 to 6.92
Drafting Information
The principal author of this notice is
Todd Newman of the Employee Plans Di-
vision. For further information regarding
this notice, call (202) 622-6076 between
2:30 and 3:30 p.m. Eastern time (not a
toll-free number). Mr. Newman’s number
is (202) 622-8458 (also not a toll-free
number).
Small Business Taxpayer
Advance Pricing Agreements
Notice 98–65
INTRODUCTION
On February 9, 1998, the Internal Rev-
enue Service (“Service”) issued Notice
98–10, 1998–6 I.R.B. 9, which set forth
proposed special procedures for small
business taxpayer (“SBT”) Advance Pric-
ing Agreements (“APAs”). Notice 98–10
also solicited comments from the public
prior to finalizing the special procedures
for SBT APAs.
After consideration of all the comments
received, the final procedures for SBT
APAs are adopted as revised by this No-
tice. It is the Service’s intention to incor-
porate the final SBT procedures in any re-
visions or successor to the general
procedures for obtaining an APA from the
Service, currently contained in Rev. Proc.
96–53, 1996–2 C.B. 375.
EXPLANATION OF REVISIONS AND
SUMMARY OF COMMENTS
Most of the comments focused on ex-
panding the situations in which the SBT
special procedures could be employed, in-
cluding (i) expanding the definition of an
SBT to permit more taxpayers to qualify;
(ii) clarifying that small transactions (as
defined in § 5.14(4) of Rev. Proc. 96–53),
without regard to the size of the taxpayer,
would qualify; and (iii) permitting trans-
actions that involve non-routine intangi-
bles to qualify. This Notice doubles the
gross income amount from $100 million
to $200 million for determining which en-
tities will be considered an SBT for pur-
poses of implementing SBT APA special
procedures. So that all taxpayers who
qualify as SBTs are treated uniformly
with respect to APA user fees, this Notice
also increases, from $100 million to $200
million, the gross income amount in the
definition of taxpayers that qualify for the
reduced user fee of $5,000 contained in
§ 5.14(3) of Rev. Proc. 96–53.
This Notice also clarifies that the spe-
cial procedures can apply, when appropri-
ate, to the small transactions described in
§ 5.14(4) of Rev. Proc. 96–53. With re-
spect to applying the special procedures
to transactions involving intangibles, this
Notice clarifies that the Service will con-
sider such application on a case by case
basis.
In addition, the Service believes the
SBT procedures could be beneficial for
start-up companies and new lines of busi-
ness for existing companies. Accord-
ingly, transactions involving such compa-
nies or such lines of business are
mentioned among the types of transac-
tions for which SBT procedures would be
appropriate.
It was also requested that the initial
term of an SBT APA have the potential to
be greater than three years. As reflected
in this Notice, depending on the facts and
circumstances of each case, an SBT APA
term can generally range from three to
five years.
Other commentators requested that the
Notice address the policy for “rollbacks”
(i.e., rolling back the transfer pricing
methodology (“TPM”) to years prior to
those covered in the APA). The requests
involved clarifying how rollback requests
would be treated in an SBT APA context
generally, and more specifically, in situa-
tions where a rollback year in a bilateral
SBT APA request is under the jurisdiction
of Appeals and the simultaneous Appeals
and competent authority procedure as de-
scribed in § 8 of Rev. Proc. 96–13,
1996–1 C.B. 616, 622, is applicable. As
with all policies and procedures not
specifically addressed by this Notice,
such policies and procedures, including
the rollback procedures, remain the same
as described in Rev. Proc. 96–53. (For
the rollback procedures, see § 8 of Rev.
Proc. 96–53).
Other comments expressed concern re-
garding coordination with treaty partners

in the case of bilateral SBT APA requests.
As with all bilateral APA requests, the
Service has worked, and will continue to
work, diligently with treaty partners to ef-
fectuate bilateral APAs (SBT or other-
wise) as quickly as possible.
Finally, some comments addressed in-
ternal Service procedures, such as the
staffing of APA Teams. The APA Pro-
gram appreciates all suggestions to make
the APA process more efficient. However,
since the purpose of this Notice is to pro-
vide guidance to SBTs seeking an APA
and not to address internal procedures,
these comments have not been addressed
in this Notice.
PURPOSE
The Service instituted the APA Pro-
gram to assist all taxpayers in their efforts
to comply with I.R.C. § 482. Under an
APA, the Service and a taxpayer agree on
a TPM to be prospectively applied to an
apportionment or allocation of income,
deductions, credits, or allowances be-
tween or among two or more organiza-
tions, trades, or businesses owned or con-
trolled, directly or indirectly, by the same
interests. Provided the taxpayer complies
with the terms and conditions of the APA,
the Service will regard the results of ap-
plying the TPM as satisfying the arm’s
length standard under § 482. Rev. Proc.
96–53, 1996–2 C.B. 375, explains how a
taxpayer may secure an APA from the
Service.
To date, the Service has concluded
more than 160 APAs with U.S. taxpayers,
the majority of which have been large
business taxpayers with substantial in-
come and/or assets. In an effort to reduce
the § 482 compliance burden of, and to
make the APA Program more accessible
to, small business taxpayers (“SBTs”), the
Service is adopting special APA proce-
dures for SBTs (“SBT procedures”). For
purposes of this Notice, a “small business
taxpayer” is any U.S. taxpayer with total
gross income of $200 million or less (de-
termined pursuant to § 5.14(7) of Rev.
Proc. 96–53 or its successor). In addition,
for taxpayers not able to meet the gross
income threshold, if deemed appropriate
by the Service, SBT procedures will be
available for the small transactions de-
scribed in § 5.14(4) of Rev. Proc. 96–53,
subject to the limitations regarding intan-
gibles discussed below.
The SBT procedures seek to address
the SBT’s need to achieve the compliance
certainty an APA provides at a cost that is
reasonable relative to the size and com-
plexity of the transactions involved. This
Notice describes the circumstances under
which an SBT may request special proce-
dures in seeking an APA, the nature of the
special procedures, and other provisions
designed to assist SBTs in the APA
process.
BACKGROUND
The Service has indicated a desire to al-
leviate the § 482 compliance burden for
SBTs. For example, under the 1993 tem-
porary regulations, § 1.482–1T set forth a
safe harbor for small taxpayers. That pro-
vision, however, was not retained in the
final regulations due to deficiencies with
the safe harbor. See“Explanation of Re-
visions and Summary of Comments” of
the § 482 final regulations, T.D. 8552,
1994–2 C.B. 93, 104. At that time, the
Service solicited suggestions from the
public for alternative approaches to assist
small taxpayers with their § 482 compli-
ance burden. Id.No comments were re-
ceived as a result of this solicitation.
The Service also attempted to assist all
taxpayers, including SBTs, with their
§ 482 compliance efforts by implement-
ing the APA Program under Rev. Proc.
91–22, 1991–1 C.B. 526. The Program’s
experience, however, indicates that SBTs
are not participating in the Program to the
same extent as larger taxpayers, due at
least in part to cost concerns (in terms of
internal staff time, external legal, ac-
counting, and consulting fees, and Service
user fees).
As a consequence, the Service estab-
lished additional incentives for SBTs to
seek APAs. Section 3.09 of Rev. Proc.
96–53 provides that the Service and a
small business taxpayer may agree to spe-
cial procedures for obtaining an APA, in-
cluding simplified procedures that depart
from standard procedures, to meet the
needs of the particular SBT. In addition,
§ 5.14 of Rev. Proc. 96–53 establishes a
reduced user fee for many SBTs seeking
an APA. The APA Program has success-
fully applied the approach referenced in §
3.09 in several cases to assist SBTs in re-
ceiving APAs.
The Service believes that maintaining
the ability to adapt procedures to the facts
and circumstances of a particular SBT is
better than establishing formal procedures
that may not be applicable to all SBTs.
However, it is important for the Service to
furnish guidance regarding the types of
procedures it deems appropriate for SBT
APAs. Accordingly, the provisions in this
Notice expand upon § 3.09 of Rev. Proc.
96–53 by providing examples of simpli-
fied procedures the Service believes may
be appropriate. It is hoped that the flexi-
bility underlying this approach will en-
courage more small business taxpayers to
participate in the APA Program.
PRINCIPLES FOR SMALL BUSINESS
TAXPAYER APA REQUESTS
The Service intends to maintain flexi-
bility in the APA process to address the
particular needs of SBTs. Accordingly,
the special procedures set forth below are
the types of procedures the Service will
entertain for SBT APA requests; they are
not exclusive, and the Service will con-
sider other procedures that are consistent
with the objectives of the APA Program
and the SBT. In addition, different proce-
dures may apply to different SBTs, de-
pending upon the facts and circumstances
of each APA case.
To address the concern that the per-
ceived costs to secure an APA are high in
proportion to the size of the transactions
involved, the special procedures focus on
simplifying the APA process for SBT
transactions. This simplification is in-
tended to reduce costs in terms of the
amount of time required to evaluate the
request, while permitting the Service to
satisfy its due diligence requirements.
This objective can be accomplished,
and use of special procedures is encour-
aged, when the SBT proposes to cover
less complicated transactions with which
the APA Program has had experience
(such as those involving the manufacture
or distribution of tangible property under
§ 1.482–3 and the performance of admin-
istrative and technical services under
§ 1.482–2(b)) and proposes a “best
method” that is specified under the regu-
lations. In addition, use of special proce-
dures is encouraged for start-up compa-
nies or lines of business. Although
transactions involving non-routine intan-
gibles, including research and develop-
ment cost sharing arrangements under §
1.482–7, would not ordinarily be
1998–52 I.R.B.11December 28, 1998

amenable to such special procedures due
to the complexity of valuing such intangi-
bles, the Service will consider employing
special procedures for such transactions
on a case by case basis.
In addition, to the extent practical, the
Service will coordinate the special proce-
dures with the SBT’s other tax compli-
ance efforts so as to minimize the costs to
the SBT. For example, an SBT’s I.R.C.
§ 6662(e) documentation may be ac-
cepted as the APA submission materials,
and such documentation could form the
primary foundation for the Service’s eval-
uation of the SBT’s APA request.
SPECIAL PROVISIONS FOR SBT
APAs
At the request of an SBT, the Service
will apply any or all of the following pro-
visions under the principles of this No-
tice, if deemed appropriate by the APA
Director:
1. Under ordinary conditions, a tax-
payer contemplating an APA may (but is
not required to) request a prefiling confer-
ence with the Service. If a prefiling con-
ference is requested, the Service provides
informal advice to the taxpayer regarding
the taxpayer’s proposal, but ordinarily
does not begin its due diligence evalua-
tion in earnest until the taxpayer formally
files an APA request along with the appro-
priate user fee. Once the formal APA re-
quest is received, the APA Program tar-
gets finalizing the negotiating position for
bilateral APAs in nine months and con-
cluding unilateral APAs in 12 months. In
contrast, for SBT transactions the Service
intends, if requested, to commence its due
diligence analysis at the front-end of the
process to accelerate the conclusion of the
APA negotiations.
(a) The Service and SBT may hold a
prefiling conference (before a user fee is
paid) to determine as early as possible the
best method for the SBT’s proposed cov-
ered transactions. To accomplish this, the
Service will need a detailed description of
the underlying facts of, and the proposed
TPM for, the SBT’s requested covered
transactions at least 60 days prior to the
scheduled conference. For purposes of
this Notice, the SBT may provide the in-
formation it is required to maintain under
I.R.C. § 6662(e) to satisfy this require-
ment. Prior to its prefiling submission,
the SBT must consult with APA Program
personnel to determine the information
the Service deems necessary to evaluate
the SBT’s particular covered transactions.
(b) An APA Team will evaluate the
SBT APA prefiling submittal to determine
items of concern and the additional docu-
mentation, if any, needed to evaluate the
request. The SBT will be advised of the
APA Team’s initial conclusions before the
prefiling conference so that it can address
these items before or at the conference.
(c) At the prefiling conference, the
SBT and Service will negotiate the case
management plan with the objective of
concluding a unilateral APA, or finalizing
the recommended negotiating position for
a bilateral APA, within six months of the
date the SBT files its APA request. The
Service’s efforts to perform more of its
analysis earlier in the process should re-
sult in a reduced number of post-filing
meetings and supplemental information
requests.
2. The Service and SBT may negotiate
the reduction or elimination of specific el-
ements otherwise required under § 5 of
Rev. Proc. 96–53. Examples of the types
of information that the Service may deter-
mine the SBT could exclude from its APA
request include those described in the fol-
lowing subsections of Rev. Proc. 96–53:
(a) § 5.04(3); (b) § 5.04(5); (c) § 5.04(6);
(d) § 5.08; and (e) § 5.09.
3. The Service will hold all meetings
with the SBT at a location convenient to
the SBT. To minimize the number of
meetings, teleconferences will be em-
ployed whenever feasible.
4. The Service will reasonably assist
the SBT in the selection and evaluation of
comparables or the computation of adjust-
ments to comparables under § 1.482–1(e),
as well as, if appropriate, assist the SBT
in determining other adjustments.
5. The initial term of an SBT APA will
generally be from three to five years, de-
pending upon the facts and circumstances
of the SBT.
6. For unilateral APA requests, an SBT
may submit a proposed draft APA in a
form substantially identical to the current
APA model agreement attached to this
Notice (the APA model is subject to
change; SBTs should check with the APA
Program for updated versions). To expe-
dite review of the proposed draft APA, the
SBT should also include a “redline” ver-
sion showing the differences between the
APA model and the SBT’s proposed draft.
In addition, SBTs should also submit the
draft on a computer disk in a word pro-
cessing format acceptable to the Service.
7. The Service will consider other pro-
cedures suggested by the SBT to reduce
the SBT’s administrative and financial
burden, consistent with the objectives of
the APA Program and the requirements of
§ 482.
EFFECT ON OTHER DOCUMENTS
Section 5.14(3) of Rev. Proc. 96–53,
1996–2 C.B. 375, 379, is modified by in-
creasing the gross income amount con-
tained therein from $100,000,000 to
$200,000,000.
EFFECTIVE DATE
This Notice is effective immediately
and will apply to all SBT APA requests,
including requests for renewal, received
on or after the date this Notice is pub-
lished.
DRAFTING INFORMATION
The principal author of this Notice is
David J. Canale of the Advance Pricing
Agreement Program, Office of Associate
Chief Counsel (International). For further
information regarding this Notice, contact
Mr. Karl Kellar at (202) 874-4360 (not a
toll-free call).
December 28, 1998121998–52 I.R.B.

1998–52 I.R.B.13December 28, 1998
ADVANCE PRICING AGREEMENT
between
TAXPAYER
and
THE INTERNAL REVENUE SERVICE
THIS ADVANCE PRICING AGREEMENT(“APA”) is made by and between Taxpayer and the Internal Revenue
Service (“Service”), acting through the Associate Chief Counsel (International).
WHEREAS, Taxpayer and the Service (the “Parties”) wish to establish a method for determining whether certain prices
used in international transactions involving Taxpayer are in accordance with the principles of section 482 of the Internal Revenue
Code of 1986 as amended (the “Code”) and attendant Regulations and, to the extent applicable, income tax conventions to which
the United States is a party;
NOW, THEREFORE, in consideration of the mutual promises contained herein, the Parties agree as follows:
1.Identifying Information.Taxpayer’s EIN is __________. [Taxpayer is included in the consolidated federal
income tax return filed by ________________, EIN ________. All references to Taxpayer’s United States income tax return in this
APA refer to that consolidated return, and all references in this APA to “Taxpayer” shall refer to the ______________ consolidated
return group.]
2.Cover
ed Transactions.This APA governs the pricing of the transactions specified in Appendix A (the “Covered
Transactions”).
3.Legal Effect.
3.1.Taxpayer agrees to comply with the terms and conditions of this APA, including the transfer pricing methodology
(“TPM”) that is described in Appendix A. If Taxpayer complies with the terms and conditions of this APA, then the Service will not
contest the application of the TPM to the Covered Transactions and will not make or propose any reallocation or adjustment under
section 482 of the Code with respect to Taxpayer concerning the Transfer Prices in Covered Transactions for the years covered by
this APA (the “APA Years”).
3.2.Regardless of the date on which Taxpayer filed its request for this APA, Taxpayer and the Service agree, unless
otherwise specified to the contrary in this APA, that Rev. Proc. 96–53, 1996–2 C.B. 375, and not any predecessor to Rev. Proc.
96–53, governs the interpretation and administration of this APA.
3.3.If, for any APA Year, Taxpayer does not comply with the terms and conditions of this APA, then the Service may:
i.enforce the terms of this APA and propose adjustments to the income, expenses, deductions, credits, or allowances
reported on Taxpayer’s U.S. federal income tax return in keeping with the terms of this APA;
ii.cancel or revoke this APA pursuant to section 11.05 or 11.06 of Rev. Proc. 96–53; or
iii.revise this APA, upon agreement on revision with Taxpayer.
3.4.[This APA addresses the arm’s length nature of prices charged or received in the aggregate between Taxpayer and
[name of foreign group], and except as explicitly provided in this APA does not address, and does not bind the Service with respect
to, prices charged or received, or the relative amounts of income or loss realized, by particular legal entities that are members of
Taxpayer or that are members of [foreign group]. The true taxable income of a member of an affiliated group filing a U.S. consol-
idated return shall be determined under the regulations governing consolidated returns. See, e.g., Treas. Reg. section 1.1502–12.
Similarly, to the extent relevant for United States tax purposes, and except as explicitly provided in this APA, the relative amounts
of income of different entities that are members of [foreign group] shall be determined under the arm’s length standard of section
482 without reference to this APA.]

3.5.The Parties agree that nonfactual oral and written representations, within the meaning of sections 10.04 and 10.05
of Rev. Proc. 96–53 (including any proposals to use particular TPMs), made in conjunction with this request constitute statements
made in compromise negotiations within the meaning of Rule 408 of the Federal Rules of Evidence.
4.Term.This APA shall apply only to the APA Years, which shall include only ________________.
5.Financial Statements and APA Records.The determination whether Taxpayer has complied with this APA will
be based on its United States income tax return; its financial statements as prepared in accordance with generally accepted account-
ing principles (“GAAP”) on a consistent basis (the “Financial Statements”); the additional records (“APA Records”) specified in
Appendix B; and all information referenced in section 8 of this APA. Taxpayer will be in compliance with the TPM only if a certi-
fied public accountant renders an opinion that the Financial Statements present fairly, in all material respects, the financial position
of Taxpayer and the results of its operations, in accordance with GAAP. Taxpayer agrees to maintain the Financial Statements and
APA Records and to make them available within thirty days of a request by the Service in connection with an examination described
in section 11.03 of Rev. Proc. 96–53. Compliance with this section 5 will constitute compliance with the provisions of sections
6038A and 6038C of the Code, with respect to the Covered Transactions during the APA Years.
6.Critical Assumptions.The Critical Assumptions of this APA, within the meaning of section 5.07 of Rev. Proc.
96–53, are listed in Appendix C.
7.Compensating Adjustments.To the extent necessary to bring Taxpayer into compliance with this APA,
Taxpayer may make Compensating Adjustments as described in and subject to the rules of section 11.02 of Rev. Proc. 96–53, and
subject to any restrictions stated in this APA.
8.Annual Repor
t.Taxpayer shall file a timely Annual Report for each APA Year pursuant to the rules of section
11.01 of Rev. Proc. 96–53. However, no Annual Report will be due less than 90 days after this APA becomes effective. The Annual
Report shall contain the information described in Appendix D. In connection with an examination described in section 11.03 of Rev.
Proc. 96-53, the District Director may request and Taxpayer shall provide additional facts, computations, data or information rea-
sonably necessary to clarify the Annual Report or verify compliance with the APA.
9.Disputes.Should a dispute arise concerning the interpretation, application or enforcement of this APA, the
Parties agree to seek resolution of the dispute by the Associate Chief Counsel (International), to the extent reasonably practicable,
prior to seeking alternative remedies.
10.Section Captions.The section captions contained in this APA are for convenience and reference only and
shall not affect in any way the interpretation or application of this APA.
11.Notice.Any notices required by this APA or Rev. Proc. 96–53 shall be in writing. Taxpayer shall send notices to
the Service at the address and in the manner prescribed in section 5.13(2) of Rev. Proc. 96–53. The Service shall send notices to
Taxpayer at:
12.Effective Date.This APA shall become binding when both Parties have executed the APA.
13.Counterpar
ts.This APA may be executed in counterparts, with each counterpart deemed an original.
IN WITNESS WHEREOF, the Parties have executed this APA on the dates indicated below.
TAXPAYER
By:_________________________________Date:__________________________
INTERNAL REVENUE SERVICE
By:_________________________________Date:__________________________
Associate Chief Counsel (International)
December 28, 1998141998–52 I.R.B.

APPENDIX A
TRANSFER PRICING METHODOLOGY
For each APA Year:
A.Covered Transactions.
The Covered Transactions for this APA consist of _______________________.
B.Transfer Pricing Methodology (“TPM”).
*****
APPENDIX B
APA RECORDS
3.All documents listed in Appendix D for inclusion in the Annual Report, as well as all documents, notes,
work papers, records, or other writings that support the information provided in such documents.
2.[Insert here other records].
*****
APPENDIX C
CRITICAL ASSUMPTIONS
4.The business activities, financial and tax accounting methods and classifications, and methods of estima-
tion, of Taxpayer shall remain materially the same as described or used in Taxpayer’s request for this APA.
2.[Insert here other Critical Assumptions.]
1998–52 I.R.B.15December 28, 1998

APPENDIX D
ANNUAL REPORT
Taxpayer shall include the following in its Annual Report for each APA Year:
5.A statement identifying all material differences between Taxpayer’s business operations during the APA
Year and the description of Taxpayer’s business operations contained in Taxpayer’s request for this APA, or if there
have been no such material differences a statement to that effect.
6.A statement identifying all material changes in the Taxpayer’s accounting methods and classifications,
and methods of estimation, from those described or used in Taxpayer’s request for this APA, or if there have been
no such material changes a statement to that effect.
7.The Financial Statements.
8.A financial analysis demonstrating Taxpayer’s compliance with the TPM.
9.A description of any failure to meet Critical Assumptions or, if there have been no such failures, a state-
ment to that effect.
10.A description of the reason for, and financial analysis of, any Compensating Adjustments with respect to
the APA Year, including the means by which any such Compensating Adjustment has been or will be satisfied.
11.A copy of the certified public accountant’s opinion, described in section 5 of this APA, for the APA Year.
12.[Insert here other items to be included in Annual Report.]
December 28, 1998161998–52 I.R.B.

Qualified Funeral Trusts
Notice 98–66
PURPOSE
Section 6013(b) of the Internal Rev-
enue Service Restructuring and Reform
Act of 1998 (1998 Act), Pub. L. No. 105–
206, 112 Stat. 685, amended the Qualified
Funeral Trust (QFT) provisions of § 685
of the Internal Revenue Code: (1) to allow
pre-need funeral trusts to continue to
qualify as QFTs for a 60-day period be-
ginning on the date of death of the grantor
of the trust; and (2) to extend the Secre-
tary’s authority to prescribe rules for sim-
plified reporting of QFTs that terminate
during the taxable year. This notice pro-
vides guidance on the 1998 Act amend-
ments to § 685. The amendments are ef-
fective for taxable years ending after
August 5, 1997.
BACKGROUND
A “pre-need funeral trust” is an
arrangement in which funeral or cemetery
merchandise or services are purchased be-
fore the beneficiary’s death. The pur-
chaser enters into a contract with the
seller whereby the purchaser selects, and
pays for, the desired merchandise or ser-
vices. Upon the death of the beneficiary,
the seller provides the selected merchan-
dise or services. Most states have laws or
regulations that govern pre-need funerals
trusts. These laws and regulations protect
the beneficiary and provide for the invest-
ment of the money transferred to the
seller. Usually, the seller is required to
deposit a percentage of the money re-
ceived into a pre-need funeral trust to be
invested and held by the trust for the ben-
eficiary until the funeral or cemetery mer-
chandise or services are provided. The
terms of the trust arrangements vary from
seller to seller and the provisions govern-
ing pre-need funeral trusts vary from state
to state.
In Rev. Rul. 87–127, 1987–2 C.B. 156,
the Service addresses the taxation of pre-
need funeral trusts in four situations. The
ruling concludes that in all four situations
the trust is a grantor trust and the pur-
chaser of the trust is treated as the owner
of the trust for federal tax purposes. The
ruling further concludes that any payment
received by the seller from the trust is a
payment for merchandise or services and
is includible under § 61 in the seller’s
gross income in the year received or prop-
erly accrued, depending on the seller’s
method of accounting.
The Taxpayer Relief Act of 1997, Pub.
L. No. 105–34, 111 Stat. 788, created the
QFT provisions. Section 685 permits the
trustees of certain pre-need funeral trusts
to elect QFT status on behalf of the trusts.
If a valid QFT election is made and the
trust otherwise qualifies as a QFT under §
685, the trustee is liable for the tax on the
taxable income of the trust. The amount
of tax is determined in accordance with
the income tax rate schedule generally ap-
plicable to trusts and estates. A QFT elec-
tion may be made for an eligible trust for
any taxable year ending after August 5,
1997.
In Notice 98–6, 1998–3 I.R.B. 52, the
Service provided guidance on QFT eligi-
bility requirements, election procedures,
and simplified reporting requirements.
The notice recognizes that pre-need trusts
for cemetery merchandise and services,
like pre-need trusts for funeral merchan-
dise and services, may be treated as QFTs
if they meet the requirements of § 685.
The trustees of QFTs are required to file a
trust return on behalf of the QFT. Form
1041–QFT, U.S. Income Tax Return for
Qualified Funeral Trusts, is used to file
the return and to make the QFT election.
A trustee responsible for multiple QFTs
may report the income for all of the QFTs
on one composite Form 1041–QFT. A
QFT election, once made, cannot be re-
voked without the consent of the Com-
missioner of Internal Revenue.
LOSS OF GRANTOR TRUST STATUS
One of the necessary qualifications for
a QFT is that it would be treated, but for
the QFT election, as a grantor trust for
federal income tax purposes. Section
685(b)(6). Prior to the 1998 Act amend-
ment, a trust would have lost its QFT sta-
tus upon the death of the grantor because
it would no longer have been a grantor
trust. However, because actual distribu-
tion of the trust assets to the seller of the
merchandise or services usually does not
occur immediately upon the death of the
decedent, the 1998 Act provides that a
QFT retains its QFT status for the period
of time between the decedent’s death and
the actual distribution of the trust assets to
the seller, but not to exceed a 60-day pe-
riod beginning on the date of the dece-
dent’s death. Any income earned by the
QFT during this period must be reported
by the trustee on the Form 1041–QFT.
SHORT YEAR QFTS
Section 685(f), as originally enacted,
provided that the Secretary may prescribe
rules for simplified reporting of all QFTs
having a single trustee. The 1998 Act
amendment to § 685(f) extends the Secre-
tary’s authority to prescribe rules for sim-
plified reporting of QFTs terminated dur-
ing the taxable year (for example, upon
the beneficiary’s death).
As a general rule, § 6072(a) provides
that trust returns must be filed by the 15th
day of the fourth month following the
close of the taxable year. QFTs are re-
quired to adopt a calendar year. There-
fore, QFTs generally are required to file
an income tax return by April 15th of the
year following the close of the calendar
year. Under § 443, a trust that is in exis-
tence during only part of a year is re-
quired to file a return for that short period.
QFTs that terminate during the year,
therefore, would be required to file a re-
turn by the 15th day of the fourth month
following the close of the short taxable
year. For example, if the beneficiary of a
QFT died on March 3rd and all the trust
assets were distributed prior to the end of
March, the trustee would be required to
file the tax return by July 15th.
The Service recognizes that a trustee of
multiple QFTs often has many QFTs that
terminate during the calendar year. To
simplify the reporting requirements for
these trustees, a single, composite Form
1041-QFT may be filed for all QFTs man-
aged by the same trustee, including short
period QFTs. Therefore, a trustee of mul-
tiple QFTs is not required to file a sepa-
rate tax return for any QFT that termi-
nates during the year. The trustee of
multiple QFTs has until April 15th of the
year following the close of the calendar
year to file a composite Form 1041–QFT,
even when the return includes QFTs that
terminate during the calendar year.
REQUESTS FOR COMMENTS
The Treasury and the Service invite
comments from the public on issues that
may arise in implementing the amend-
1998–52 I.R.B.17December 28, 1998

ments to § 685. Send written comments
to the following address:
Internal Revenue Service
CC:DOM:CORP (NT 98-66;
CC:DOM:P&SI:1)
P.O. Box 7604, Ben Franklin Station
Washington, D.C. 20044
Alternatively, send written comments elec-
tronically via the Internet to the IRS Inter-
net site at http://www.irs.ustreas.gov/prod/
tax_regs/comments.html. Please identify
the comments as relating to this notice.
DRAFTING INFORMATION
The principal author of this notice is
Shannon Cohen of the Office of Assistant
Chief Counsel (Passthroughs and Special
Industries). For further information re-
garding this notice, contact Shannon
Cohen on (202) 622-3050 (not a toll-free
call).
Filing Procedure for Early
Closing of Courier’s Desk
Notice 98–67
SECTION 1. PURPOSE
This notice provides that when the
Courier’s Desk at the national office of
the Internal Revenue Service closes early
on the last day prescribed for filing an ap-
plication to change an accounting method
or accounting period with the national of-
fice, the Service will consider the appli-
cation timely filed if it is filed at that desk
during the next succeeding day (other
than a Saturday, Sunday, or legal holiday)
that the national office is open for busi-
ness.
SECTION 2. BACKGROUND
The Service permits taxpayers to file
certain applications for a change in ac-
counting method or accounting period at
the Courier’s Desk at the national office
of the Service, located at 1111 Constitu-
tion Avenue, NW, Washington, DC, be-
tween 8:15 AM and 5:00 PM. For exam-
ple, Rev. Proc. 97–27, 1997–1 C.B. 680,
as provided in Rev. Proc. 98–1, 1998–1
I.R.B. 3, permits a taxpayer requesting a
change in method of accounting to file the
Form 3115, Application for Change in
Accounting Method, at the Courier’s
Desk. Similarly, Rev. Proc. 98–60,
1998–51 I.R.B. 16, permits a taxpayer
changing its method of accounting auto-
matically to file the copy of the applica-
tion at the Courier’s Desk.
SECTION 3. PROCEDURE
.01 For applications to change an ac-
counting method or accounting period
that are permitted to be filed at the
Courier’s Desk at the national office of
the Service, if that desk closes early (be-
fore 5:00 PM) on the last day prescribed
for filing the application, the Service will
consider the application timely filed pro-
vided it is filed at that desk during the
next succeeding day (other than a Satur-
day, Sunday, or legal holiday) that the na-
tional office is open for business.
.02 In order to obtain the relief pro-
vided by this notice, the taxpayer should
write at the top of the application “FILED
PURSUANT TO NOTICE 98– 67.”
.03 For an example of the relief pro-
vided by this notice, assume that a tax-
payer wanting to change its method of ac-
counting for calendar year 1998 under
Rev. Proc. 97–27 is required to file a
Form 3115 with the Service on or before
December 31, 1998. If the Courier’s
Desk closes before 5 PM on December
31, 1998, the taxpayer may timely file the
copy of the Form 3115 at that desk on
Monday, January 4, 1999 (because Friday,
January 1, 1999, is a legal holiday and
January 2 and 3, 1999, are a Saturday and
Sunday (see § 7503 of the Internal Rev-
enue Code)).
DRAFTING INFORMATION
The principal author of this notice is
Robert A. Testoff of the Office of Assis-
tant Chief Counsel (Income Tax and Ac-
counting). For further information re-
garding this notice, contact Mr. Testoff at
(202) 622-4800 (not a toll-free call).
December 28, 1998181998–52 I.R.B.
26 CFR 601.602: Tax forms and instructions.
(Also Part I, §§ 1, 32, 59, 63, 68, 135, 151, 170, 213, 220, 512, 513, 685, 877, 2032A, 2503, 2523, 2631, 4001, 4003, 4261, 6033, 6039F, 6323, 6601, 7430, 7702B)
Rev. Proc. 98–61
Table of Contents
SECTION 1. PURPOSE
SECTION 2. CHANGES MADE FROM PRECEDING YEAR
SECTION 3. 1999 ADJUSTED ITEMS
Code Section
.01 Tax Rate Tables1(a)–(e)
.02 Unearned Income of Minor Children Taxed as if Parent’s Income (“Kiddie Tax”)1(g)
.03 Earned Income Credit32
.04 Alternative Minimum Tax Exemption for a Child Subject to the “Kiddie Tax” 59(j)
.05 Standard Deduction 63

1998–52 I.R.B.19December 28, 1998
.06 Overall Limitation on Itemized Deductions 68
.07 Income from United States Savings Bonds for Taxpayers Who Pay Qualified Higher
Education Expenses 135
.08 Personal Exemption 151
.09 Eligible Long-Term Care Premiums 213(d)(10)
.10 Medical Savings Accounts220
.11 Treatment of Dues Paid to Agricultural or Horticultural Organizations.512(d)
.12 Insubstantial Benefit Limitations for Contributions Associated with Charitable
Fund-Raising Campaigns 513(h)
.13 Funeral Trusts685
.14 Expatriation to Avoid Tax877
.15 Valuation of Qualified Real Property in Decedent’s Gross Estate2032A
.16 Annual Exclusion for Gifts2503 & 2523
.17 Generation-Skipping Transfer Tax Exemption2631
.18 Luxury Automobile Excise Tax4001 & 4003
.19 Passenger Air Transportation Excise Tax4261
.20 Reporting Exception for Certain Exempt Organizations with Nondeductible
Lobbying Expenditures6033(e)(3)
.21 Notice of Large Gifts Received from Foreign Persons6039F
.22 Persons against Which a Federal Tax Lien is Not Valid6323
.23 Interest on a Certain Portion of the Estate Tax Payable in Installments6601(j)
.24 Attorney Fee Awards 7430
.25 Periodic Payments Received under Qualified Long-Term Care Insurance
Contracts or under Certain Life Insurance Contracts7702B(d)
SECTION 4. EFFECTIVE DATE
SECTION 5. DRAFTING INFORMATION
SECTION 1. PURPOSE
This revenue procedure sets forth infla-
tion adjusted items for 1999.
SECTION 2. CHANGES MADE
FROM PRECEDING YEAR
.01 The amount used in determining
the exemption under §§ 55 and 59(j), as
amended by section 1201(b) of the Tax-
payer Relief Act of 1997 (the “TRA of
1997”), Pub. L. No. 105–34, 111 Stat. 788
(1997), from the alternative minimum tax
under § 55 for a child subject to the “kid-
die tax” under § 1(g), is adjusted for infla-
tion for tax years beginning in 1999 (sec-
tion 3.04).
.02 The amounts used to determine
whether a health plan is a “high deductible
health plan” for purposes of determining
whether an individual is eligible for a de-
duction for cash paid to a medical savings
account under § 220, as enacted by section
301(a) of the Health Insurance Portability
and Accountability Act of 1996, Pub. L.
No. 104–191, 110 Stat. 1936 (1996), are
adjusted for inflation for tax years begin-
ning in 1999 (section 3.10).
.03 The maximum amount of contribu-
tions that may be made to a qualified fu-
neral trust defined in § 685, as enacted by
section 1309(a) of the TRA of 1997, is ad-
justed for inflation for calendar year 1999
(section 3.13).
.04 The maximum amount by which
the estate tax valuation method under §
2032A, as amended by section 501(b) of
the TRA of 1997, may decrease the value
of certain farm and other qualified real
property included in a decedent’s gross
estate, is adjusted for inflation for calen-
dar year 1999 (section 3.15).
.05 The amount of gifts that may be
made to a person in a calendar year with-
out including the amount in taxable gifts
under § 2503, as amended by section
501(c) of the TRA of 1997, is adjusted for
inflation for calendar year 1999. Also,
under § 2523(i)(2) by cross reference to §
2503, the amount of gifts that may be
made to a spouse who is not a citizen of

the United States in a calendar year with-
out including the amount in taxable gifts
under § 2503 is adjusted for inflation for
calendar year 1999 (section 3.16).
.06 The amount of the generation-skip-
ping transfer tax exemption under § 2631,
as amended by section 501(d) of the TRA
of 1997, which was technically corrected
by section 6007(a)(1) of the Internal Rev-
enue Service Restructuring and Reform
Act of 1998 (the “RRA of 1998”), Pub. L.
No. 105–206, 112 Stat. 685 (1998), is ad-
justed for inflation for calendar year 1999
(section 3.17).
.07 The amount of the excise tax on
passenger air transportation beginning or
ending in the United States under § 4261,
as amended by section 1031(c) of the
TRA of 1997, is adjusted for inflation for
calendar year 1999 (section 3.19).
.08 The maximum amount of a casual
sale of personal property below which a
federal tax lien will not be valid against a
purchaser of the property under
§ 6323(b)(4), and the maximum amount
of a contract for the repair or improve-
ment of certain residential property at or
below which a federal tax lien will not be
valid against a mechanic’s lienor under
§ 6323(b)(7), each as amended by section
3435(a) of the RRA of 1998, are adjusted
for inflation for calendar year 1999 (sec-
tion 3.22).
.09 For purposes of calculating interest
charged under § 6601(j), as amended by
section 501(e) of the TRA of 1997, the
dollar amount used to determine the “2
percent portion” of the estate tax payable
in installments under § 6166 is adjusted
for inflation for calendar year 1999 (sec-
tion 3.23).
.10 The amount of the limit on the
hourly rate at which attorney fees may be
awarded under § 7430 in a judgment or
settlement of an administrative or judicial
proceeding concerning the determination,
collection, or refund of tax, interest, or
penalty under the Code was increased to
$125, as adjusted for inflation, effective
for costs incurred after January 18, 1999,
by section 3101(a)(1) of the RRA of 1998
(section 3.24).
SECTION 3. 1999 ADJUSTED ITEMS
.01 Tax Rate Tables.For tax years be-
ginning in 1999, the tax rate tables under
§ 1 are as follows:
December 28, 1998201998–52 I.R.B.
TABLE 1 - Section 1(a). — MARRIED INDIVIDUALS FILING JOINT RETURNS AND SURVIVING SPOUSES
If Taxable Income Is: The Tax Is:
Not Over $43,050 15% of the taxable income
Over $43,050 but not over $104,050$6,457.50 plus 28% of the excess over $43,050
Over $104,050 but not over $158,550$23,537.50 plus 31% of the excess over $104,050
Over $158,550 but not over $283,150$40,432.50 plus 36% of the excess over $158,550
Over $283,150 $85,288.50 plus 39.6% of the excess over $283,150
TABLE 2 - Section 1(b). — HEADS OF HOUSEHOLDS
If Taxable Income Is:The Tax Is:
Not Over $34,550 15% of the taxable income
Over $34,550 but not over $89,150$5,182.50 plus 28% of the excess over $34,550
Over $89,150 but not over $144,400$20,470.50 plus 31% of the excess over $89,150
Over $144,400 but not over $283,150$37,598 plus 36% of the excess over $144,400
Over $283,150$87,548 plus 39.6% of the excess over $283,150
TABLE 3 - Section 1(c). — UNMARRIED INDIVIDUALS (OTHER THANSURVIVING SPOUSES AND HEADS OF HOUSE-
HOLDS)
If Taxable Income Is:The Tax Is:
Not Over $25,75015% of the taxable income
Over $25,750 but not over $62,450$3,862.50 plus 28% of the excess over $25,750
Over $62,450 but not over $130,250 $14,138.50 plus 31% of the excess over $62,450

Over $130,250 but not over $283,150$35,156.50 plus 36% of the excess over $130,250
Over $283,150$90,200.50 plus 39.6% of the excess over $283,150
TABLE 4 - Section 1(d). — MARRIED INDIVIDUALS FILING SEPARATE RETURNS
If Taxable Income Is:The Tax Is:
Not Over $21,52515% of the taxable income
Over $21,525 but not over $52,025$3,228.75 plus 28% of the excess over $21,525
Over $52,025 but not over $79,275$11,768.75 plus 31% of the excess over $52,025
Over $79,275 but not over $141,575$20,216.25 plus 36% of the excess over $79,275
Over $141,575 $42,644.25 plus 39.6% of the excess over $141,575
TABLE 5 - Section 1(e). — ESTATES AND TRUSTS
If Taxable Income Is:The Tax Is:
Not Over $1,75015% of the taxable income
Over $1,750 but not over $4,050$262.50 plus 28% of the excess over $1,750
Over $4,050 but not over $6,200$906.50 plus 31% of the excess over $4,050
Over $6,200 but not over $8,450$1,573 plus 36% of the excess over $6,200
Over $8,450$2,383 plus 39.6% of the excess over $8,450
1998–52 I.R.B.21December 28, 1998
.02 Unearned Income of Minor Chil-
dren Taxed as if Parent’s Income (the
“Kiddie Tax”).For tax years beginning
in 1999, the amount in § 1(g)(4)(A)(ii)(I),
which is used to reduce the net unearned
income reported on the child’s return that
is subject to the “kiddie tax,” is $700.
(This amount is the same as the $700
standard deduction amount provided in
section 3.05(2) of this revenue proce-
dure.) In the alternative, the same $700
amount is used for purposes of § 1(g)(7)
(that is, determining whether a parent
may elect to include a child’s gross in-
come in the parent’s gross income and for
calculating the “kiddie tax”).
.03 Earned Income Credit.
(1) In general.For tax years begin-
ning in 1999, the following amounts are
used to determine the earned income
credit under § 32(b). The “earned income
amount” is the amount of earned income
at or above which the maximum amount
of the earned income credit is allowed.
The “threshold phaseout amount” is the
amount of modified adjusted gross in-
come (or, if greater, earned income)
above which the maximum amount of the
credit begins to phase out. The “com-
pleted phaseout amount” is the amount of
modified adjusted gross income (or if
greater, earned income) at or above which
no credit is allowed.
MaximumThresholdCompleted
NumberAmount ofEarned Income PhaseoutPhaseout
of Childrenthe CreditAmountAmountAmount
1$2,312$6,800$12,460$26,928
2 or more$3,816$9,540$12,460$30,580
None$ 347$4,530$ 5,670$10,200
The Internal Revenue Service, in the
instructions for the Form 1040 series, pro-
vides tables showing the amount of the
earned income credit for each type of tax-
payer.
(2) Excessive investment income.
For tax years beginning in 1999, the
earned income credit is denied under
§ 32(i) if the aggregate amount of certain
investment income exceeds $2,350.
.04 Alternative Minimum Tax Exemp-
tion for a Child Subject to the “Kiddie
Tax.”For tax years beginning in 1999, in
the case of a child to whom the § 1(g)
“kiddie tax” applies, the exemption
amount under § 55 and § 59(j) for pur-
poses of the alternative minimum tax
under § 55 may not exceed the sum of (A)
such child’s earned income for the taxable
year, plus (B) $5,100.
.05 Standard Deduction.

(1) In general.For tax years begin-
ning in 1999, the standard deduction
amounts under § 63(c)(2) are as follows:
Standard
Filing StatusDeduction
MARRIED INDIVIDUALS
FILING JOINT RETURNS
AND SURVIVING SPOUSES
(§ 1(a))$7,200
HEADS OF HOUSEHOLDS
(§ 1(b))$6,350
UNMARRIED INDIVIDUALS
(OTHER THAN SURVIVING
SPOUSES AND HEADS
OF HOUSEHOLDS) (§ 1(c))$4,300
MARRIED INDIVIDUALS
FILING SEPARATE
RETURNS (§ 1(d))$3,600
(2) Dependent. For tax years begin-
ning in 1999, the standard deduction
amount under § 63(c)(5) for an individual
who may be claimed as a dependent by
another taxpayer may not exceed the
greater of $700, or the sum of $250 and
the individual’s earned income.
(3) Aged and blind. For tax years
beginning in 1999, the additional standard
deduction amounts under § 63(f) for the
aged and for the blind are $850 for each.
These amounts are increased to $1,050 if
the individual is also unmarried and not a
surviving spouse.
.06 Overall Limitation on Itemized De-
ductions.For tax years beginning in
1999, the “applicable amount” of adjusted
gross income under § 68(b), above which
the amount of otherwise allowable item-
ized deductions is reduced under § 68, is
$126,600 (or $63,300 for a separate return
filed by a married individual).
.07 Income from United States Savings
Bonds for Taxpayers Who Pay Qualified
Higher Education Expenses.For tax
years beginning in 1999, the exclusion
under § 135, regarding income from
United States savings bonds for taxpayers
who pay qualified higher education ex-
penses, begins to phase out for modified
adjusted gross income above $79,650 for
joint returns and $53,100 for other re-
turns. This exclusion completely phases
out for modified adjusted gross income of
$109,650 or more for joint returns and
$68,100 or more for other returns.
.08 Personal Exemption.
(1) Exemption amount.For tax years
beginning in 1999, the personal exemp-
tion amount under § 151(d) is $2,750.
(2) Phaseout.For tax years begin-
ning in 1999, the personal exemption
amount begins to phase out at, and is
completely phased out after, the following
adjusted gross income amounts:
December 28, 1998221998–52 I.R.B.
ThresholdCompleted
Filing StatusPhaseout Amount Phaseout Amount After
Code § 1(a)$189,950$312,450
Code § 1(b)$158,300$280,800
Code § 1(c)$126,600$249,100
Code § 1(d)$ 94,975$156,225
.09 Eligible Long-Term Care Premi-
ums. For tax years beginning in 1999, the
limitations under § 213(d), regarding eli-
gible long-term care premiums includible
in the term “medical care,” are as follows:
Attained age before the close of the tax-
able year:
40 or less. . . . . . . . . . . . . . . . . . . $ 210
More than 40 but not more
than 50 . . . . . . . . . . . . . . . . . . . . . $ 400
More than 50 but not more
than 60 . . . . . . . . . . . . . . . . . . . . . $ 800
More than 60 but not more
than 70 . . . . . . . . . . . . . . . . . . . . . $2,120
More than 70. . . . . . . . . . . . . . . . $2,660
.10 Medical Savings Accounts.
(1) Self-only coverage.For tax years
beginning in 1999, the term “high de-
ductible health plan” as defined in
§ 220(c)(2)(A) means, in the case of self-
only coverage, a health plan which has an
annual deductible that is not less than
$1,550 and not more than $2,300, and
under which the annual out-of-pocket ex-
penses required to be paid (other than for
premiums) for covered benefits does not
exceed $3,050.
(2) Family coverage. For tax years
beginning in 1999, the term “high de-
ductible health plan” means, in the case of
family coverage, a health plan which has
an annual deductible that is not less than
$3,050 and not more than $4,600, and
under which the annual out-of-pocket ex-
penses required to be paid (other than for
premiums) for covered benefits does not
exceed $5,600.
.11 Treatment of Dues Paid to Agricul-
tural or Horticultural Organizations. For
tax years beginning in 1999, the limita-
tion under § 512(d)(1), regarding the ex-
emption of annual dues required to be
paid by a member to an agricultural or
horticultural organization, is $110.
.12 Insubstantial Benefit Limitations
for Contributions Associated with Chari-
table Fund-Raising Campaigns.
(1) Low cost article.For tax years
beginning in 1999, the unrelated business
income of certain exempt organizations
under § 513(h)(2) does not include a “low
cost article” of $7.20 or less.
(2) Other insubstantial benefits.For
tax years beginning in 1999, the $5, $25,
and $50 guidelines in section 3 of Rev.
Proc. 90–12, 1990–1 C.B. 471 (as ampli-
fied and modified), for disregarding the
value of insubstantial benefits received by
a donor in return for a fully deductible
charitable contribution under § 170, are
$7.20, $36, and $72, respectively.
.13 Funeral Trusts. For a contract en-
tered into during calendar year 1999 for a
“qualified funeral trust,” as defined in
§ 685, the trust may not accept aggregate
contributions by or for the benefit of an
individual in excess of $7,100.
.14 Expatriation to Avoid Tax.For cal-
endar year 1999, the thresholds used
under § 877(a)(2), regarding whether an
individual’s loss of United States citizen-
ship had the avoidance of United States
taxes as one of its principal purposes, are
more than $110,000 for “average annual
net income tax” and $552,000 or more for
“net worth.”

.15 Valuation of Qualified Real Prop-
erty in Decedent’s Gross Estate.For an
estate of a decedent dying in calendar
year 1999, if the executor elects to use the
special use valuation method under
§ 2032A for qualified real property, the
aggregate decrease in the value of quali-
fied real property resulting from electing
to use § 2032A that is taken into account
for purposes of the estate tax may not ex-
ceed $760,000.
.16 Annual Exclusion for Gifts.
(1) For calendar year 1999, the first
$10,000 of gifts to any person (other than
gifts of future interests in property) are
not included in the total amount of taxable
gifts under § 2503 made during that year.
(2) For calendar year 1999, the first
$101,000 of gifts to a spouse who is not a
citizen of the United States (other than
gifts of future interests in property) are
not included in the total amount of taxable
gifts under §§ 2503 and 2523(i)(2) made
during that year.
.17 Generation-Skipping Transfer Tax
Exemption.For calendar year 1999, the
generation-skipping transfer tax exemp-
tion under § 2631, which is allowed in de-
termining the “inclusion ratio” defined in
§ 2642, is $1,010,000.
.18 Luxury Automobile Excise Tax. For
calendar year 1999, the excise tax under
§§ 4001 and 4003 is imposed on the first
retail sale of a passenger vehicle (includ-
ing certain parts or accessories installed
within six months of the date after the ve-
hicle was first placed in service), to the
extent the price exceeds $36,000.
.19 Passenger Air Transportation Ex-
cise Tax.For calendar year 1999, the tax
under § 4261(c) on any amount paid
(whether within or without the United
States) for any transportation of any per-
son by air, if such transportation begins or
ends in the United States, generally is
$12.20. However, in the case of a domes-
tic segment beginning or ending in Alaska
or Hawaii as described in § 4261(c)(3),
the tax only applies to departures and is at
the rate of $6.10.
.20 Reporting Exception for Certain
Exempt Organizations with Nonde-
ductible Lobbying Expenditures.For tax
years beginning in 1999, the annual per
person, family, or entity dues limitation to
qualify for the reporting exception under
§ 6033(e)(3) (and section 5.05 of Rev.
Proc. 98–19, 1998–7 I.R.B. 30), regarding
certain exempt organizations with nonde-
ductible lobbying expenditures, is $77 or
less.
.21 Notice of Large Gifts Received from
Foreign Persons.For tax years beginning
in 1999, recipients of gifts from certain
foreign persons may have to report these
gifts under § 6039F if the aggregate value
of gifts received in a taxable year exceeds
$10,735.
.22 Persons against Which a Federal
Tax Lien is Not Valid.For calendar year
1999, a federal tax lien is not valid against
(1) certain purchasers under § 6323(b)(4)
that purchased personal property in a ca-
sual sale for less than $1,040, or (2) a me-
chanic’s lienor under § 6323(b)(7) that re-
paired or improved certain residential
property if the contract price with the
owner is not more than $5,220.
.23 Interest on a Certain Portion of the
Estate Tax Payable in Installments.For
an estate of a decedent dying in calendar
year 1999, the dollar amount used to de-
termine the “2-percent portion” (for pur-
poses of calculating interest under
§ 6601(j)) of the estate tax payable in in-
stallments under § 6166 is $1,010,000.
.24 Attorney Fee Awards.For calendar
year 1999, for costs incurred on or before
January 18, 1999, the attorney fee award
limitation under § 7430(c)(1)(B)(iii) is
$120 per hour. For costs incurred after
January 18, 1999, the attorney fee award
limitation under § 7430(c)(1)(B)(iii) is
$130 per hour.
.25 Periodic Payments Received under
Qualified Long-Term Care Insurance
Contracts or under Certain Life Insur-
ance Contracts. For calendar year 1999,
the stated dollar amount of the per diem
limitation under § 7702B(d)(4), regarding
periodic payments received under a quali-
fied long-term care insurance contract or
periodic payments received under a life
insurance contract that are treated as paid
by reason of the death of a chronically ill
individual, is $190.
SECTION 4. EFFECTIVE DATE
.01 General Rule. Except as provided
in section 4.02, this revenue procedure
applies to tax years beginning in 1999.
.02 Calendar Year Rule.This revenue
procedure applies to transactions or
events occurring in calendar year 1999 for
purposes of section 3.13 (funeral trusts),
section 3.14 (expatriation to avoid tax),
section 3.15 (valuation of qualified real
property in decedent’s gross estate), sec-
tion 3.16 (annual exclusion for gifts), sec-
tion 3.17 (generation-skipping transfer
tax exemption), section 3.18 (luxury auto-
mobile excise tax), section 3.19 (passen-
ger air transportation excise tax), section
3.22 (persons against which a federal tax
lien is not valid), section 3.23 (interest on
a certain portion of the estate tax payable
in installments), section 3.24 (attorney fee
awards), and section 3.25 (periodic pay-
ments received under qualified long-term
care insurance contracts or under certain
life insurance contracts).
SECTION 5. DRAFTING
INFORMATION
The principal author of this revenue
procedure is John Moran of the Office of
Assistant Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue procedure, contact
Mr. Moran on (202) 622-4940 (not a toll-
free call).
26 CFR 601.105: Examination of returns and
claims for refund, credit or abatement;
determination of correct tax liability.
(Also Part I, section 6662.)
Rev. Proc. 98–62
SECTION 1. PURPOSE
.01 This revenue procedure updates
Rev. Proc. 97–56, 1997–2 C.B. 582, and
identifies circumstances under which the
disclosure on a taxpayer’s return of a po-
sition with respect to an item is adequate
for the purpose of reducing the under-
statement of income tax under § 6662(d)
of the Internal Revenue Code (relating to
the substantial understatement aspect of
the accuracy-related penalty), and for the
purpose of avoiding the preparer penalty
under § 6694(a) (relating to understate-
ments due to unrealistic positions). This
revenue procedure does not apply with re-
spect to any other penalty provision (in-
cluding the negligence or disregard provi-
sions of the § 6662 accuracy-related
penalty).
.02 This revenue procedure applies to
any return filed on 1998 tax forms for a
taxable year beginning in 1998, and to
any return filed on 1998 tax forms in 1999
for short taxable years beginning in 1999.
1998–52 I.R.B.23December 28, 1998

SEC. 2. CHANGES FROM REV.
PROC. 97–56
.01 Editorial changes have been made
to update the revenue procedure for re-
turns filed on 1998 tax forms for a taxable
year beginning in 1998, and returns filed
on 1998 tax forms in 1999 for short tax-
able years beginning in 1999.
.02 Section 4.01(4)(c) has been added
with regard to transactions and amounts
under §§ 6114 and 7701(b) as disclosed
on Form 8833, Treaty-Based Return Posi-
tion Disclosure.
.03 Section 4.01(5)(a) of this revenue
procedure has been revised to eliminate
the reference to Form 3903-F, Foreign
Moving Expenses, because that form is
now obsolete.
.04 Section 4.01(5)(b) of Rev. Proc.
97–56 has been eliminated from this rev-
enue procedure because Form 2119, Sale
of Your Home, has been eliminated.
SEC. 3. BACKGROUND
.01 If § 6662 applies to any portion of
an underpayment of tax required to be
shown on a return, an amount equal to 20
percent of the portion of the underpay-
ment to which the section applies is
added to the tax. (The penalty rate is 40
percent in the case of certain gross valua-
tion misstatements.) Under § 6662(b)(2),
§ 6662 applies to the portion of an under-
payment that is attributable to a substan-
tial understatement of income tax.
.02 Section 6662(d)(1) provides that
there is a substantial understatement of in-
come tax if the amount of the understate-
ment exceeds the greater of 10 percent of
the amount of tax required to be shown on
the return for the taxable year or $5,000
($10,000 in the case of a corporation
other than an S corporation or a personal
holding company). Section 6662(d)(2)
defines an understatement as the excess of
the amount of tax required to be shown on
the return for the taxable year over the
amount of the tax that is shown on the re-
turn reduced by any rebate (within the
meaning of § 6211(b)(2)).
.03 In the case of an item not attribut-
able to a tax shelter, § 6662(d)(2)(B)(ii)
provides that the amount of the under-
statement is reduced by the portion of the
understatement attributable to any item
with respect to which the relevant facts
affecting the item’s tax treatment are ade-
quately disclosed on the return or on a
statement attached to the return, and there
is a reasonable basis for the tax treatment
of such item by the taxpayer.
.04 In general, this revenue procedure
provides guidance in determining when
disclosure is adequate for purposes of
§ 6662(d). For purposes of this revenue
procedure, the taxpayer must furnish all
required information in accordance with
the applicable forms and instructions, and
the money amounts entered on these
forms must be verifiable. Guidance under
§ 6662(d) for returns filed in 1996, 1997,
and 1998 is provided in Rev. Proc. 95–55,
1995–2 C.B. 457; Rev. Proc.96–58,
1996–2 C.B. 390, and Rev. Proc. 97–56,
1997–2 C.B. 582, respectively.
SEC. 4. PROCEDURE
.01 Additional disclosure of facts rele-
vant to, or positions taken with respect to,
issues involving any of the items set forth
below is unnecessary for purposes of re-
ducing any understatement of income tax
under § 6662(d) provided that the forms
and attachments are completed in a clear
manner and in accordance with their in-
structions. The money amounts entered
on the forms must be verifiable, and the
information on the return must be dis-
closed in the manner described below.
For purposes of this revenue procedure, a
number is verifiable if, on audit, the tax-
payer can demonstrate the origin of the
number (even if that number is not ulti-
mately accepted by the Internal Revenue
Service) and the taxpayer can show good
faith in entering that number on the ap-
plicable form.
(1) Form 1040, Schedule A, Itemized
Deductions:
(a) Medical and Dental Expenses:
Complete lines 1 through 4, supplying all
required information.
(b) Taxes: Complete lines 5 through
9, supplying all required information.
Line 8 must list each type of tax and the
amount paid.
(c) Interest Expense: Complete
lines 10 through 14, supplying all re-
quired information. This section
4.01(1)(c) does not apply to (i) amounts
disallowed under § 163(d) unless Form
4952, Investment Interest Expense De-
duction, is completed, or (ii) amounts dis-
allowed under § 265.
(d) Contributions: Complete lines
15 through 18, supplying all required in-
formation. Merely entering the amount of
the donation on Schedule A, however,
will not constitute adequate disclosure if
the taxpayer receives a substantial benefit
from the donation shown. If a contribu-
tion of property other than cash is made
and the amount claimed as a deduction
exceeds $500, a properly completed Form
8283, Noncash Charitable Contributions,
must be attached to the return. This sec-
tion 4.01(1)(d) will not apply to any con-
tribution of $250 or more unless the con-
temporaneous written acknowledgment
requirement of § 170(f)(8) is satisfied.
(e) Casualty and Theft Losses:
Complete Form 4684, Casualties and
Thefts, and attach to the return. Each
item or article for which a casualty or
theft loss is claimed must be listed on
Form 4684.
(2) Certain Trade or Business Expenses
(including, for purposes of this section
4.01(2), the following six expenses as
they relate to the rental of property):
(a) Casualty and Theft Losses: The
procedure outlined in section 4.01(1)(e)
above must be followed.
(b) Legal Expenses: The amount
claimed must be stated. This section
4.01(2)(b) does not apply, however, to
amounts properly characterized as capital
expenditures, personal expenses, or nond-
eductible lobbying or political expendi-
tures, including amounts that are required
to be (or that are) amortized over a period
of years.
(c) Specific Bad Debt Charge-off:
The amount written off must be stated.
(d) Reasonableness of Officers’
Compensation: Form 1120, Schedule E,
Compensation of Officers, must be com-
pleted when required by its instructions.
The time devoted to business must be ex-
pressed as a percentage as opposed to
“part” or “as needed.” This section
4.01(2)(d) does not apply to “golden para-
chute” payments, as defined under § 280G.
This section 4.01(2)(d) will not apply to
the extent that remuneration paid or in-
curred exceeds the $1 million employee re-
muneration limitation, if applicable.
(e) Repair Expenses: The amount
claimed must be stated. This section
4.01(2)(e) does not apply, however, to any
repair expenses properly characterized as
capital expenditures or personal expenses.
December 28, 1998241998–52 I.R.B.

(f) Taxes (other than foreign taxes):
The amount claimed must be stated.
(3) Form 1120, Schedule M-1, Recon-
ciliation of Income (Loss) per Books With
Income per Return, provided:
(a) The amount of the deviation
from the financial books and records is
not the result of a computation that in-
cludes the netting of items; and
(b) The information provided rea-
sonably may be expected to apprise the
Internal Revenue Service of the nature of
the potential controversy concerning the
tax treatment of the item.
(4) Foreign Tax Items:
(a) International Boycott Transac-
tions: Transactions disclosed on Form
5713, International Boycott Report.
(b) Intercompany Transactions:
Transactions and amounts shown on
Schedule M (Form 5471), Transactions
Between Controlled Foreign Corporation
and Shareholders or Other Related Per-
sons, lines 19 and 20, and Form 5472,
Part IV, Monetary Transactions Between
Reporting Corporations and Foreign Re-
lated Party, lines 7 and 18.
(c) Treaty-Based Return Position:
Transactions and amounts under §§ 6114
or 7701(b) as disclosed on Form 8833,
Treaty-Based Return Position Disclosure.
(5) Other:
(a) Moving Expenses: Complete
Form 3903, Moving Expenses, and attach
to the return.
(b) Employee Business Expenses:
Complete Form 2106, Employee Busi-
ness Expenses, or Form 2106-EZ, Unre-
imbursed Employee Business Expenses,
and attach to the return. This section
4.01(5)(b) does not apply to club dues, or
to travel expenses for any non-employee
accompanying the taxpayer on a trip.
(c) Fuels Credit: Complete Form
4136, Credit for Federal Tax Paid on
Fuels, and attach to the return.
(d) Investment Credit: Complete
Form 3468, Investment Credit, and attach
to the return.
SEC. 5. EFFECTIVE DATE
This revenue procedure applies to any
return filed on 1998 tax forms for a tax-
able year beginning in 1998, and to any
return filed on 1998 tax forms in 1999 for
short taxable years beginning in 1999.
SEC. 6. DRAFTING INFORMATION
The principal author of this revenue
procedure is Marc C. Porter of the Office
of Assistant Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue procedure, contact
Mr. Porter on (202) 622-4940 (not a toll-
free call).
26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement;
determination of correct tax liability.
(Also Part I, Sections 62, 162, 274, 1016; 1.62–2,
1.162–7, 1.274–5T, 1.274(d)–1T, 1.1016–3.)
Rev. Proc. 98–63
SECTION 1. PURPOSE
This revenue procedure updates Rev.
Proc. 97–58, 1997–2 C.B. 587, by provid-
ing optional standard mileage rates for
employees, self-employed individuals, or
other taxpayers to use in computing the
deductible costs paid or incurred on or
after January 1, 1999, of operating an au-
tomobile for business, charitable, med-
ical, or moving expense purposes. This
revenue procedure also provides rules
under which the amount of ordinary and
necessary expenses of local travel or
transportation away from home that are
paid or incurred by an employee will be
deemed substantiated under § 1.274–5T
of the temporary Income Tax Regulations
when a payor (the employer, its agent, or
a third party) provides a mileage al-
lowance under a reimbursement or other
expense allowance arrangement to pay for
such expenses. Use of a method of sub-
stantiation described in this revenue pro-
cedure is not mandatory and a taxpayer
may use actual allowable expenses if the
taxpayer maintains adequate records or
other sufficient evidence for proper sub-
stantiation.
SECTION 2. SUMMARY OF
STANDARD MILEAGE RATES
.01 Standard mileage rates.
(1) Business
(section 5 below)31 cents per mile
(2) Charitable
(section 7 below)14 cents per mile
(3) Medical and
Moving
(section 7 below)10 cents per mile
.02 Determination of standard mileage
rates. The business, medical, and moving
standard mileage rates reflected in this
revenue procedure are based on an annual
study of the fixed and variable costs of
operating an automobile conducted on be-
half of the Service by an independent con-
tractor, and the charitable standard
mileage rate is provided in § 170(i) of the
Internal Revenue Code. In connection
with its study, the contractor has sug-
gested that a change be made to the study
methodology regarding the business stan-
dard mileage rate. This suggested change
would include the cost of personal rather
than business automobile insurance be-
cause taxpayers who use the business
standard mileage rate generally carry per-
sonal rather than business insurance on
their automobiles. Had it been adopted,
this suggested change would have further
decreased the business standard mileage
rate for 1999. The Service is currently re-
viewing this suggested change for pur-
poses of determining the business stan-
dard mileage rate for the year 2000.
SECTION 3. BACKGROUND AND
CHANGES
.01 Section 162(a) of the Internal Rev-
enue Code allows a deduction for all the
ordinary and necessary expenses paid or
incurred during the taxable year in carry-
ing on any trade or business. Under that
provision, an employee or self-employed
individual may deduct the cost of operat-
ing an automobile to the extent that it is
used in a trade or business. However,
under § 262, no portion of the cost of op-
erating an automobile that is attributable
to personal use is deductible.
.02 Section 274(d) provides, in part,
that no deduction shall be allowed under §
162 with respect to any listed property (as
defined in § 280F(d)(4) to include passen-
ger automobiles and any other property
used as a means of transportation) unless
the taxpayer complies with certain sub-
stantiation requirements. The section fur-
ther provides that regulations may pre-
scribe that some or all of the
substantiation requirements do not apply
to an expense that does not exceed an
amount prescribed by such regulations.
.03 Section 1.274(d)–1T, in part, grants
the Commissioner the authority to pre-
scribe rules relating to mileage al-
1998–52 I.R.B.25December 28, 1998

lowances for ordinary and necessary ex-
penses of local travel and transportation
away from home. Pursuant to this grant
of authority, the Commissioner may pre-
scribe rules under which such allowances,
if in accordance with reasonable business
practice, will be regarded as (1) equiva-
lent to substantiation, by adequate records
or other sufficient evidence, of the
amount of such travel and transportation
expenses for purposes of § 1.274–5T(c),
and (2) satisfying the requirements of an
adequate accounting to the employer of
the amount of such expenses for purposes
of § 1.274–5T(f).
.04 Section 62(a)(2)(A) allows an em-
ployee, in determining adjusted gross in-
come, a deduction for the expenses al-
lowed by Part VI (§ 161 and following),
subchapter B, chapter 1 of the Code, paid
or incurred by the employee in connection
with the performance of services as an
employee under a reimbursement or other
expense allowance arrangement with a
payor.
.05 Section 62(c) provides that an
arrangement will not be treated as a reim-
bursement or other expense allowance
arrangement for purposes of § 62(a)-
(2)(A) if it—
(1) does not require the employee to
substantiate the expenses covered by the
arrangement to the payor, or
(2) provides the employee with the
right to retain any amount in excess of the
substantiated expenses covered under the
arrangement. Section 62(c) further pro-
vides that the substantiation requirements
described therein shall not apply to any
expense to the extent that, under the grant
of regulatory authority prescribed in
§ 274(d), the Commissioner has provided
that substantiation is not required for such
expense.
.06 Under § 1.62–2(c)(1), a reimburse-
ment or other expense allowance arrange-
ment satisfies the requirements of § 62(c)
if it meets the requirements of business
connection, substantiation, and returning
amounts in excess of expenses as speci-
fied in the regulations. Section 1.62–
2T(e)(2) specifically provides that sub-
stantiation of certain business expenses in
accordance with rules prescribed under
the authority of § 1.274(d)–1T will be
treated as substantiation of the amount of
such expenses for purposes of § 1.62–2.
Under § 1.62–2(f)(2), the Commissioner
may prescribe rules under which an
arrangement providing mileage al-
lowances will be treated as satisfying the
requirement of returning amounts in ex-
cess of expenses, even though the
arrangement does not require the em-
ployee to return the portion of such an al-
lowance that relates to miles of travel sub-
stantiated and that exceeds the amount of
the employee’s expenses deemed substan-
tiated pursuant to rules prescribed under
§ 274(d), provided the allowance is rea-
sonably calculated not to exceed the
amount of the employee’s expenses or an-
ticipated expenses and the employee is re-
quired to return any portion of such an al-
lowance that relates to miles of travel not
substantiated.
.07 Section 1.62–2(h)(2)(i)(B) provides
that if a payor pays a mileage allowance
under an arrangement that meets the re-
quirements of § 1.62–2(c)(1), the portion,
if any, of the allowance that relates to
miles of travel substantiated in accor-
dance with § 1.62–2(e), that exceeds the
amount of the employee’s expenses
deemed substantiated for such travel pur-
suant to rules prescribed under §§ 274(d)
and 1.274(d)–1, and that the employee is
not required to return, is subject to with-
holding and payment of employment
taxes. See §§ 31.3121(a)–3, 31.3231(e)–
1(a)(5), 31.3306(b)–2, and 31.3401(a)–4.
Because the employee is not required to
return this excess portion, the reasonable
period of time provisions of § 1.62–2(g)
(relating to the return of excess amounts)
do not apply to this excess portion.
.08 Under § 1.62–2(h)(2)(i)(B)(4), the
Commissioner may, in his or her discre-
tion, prescribe special rules regarding the
timing of withholding and payment of
employment taxes on mileage al-
lowances.
.09 Significant changes to this revenue
procedure include:
(1) the addition of a business stan-
dard mileage test under which a FAVR al-
lowance is treated as meeting the require-
ments of § 280F (section 8.04(3)); and
(2) the decrease in the minimum
number of employees that must be cov-
ered by a FAVR allowance (section
8.05(4)).
SECTION 4. DEFINITIONS
.01 Standard mileage rate. The term
“standard mileage rate” means the applic-
able amount provided by the Service for
optional use by employees or self-em-
ployed individuals in computing the de-
ductible costs of operating automobiles
(including vans, pickups, or panel trucks)
owned or leased for business purposes, or
by taxpayers in computing the deductible
costs of operating automobiles for chari-
table, medical, or moving expense pur-
poses.
.02 Transportation expenses.The term
“transportation expenses” means the ex-
penses of operating an automobile for
local travel or transportation away from
home.
.03 Mileage allowance.The term
“mileage allowance” means a payment
under a reimbursement or other expense
allowance arrangement that meets the re-
quirements specified in § 1.62-2(c)(1) and
that is
(1) paid with respect to the ordinary
and necessary business expenses in-
curred, or which the payor reasonably an-
ticipates will be incurred, by an employee
for transportation expenses in connection
with the performance of services as an
employee of the employer,
(2) reasonably calculated not to ex-
ceed the amount of the expenses or the
anticipated expenses, and
(3) paid at the applicable standard
mileage rate, a flat rate or stated schedule,
or in accordance with any other Service-
specified rate or schedule.
.04 Flat rate or stated schedule.A
mileage allowance is paid at a flat rate or
stated schedule if it is provided on a uni-
form and objective basis with respect to
the expenses described in section 4.03 of
this revenue procedure. Such allowance
may be paid periodically at a fixed rate, at
a cents-per-mile rate, at a variable rate
based on a stated schedule, at a rate that
combines any of these rates, or on any
other basis that is consistently applied and
in accordance with reasonable business
practice. Thus, for example, a periodic
payment at a fixed rate to cover the fixed
costs (including depreciation (or lease
payments), insurance, registration and li-
cense fees, and personal property taxes)
of driving an automobile in connection
with the performance of services as an
employee of the employer, coupled with a
periodic payment at a cents-per-mile rate
to cover the operating costs (including
gasoline and all taxes thereon, oil, tires,
December 28, 1998261998–52 I.R.B.

and routine maintenance and repairs) of
using an automobile for such purposes, is
an allowance paid at a flat rate or stated
schedule. Likewise, a periodic payment
at a variable rate based on a stated sched-
ule for different locales to cover the costs
of driving an automobile in connection
with the performance of services as an
employee is an allowance paid at a flat
rate or stated schedule.
SECTION 5. BUSINESS STANDARD
MILEAGE RATE
.01 In general. The standard mileage
rate for transportation expenses is 31
cents per mile for all miles of use for busi-
ness purposes. This business standard
mileage rate will be adjusted annually (to
the extent warranted) by the Service, and
any such adjustment will be applied
prospectively.
.02 Use of the business standard
mileage rate.A taxpayer may use the
business standard mileage rate with re-
spect to an automobile that is either
owned or leased by the taxpayer. A tax-
payer generally may deduct an amount
equal to either the business standard
mileage rate times the number of business
miles traveled or the actual costs (both
operating and fixed) paid or incurred by
the taxpayer that are allocable to traveling
those business miles.
.03 Business standard mileage rate in
lieu of operating and fixed costs. Ade-
duction using the standard mileage rate
for business miles is computed on a
yearly basis and is in lieu of all operating
and fixed costs of the automobile alloca-
ble to business purposes (except as pro-
vided in section 9.06 of this revenue pro-
cedure). Such items as depreciation (or
lease payments), maintenance and repairs,
tires, gasoline (including all taxes
thereon), oil, insurance, and license and
registration fees are included in operating
and fixed costs for this purpose.
.04 Parking fees, tolls, interest, and
taxes. Parking fees and tolls attributable
to use of the automobile for business pur-
poses may be deducted as separate items.
Likewise, interest relating to the purchase
of the automobile as well as state and
local taxes (other than those included in
the cost of gasoline) may be deducted as
separate items, but only to the extent that
the interest or taxes are allowable deduc-
tions under § 163 or 164 respectively. If
the automobile is operated less than 100
percent for business purposes, an alloca-
tion is required to determine the business
and nonbusiness portion of the taxes and
interest deduction allowable. However,
§ 163(h)(2)(A) expressly provides that in-
terest is nondeductible personal interest
when it is paid or accrued on indebtedness
properly allocable to the trade or business
of performing services as an employee.
Section 164 also expressly provides that
state and local taxes that are paid or ac-
crued by a taxpayer in connection with an
acquisition or disposition of property will
be treated as part of the cost of the ac-
quired property or as a reduction in the
amount realized on the disposition of such
property.
.05 Depreciation.For owned automo-
biles placed in service for business pur-
poses, and for which the business stan-
dard mileage rate has been used for any
year, depreciation will be considered to
have been allowed at the rate of 12 cents a
mile for 1995, 1996, 1997, 1998, and
1999, for those years in which the busi-
ness standard mileage rate was used. If
actual costs were used for one or more of
those years, the rates above will not apply
to any year in which such costs were
used. The depreciation described above
will reduce the basis of the automobile
(but not below zero) in determining ad-
justed basis as required by § 1016.
.06 Limitations.
(1) The business standard mileage
rate may not be used to compute the de-
ductible expenses of (a) automobiles used
for hire, such as taxicabs, or (b) two or
more automobiles used simultaneously
(such as in fleet operations).
(2) The business standard mileage
rate may not be used to compute the de-
ductible business expenses of an automo-
bile leased by a taxpayer unless the tax-
payer uses either the business standard
mileage rate or a FAVR allowance (as
provided in section 8 of this revenue pro-
cedure) to compute the deductible busi-
ness expenses of the automobile for the
entire lease period (including renewals).
For a lease commencing on or before De-
cember 31, 1997, the “entire lease period”
means the portion of the lease period (in-
cluding renewals) remaining after that
date.
(3) The business standard mileage
rate may not be used to compute the de-
ductible expenses of an automobile for
which the taxpayer has (a) claimed depre-
ciation using a method other than straight-
line for its estimated useful life, (b)
claimed a § 179 deduction, or (c) used the
Accelerated Cost Recovery System
(ACRS) under former § 168 or the Modi-
fied Accelerated Cost Recovery System
(MACRS) under current § 168. By using
the business standard mileage rate, the
taxpayer has elected to exclude the auto-
mobile (if owned) from MACRS pursuant
to § 168(f)(1). If, after using the business
standard mileage rate, the taxpayer uses
actual costs, the taxpayer must use
straight-line depreciation for the automo-
bile’s remaining estimated useful life
(subject to the applicable depreciation de-
duction limitations under § 280F).
(4) The business standard mileage
rate and this revenue procedure may not
be used to compute the amount of the de-
ductible automobile expenses of an em-
ployee of the United States Postal Service
incurred in performing services involving
the collection and delivery of mail on a
rural route if the employee receives quali-
fied reimbursements (as defined in
§ 162(o)) for such expenses. See § 162(o)
for the rules that apply to these qualified
reimbursements.
SECTION 6. RESERVED
SECTION 7. CHARITABLE,
MEDICAL, AND MOVING
STANDARD MILEAGE RATE
.01 Charitable.Section 170(i) pro-
vides a standard mileage rate of 14 cents
per mile for purposes of computing the
charitable deduction for use of an auto-
mobile in connection with rendering gra-
tuitous services to a charitable organiza-
tion under § 170.
.02 Medical and moving.The standard
mileage rate is 10 cents per mile for use of
an automobile (a) to obtain medical care
described in § 213, or (b) as part of a
move for which the expenses are de-
ductible under § 217. The standard
mileage rates for medical and moving
transportation expenses will be adjusted
annually (to the extent warranted) by the
Service, and any such adjustment will be
applied prospectively.
.03 Charitable, medical, or moving ex-
pense standard mileage rate in lieu of op-
erating expenses.A deduction computed
1998–52 I.R.B.27December 28, 1998

using the applicable standard mileage rate
for charitable, medical, or moving ex-
pense miles is in lieu of all operating ex-
penses (including gasoline and oil) of the
automobile allocable to such purposes.
Costs for such items as depreciation (or
lease payments), maintenance and repairs,
tires, insurance, and license and registra-
tion fees are not deductible, and are not
included in such standard mileage rates.
.04 Parking fees, tolls, interest, and
taxes. Parking fees and tolls attributable
to the use of the automobile for charita-
ble, medical, or moving expense purposes
may be deducted as separate items. Like-
wise, interest relating to the purchase of
the automobile as well as state and local
taxes (other than those included in the
cost of gasoline) may be deducted as sep-
arate items, but only to the extent that the
interest and taxes are allowable deduc-
tions under § 163 or 164, respectively.
SECTION 8. FIXED AND VARIABLE
RATE ALLOWANCE
.01 In general.
(1) The ordinary and necessary ex-
penses paid or incurred by an employee in
driving an automobile owned or leased by
the employee in connection with the per-
formance of services as an employee of
the employer will be deemed substanti-
ated (in an amount determined under sec-
tion 9 of this revenue procedure) when a
payor reimburses such expenses with a
mileage allowance using a flat rate or
stated schedule that combines periodic
fixed and variable rate payments that
meet all the requirements of section 8 of
this revenue procedure (a FAVR al-
lowance).
(2) The amount of a FAVR allowance
must be based on data that (a) is derived
from the base locality, (b) reflects retail
prices paid by consumers, and (c) is rea-
sonable and statistically defensible in ap-
proximating the actual expenses employ-
ees receiving the allowance would incur
as owners of the standard automobile.
.02 Definitions.
(1) FAVR allowance.A FAVR al-
lowance includes periodic fixed payments
and periodic variable payments. A payor
may maintain more than one FAVR al-
lowance. A FAVR allowance that uses the
same payor, standard automobile (or an
automobile of the same make and model
that is comparably equipped), retention
period, and business use percentage is
considered one FAVR allowance, even
though other features of the allowance
may vary. A FAVR allowance also in-
cludes any optional high mileage pay-
ments; however, such optional high
mileage payments are included in the em-
ployee’s gross income, are reported as
wages or other compensation on the em-
ployee’s Form W-2, and are subject to
withholding and payment of employment
taxes when paid. See section 9.05 of this
revenue procedure. An optional high
mileage payment covers the additional
depreciation for a standard automobile at-
tributable to business miles driven and
substantiated by the employee for a calen-
dar year in excess of the annual business
mileage for that year. If an employee is
covered by the FAVR allowance for less
than the entire calendar year, the annual
business mileage may be prorated on a
monthly basis for purposes of the preced-
ing sentence.
(2) Periodic fixed payment.A peri-
odic fixed payment covers the projected
fixed costs (including depreciation (or
lease payments), insurance, registration
and license fees, and personal property
taxes) of driving the standard automobile
in connection with the performance of
services as an employee of the employer
in a base locality, and must be paid at
least quarterly. A periodic fixed payment
may be computed by (a) dividing the total
projected fixed costs of the standard auto-
mobile for all years of the retention pe-
riod, determined at the beginning of the
retention period, by the number of peri-
odic fixed payments in the retention pe-
riod, and (b) multiplying the resulting
amount by the business use percentage.
(3) Periodic variable payment.A
periodic variable payment covers the pro-
jected operating costs (including gasoline
and all taxes thereon, oil, tires, and rou-
tine maintenance and repairs) of driving a
standard automobile in connection with
the performance of services as an em-
ployee of the employer in a base locality,
and must be paid at least quarterly. The
rate of a periodic variable payment for a
computation period may be computed by
dividing the total projected operating
costs for the standard automobile for the
computation period, determined at the be-
ginning of the computation period, by the
computation period mileage. A computa-
tion period can be any period of a year or
less. Computation period mileage is the
total mileage (business and personal) a
payor reasonably projects a standard auto-
mobile will be driven during a computa-
tion period and equals the retention
mileage divided by the number of compu-
tation periods in the retention period. For
each business mile substantiated by the
employee for the computation period, the
periodic variable payment must be paid at
a rate that does not exceed the rate for that
computation period.
(4) Base locality.A base locality is
the particular geographic locality or re-
gion of the United States in which the
costs of driving an automobile in connec-
tion with the performance of services as
an employee of the employer are gener-
ally paid or incurred by the employee.
Thus, for purposes of determining the
amount of fixed costs, the base locality is
generally the geographic locality or re-
gion in which the employee resides. For
purposes of determining the amount of
operating costs, the base locality is gener-
ally the geographic locality or region in
which the employee drives the automo-
bile in connection with the performance
of services as an employee of the em-
ployer.
(5) Standard automobile.A standard
automobile is the automobile selected by
the payor on which a specific FAVR al-
lowance is based.
(6) Standard automobile cost.The
standard automobile cost for a calendar
year may not exceed 95 percent of the
sum of (a) the retail dealer invoice cost of
the standard automobile in the base local-
ity, and (b) state and local sales or use
taxes applicable on the purchase of such
an automobile. Further, the standard au-
tomobile cost may not exceed $27,100.
(7) Annual mileage. Annual mileage
is the total mileage (business and per-
sonal) a payor reasonably projects a stan-
dard automobile will be driven during a
calendar year. Annual mileage equals the
annual business mileage divided by the
business use percentage.
(8) Annual business mileage.An-
nual business mileage is the mileage a
payor reasonably projects a standard auto-
mobile will be driven by an employee in
December 28, 1998281998–52 I.R.B.

connection with the performance of ser-
vices as an employee of the employer dur-
ing the calendar year, but may not be less
than 6,250 miles for a calendar year. An-
nual business mileage equals the annual
mileage multiplied by the business use
percentage.
(9) Business use percentage. A busi-
ness use percentage is determined by di-
viding the annual business mileage by the
annual mileage. The business use per-
centage may not exceed 75 percent. In
lieu of demonstrating the reasonableness
of the business use percentage based on
records of total mileage and business
mileage driven by the employees annu-
ally, a payor may use a business use per-
centage that is less than or equal to the
following percentages for a FAVR al-
lowance that is paid for the following an-
nual business mileage:
Annual business Business use
mileagepercentage
6,250 or more but less
than 10,00045 percent
10,000 or more but less
than 15,00055 percent
15,000 or more but less
than 20,00065 percent
20,000 or more75 percent
(10) Retention period.A retention
period is the period in calendar years se-
lected by the payor during which the
payor expects an employee to drive a
standard automobile in connection with
the performance of services as an em-
ployee of the employer before the auto-
mobile is replaced. Such period may not
be less than two calendar years.
(11) Retention mileage.Retention
mileage is the annual mileage multiplied
by the number of calendar years in the re-
tention period.
(12) Residual value.The residual
value of a standard automobile is the pro-
jected amount for which it could be sold
at the end of the retention period after
being driven the retention mileage. The
Service will accept the following safe har-
bor residual values for a standard automo-
bile computed as a percentage of the stan-
dard automobile cost:
Retention periodResidual value
2-year 70 percent
3-year60 percent
4-year50 percent
.03 FAVR allowance in lieu of operat-
ing and fixed costs.
(1) A reimbursement computed using
a FAVR allowance is in lieu of the em-
ployee’s deduction of all the operating
and fixed costs paid or incurred by an em-
ployee in driving the automobile in con-
nection with the performance of services
as an employee of the employer, except as
provided in section 9.06 of this revenue
procedure. Such items as depreciation (or
lease payments), maintenance and repairs,
tires, gasoline (including all taxes
thereon), oil, insurance, license and regis-
tration fees, and personal property taxes
are included in operating and fixed costs
for this purpose.
(2) Parking fees and tolls attributable
to an employee driving the standard auto-
mobile in connection with the perfor-
mance of services as an employee of the
employer are not included in fixed and
operating costs and may be deducted as
separate items. Similarly, interest relating
to the purchase of the standard automo-
bile may be deducted as a separate item,
but only to the extent that the interest is an
allowable deduction under § 163.
.04 Depreciation.
(1) A FAVR allowance may not be
paid with respect to an automobile for
which the employee has (a) claimed de-
preciation using a method other than
straight- line for its estimated useful life,
(b) claimed a § 179 deduction, or (c) used
the Accelerated Cost Recovery System
(ACRS) under former § 168 or the Modi-
fied Accelerated Cost Recovery System
(MACRS) under current § 168. If an em-
ployee uses actual costs for an owned au-
tomobile that has been covered by a
FAVR allowance, the employee must use
straight-line depreciation for the automo-
bile’s remaining estimated useful life
(subject to the applicable depreciation de-
duction limitations under § 280F).
(2) Except as provided in section
8.04(3) of this revenue procedure, the
total amount of the depreciation compo-
nent for the retention period taken into ac-
count in computing the periodic fixed
payments for that retention period may
not exceed the excess of the standard au-
tomobile cost over the residual value of
the standard automobile. In addition, the
total amount of such depreciation compo-
nent may not exceed the sum of the an-
nual § 280F limitations on depreciation
(in effect at the beginning of the retention
period) that apply to the standard automo-
bile during the retention period.
(3) If the depreciation component of
periodic fixed payments exceeds the limi-
tations in section 8.04(2) of this revenue
procedure, that section will be treated as
satisfied in any year during which the
total annual amount of the periodic fixed
payments and the periodic variable pay-
ments made to an employee driving 80
percent of the annual business mileage of
the standard automobile does not exceed
the amount obtained by multiplying 80
percent of the annual business mileage of
the standard automobile by the applicable
business standard mileage rate for that
year (see, e.g.,section 5.01 of this rev-
enue procedure).
(4) The depreciation included in
each periodic fixed payment portion of a
FAVR allowance paid with respect to an
automobile will reduce the basis of the
automobile (but not below zero) in deter-
mining adjusted basis as required by
§ 1016. See section 8.07(2) of this rev-
enue procedure for the requirement that
the employer report the depreciation com-
ponent of a periodic fixed payment to the
employee.
.05 FAVR allowance limitations.
(1) A FAVR allowance may be paid
only to an employee who substantiates to
the payor for a calendar year at least
5,000 miles driven in connection with the
performance of services as an employee
of the employer or, if greater, 80 percent
of the annual business mileage of that
FAVR allowance. If the employee is cov-
ered by the FAVR allowance for less than
the entire calendar year, these limits may
be prorated on a monthly basis.
(2) A FAVR allowance may not be
paid to a control employee (as defined in
§ 1.61–21(f)(5) and (6), excluding the
$100,000 limitation in paragraph
(f)(5)(iii)).
(3) At no time during a calendar year
may a majority of the employees covered
by a FAVR allowance be management
employees.
(4) At all times during a calendar
year at least five employees of an em-
ployer must be covered by one or more
FAVR allowances.
(5) A FAVR allowance may be paid
only with respect to an automobile (a)
owned or leased by the employee receiv-
1998–52 I.R.B.29December 28, 1998

ing the payment, (b) the cost of which,
when new, is at least 90 percent of the
standard automobile cost taken into ac-
count for purposes of determining the
FAVR allowance for the first calendar
year the employee receives the allowance
with respect to that automobile, and (c)
the model year of which does not differ
from the current calendar year by more
than the number of years in the retention
period.
(6) A FAVR allowance may not be
paid with respect to an automobile leased
by an employee for which the employee
has used actual expenses to compute the
deductible business expenses of the auto-
mobile for any year during the entire lease
period. For a lease commencing on or be-
fore December 31, 1997, the “entire lease
period” means the portion of the lease pe-
riod (including renewals) remaining after
that date.
(7) The insurance cost component of
a FAVR allowance must be based on the
rates charged in the base locality for
insurance coverage on the standard auto-
mobile during the current calendar year
without taking into account such rate-in-
creasing factors as poor driving records or
young drivers.
(8) A FAVR allowance may be paid
only to an employee whose insurance
coverage limits on the automobile with
respect to which the FAVR allowance is
paid are at least equal to the insurance
coverage limits used to compute the peri-
odic fixed payment under that FAVR al-
lowance.
.06 Employee reporting.Within 30
days after an employee’s automobile is
initially covered by a FAVR allowance, or
is again covered by a FAVR allowance if
such coverage has lapsed, the employee
by written declaration must provide the
payor with the following information: (a)
the make, model, and year of the em-
ployee’s automobile, (b) written proof of
the insurance coverage limits on the auto-
mobile, (c) the odometer reading of the
automobile, (d) if owned, the purchase
price of the automobile or, if leased, the
price at which the automobile is ordinar-
ily sold by retailers (the gross capitalized
cost of the automobile), and (e) if owned,
whether the employee has claimed depre-
ciation with respect to the automobile
using any of the depreciation methods
prohibited by section 8.04(1) of this rev-
enue procedure or, if leased, whether the
employee has computed deductible busi-
ness expenses with respect to the automo-
bile using actual expenses. The informa-
tion described in (a), (b), and (c) of the
preceding sentence also must be supplied
by the employee to the payor within 30
days after the beginning of each calendar
year that the employee’s automobile is
covered by a FAVR allowance.
.07 Payor recordkeeping and reporting.
(1) The payor or its agent must main-
tain written records setting forth (a) the
statistical data and projections on which
the FAVR allowance payments are based,
and (b) the information provided by the
employees pursuant to section 8.06 of this
revenue procedure.
(2) Within 30 days of the end of each
calendar year, the employer must provide
each employee covered by a FAVR al-
lowance during that year with a statement
that, for automobile owners, lists the
amount of depreciation included in each
periodic fixed payment portion of the
FAVR allowance paid during that calendar
year and explains that by receiving a
FAVR allowance the employee has elected
to exclude the automobile from MACRS
pursuant to § 168(f)(1). For automobile
lessees, the statement must explain that by
receiving the FAVR allowance the em-
ployee may not compute the deductible
business expenses of the automobile using
actual expenses for the entire lease period
(including renewals). For a lease com-
mencing on or before December 31, 1997,
the “entire lease period” means the portion
of the lease period (including renewals)
remaining after that date.
.08 Failure to meet section 8 require-
ments.If an employee receives a mileage
allowance that fails to meet one or more
of the requirements of section 8 of this
revenue procedure, the employee may not
be treated as covered by any FAVR al-
lowance of the payor during the period of
such failure. Nevertheless, the expenses
to which that mileage allowance relates
may be deemed substantiated using the
method described in sections 5, 9.01(1),
and 9.02 of this revenue procedure to the
extent the requirements of those sections
are met.
SECTION 9. APPLICATION
.01 If a payor pays a mileage allowance
in lieu of reimbursing actual transporta-
tion expenses incurred or to be incurred
by an employee, the amount of the ex-
penses that is deemed substantiated to the
payor is either:
(1) for any mileage allowance other
than a FAVR allowance, the lesser of the
amount paid under the mileage allowance
or the applicable standard mileage rate in
section 5.01 of this revenue procedure
multiplied by the number of business
miles substantiated by the employee; or
(2) for a FAVR allowance, the
amount paid under the FAVR allowance
less the sum of (a) any periodic variable
rate payment that relates to miles in ex-
cess of the business miles substantiated
by the employee and that the employee
fails to return to the payor although re-
quired to do so, (b) any portion of a peri-
odic fixed payment that relates to a period
during which the employee is treated as
not covered by the FAVR allowance and
that the employee fails to return to the
payor although required to do so, and (c)
any optional high mileage payments.
.02 If the amount of transportation ex-
penses is deemed substantiated under the
rules provided in section 9.01 of this
revenue procedure, and the employee ac-
tually substantiates to the payor the ele-
ments of time, place (or use), and busi-
ness purpose of the transportation
expenses in accordance with paragraphs
(b)(2) (travel away from home), (b)(6)
(listed property, which includes passenger
automobiles and any other property used
as a means of transportation), and (c) of
§ 1.274–5T, the employee is deemed to
satisfy the adequate accounting require-
ments of § 1.274–5T(f), as well as the re-
quirement to substantiate by adequate
records or other sufficient evidence for
purposes of § 1.274–5T(c). See § 1.62–
2(e)(1) for the rule that an arrangement
must require business expenses to be sub-
stantiated to the payor within a reasonable
period of time.
.03 An arrangement providing mileage
allowances will be treated as satisfying
the requirement of § 1.62–2(f)(2) with re-
spect to returning amounts in excess of
expenses as follows:
(1) For a mileage allowance other
than a FAVR allowance, the requirement
to return excess amounts will be treated as
satisfied if the employee is required to re-
December 28, 1998301998–52 I.R.B.

turn within a reasonable period of time (as
defined in § 1.62–2(g)) any portion of
such an allowance that relates to miles of
travel not substantiated by the employee,
even though the arrangement does not re-
quire the employee to return the portion
of such an allowance that relates to the
miles of travel substantiated and that ex-
ceeds the amount of the employee’s ex-
penses deemed substantiated. For exam-
ple, assume a payor provides an employee
an advance mileage allowance of $70
based on an anticipated 200 business
miles at 35 cents per mile (at a time when
the applicable business standard mileage
rate is 31 cents per mile), and the em-
ployee substantiates 120 business miles.
The requirement to return excess amounts
will be treated as satisfied if the employee
is required to return the portion of the al-
lowance that relates to the 80 unsubstanti-
ated business miles ($28) even though the
employee is not required to return the por-
tion of the allowance ($4.80) that exceeds
the amount of the employee’s expenses
deemed substantiated under section 9.01
of this revenue procedure ($37.20) for the
120 substantiated business miles. How-
ever, the $4.80 excess portion of the al-
lowance is treated as paid under a nonac-
countable plan as discussed in section
9.05.
(2) For a FAVR allowance, the re-
quirement to return excess amounts will
be treated as satisfied if the employee is
required to return within a reasonable pe-
riod of time (as defined in § 1.62–2(g)),
(a) the portion (if any) of the periodic
variable payment received that relates to
miles in excess of the business miles sub-
stantiated by the employee, and (b) the
portion (if any) of a periodic fixed pay-
ment that relates to a period during which
the employee was not covered by the
FAVR allowance.
.04 An employee is not required to in-
clude in gross income the portion of a
mileage allowance received from a payor
that is less than or equal to the amount
deemed substantiated under section 9.01
of this revenue procedure, provided the
employee substantiates in accordance
with section 9.02. See § 1.274–5T(f)-
(2)(i). In addition, such portion of the al-
lowance is treated as paid under an ac-
countable plan, is not reported as wages
or other compensation on the employee’s
Form W-2, and is exempt from the with-
holding and payment of employment
taxes. See §§ 1.62–2(c)(2) and (c)(4).
.05 An employee is required to include
in gross income only the portion of a
mileage allowance received from a payor
that exceeds the amount deemed substan-
tiated under section 9.01 of this revenue
procedure, provided the employee sub-
stantiates in accordance with section 9.02
of this revenue procedure. See § 1.274–
5T(f)(2)(ii). In addition, the excess por-
tion of the allowance is treated as paid
under a nonaccountable plan, is reported
as wages or other compensation on the
employee’s Form W–2, and is subject to
withholding and payment of employment
taxes. See §§ 1.62–2(c)(3)(ii), (c)(5), and
(h)(2)(i)(B).
.06
(1) Except as otherwise provided in
section 9.06(2) of this revenue procedure
with respect to leased automobiles, if the
amount of the expenses deemed substanti-
ated under the rules provided in section
9.01 of this revenue procedure is less than
the amount of the employee’s business
transportation expenses, the employee
may claim an itemized deduction for the
amount by which the business transporta-
tion expenses exceed the amount that is
deemed substantiated, provided the em-
ployee substantiates all the business trans-
portation expenses, includes on Form
2106, Employee Business Expenses, the
deemed substantiated portion of the
mileage allowance received from the
payor, and includes in gross income the
portion (if any) of the mileage allowance
received from the payor that exceeds the
amount deemed substantiated. See
§ 1.274–5T(f)(2)(iii). However, for pur-
poses of claiming this itemized deduction,
substantiation of the amount of the ex-
penses is not required if the employee is
claiming a deduction that is equal to or
less than the applicable standard mileage
rate multiplied by the number of business
miles substantiated by the employee
minus the amount deemed substantiated
under section 9.01 of this revenue proce-
dure. The itemized deduction is subject
to the 2-percent floor on miscellaneous
itemized deductions provided in § 67.
(2) An employee whose business
transportation expenses with respect to a
leased automobile are deemed substanti-
ated under section 9.01(1) of this revenue
procedure (relating to an allowance other
than a FAVR allowance) may not claim a
deduction based on actual expenses un-
less the employee does so consistently be-
ginning with the first business use of the
automobile after December 31, 1997.
However, an employee whose business
transportation expenses with respect to a
leased automobile are deemed substanti-
ated under section 9.01(2) of this revenue
procedure (relating to a FAVR allowance)
may not claim a deduction based on ac-
tual expenses.
.07 An employee may deduct an
amount computed pursuant to section
5.01 of this revenue procedure only as an
itemized deduction. This itemized deduc-
tion is subject to the 2-percent floor on
miscellaneous itemized deductions pro-
vided in § 67.
.08 A self-employed individual may
deduct an amount computed pursuant to
section 5.01 of this revenue procedure in
determining adjusted gross income under
§ 62(a)(1).
.09 If a payor’s reimbursement or other
expense allowance arrangement evi-
dences a pattern of abuse of the rules of
§ 62(c) and the regulations thereunder, all
payments under the arrangement will be
treated as made under a nonaccountable
plan. Thus, such payments are included
in the employee’s gross income, are re-
ported as wages or other compensation on
the employee’s Form W–2, and are sub-
ject to withholding and payment of em-
ployment taxes. See §§ 1.62–2(c)(3),
(c)(5), and (h)(2).
SECTION 10. WITHHOLDING AND
PAYMENT OF EMPLOYMENT
TAXES.
.01 The portion of a mileage allowance
(other than a FAVR allowance), if any,
that relates to the miles of business travel
substantiated and that exceeds the amount
deemed substantiated for those miles
under section 9.01(1) of this revenue pro-
cedure is subject to withholding and pay-
ment of employment taxes. See § 1.62–
2(h)(2)(i)(B).
(1) In the case of a mileage al-
lowance paid as a reimbursement, the ex-
cess described in section 10.01 of this
revenue procedure is subject to withhold-
ing and payment of employment taxes in
the payroll period in which the payor re-
imburses the expenses for the business
1998–52 I.R.B.31December 28, 1998

miles substantiated. See § 1.62–2(h)(2)-
(i)(B)(2).
(2) In the case of a mileage al-
lowance paid as an advance, the excess
described in section 10.01 of this revenue
procedure is subject to withholding and
payment of employment taxes no later
than the first payroll period following the
payroll period in which the business miles
with respect to which the advance was
paid are substantiated. See § 1.62–2(h)-
(2)(i)(B)(3). If some or all of the business
miles with respect to which the advance
was paid are not substantiated within a
reasonable period of time and the em-
ployee does not return the portion of the
allowance that relates to those miles
within a reasonable period of time, the
portion of the allowance that relates to
those miles is subject to withholding and
payment of employment taxes no later
than the first payroll period following the
end of the reasonable period. See § 1.62-
2(h)(2)(i)(A).
(3) In the case of a mileage al-
lowance that is not computed on the basis
of a fixed amount per mile of travel (e.g.,
a mileage allowance that combines peri-
odic fixed and variable rate payments, but
that does not satisfy the requirements of
section 8 of this revenue procedure), the
payor must compute periodically (no less
frequently than quarterly) the amount, if
any, that exceeds the amount deemed sub-
stantiated under section 9.01(1) of this
revenue procedure by comparing the total
mileage allowance paid for the period to
the applicable standard mileage rate in
section 5.01 of this revenue procedure
multiplied by the number of business
miles substantiated by the employee for
the period. Any excess is subject to with-
holding and payment of employment
taxes no later than the first payroll period
following the payroll period in which the
excess is computed. See § 1.62–2(h)(2)-
(i)(B)(4).
(4) For example, assume an em-
ployer pays its employees a mileage al-
lowance at a rate of 35 cents per mile
(when the business standard mileage rate
is 31 cents per mile). The employer does
not require the return of the portion of the
allowance (4 cents) that exceeds the busi-
ness standard mileage rate for the busi-
ness miles substantiated. In June, the em-
ployer advances an employee $175 for
500 miles to be traveled during the
month. In July, the employee substanti-
ates to the employer 400 business miles
traveled in June and returns $35 to the
employer for the 100 business miles not
traveled. The amount deemed substanti-
ated for the 400 miles traveled is $124
and the employee is not required to return
the remaining $16. No later than the first
payroll period following the payroll pe-
riod in which the 400 business miles trav-
eled are substantiated, the employer must
withhold and pay employment taxes on
$16.
.02 The portion of a FAVR allowance,
if any, that exceeds the amount deemed
substantiated for those miles under sec-
tion 9.01(2) of this revenue procedure is
subject to withholding and payment of
employment taxes. See § 1.62–2(h)(2)-
(i)(B).
(1) Any periodic variable rate pay-
ment that relates to miles in excess of the
business miles substantiated by the em-
ployee and that the employee fails to re-
turn within a reasonable period, or any
portion of a periodic fixed payment that
relates to a period during which the em-
ployee is treated as not covered by the
FAVR allowance and that the employee
fails to return within a reasonable period,
is subject to withholding and payment of
employment taxes no later than the first
payroll period following the end of the
reasonable period. See § 1.62–2(h)(2)-
(i)(A).
(2) Any optional high mileage pay-
ment is subject to withholding and pay-
ment of employment taxes when paid.
SECTION 11. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 97–58, 1997–2 C.B. 587, is
hereby superseded for mileage al-
lowances paid to an employee on or after
January 1, 1999, with respect to trans-
portation expenses paid or incurred on or
after January 1, 1999, and, for purposes of
computing the amount allowable as a de-
duction, for transportation expenses paid
or incurred on or after January 1, 1999.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Edwin B. Cleverdon of the
Office of Assistant Chief Counsel (In-
come Tax and Accounting). For further
information regarding this revenue proce-
dure, contact Mr. Cleverdon at (202) 622-
4920 (not a toll-free call).
26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement;
determination of correct tax liability.
(Also Part I, §§ 62, 162, 267, 274; 1.62–2,
1.162–17, 1.267(a)–1, 1.274–5T, 1.274(d)–1T.)
Rev. Proc. 98–64
SECTION 1. PURPOSE
This revenue procedure updates Rev.
Proc. 97–59, 1997–2 C.B. 594, by provid-
ing rules under which the amount of ordi-
nary and necessary business expenses of
an employee for lodging, meal, and inci-
dental expenses or for meal and incidental
expenses incurred while traveling away
from home will be deemed substantiated
under § 1.274–5T of the temporary In-
come Tax Regulations when a payor (the
employer, its agent, or a third party) pro-
vides a per diem allowance under a reim-
bursement or other expense allowance
arrangement to pay for such expenses.
This revenue procedure also provides an
optional method for employees and self-
employed individuals to use in computing
the deductible costs of business meal and
incidental expenses paid or incurred while
traveling away from home. Use of a
method described in this revenue proce-
dure is not mandatory and a taxpayer may
use actual allowable expenses if the tax-
payer maintains adequate records or other
sufficient evidence for proper substantia-
tion. This revenue procedure does not
provide rules under which the amount of
an employee’s lodging expenses will be
deemed substantiated when a payor pro-
vides an allowance to pay for those ex-
penses but not meal and incidental ex-
penses.
SECTION 2. BACKGROUND AND
CHANGES
.01 Section 162(a) of the Internal Rev-
enue Code allows a deduction for all the
ordinary and necessary expenses paid or
incurred during the taxable year in carry-
ing on any trade or business. Under that
provision, an employee or self-employed
individual may deduct expenses paid or
incurred while traveling away from home
in pursuit of a trade or business. How-
ever, under § 262, no portion of such
travel expenses that is attributable to per-
December 28, 1998321998–52 I.R.B.

sonal, living, or family expenses is de-
ductible.
.02 Section 274(n) generally limits the
amount allowable as a deduction under
§ 162 for any expense for food, bever-
ages, or entertainment to 50 percent of the
amount of the expense that otherwise
would be allowable as a deduction. In the
case of any expenses for food or bever-
ages consumed while away from home
(within the meaning of § 162(a)(2)) by an
individual during, or incident to, the pe-
riod of duty subject to the hours of service
limitations of the Department of Trans-
portation, § 274(n)(3) gradually increases
the deductible percentage to 80 percent
for taxable years beginning in 2008. For
taxable years beginning in 1999, the de-
ductible percentage for these expenses is
55 percent.
.03 Section 274(d) provides, in part,
that no deduction shall be allowed under
§ 162 for any traveling expense (includ-
ing meals and lodging while away from
home) unless the taxpayer complies with
certain substantiation requirements. The
section further provides that regulations
may prescribe that some or all of the sub-
stantiation requirements do not apply to
an expense that does not exceed an
amount prescribed by such regulations.
.04 Section 1.274(d)–1T(a) of the regu-
lations, in part, grants the Commissioner
the authority to prescribe rules relating to
reimbursement arrangements or per diem
allowances for ordinary and necessary ex-
penses paid or incurred while traveling
away from home. Pursuant to this grant
of authority, the Commissioner may pre-
scribe rules under which such arrange-
ments or allowances, if in accordance
with reasonable business practice, will be
regarded (1) as equivalent to substantia-
tion, by adequate records or other suffi-
cient evidence, of the amount of such
travel expenses for purposes of § 1.274–
5T(c), and (2) as satisfying the require-
ments of an adequate accounting to the
employer of the amount of such travel ex-
penses for purposes of § 1.274–5T(f).
.05 For purposes of determining ad-
justed gross income, § 62(a)(2)(A) allows
an employee a deduction for expenses al-
lowed by Part VI (§ 161 and following),
subchapter B, chapter 1 of the Code, paid
or incurred by the employee in connection
with the performance of services as an
employee under a reimbursement or other
expense allowance arrangement with a
payor.
.06 Section 62(c) provides that an
arrangement will not be treated as a reim-
bursement or other expense allowance
arrangement for purposes of § 62(a)-
(2)(A) if it—
(1) does not require the employee to
substantiate the expenses covered by the
arrangement to the payor, or
(2) provides the employee with the
right to retain any amount in excess of the
substantiated expenses covered under the
arrangement.
Section 62(c) further provides that the
substantiation requirements described
therein shall not apply to any expense to
the extent that, under the grant of regula-
tory authority prescribed in § 274(d), the
Commissioner has provided that substan-
tiation is not required for such expense.
.07 Under § 1.62–2(c)(1) a reimburse-
ment or other expense allowance arrange-
ment satisfies the requirements of § 62(c)
if it meets the requirements of business
connection, substantiation, and returning
amounts in excess of expenses as speci-
fied in the regulations. Section 1.62–
2T(e)(2) specifically provides that sub-
stantiation of certain business expenses in
accordance with rules prescribed under
the authority of § 1.274(d)–1T(a) or
1.274–5T(j) will be treated as substantia-
tion of the amount of such expenses for
purposes of § 1.62–2. Under § 1.62–
2(f)(2), the Commissioner may prescribe
rules under which an arrangement provid-
ing per diem allowances will be treated as
satisfying the requirement of returning
amounts in excess of expenses, even
though the arrangement does not require
the employee to return the portion of such
an allowance that relates to days of travel
substantiated and that exceeds the amount
of the employee’s expenses deemed sub-
stantiated pursuant to rules prescribed
under § 274(d), provided the allowance is
reasonably calculated not to exceed the
amount of the employee’s expenses or an-
ticipated expenses and the employee is re-
quired to return any portion of such an al-
lowance that relates to days of travel not
substantiated.
.08 Section 1.62–2(h)(2)(i)(B) provides
that if a payor pays a per diem allowance
that meets the requirements of § 1.62–
2(c)(1), the portion, if any, of the al-
lowance that relates to days of travel sub-
stantiated in accordance with § 1.62–2(e),
that exceeds the amount of the em-
ployee’s expenses deemed substantiated
for such travel pursuant to rules pre-
scribed under § 274(d) and § 1.274(d)–
1(a) or § 1.274–5T(j), and that the em-
ployee is not required to return, is subject
to withholding and payment of employ-
ment taxes. See §§ 31.3121(a)–3,
31.3231(e)–1(a)(5), 31.3306(b)–2, and
31.3401(a)–4. Because the employee is
not required to return this excess portion,
the reasonable period of time provisions
of § 1.62–2(g) (relating to the return of
excess amounts) do not apply to this por-
tion.
.09 Under § 1.62–2(h)(2)(i)(B)(4), the
Commissioner may, in his or her discre-
tion, prescribe special rules regarding the
timing of withholding and payment of
employment taxes on per diem al-
lowances.
.10 Section 1.274–5T(j) grants the
Commissioner the authority to establish a
method under which a taxpayer may elect
to use a specified amount for meals paid
or incurred while traveling away from
home in lieu of substantiating the actual
cost of meals.
.11 Section 5.04 of this revenue proce-
dure contains revisions to the list of high-
cost localities and to the high-low rates
for purposes of section 5.
SECTION 3. DEFINITIONS
.01 Per diem allowance.The term “per
diem allowance” means a payment under
a reimbursement or other expense al-
lowance arrangement that meets the re-
quirements specified in § 1.62-2(c)(1) and
that is
(1) paid with respect to ordinary and
necessary business expenses incurred, or
which the payor reasonably anticipates
will be incurred, by an employee for lodg-
ing, meal, and incidental expenses or for
meal and incidental expenses for travel
away from home in connection with the
performance of services as an employee
of the employer,
(2) reasonably calculated not to ex-
ceed the amount of the expenses or the
anticipated expenses, and
(3) paid at or below the applicable
Federal per diem rate, a flat rate or stated
schedule, or in accordance with any other
Service-specified rate or schedule.
1998–52 I.R.B.33December 28, 1998

.02 Federal per diem rate.
(1) General rule.The Federal per
diem rate is equal to the sum of the Fed-
eral lodging expense rate and the Federal
meal and incidental expense (M&IE) rate
for the locality of travel. Each of these
rates for a particular locality in the conti-
nental United States (“CONUS”) is set
forth in Appendix A of 41 C.F.R., Chapter
301, as amended. See 41 C.F.R. Part 301-
7 (1998), as amended, for specific rules
regarding these Federal rates. Each of
these rates is established by the Secretary
of Defense for a particular nonforeign lo-
cality outside the continental United
States (“OCONUS”) (including Alaska,
Hawaii, Puerto Rico, the Northern Mari-
ana Islands, and the possessions of the
United States), and by the Secretary of
State for a particular foreign OCONUS
locality. Each of these OCONUS rates is
published in the Per Diem Supplement to
the Standardized Regulations (Govern-
ment Civilians, Foreign Areas). See, e.g.,
Maximum Travel Per Diem Allowances
for Foreign Areas, PD Supplement 415,
issued December 1, 1998.
(2) Locality of travel. The term “lo-
cality of travel” means the locality where
an employee traveling away from home in
connection with the performance of ser-
vices as an employee of the employer
stops for sleep or rest.
(3) Incidental expenses.The term
“incidental expenses” includes, but is not
limited to, expenses for laundry, cleaning
and pressing of clothing, and fees and tips
for services, such as for porters and bag-
gage carriers. The term “incidental ex-
penses” does not include taxicab fares,
lodging taxes, or the costs of telegrams or
telephone calls.
.03 Flat rate or stated schedule.
(1) In general.Except as provided
in section 3.03(2) of this revenue proce-
dure, an allowance is paid at a flat rate or
stated schedule if it is provided on a uni-
form and objective basis with respect to
the expenses described in section 3.01 of
this revenue procedure. Such allowance
may be paid with respect to the number of
days away from home in connection with
the performance of services as an em-
ployee or on any other basis that is consis-
tently applied and in accordance with rea-
sonable business practice. Thus, for
example, an hourly payment to cover
meal and incidental expenses paid to a
pilot or flight attendant who is traveling
away from home in connection with the
performance of services as an employee is
an allowance paid at a flat rate or stated
schedule. Likewise, a payment based on
the number of miles traveled (e.g.,cents
per mile) to cover meal and incidental ex-
penses paid to an over-the-road truck dri-
ver who is traveling away from home in
connection with the performance of ser-
vices as an employee is an allowance paid
at a flat rate or stated schedule.
(2) Limitation.For purposes of this
revenue procedure, an allowance that is
computed on a basis similar to that used
in computing the employee’s wages or
other compensation (e.g.,the number of
hours worked, miles traveled, or pieces
produced) does not meet the business
connection requirement of § 1.62–2(d), is
not a per diem allowance, and is not paid
at a flat rate or stated schedule, unless, as
of December 12, 1989, (a) the allowance
was identified by the payor either by mak-
ing a separate payment or by specifically
identifying the amount of the allowance,
or (b) an allowance computed on that
basis was commonly used in the industry
in which the employee is employed. See
§ 1.62–2(d)(3)(ii).
SECTION 4. PER DIEM
SUBSTANTIATION METHOD
.01 Per diem allowance.If a payor
pays a per diem allowance in lieu of reim-
bursing actual expenses for lodging, meal,
and incidental expenses incurred or to be
incurred by an employee for travel away
from home, the amount of the expenses
that is deemed substantiated for each cal-
endar day is equal to the lesser of the per
diem allowance for such day or the
amount computed at the Federal per diem
rate for the locality of travel for such day
(or partial day, see section 6.04 of this
revenue procedure).
.02 Meals only per diem allowance.If
a payor pays a per diem allowance only
for meal and incidental expenses in lieu of
reimbursing actual expenses for meal and
incidental expenses incurred or to be in-
curred by an employee for travel away
from home, the amount of the expenses
that is deemed substantiated for each cal-
endar day is equal to the lesser of the per
diem allowance for such day or the
amount computed at the Federal M&IE
rate for the locality of travel for such day
(or partial day, see section 6.04 of this
revenue procedure). A per diem al-
lowance is treated as paid only for meal
and incidental expenses if (1) the payor
pays the employee for actual expenses for
lodging based on receipts submitted to the
payor, (2) the payor provides the lodging
in kind, (3) the payor pays the actual ex-
penses for lodging directly to the provider
of the lodging, (4) the payor does not
have a reasonable belief that lodging ex-
penses were or will be incurred by the
employee, or (5) the allowance is com-
puted on a basis similar to that used in
computing the employee’s wages or other
compensation (e.g., the number of hours
worked, miles traveled, or pieces pro-
duced).
.03 Optional method for meals only de-
duction. In lieu of using actual expenses,
employees and self-employed individu-
als, in computing the amount allowable as
a deduction for ordinary and necessary
meal and incidental expenses paid or in-
curred for travel away from home, may
use an amount computed at the Federal
M&IE rate for the locality of travel for
each calendar day (or partial day, see sec-
tion 6.04 of this revenue procedure) the
employee or self-employed individual is
away from home. Such amount will be
deemed substantiated for purposes of
paragraphs (b)(2) (travel away from
home) and (c) of § 1.274–5T, provided
the employee or self-employed individual
substantiates the elements of time, place,
and business purpose of the travel ex-
penses in accordance with those regula-
tions.
.04 Special rules for transportation in-
dustry.
(1) In general.This section 4.04 ap-
plies to (a) a payor that pays a per diem
allowance only for meal and incidental
expenses for travel away from home as
described in section 4.02 of this revenue
procedure to an employee in the trans-
portation industry, or (b) an employee or
self-employed individual in the trans-
portation industry who computes the
amount allowable as a deduction for meal
and incidental expenses for travel away
from home in accordance with section
4.03 of this revenue procedure.
(2) Rates.A taxpayer described in
section 4.04(1) of this revenue procedure
may treat $38 as the Federal M&IE rate
December 28, 1998341998–52 I.R.B.

for any locality of travel in CONUS,
and/or $42 as the Federal M&IE rate for
any locality of travel OCONUS. A payor
that uses either (or both) of these special
rates with respect to an employee must use
the special rate(s) for all amounts subject
to section 4.02 of this revenue procedure
paid to that employee for travel away from
home within CONUS and/or OCONUS,
as the case may be, during the calendar
year. Similarly, an employee or self-em-
ployed individual that uses either (or both)
of these special rates must use the special
rate(s) for all amounts computed pursuant
to section 4.03 of this revenue procedure
for travel away from home within
CONUS and/or OCONUS, as the case
may be, during the calendar year.
(3) Periodic rule.A payor described
in section 4.04(1) of this revenue proce-
dure may compute the amount of the em-
ployee’s expenses that is deemed substan-
tiated under section 4.02 of this revenue
procedure periodically (not less fre-
quently than monthly), rather than daily,
by comparing the total per diem al-
lowance paid for the period to the sum of
the amounts computed at the Federal
M&IE rate(s) for the localities of travel
for the days (or partial days, see section
6.04 of this revenue procedure) the em-
ployee is away from home during the pe-
riod. For example, assume an employee
in the transportation industry travels away
from home within CONUS on 17 days
(including partial days, see section 6.04 of
this revenue procedure) during a calendar
month and receives a per diem allowance
only for meal and incidental expenses
from a payor that uses the special rule
under section 4.04(2) of this revenue pro-
cedure. The amount deemed substanti-
ated under section 4.02 of this revenue
procedure is equal to the lesser of the total
per diem allowance paid for the month or
$646 (17 days at $38 per day).
(4) Transportation industry defined.
For purposes of this section 4.04 of this
revenue procedure, an employee or self-
employed individual is “in the transporta-
tion industry” only if the employee’s or
individual’s work (a) is of the type that di-
rectly involves moving people or goods
by airplane, barge, bus, ship, train, or
truck, and (b) regularly requires travel
away from home which, during any single
trip away from home, usually involves
travel to localities with differing Federal
M&IE rates. For purposes of the preced-
ing sentence, a payor must determine that
an employee or a group of employees is
“in the transportation industry” by using a
method that is consistently applied and in
accordance with reasonable business
practice.
SECTION 5. HIGH-LOW
SUBSTANTIATION METHOD
.01 General rule.If a payor pays a per
diem allowance in lieu of reimbursing ac-
tual expenses for lodging, meal, and inci-
dental expenses incurred or to be incurred
by an employee for travel away from
home and the payor uses the high-low
substantiation method described in this
section 5 for travel within CONUS, the
amount of the expenses that is deemed
substantiated for each calendar day is
equal to the lesser of the per diem al-
lowance for such day or the amount com-
puted at the rate set forth in section 5.02
of this revenue procedure for the locality
of travel for such day (or partial day, see
section 6.04 of this revenue procedure).
This high-low substantiation method may
be used in lieu of the per diem substantia-
tion method provided in section 4.01 of
this revenue procedure, but may not be
used in lieu of the meals only substantia-
tion method provided in section 4.02 or
4.03 of this revenue procedure.
.02 Specific high-low rates.The per
diem rate set forth in this section 5.02 is
$185 for travel to any “high-cost locality”
specified in section 5.03 of this revenue
procedure, or $115 for travel to any other
locality within CONUS. Whichever per
diem rate applies, it is applied as if it were
the Federal per diem rate for the locality
of travel. For purposes of applying the
high-low substantiation method and the
§ 274(n) limitation on meal expenses (see
section 6.05 of this revenue procedure),
the Federal M&IE rate shall be treated as
$42 for a high-cost locality and $34 for
any other locality within CONUS.
.03 High-cost localities.The following
localities have a Federal per diem rate of
$150 or more for all or part of the calen-
dar year, and are high-cost localities for
all of the calendar year or the portion of
the calendar year specified in parenthesis
under the key city name:
1998–52 I.R.B.35December 28, 1998
Key cityCounty or other defined location
Alabama
Gulf ShoresBaldwin
(May 1-September 30)
California
GualalaCity limits of Gualala
Palo AltoCity limits of Palo Alto
San FranciscoSan Francisco
SunnyvaleCity limits of Sunnyvale
Yosemite Nat’l ParkMariposa
(April 1-October 31)
Colorado
AspenPitkin
(June 1-March 31)

Key cityCounty or other defined location
Telluride San Miguel
(November 1-March 31)
VailEagle
District of Columbia
Washington, D.C.District of Columbia
Florida
Delray BeachCity limits of Delray Beach
(November 1-March 31)
JupiterCity limits of Jupiter
(January 1-April 30)
Key WestMonroe
(December 1-April 30)
Palm BeachCity limits of Palm Beach
(January 1-April 30)
Singer IslandCity limits of Singer Island
(January 1-April 30)
Idaho
Sun ValleyCity limits of Sun Valley
(April 1-September 30)
Illinois
ChicagoCook
Lake CountyLake County
Maine
Bar HarborHancock
Maryland
BaltimoreBaltimore
Montgomery CountyMontgomery County
Ocean City Worcester
(April 1-August 31)
Massachusetts
BostonSuffolk
CambridgeCity limits of Cambridge
Martha’s VineyardDukes
(June 1-September 30)
Michigan
CharlevoixCharlevoix
(July 1-September 30)
Mackinac IslandMackinac
Nevada
StatelineDouglas
New Jersey
Cape MayCape May (except Ocean City)
(June 1-September 30)
Ocean CityCity limits of Ocean City
(June 1-August 31)
PiscatawayCity limits of Piscataway
Union CountyUnion County
New York
The BronxThe Bronx
BrooklynBrooklyn
December 28, 1998361998–52 I.R.B.

Key cityCounty or other defined location
ManhattanManhattan
Queens BoroughQueens
Saratoga SpringsSaratoga
(August 1-August 31)
Tarrytown/White PlainsWestchester
West PointOrange
North Carolina
Kill Devil HillsDare
(May 1-August 31)
Pennsylvania
HersheyCity limits of Hershey
(May 1-October 31)
PhiladelphiaPhiladelphia; city of Bala Cynwyd in Montgomery County
Rhode Island
NewportNewport
(June 1-September 30)
South Carolina
Hilton HeadBeaufort
(March 1-August 31)
Myrtle BeachHorry; Myrtle Beach Air Force Base
(June 1-September 30)
Utah
Park City Summit
(December 1-March 31)
Virginia
AlexandriaCity limits of Alexandria
ArlingtonArlington
Fairfax CountyFairfax County (includes the cities of Falls Church and Fair-
fax)
WintergreenNelson
(June 1-October 31)
Washington
SeattleKing
1998–52 I.R.B.37December 28, 1998
.04 Changes in high-cost localities.
The list of high-cost localities in section
5.03 of this revenue procedure differs
from the list of high-cost localities in sec-
tion 5.03 of Rev. Proc. 97–59.
(1) The following localities (listed
by key cities) have been added to the list
of high-cost localities: Gulf Shores, Al-
abama; Sunnyvale, California; Yosemite
National Park, California; Delray Beach,
Florida; Jupiter, Florida; Palm Beach,
Florida; Singer Island, Florida; Sun Val-
ley, Idaho; Charlevoix, Michigan; Mack-
inac Island, Michigan; Stateline, Nevada;
Piscataway, New Jersey; Union County,
New Jersey; Saratoga Springs, New York;
West Point, New York; Hershey, Pennsyl-
vania; and Wintergreen, Virginia.
(2) The portion of the year for which
the following are high-cost localities
(listed by key cities) has been changed:
Aspen, Colorado; Telluride, Colorado;
Vail, Colorado; Key West, Florida; Bar
Harbor, Maine; Ocean City, Maryland;
Martha’s Vineyard, Massachusetts; Cape
May, New Jersey; Ocean City, New Jersey;
Kill Devil Hills, North Carolina; Newport,
Rhode Island; Hilton Head, South Car-
olina; and Myrtle Beach, South Carolina.
(3) The following localities (gener-
ally listed by key cities) have been re-
moved from the list of high-cost locali-
ties: Grand Canyon, Arizona; Los
Angeles, California; Napa, California;
Santa Clara County, California (except
the city limits of Palo Alto and Sunny-
vale); Mendocino County, California (ex-
cept the city limits of Gualala); Key-
stone/Silverthorne, Colorado; Lewes,
Delaware; Naples, Florida; Du Page
County, Illinois; Nashville, Indiana; Har-
ford County, Maryland; Prince George’s
County, Maryland; St. Michaels, Mary-
land; Middlesex County, Massachusetts
(except the city limits of Cambridge);
Nantucket, Massachusetts; Incline Vil-
lage, Nevada; Hanover, New Hampshire;
Parsippany/Dover, New Jersey; Santa Fe,
New Mexico; Nassau County, New York;
Staten Island Borough, New York; Suf-
folk County, New York; Block Island,
Rhode Island; Loudoun County, Virginia;
Friday Harbor, Washington; and Jackson,
Wyoming.

.05 Specific limitation.
(1) Except as provided in section
5.05(2) of this revenue procedure, a payor
that uses the high-low substantiation
method with respect to an employee must
use that method for all amounts paid to
that employee for travel away from home
within CONUS during the calendar year.
(2) With respect to an employee de-
scribed in section 5.05(1) of this revenue
procedure, the payor may reimburse ac-
tual expenses or use the meals only per
diem method described in section 4.02 of
this revenue procedure for any travel
away from home, and may use the per
diem substantiation method described in
section 4.01 of this revenue procedure for
any OCONUS travel away from home.
SECTION 6. LIMITATIONS AND
SPECIAL RULES
.01 In general. The Federal per diem
rate and the Federal M&IE rate described
in section 3.02 of this revenue procedure
for the locality of travel will be applied in
the same manner as applied under the
Federal Travel Regulations, 41 C.F.R.
Part 301–7 (1998), except as provided in
sections 6.02 through 6.04 of this revenue
procedure.
.02 Federal per diem rate.A receipt
for lodging expenses is not required in de-
termining the amount of expenses deemed
substantiated under section 4.01 or 5.01
of this revenue procedure. See section
7.01 of this revenue procedure for the re-
quirement that the employee substantiate
the time, place, and business purpose of
the expense.
.03 Federal per diem or M&IE rate.A
payor is not required to reduce the Federal
per diem rate or the Federal M&IE rate
for the locality of travel for meals pro-
vided in kind, provided the payor has a
reasonable belief that meal and incidental
expenses were or will be incurred by the
employee.
.04 Proration of the Federal per diem
or M&IE rate.Pursuant to the Federal
Travel Regulations, in determining the
Federal per diem rate or the Federal
M&IE rate for the locality of travel, the
full applicable Federal M&IE rate is
available for a full day of travel from
12:01 a.m. to 12:00 midnight. For pur-
poses of determining the amount deemed
substantiated under section 4 or 5 of this
revenue procedure with respect to partial
days of travel away from home, either of
the following methods may be used to
prorate the Federal M&IE rate to deter-
mine the Federal per diem rate or the Fed-
eral M&IE rate for the partial days of
travel:
(1) Such rate may be prorated using
the method prescribed by the Federal
Travel Regulations. Currently the Federal
Travel Regulations allow three-fourths of
the applicable Federal M&IE rate for each
partial day during which the employee or
self-employed individual is traveling
away from home in connection with the
performance of services as an employee
or self-employed individual; or
(2) Such rate may be prorated using
any method that is consistently applied
and in accordance with reasonable busi-
ness practice. For example, if an em-
ployee travels away from home from 9
a.m. one day to 5 p.m. the next day, a
method of proration that results in an
amount equal to 2 times the Federal
M&IE rate will be treated as being in ac-
cordance with reasonable business prac-
tice (even though only 1
1
⁄
2
times the Fed-
eral M&IE rate would be allowed under
the Federal Travel Regulations).
.05 Application of the appropriate
§ 274(n) limitation on meal expenses. All
or part of the amount of an expense
deemed substantiated under this revenue
procedure is subject to the appropriate
limitation under § 274(n) (see section
2.02 of this revenue procedure) on the de-
ductibility of food and beverage ex-
penses.
(1) When an amount for meal and in-
cidental expenses is computed pursuant to
section 4.03 of this revenue procedure,
the taxpayer must treat such amount as an
expense for food and beverages.
(2) When a per diem allowance is
paid only for meal and incidental ex-
penses, the payor must treat an amount
equal to the lesser of the allowance or the
Federal M&IE rate for the locality of
travel for such day (or partial day, see sec-
tion 6.04 of this revenue procedure) as an
expense for food and beverages.
(3) When a per diem allowance is
paid for lodging, meal, and incidental ex-
penses, the payor must treat an amount
equal to the Federal M&IE rate for the lo-
cality of travel for each calendar day (or
partial day, see section 6.04 of this rev-
enue procedure) the employee is away
from home as an expense for food and
beverages. For purposes of the preceding
sentence, when a per diem allowance for
lodging, meal, and incidental expenses is
paid at a rate that is less than the Federal
per diem rate for the locality of travel for
such day (or partial day, see section 6.04
of this revenue procedure), the payor may
treat an amount equal to 40 percent of
such allowance as the Federal M&IE rate
for the locality of travel for such day (or
partial day, see section 6.04 of this rev-
enue procedure).
.06 No double reimbursement or de-
duction.If a payor pays a per diem al-
lowance in lieu of reimbursing actual ex-
penses for lodging, meal, and incidental
expenses or for meal and incidental ex-
penses in accordance with section 4 or 5
of this revenue procedure, any additional
payment with respect to such expenses is
treated as paid under a nonaccountable
plan, is included in the employee’s gross
income, is reported as wages or other
compensation on the employee’s Form
W-2, and is subject to withholding and
payment of employment taxes. Similarly,
if an employee or self-employed individ-
ual computes the amount allowable as a
deduction for meal and incidental ex-
penses for travel away from home in ac-
cordance with section 4.03 or 4.04 of this
revenue procedure, no other deduction is
allowed to the employee or self-employed
individual with respect to such expenses.
For example, assume an employee re-
ceives a per diem allowance from a payor
for lodging, meal, and incidental expenses
or for meal and incidental expenses in-
curred while traveling away from home.
During that trip, the employee pays for
dinner for the employee and two business
associates. The payor reimburses as a
business entertainment meal expense the
meal expense for the employee and the
two business associates. Because the
payor also pays a per diem allowance to
cover the cost of the employee’s meals,
the amount paid by the payor for the em-
ployee’s portion of the business entertain-
ment meal expense is treated as paid
under a nonaccountable plan, is reported
as wages or other compensation on the
employee’s Form W–2, and is subject to
withholding and payment of employment
taxes.
.07 Related parties.Sections 4.01,
4.02, 4.04 (to the extent it relates to sec-
December 28, 1998381998–52 I.R.B.

tion 4.02), and 5 of this revenue proce-
dure will not apply in any case in which a
payor and an employee are related within
the meaning of § 267(b), but for this pur-
pose the percentage of ownership interest
referred to in § 267(b)(2) shall be 10 per-
cent.
SECTION 7. APPLICATION
.01 If the amount of travel expenses is
deemed substantiated under the rules pro-
vided in section 4 or 5 of this revenue pro-
cedure, and the employee actually sub-
stantiates to the payor the elements of
time, place, and business purpose of the
travel expenses in accordance with para-
graphs (b)(2) (travel away from home)
and (c) (other than subparagraph
(2)(iii)(A) thereof) of § 1.274–5T, the em-
ployee is deemed to satisfy the adequate
accounting requirements of § 1.274–5T(f)
as well as the requirement to substantiate
by adequate records or other sufficient ev-
idence for purposes of § 1.274–5T(c).
See § 1.62–2(e)(1) for the rule that an
arrangement must require business ex-
penses to be substantiated to the payor
within a reasonable period of time.
.02 An arrangement providing per diem
allowances will be treated as satisfying
the requirement of § 1.62–2(f)(2) with re-
spect to returning amounts in excess of
expenses if the employee is required to re-
turn within a reasonable period of time (as
defined in § 1.62–2(g)) any portion of
such an allowance that relates to days of
travel not substantiated, even though the
arrangement does not require the em-
ployee to return the portion of such an al-
lowance that relates to days of travel sub-
stantiated and that exceeds the amount of
the employee’s expenses deemed substan-
tiated. For example, assume a payor pro-
vides an employee an advance per diem
allowance for meal and incidental ex-
penses of $200, based on an anticipated 5
days of business travel at $40 per day to a
locality for which the Federal M&IE rate
is $34, and the employee substantiates 3
full days of business travel. The require-
ment to return excess amounts will be
treated as satisfied if the employee is re-
quired to return within a reasonable pe-
riod of time (as defined in § 1.62–2(g))
the portion of the allowance that is attrib-
utable to the 2 unsubstantiated days of
travel ($80), even though the employee is
not required to return the portion of the al-
lowance ($18) that exceeds the amount of
the employee’s expenses deemed substan-
tiated under section 4.02 of this revenue
procedure ($102) for the 3 substantiated
days of travel. However, the $18 excess
portion of the allowance is treated as paid
under a nonaccountable plan as discussed
in section 7.04 of this revenue procedure.
.03 An employee is not required to in-
clude in gross income the portion of a per
diem allowance received from a payor
that is less than or equal to the amount
deemed substantiated under the rules pro-
vided in section 4 or 5 of this revenue pro-
cedure if the employee substantiates the
business travel expenses covered by the
per diem allowance in accordance with
section 7.01 of this revenue procedure.
See § 1.274–5T(f)(2)(i). In addition, such
portion of the allowance is treated as paid
under an accountable plan, is not reported
as wages or other compensation on the
employee’s Form W-2, and is exempt
from the withholding and payment of em-
ployment taxes. See § 1.62–2(c)(2) and
(c)(4).
.04 An employee is required to include
in gross income only the portion of the
per diem allowance received from a payor
that exceeds the amount deemed substan-
tiated under the rules provided in section
4 or 5 of this revenue procedure if the em-
ployee substantiates the business travel
expenses covered by the per diem al-
lowance in accordance with section 7.01
of this revenue procedure. See § 1.274–
5T(f)(2)(ii). In addition, the excess por-
tion of the allowance is treated as paid
under a nonaccountable plan, is reported
as wages or other compensation on the
employee’s Form W-2, and is subject to
withholding and payment of employment
taxes. See § 1.62–2(c)(3)(ii), (c)(5), and
(h)(2)(i)(B).
.05 If the amount of the expenses that is
deemed substantiated under the rules pro-
vided in section 4.01, 4.02, or 5 of this
revenue procedure is less than the amount
of the employee’s business expenses for
travel away from home, the employee
may claim an itemized deduction for the
amount by which the business travel ex-
penses exceed the amount that is deemed
substantiated, provided the employee sub-
stantiates all the business travel expenses,
includes on Form 2106, Employee Busi-
ness Expenses, the deemed substantiated
portion of the per diem allowance re-
ceived from the payor, and includes in
gross income the portion (if any) of the
per diem allowance received from the
payor that exceeds the amount deemed
substantiated. See § 1.274–5T(f)(2)(iii).
However, for purposes of claiming this
itemized deduction with respect to meal
and incidental expenses, substantiation of
the amount of the expenses is not required
if the employee is claiming a deduction
that is equal to or less than the amount
computed under section 4.03 of this rev-
enue procedure minus the amount deemed
substantiated under sections 4.02 and 7.01
of this revenue procedure. The itemized
deduction is subject to the appropriate
limitation (see section 2.02 of this rev-
enue procedure) on meal and entertain-
ment expenses provided in § 274(n) and
the 2-percent floor on miscellaneous
itemized deductions provided in § 67.
.06 An employee who does not receive
a per diem allowance for meal and inci-
dental expenses may deduct an amount
computed pursuant to section 4.03 of this
revenue procedure only as an itemized de-
duction. This itemized deduction is sub-
ject to the appropriate limitation (see sec-
tion 2.02 of this revenue procedure) on
meal and entertainment expenses pro-
vided in § 274(n) and the 2-percent floor
on miscellaneous itemized deductions
provided in § 67.
.07 A self-employed individual may
deduct an amount computed pursuant to
section 4.03 of this revenue procedure in
determining adjusted gross income under
§ 62(a)(1). This deduction is subject to
the appropriate limitation (see section
2.02 of this revenue procedure) on meal
and entertainment expenses provided in
§ 274(n).
.08 If a payor’s reimbursement or other
expense allowance arrangement evi-
dences a pattern of abuse of the rules of
§ 62(c) and the regulations thereunder, all
payments under the arrangement will be
treated as made under a nonaccountable
plan. Thus, such payments are included
in the employee’s gross income, are re-
ported as wages or other compensation on
the employee’s Form W-2, and are subject
to withholding and payment of employ-
ment taxes. See § 1.62–2(c)(3), (c)(5),
and (h)(2).
1998–52 I.R.B.39December 28, 1998

SECTION 8. WITHHOLDING AND
PAYMENT OF EMPLOYMENT
TAXES.
.01 The portion of a per diem al-
lowance, if any, that relates to the days of
business travel substantiated and that ex-
ceeds the amount deemed substantiated
for those days under section 4.01, 4.02, or
5 of this revenue procedure is subject to
withholding and payment of employment
taxes. See § 1.62–2(h)(2)(i)(B).
.02 In the case of a per diem allowance
paid as a reimbursement, the excess de-
scribed in section 8.01 of this revenue
procedure is subject to withholding and
payment of employment taxes in the pay-
roll period in which the payor reimburses
the expenses for the days of travel sub-
stantiated. See § 1.62–2(h)(2)(i)(B)(2).
.03 In the case of a per diem allowance
paid as an advance, the excess described
in section 8.01 of this revenue procedure
is subject to withholding and payment of
employment taxes no later than the first
payroll period following the payroll pe-
riod in which the days of travel with re-
spect to which the advance was paid are
substantiated. See § 1.62–2(h)(2)(i)-
(B)(3). If some or all of the days of travel
with respect to which the advance was
paid are not substantiated within a reason-
able period of time and the employee does
not return the portion of the allowance
that relates to those days within a reason-
able period of time, the portion of the al-
lowance that relates to those days is sub-
ject to withholding and payment of em-
ployment taxes no later than the first pay-
roll period following the end of the rea-
sonable period. See § 1.62–2(h)(2)(i)(A).
.04 In the case of a per diem allowance
only for meal and incidental expenses for
travel away from home paid to an em-
ployee in the transportation industry by a
payor that uses the rule in section 4.04(3)
of this revenue procedure, the excess of
the per diem allowance paid for the period
over the amount deemed substantiated for
the period under section 4.02 of this rev-
enue procedure (after applying section
4.04(3) of this revenue procedure), is sub-
ject to withholding and payment of em-
ployment taxes no later than the first pay-
roll period following the payroll period in
which the excess is computed. See
§ 1.62–2(h)(2)(i)(B)(4).
.05 For example, assume that an em-
ployer pays an employee a per diem al-
lowance to cover business expenses for
meals and lodging for travel away from
home at a rate of 120 percent of the Fed-
eral per diem rate for the localities to
which the employee travels. The em-
ployer does not require the employee to
return the 20 percent by which the reim-
bursement for those expenses exceeds the
Federal per diem rate. The employee sub-
stantiates 6 days of travel away from
home: 2 days in a locality in which the
Federal per diem rate is $100 and 4 days
in a locality in which the Federal per diem
rate is $125. The employer reimburses
the employee $840 for the 6 days of travel
away from home (2 3(120% 3$100) +
4 3(120% 3$125)), and does not re-
quire the employee to return the excess
payment of $140 ((2 days 3$20 ($120-
$100) + 4 days 3$25 ($150–$125)). For
the payroll period in which the employer
reimburses the expenses, the employer
must withhold and pay employment taxes
on $140. See section 8.02 of this revenue
procedure.
SECTION 9. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 97–59 is hereby superseded
for per diem allowances paid to an em-
ployee on or after January 1, 1999, with
respect to lodging, meal, and incidental
expenses or with respect to meal and inci-
dental expenses paid or incurred for travel
while away from home on or after Janu-
ary 1, 1999, and, for purposes of comput-
ing the amount allowable as a deduction,
for meal and incidental expenses paid or
incurred by an employee or self-em-
ployed individual for travel while away
from home on or after January 1, 1999.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Edwin B. Cleverdon of the
Office of Assistant Chief Counsel (In-
come Tax and Accounting). For further
information regarding this revenue proce-
dure, contact Mr. Cleverdon at (202) 622-
4920 (not a toll-free call).
December 28, 1998401998–52 I.R.B.
Rev. Proc. 98–65
TABLE OF CONTENTS
CHAPTER ONE - INTRODUCTION TO SUBSTITUTE FORMS
Overview of Revenue Procedure 98–6542
IRS Contacts42
Nature of Changes43
Definitions44
Agreement45
CHAPTER TWO - GENERAL GUIDELINES FOR SUBMISSIONS AND APPROVALS
General Specificiations for Approval46
Highlights of Permitted Changes and Requirements46
Vouchers47
Restrictions on Changes47
Guidelines for Obtaining IRS Approval48
Office of Management and Budget (OMB) Requirements for All Substitute Forms50

CHAPTER THREE - PHYSICAL ASPECTS AND REQUIREMENTS
General Guidelines for Substitute Forms52
Paper 53
Printing54
Margins55
Examples of Approved Formats56
Miscellaneous Information for Substitute Forms56
CHAPTER FOUR - ADDITIONAL RESOURCES
Guidance From Other Revenue Procedures57
Ordering Publications57
Electronic Tax Products58
Federal Tax Forms on CD-ROM59
CHAPTER FIVE - REQUIREMENTS FOR SPECIFIC TAX RETURNS
Tax Returns (Form 1040, 1040A, 1120, Etc.)60
Changes Permitted to Graphics (Forms 1040A and 1040)60
Changes Permitted to Form 1040A Graphics62
Changes Permitted to Form 1040 Graphics62
CHAPTER SIX - FORMAT AND CONTENT OF SUBSTITUTE RETURNS
Acceptable Formats for Computer-Generated Forms and Schedules63
Additional Instructions for All Forms64
CHAPTER SEVEN - OCR FORMS
Special Form 1040EZ Optical Character Recognition/Image
Character Recognition (OCR/ICR) Requirements65
Computer-Generated Alternative Returns, 1040PC Format Return67
Form 941 Requirements - OCR67
Specifications for OCR Scannable Application Forms for Employee Plans68
CHAPTER EIGHT - MISCELLANEOUS FORMS AND PROGRAMS
Paper Substitutes for Form 1042–S69
Specifications for Filing Substitute Schedules K-170
Procedures for Printing Internal Revenue Service Envelopes70
Procedures for Substitute Form 5471 and Form 547273
CHAPTER NINE - ALTERNATIVE METHODS OF FILING
Forms for Electronically Filed Returns75
FTD Magnetic Tape Payments 76
Effect on Other Documents76
EXHIBITS
Exhibit A–1. Schedule A (Preferred)
Exhibit A–2. Schedule A (Acceptable)
Exhibit B–1. Schedule B (Preferred)
Exhibit B–2. Schedule B (Acceptable)
Exhibit CG–A. Schedule A (Computer Generated)
Exhibit CG–B. Schedule B (Computer Generated)
Exhibit C. Sample Checklist
Exhibit L–1. List of Forms Referred to in Revenue Procedure
1998–52 I.R.B.41December 28, 1998

Chapter 1
Introduction to Substitute Forms
Overview of Revenue Procedure 98-65
PurposeThis revenue procedure provides the general requirements and conditions for the development, printing,
and approval of all substitute tax forms to be acceptable for filing in lieu of official IRS forms.
Unique FormsCertain unique, specialized forms require the use of other additional revenue procedures to supplement
this publication. See Chapter 4.
ScopeThe Internal Revenue Service accepts quality substitute tax forms that are consistent with the official
forms and do not have an adverse impact on our processing. The IRS Substitute Forms Program admin-
isters the formal acceptance and processing of these forms nationwide. While this program deals primar-
ily with paper documents, it also interfaces with other processing and filing media such as:
• Magnetic tape,
• Optical character recognition, and
• Electronic filing, etc.
Only those substitute forms that comply fully with the requirements set forth herein are acceptable. Ex-
hibit L-1 lists the form numbers mentioned in this document and their titles. This revenue procedure is
updated as required to reflect pertinent tax year form changes and to meet processing and/or legislative
requirements.
Forms Covered byThe following types of forms are covered by this revenue procedure:
This Revenue
Procedure• IRS tax returns and their related forms and schedules.
• Applications for permission to file returns electronically and forms used as required documentation for
electronically filed returns.
• Powers of Attorney.
• Estimated tax payment vouchers.
• Forms and schedules relating to partnerships, exempt organizations, and employee plans.
Forms NOT Covered The following types of forms are not covered:
by This Revenue
Procedure• W-2, W-3 (see Publication 1141 for information on these forms)
• 1096, 1098 series, 1099 series, 5498 series, and W-2G (see Publication 1179 for information on these
forms)
• Federal Tax Deposit (FTD) coupons, which may not be reproduced.
• Requests for information or documentation initiated by the Service.
• Forms used internally by the Service.
• State tax forms.
• Forms developed outside IRS (except for
Form TD F 90–22.1, Report of Foreign Bank and Financial Accounts).
IRS Contacts
Where To SendSend your substitute forms for approval to the following offices (DO NOT send forms with taxpayer
Substitute Formsdata):
December 28, 1998421998–52 I.R.B.

In addition, the Substitute Forms Program can be contacted via email at tfpmail@publish.no.irs.gov. Use
this email address only to inquire about forms covered by this revenue procedure. DO NOT attach
graphic files for approval with email.
For questions about Forms W–2 and W–3, refer to IRS Publication 1141, General Rules and Specifica-
tions for Private Printing of Substitute Forms W–2 and W–3. For Forms 1096, 1098, 1099, 5498, and
W–2G, refer to IRS Publication 1179, Specifications for Paper Document Reporting and Paper Substi-
tutes for Forms 1096, 1098, 1099, 5498, and W–2G.
Nature of Changes
Changes to the• Information on IRS Contact offices has been revised.
Revenue Procedure
• Substitute Forms Program email address has been revised.
• Information on advanced proofs has been changed to reflect the presence of advance drafts on the In-
ternet.
• The scheduled print date report is now available on the IRS Internet site.
• IRS organizational symbols changed where appropriate.
• Previous instructions labeled “Special Form 941 Requirements” have been removed from this revenue
procedure.
• The office phone number and address for 1040PC Project Office has been updated.
• A paragraph has been added on Tax Fax and CD-ROM ordering instructions have been updated.
• The instructions for ordering forms from the IRS Distribution Center have been revised.
• Various editorial changes have been made.
1998–52 I.R.B.43December 28, 1998
FormOffice and Address
4789, 8300, 8362, 8852,IRS Computing Center
TD F 90-22.1, TD F 90–22.47BSA Compliance Branch
P.O. Box 32063
Detroit, MI 48232-0063
4461, 4461–A, 4461–B, 5300, 5303, 5307, Internal Revenue Service
5310, 5310–A, and 6406Attn: EP OCR Forms Coordinator
OP:E:EP:FC
1111 Constitution Avenue, NW
Room 2232 IR
Washington, DC 20224
All others (except W–2, W–3, 1096, 1098, Internal Revenue Service
1099, 5498, and W–2G)Attn: Substitute Forms Program
OP:FS:FP:F:CD
1111 Constitution Avenue, NW
Room 5244 IR
Washington, DC 20224

Definitions
Substitute FormA tax form (or related schedule) that differs in any way from the official version and is intended to replace
the entire form that is printed and distributed by the Service. This term also covers those approved sub-
stitute forms exhibited in this revenue procedure.
Printed (or Preprinted) A form produced using conventional printing processes. Also, a printed form which has been reproduced
Formby photocopying or similar processes.
Preprinted Pin-Fed A printed form that has marginal perforations for use with automated and high-speed printing equipment.
Form
Computer- PreparedA preprinted form in which the taxpayer’s tax entry information has been inserted by a computer, com-
Substitute Formputer-printer, or other computer type equipment, such as word-processing equipment.
Computer- GeneratedA tax return or form that is entirely designed and printed by the use of a computer printer, such as a laser
Substitute Tax Return printer, etc., on plain white paper. This return or form must conform to the physical layout of the corre-
or Formsponding Service form although the typeface may differ. The text should match the text on the officially
printed form as closely as possible; condensed text and abbreviations will be considered on a case-by-
case basis. Exception: All jurats (perjury statements) must be reproduced verbatim.
Manually- Prepared A preprinted reproduced form in which the taxpayer’s tax entry information is entered by an individual
Formusing a pen, pencil, typewriter, or other non-automated equipment.
Computer- Generated A tax return that contains only the taxpayer’s significant line entries, and is formatted three columns per
Answer Sheet Format page with tax form headings, a summary, and jurat. This return is printed on plain white paper using a
Tax Returncomputer printer.
GraphicsThose parts of a printed tax form that are not tax amount entries nor called-for information. Generally,
these are line numbers, captions, shadings, instructions, special indicators, borders, rules, and strokes cre-
ated by typesetting, photographics, photocomposition, etc.
Acceptable A legible photocopy of an original form.
Reproduced Form
Supporting StatementA document providing detailed information to support an entry for a line(s) on an official or approved
(Supplementalsubstitute form and filed with (attached to) a tax return. (A supporting statement is not a tax form and
Schedule)does not take the place of an official form, unless specifically permitted elsewhere in this procedure.)
Specific Forms TermsThe following terms are used throughout this revenue procedure in reference to all substitute forms, with
the exception of the 1040PC “answer sheet format” tax return.
FormatThe overall physical arrangement and general layout of a substitute form.
SequenceThe same numeric and logical placement order of data, as reflected on the official form version. Se-
quence is an integral part of the total format requirement.
Line Reference (Code)The line numbers, letters or alphanumerics used to identify each captioned line on the official forms, and
printed to the immediate left of each caption or data entry field.
Item CaptionThe textual portion of each line on the form identifying the specific data elements required.
Data Entry FieldAll areas designated on a form for the insertion of data, such as dollar amounts, quantities, responses,
checkboxes, etc.
December 28, 1998441998–52 I.R.B.

Agreement
Important StipulationAny person or company who uses substitute forms and makes all or part of the changes specified in this
of This Revenue revenue procedure agrees to the following stipulations:
Procedure
• The Internal Revenue Service presumes the changes are made in accordance with these procedures and,
as such, will be noninterruptive to the processing of the tax return.
• Should any of the changes prove to be not exactly as described, and as a result become disruptive to the
Internal Revenue Service during processing of the tax return, the person or company agrees to accept
the determination of the IRS as to whether or not the form may continue to be used during the filing
season.
• The person or company agrees to work with the IRS in correcting noted deficiencies. Notification of
deficiencies may be made by any combination of fax, letter, email, or phone contact and may include
the return of unacceptable forms for resubmission of acceptable forms.
1998–52 I.R.B.45December 28, 1998

Chapter 2
General Guidelines for Submissions and Approvals
General Specifications for Approval
OverviewIf you produce any tax returns and forms using IRS guidelines on permitted changes, you can generate
your own substitutes without further approval. If your changes are more extensive, you must get official
approval before using substitute forms. These changes include the use of typefaces and sizes other than
those found on the official form and the condensing of line item descriptions to save space.
SchedulesSchedules are considered to be an integral part of a complete tax return when assigned consecutive page
numbers and printed contiguously with page 1 of the return.
Example of Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is an example of this
Schedules That Mustsituation, where Schedules A through S have pages numbered as part of the basic return. For a Form 706
Be Submitted Withto be approved, the entire form including Schedules A through S must be submitted.
the Return
Examples ofHowever, Schedules 1, 2, and 3 of Form 1040A are examples of schedules that can be separately
Schedules That Cancomputer-generated. Although printed by the IRS as a continuation of Form 1040A, none of these sched-
Be Submitted ules have page numbers that require them to be filed with Form 1040A, and may, therefore, be separated
Separatelyfrom Form 1040A and submitted as computer-generated substitute schedules.
Use and Distribution ofThe Internal Revenue Service is continuing a program to identify and contact tax return preparers, forms
Unapproved Formsdevelopers, and software publishers who use or distribute unapproved forms that do not conform to this
revenue procedure. The use of unapproved forms impedes processing of the returns.
Highlights of Permitted Changes and Requirements
Methods ofOfficial versions are supplied by the Internal Revenue Service, such as those in the taxpayer’s tax
Reproducing Internalpackage, those printed in revenue procedures, and over-the-counter forms available at IRS and other
Revenue Service Formsgovernmental public offices or buildings. Forms are also available on CD-ROM, and on-line via Fed-
world and the Internet.
There are methods of reproducing Internal Revenue Service printed tax forms suitable for use as substi-
tute tax forms without prior approval.
• You can photocopy most tax forms and use them instead of the official ones. The entire substitute form,
including entries, must be legible.
• You can reproduce any current tax form as cut sheets, snapsets, and marginally punched, pin-fed forms
so long as you use an official IRS version as the master copy.
• You can reproduce a “signature form” as a valid substitute form. Many tax forms (including returns)
have a taxpayer signature requirement as part of the form layout. The jurat/perjury statement/signature
line areas must be retained and worded exactly as on the official form. The requirement for a signature
by itself does not prohibit a tax form from being properly computer-generated.
• You can computer-generate Answer Sheet Format Tax Returns on plain bond paper using IRS-accepted
software for the 1040PC format for return types 1040EZ, 1040, 1040A, and attachments, forms, and
schedules.
December 28, 1998461998–52 I.R.B.

Vouchers
OverviewAll payment vouchers (Forms 940–V, 940–EZ(V), 941–V, 943–V, 945–V, 1040–V, and 2290–V) must be
reproduced. Substitute vouchers must be the same size as the officially printed vouchers. Vouchers that
are prepared for printing on a laser printer may include a scanline.
ScanlineNNNNNNNNN AA AAAA NN N NNNN NNN
SpecificationsAB C D E F G
A - Social Security Number/Employer Identification Number (SSN/EIN) has 9 numeric spaces.
B - Check Digit has 2 alpha spaces.
C - Name Control has 4 alphanumeric spaces.
D - Master File Tax (MFT) Code has 2 numeric spaces (see below).
E - Taxpayer Identification Number (TIN) Type has 1 numeric space (see below)
F - Tax period has four numeric spaces in year/month format (YYMM).
G - Transaction Code has 3 numeric spaces.
MFT CodeCode Number for:
• Form 1040 family - 30;
• Form 940/940–EZ - 10;
• Form 941 - 01;
• Form 943 - 11;
• Form 945 - 16; and
• Form 2290 - 60.
TIN TypeType Number for:
• Form 1040 family - 0; and
• Forms 940, 940–EZ, 941, 943, 945, and 2290 - 2.
Voucher SizeThe voucher size must be exactly 8.0” 33.25”. The document scanline must be vertically positioned
1.625 inches from the bottom of the scanline to the bottom of the voucher. The right most character of
the scanline must be placed 3.5 inches from the right leading edge of the document. The maximum verti-
cal displacement is .06 inches. The minimum required horizontal clear space between characters is .014
inches. The line to be scanned must have a clear band 0.25 inches in height from top to bottom of the
scanline, and from border to border of the document. “Clear band” means no printing except for dropout
ink.
Print and Paper WeightVouchers must be imaged in black ink using OCR A or OCR B, size 1 font. The paper must be 20 to 24
pound OCR bond paper weight.
Restrictions on Changes
Things You CANNOTYou cannot, without prior IRS approval, change any Internal Revenue Service tax form or use your own
Do to IRS Forms (non-approved) versions (preprinted labels), including graphics, unless specifically permitted by this
Suitable for Substituterevenue procedure.
Tax Forms
You cannot adjust any of the graphics on Forms 1040, 1040A, and 1040EZ (except in those areas speci-
fied in Chapter 5 of this revenue procedure) without prior approval from the IRS Substitute Forms Pro-
gram.
You cannot use your own preprinted label on tax returns filed with IRS, unless you fully comply with the
exception criteria specified in the section on use of preaddressed IRS labels in this revenue procedure.
1998–52 I.R.B.47December 28, 1998

Guidelines for Obtaining IRS Approval
Basic RequirementsPreparers who desire to file substitute privately designed and printed tax forms and/or computer-gener-
ated and computer-prepared tax forms must develop such substitutes using the guidelines for substitute
forms established in this chapter. These substitutes, unless excepted by revenue procedure, must be ap-
proved by the IRS before being filed.
1040PC Format ReturnA software developer who wants to market, distribute, or use for its own clientele, a tax preparation pack-
age featuring the 1040PC tax return format, must first file an application to participate in the program.
Only after successfully fulfilling test requirements will a developer’s software package be accepted by
the IRS to produce 1040PC tax returns.
Conditional ApprovalThe Internal Revenue Service cannot grant final approval of your substitute form until the official form
Based on Advancehas been published. However, the IRS has established a location on the Internet for the posting of
Draftsadvance drafts of forms. This site can be reached through the Tax Professional’s Corner at
http://www.irs.ustreas.gov/prod/bus_info/tax_pro.
We encourage submission of proposed substitutes of these advance draft forms, and will grant conditional
approval based solely on these early drafts. These advance drafts are subject to significant change before
forms are finalized. If these advance drafts are used as the basis for your substitute forms, you will be re-
sponsible for subsequently updating your final forms to agree with the final official version before use.
These revisions need not be submitted for further approval.
NOTE: Approval of forms based on advance drafts will not be granted after the final version of an official
form is published.
• Any alteration of forms must be within the limits acceptable to the Service. It is possible that, from one
filing period to another, a change in law or a change in internal need (processing, audit, compliance,
etc.) may change the allowable limits for the alteration of the official form.
• When specific approval of any substitute form (other than those specified in Chapter 2, IRS Contacts)
is desired, a sample of the proposed substitute should be forwarded for consideration by letter to the
Substitute Forms Program Coordinator at the address shown in Chapter 2.
• To expedite multiple forms approval, we prefer that your proposed forms be submitted in separate sets
by return. For example, Forms 1040 and their normally related schedules or attachments should be
submitted separately from Forms 1120, 1065, 5500 Series, etc., if at all possible. Schedules and forms
(e.g., Forms 3468, 4136, etc.) that can be used with more than one type of return (e.g., 1040, 1041,
1120, etc.) should be submitted only once for approval, regardless of the number of different tax returns
with which they may be ultimately associated. In addition, all pages of a multipage form or return
should be submitted in the same package.
Approving OfficesAs no IRS office except the ones specified in this procedure (per the chart in Chapter 1) are authorized to
approve substitute forms, unnecessary delay may result if forms are sent elsewhere for approval. All
forms submitted to any other office must be forwarded to the appropriate office for formal control and re-
view. The Substitute Forms Program Coordinator may then coordinate the response with the program an-
alyst responsible for the processing of that form. Such coordination may include allowing the analyst to
officially approve the form. No IRS office is authorized to allow deviations from this revenue procedure.
Service’s Review of The IRS does not review or approve the logic of specific software programs, nor confirm the calculations
Software Programs, etc. entered on forms output from these programs that are submitted for approval. The accuracy of the pro-
gram itself remains the responsibility of the software package developer, distributor, or user. The Substi-
tute Forms Program is primarily concerned with the prefiling quality review of the final forms output,
produced by whatever means, that are expected to be processed by IRS field offices. For the above rea-
sons, it is suggested that you submit forms without including any “taxpayer” information such as names,
addresses, monetary amounts, etc.
December 28, 1998481998–52 I.R.B.

Guidelines for Obtaining IRS Approval, Continued
When to Send Proposed substitutes, which are required to be submitted per this revenue procedure, should be sent as
Proposed Substitutesmuch in advance of the filing period as possible. This is to allow adequate time for analysis and re-
sponse.
AccompanyingWhen the sample substitute is submitted, there should be an accompanying statement that lists the form
Statementnumber of each substitute requested and detail those items that deviate from the official form in position,
arrangement, appearance, line numbers, additions, deletions, etc. Included with each of the items should
be a detailed reason or justification for the change and an approximation of the number of forms expected
to be filed.
When requesting approval for multiple forms, the statement should be presented as a checksheet. Check-
sheets are not mandatory, but do facilitate the approval process. The checksheet may look like the exam-
ple (Exhibit C) displayed in the back of this procedure or may be one of your own design. Please include
your fax number on the checksheet.
Approval/Non-The Substitute Forms Coordinator will fax the checksheet or an approval letter back to the originator if a
Approval Noticefax number has been provided, unless:
• the requester has asked for a formal letter; or
• significant corrections are required to the submitted forms.
Notice of approval may contain qualifications for use of the substitutes. Notices of non-approval letters
may specify the changes required for approval, and may also require resubmission of the form(s) in ques-
tion. Telephone contact is used when possible.
Duration of ApprovalMost signature tax returns and many of their schedules and related forms have the tax (liability) year
printed in the upper right corner. Approvals for these forms are usually good for one calendar year (Janu-
ary through December of the year of filing). Quarterly tax forms in the 94X series, and Form 720, require
approval for any quarter in which the form has been revised.
• If the preprinted year is the only change made to a form, the form for the upcoming year is not subject
to review.
• Otherwise, each new filing season requires a new approval.
Limited Continued UseLimited continued use of a change approved for one tax year may be allowed for the same form in the
of Approved Changefollowing tax year. Examples of such limitations and requirements are the use of abbreviated words, re-
vised form spacing, compressed text lines, shortened captions, etc., which do not change the consistency
of lines or text on the official forms.
If substantial changes are made to the form, new substitutes must be submitted for approval. If only
minor editorial changes are made to the form, it is not subject to review.
If you received written approval of a previous tax year substitute form governed by this revenue proce-
dure and continue to use the approved change on your current tax year substitute form, you may revise
your form to include this change and, without additional written approval, use it as a current tax year sub-
stitute form, provided you comply with the requirements in this revenue procedure.
When Approval IsIf you received written approval for a specific change on a specific form last year, such as deleting the
Not Requiredvertical lines used to separate dollars and cents on some forms and schedules, e.g., Schedules A&B of
Form 1040, you may again make the same change on the same form this year if the item changed is still
present on this year’s official form.
• The new substitute does not have to be sent to the IRS and written approval is not required.
• However, the new substitute must conform to the official current year IRS form in other respects: date,
Office of Management and Budget (OMB) approval number, attachment sequence number, Paperwork
Reduction Act Notice statement, arrangement, item caption, line number, line reference, data sequence,
etc.
1998–52 I.R.B.49December 28, 1998

Guidelines for Obtaining IRS Approval, Continued
When Approval• It must also comply with this revenue procedure—which may have eliminated, added to, or otherwise
Is Not Requiredchanged the guideline(s) which affected the change approved last year.
(continued)
Exception:Those written approvals which state that the approved change or form would not be allowed
in any other tax year, or for a temporary, limited, or interim approval pending resolution of a failure to
meet one or more IRS-prescribed requirements.
• This authorization for continued use of an approved change is limited to the continuation of design
logic from an immediately prior tax year substitute form to a current tax year substitute form.
Continuous Use FormsForms without preprinted tax years are called “continuous use” forms. Many of these forms had expira-
tion dates, but these are being phased out. Continuous use forms are revised when a legislative change
affects the form or a change will facilitate processing.
Internet Program ChartA chart of print dates (for annual and quarterly forms) and most current revision dates (for continuous use
forms) will be maintained on the Internet. For further details, see the section on Internet access in Chapter
4 of this revenue procedure.
Required CopiesGenerally, you must send us one copy of each form being submitted for approval. However, if you are
producing forms for different computer systems (e.g., IBM (or compatible) vs. MacIntosh) or different
types of printers (laser vs. dot matrix), and these forms differ significantly in appearance, submit one copy
for each type of system or printer.
Requestor’s Following the receipt of initial approval for a substitute forms package, or of a software output program
Responsibility Afterto print substitute forms, it is the responsibility of the originator (designer or distributor) to provide each
Receipt of Approvalsubsequent client firm or individual with the pertinent Service forms requirements that must be met for
continuing acceptability.
Examples of this responsibility include:
• The use of prescribed print paper, font size, legibility, state tax data deletion,
• The legal requirements of the Paperwork Reduction Act Notice for informing all users of substitute
forms of the official use and collection requirements stated in the instructions for the official IRS
forms, completion of documents, etc.
Source CodeThe Substitute Forms Program Unit, OP:FS:FP:F:CD, will assign a unique source code to each firm that
submits substitute paper forms for approval. This will be a permanent control number that should be used
on every form created by a particular firm.
• This source code should be printed at the bottom left margin area on the first page of every approved
substitute paper form.
• The source code for paper returns consists of three alpha characters.
• This source code should not be used on optically scanned (OCR) forms, except for certain specified
Forms 1040–ES.
Office of Management and Budget (OMB) Requirements for All Substitute Forms
OMB Requirements Legal Requirements of the Paperwork Reduction Act of 1995 (“Act”). Public Law 104–13 requires that:
for All Substitute
Forms• OMB approve all IRS tax forms that are subject to the Act,
• Each IRS form contains (in the upper right corner) the OMB number, if any, and
December 28, 1998501998–52 I.R.B.

Office of Management and Budget (OMB) Requirements for All Substitute Forms, Continued
OMB Requirements• Each IRS form (or its instructions) states why IRS needs the information, how it will be used, and
for All Substitutewhether or not the information is required to be furnished.
Forms (continued)
This information must be provided to every user of official or substitute tax forms.
Application of Act to On forms to which OMB numbers have been assigned:
Substitute Forms
• All substitute forms must contain in the upper right corner the OMB number that is on the official form.
• Format Required - OMB No. XXXX-XXXX (Preferred) or OMB # XXXX-XXXX.
Required ExplanationYou must also inform the users of your substitute forms of the IRS use and collection requirements stated
to Usersin the instructions for the official Internal Revenue Service form.
• If you provide your users or customers with the official IRS instructions, page 1 of each form must re-
tain either the Paperwork Reduction Act Notice, or a reference to it as the IRS does on the official
forms (usually in the lower left corner of the forms).
• If the IRS instructions are not provided to users of your forms, the exact text of the Paperwork Reduc-
tion Act Notice must be furnished on the form or separately.
• This notice reads, in part, “We ask for this information to carry out the Internal Revenue laws of the
United States. You are required to give us the information. We need it to ensure that you are comply-
ing with these laws and to allow us to figure and collect the right amount of tax...”
• You must also include a copy of the alternative statement provided to users of your forms with the
forms you submit for approval.
Obtaining OMB The OMB number and Paperwork Reduction Act Notice may be obtained from the official form (or its
Number and Noticeinstructions), or any format produced by the IRS (e.g., Compact Disc (CD), Internet download, or Bul-
letin Board System (BBS) download).
1998–52 I.R.B.51December 28, 1998

Chapter 3
Physical Aspects and Requirements
General Guidelines for Substitute Forms
General InformationThe Official Form is the standard. Because a substitute form is a variation from the official form, you
should know the requirements of the official form for the year of use before you modify it to meet your
needs. The Internal Revenue Service provides several means of obtaining the most frequently used tax
forms. These include the Internet, fax-on-demand, CD-ROM and an electronic forms bulletin board (see
chapter 4).
DesignEach form must follow the design of the official form as to format arrangement, item caption, line num-
bers, line references, and sequence.
State Tax Information State tax information must not appear (be visible) on the federal tax return or associated form or
Prohibitedschedule which is filed with the Internal Revenue Service, except where amounts are claimed on or
required by the federal return, e.g., state and local income taxes, Schedule A (Form 1040).
Vertical Alignment
of Amount Fields
Attachment Sequence• Most individual income tax forms have a required “attachment sequence number” located just below
Numberthe year designation in the upper right corner of the form. The Internal Revenue Service uses this num-
ber to indicate the order in which forms are to be attached to the tax return so they may be processed
in that order. Some of the attachment sequence numbers may change each year.
On computer-prepared forms:
• It must be printed in no less than 12-point boldface type and centered below the form’s year designa-
tion.
December 28, 1998521998–52 I.R.B.
IF
a form is to be manually prepared
THEN
• The federal column must have a vertical line or
some type of indicator in the amount field to
separate dollars from cents if the official form
has a vertical line.
• The cents column must be at least 2/10” wide.
If a form is to be..
Computer-generated
Computer-prepared
Then...
• Vertically align the amount entry fields where
possible.
• Use one of the following amount formats:
• 0,000,000.
• 0,000,000.00
• You may remove the vertical line in the amount
field that separates dollars from cents.
• Use one of the following amount formats:
• 0,000,000.
• 0,000,000.00

General Guidelines for Substitute Forms, Continued
Attachment Sequence• The sequence number must be placed following the year designation for the tax form and
Number (continued)separate with an asterisk.
• It is not necessary to duplicate the “Attachment Sequence Number” wording, except for the actual num-
ber.
Paid Preparer’sOn Forms 1040EZ, 1040A, 1040, and 1120, etc., the “Paid Preparer’s Use Only” area may not be
Information andrearranged or relocated. You may, however, add three extra lines to the paid preparer’s address area
Signature Areawithout prior approval. This applies to other tax forms as well. Please note that the preparer’s area on
Form 1040EZ is on the bottom of page 2. Substitute Forms 1040EZ with the preparer area in any loca-
tion other than the bottom of page 2 will not be accepted.
Assembly of FormsIf developing software or forms for use by others, please inform your customers/clients that the order in
which the forms are arranged may affect the processing of the package. A return must be arranged in this
order:
Supporting statements should then follow in the same sequence as the forms they support. Additional in-
formation required or voluntarily submitted and should be attached last.
In this way, they are received in the order in which they must be processed. If you do not send them to us
in this order, the Internal Revenue Service has to delay the return package to disassemble them and place
them in order before processing is continued.
Paper
Paper ContentThe paper must be:
• Chemical wood writing paper that is equal to or better than the quality used for the official form,
• At least 18 pound (17” 322”, 500 sheets), or
• At least 50 pound offset book (25” 338”, 500 sheets).
Paper with ChemicalThere are several kinds of paper prohibited for substitute forms. These are:
Transfer Properties• Carbon-bonded paper
• Chemical transfer paper except when the following specifications are met:
• Each ply within the chemical transfer set of forms must be labeled.
• Only the top ply (ply one and white in color), the one that contains chemical on the back only (coat-
ed back), may be filed with the Service.
1998–52 I.R.B.53December 28, 1998
If the Form Is
1040
Any other (form 1120, 1120S, 1065, 1041, etc.)
Then Sequence Is
• Form 1040
• Schedules and forms in sequence numberorder
• The tax return
• Lettered schedules (Schedule D, etc,) in alpha-
betical order
• Nnumber forms in numerical order

Paper, Continued
ExampleA set containing three plies would be constructed as follows: one ply (coated back), “Federal Return, File
with IRS”; ply two (coated front and back), “Taxpayer’s copy”, and ply three (coated front), “Preparer’s
copy.”
• The file designation, “Federal Return, File with IRS,” for ply one must be printed in the bottom right
margin (just below the last line of the form) in 12-point, bold-face type.
• It is not mandatory, but recommended, that the file designation ”Federal Return, File with IRS,” be
printed in a contrasting ink for visual emphasis.
Carbon PaperDo not attach any carbon paper to any return you file with the Internal Revenue Service.
Paper and Ink ColorWe prefer that the color and opacity of paper substantially duplicates that of the original form. This
means that your substitute must be printed in black ink and may be on white or on the colored paper the
IRS form is printed on. Forms 1040A and 1040 substitute reproductions may be in black ink without the
colored shading. The only exception to this rule is Form 1041–ES, which should always be printed with
a very light gray shading in the color screened area. This is necessary to assist us in expeditiously sepa-
rating this form from the very similar Form 1040–ES.
Page SizeSubstitute or reproduced forms and computer prepared/generated substitutes may be the same size as the
official form (8” 311” in most cases) or they may be the standard commercial size (8
1
⁄
2
” 311”) exclu-
sive of pin-feed holes. The thickness of the stock cannot be less than .003 inch.
Printing
Printing MediumThe private printing of all substitute tax forms must be by conventional printing processes, photocopy-
ing, computer-graphics, or similar reproduction processes.
LegibilityAll forms must have a high standard of legibility, both as to printing and reproduction and as to fill-in
matter. Entries of taxpayer data may be no smaller than eight points. The Internal Revenue Service
reserves the right to reject those with poor legibility. The ink and printing method used must ensure that
no part of a form (including text, graphics, data entries, etc.) develops “smears” or similar quality deteri-
oration. This includes any subsequent copies or reproductions made from an approved master substitute
form, either during preparation or during IRS processing.
Type FontMany federal tax forms are printed using “Helvetica” as the basic type font. We request that you use this
type font when composing substitute forms.
Print SpacingSubstitute forms should be printed using a 6 lines/inch vertical print option. They should also be printed
horizontally in 10 pitch pica (i.e., 10 print characters per inch) or 12 pitch elite (i.e., 12 print positions per
inch).
Image SizeThe image size of a printed substitute form should be as close as possible to that of the official form. You
may omit any text on both computer-prepared and computer-generated forms that is solely instructional.
Title Area ChangesTo allow a large top margin for marginal printing and more lines per page, the title line(s) for all substi-
tute forms (not including the form’s year designation and sequence number, when present), may be pho-
tographically reduced by 40 percent or reset as one line of type. When reset as one line, the type size may
be no smaller than 14-point. You may omit “Department of the Treasury, Internal Revenue Service” and
all reference to instructions in the form’s title area.
December 28, 1998541998–52 I.R.B.

Printing
Remove GovernmentWhen privately printing substitute tax forms, the Government Printing Office symbol and/or jacket
Printing Office Symbolnumber must be removed. In the same place, using the same type size, print the Employer Identification
and IRS CatalogNumber (EIN), the Social Security Number (SSN) of the printer or designer, or the IRS assigned source
Numbercode. (We prefer this last number be printed in the lower left area of the first page of each form.) Also re-
move the IRS Catalog Number, if one is present in the bottom center margin, and the Recycle Symbol, if
the substitute is not produced on recycled paper.
Printing on OneWhile it is preferred that both sides of the paper be used for substitute and reproduced forms, resulting in
Side of Paperthe same page arrangement as that of the official form or schedule, the IRS will not reject your forms if
only one side of the paper is used.
Photocopy EquipmentThe Internal Revenue Service does not undertake to approve or disapprove the specific equipment or
process used in reproducing official forms. Photocopies of forms must be entirely legible and satisfy the
conditions stated in this and other revenue procedures.
ReproductionsReproductions of official forms and substitute forms that do not meet the requirements of this revenue
procedure may not be filed instead of the official forms. Illegible photocopies are subject to being
returned to the filer for resubmission of legible copies.
Removal ofYou may remove all references to instructions. No prior approval is needed. One exception is that the
Instructionsstatement, “For Paperwork Reduction Act Notice, see instructions”, must be retained or a similar state-
ment provided on each form.
MARGINS
Margin SizeThe format of a reproduced tax return when printed on the page must have margins on all sides at least
as large as the margins on the official form. This allows room for IRS employees to make the necessary
entries on the form during processing.
• A 1/2” to 1/4” inch margin must be maintained across the top, bottom, and both sides (exclusive of any
pin-fed holes) of all computer-generated substitutes.
• The marginal, perforated strips containing the pin-fed holes must be removed from all forms prior to
filing with the Internal Revenue Service.
Marginal PrintingNon-tax material allowed in limited areas.
• Printing is never allowed in the top right margin of the tax return form (i.e., Forms 1040, 1040A,
1040EZ, 1120, 940, 941, 5500 Series, etc.). The Service uses this area to imprint a Document Locator
Number for each return.
• With the exception of the actual tax return forms (i.e., Forms 1040, 1040A, 1040EZ, 1120, 940, 941,
etc.), you may print in the left vertical margin and in the left half of the bottom margin.
Prior approval is not required for the marginal printing allowed when printed on an official form or on a
photocopy of an official form.
The marginal printing allowance is also the guide for the preparation of acceptable substitute forms.
There is no exception to the requirement that no printing is allowed in the top right margin of the tax
return form.
1998–52 I.R.B.55December 28, 1998

Examples of Approved Formats
Examples of ApprovedTwo sets of exhibits (Exhibits A–1, A–2, B-1, and B–2) are at the end of this revenue procedure. These
Formats From theare examples of how the guidelines in this revenue procedure may be used in some specific cases.
ExhibitsVertical spacing is six (6) lines to the inch.
Examples ofExamples of acceptable computer-generated formats are also shown in the Exhibits section of this
Acceptable computer-revenue procedure. Exhibits CG-A and CG-B show computer-generated Schedules A and B. Vertical
generated formatsspacing is six (6) lines to the inch. You may also refer to them as examples of how the guidelines in this
revenue procedure may be used in specific cases. A combination of upper and lower case print fonts is ac-
ceptable in producing the computer-generated forms included in this procedure. This same logic for com-
puter-generated forms can be applied to any IRS form that is normally reproducible as a substitute form,
with the exception of tax return forms as discussed elsewhere. These examples are from a prior year and
are not to be used as substitute forms.
Miscellaneous Information for Substitute Forms
Filing Substitute FormsTo be acceptable for filing, a substitute return or form must print out in a format that will allow the party
submitting the return to follow the same instructions as for filing official forms. These instructions are in
the taxpayer’s tax package or in the related form instructions. The form must be on the appropriate size
paper, be legible, and include a jurat where one appears on the published form.
Caution to SoftwareThe IRS has received returns produced by software packages with approved output where either the form
Publishersheading was altered or the lines were spaced irregularly. This produces an illegible or unrecognizable re-
turn or a return with the wrong number of pages. We realize that many of these problems are caused by
individual printer differences but they may delay input of return data and, in some cases, generate corre-
spondence to the taxpayer. Therefore, in the instructions to the purchasers of your product, both individ-
ual and professional, please stress that their returns will be processed more efficiently if they are properly
formatted. This includes:
• Having the correct form numbers and titles at the top of the return, and
• Submitting the same number of pages as if the form were an official IRS form, with the line items on
the proper pages.
Use Preaddressed If you are a practitioner filling out a return for a client or a software publisher who prints instruction
IRS Labelmanuals, stress the use of the preaddressed label provided in the tax package the IRS sent to the taxpay-
er, when available. The use of this label (or its precisely duplicated label information) is extremely impor-
tant for the efficient, accurate, and economical processing of a taxpayer’s return. Labeled returns indi-
cate that a taxpayer is an established filer and permits us to automatically accelerate processing of those
returns. This results in quicker refunds, more accurate names/addresses and postal deliveries, and less
manual review by IRS functions.
Caution to Producers If you are producing a software package that generates name and address data onto the tax return, do not
of Software Packagesunder any circumstances program either the Service preprinted check digits or a practitioner-derived
Name Control to appear on any return prepared and filed with the Internal Revenue Service.
Programming toWhenever applicable:
Print Forms
• Use only the following label information format for single filers:
JOHN Q. PUBLIC
310 OAK DRIVE
HOMETOWN, STATE 94000
• Use only the following information for joint filers:
JOHN Q. PUBLIC
MARY I. PUBLIC
310 OAK DRIVE
HOMETOWN, STATE 94000
December 28, 1998561998–52 I.R.B.

Chapter 4
Additional Resources
Guidance from Other Revenue Procedures
General Guidance for the substitute tax forms not covered in this revenue procedure and the revenue procedures
that govern their use are as follows:
• Revenue Procedure 94–79, IRS Publication 1355, Requirements and Conditions for the Reproduction,
Private Design, and Printing of Substitute Forms 1040–ES.
• Revenue Procedure 98–33, IRS Publication 1141, General Rules and Specifications for Private Printing
of Substitute Forms W-2 and W-3.
• Revenue Procedure 98–37, IRS Publication 1179, Specifications for Paper Document Reporting and
Paper Substitutes for Forms 1096, 1098, 1099, 5498, and W-2G.
• Revenue Procedure 96–11, IRS Publication 1187, Specifications for Filing Form 1042–S, Foreign Per-
son’s U.S. Source Income Subject to Withholding, on Magnetic Tape.
• Revenue Procedure 96–36, IRS Publication 1220, Specifications for Filing Forms 1098, 1099, 5498,
and W-2G Magnetically or Electronically.
• Revenue Procedure 95–18, IRS Publication 1223, Specifications for Private Printing of Substitute
Forms W-2c and W-3c.
Ordering Publications
Sources of PublicationsThe publications listed below may be ordered by calling 1-800-TAX-FORM (1-800-829-3676). Identify
the requested document by IRS publication number:
• Pub. 1141, the revenue procedure on specifications for private printing for Forms W-2 and W-3.
• Pub. 1167, the revenue procedure on substitute printed, computer- prepared, and computer-generated
tax forms and schedules. This publication is available from the IRS Internet website.
• Pub. 1179, the revenue procedure on paper substitute information returns (Forms 1096, 1098, 1099,
5498, and W-2G).
• Pub. 1192, Catalog of Reproducible Forms and Instructions.
• Pub. 1220, the revenue procedure on electronic or magnetic tape and magnetic diskette reporting for in-
formation returns (Forms 1098, 1099 series, 5498, and W-2G).
• Pub. 1223, the revenue procedure on substitute Forms W-2c and W-3c.
• Pub. 1239, Specifications for Filing Form 8027, Employer’s Annual Information Return of Tip Income
and Allocated Tips, on Magnetic Tape.
• Pub. 1245, Magnetic Tape Reporting for Forms W-4.
• Pub. 1345, Handbook for Electronic Filers of Individual Income Tax Returns (Tax Year 1997). (This is
an annual publication; tax year is subject to change). This publication is available from the IRS Inter-
net website.
1998–52 I.R.B.57December 28, 1998

Ordering Publications, Continued
Sources of Pub. 1345–A, Handbook for Electronic Filers of Individual Income Tax Returns (Tax Year 1997)
Publications (Supplement). This publication, printed in the late fall, supplements Publication 1345.
(continued)
• Pub. 1355, the revenue procedure on the requirements for substitute Form 1040–ES.
Where To OrderIf you are mailing your order, the address to use is determined by your location.
Electronic Tax Products
The InternetCopies of tax forms with instructions, publications, and other tax related materials may be obtained via
the Internet. Forms can be downloaded in several file formats (PDF- Portable Document Format, PS -
PostScript, and PCL - Printer Control Language). Those choosing to use PDF files for viewing on per-
sonal computer can also download a free copy of the Adobe Acrobat Reader.
• World Wide Web - http://www.irs.ustreas.gov
• FTP - ftp.irs.ustreas.gov
• Telnet - iris.irs.ustreas.gov
Access to these sites is free but time on the Internet is subject to the fees charged by your Internet
provider.
Fedworld (BBS)The Internal Revenue Information Systems (IRIS) Bulletin Board can be reached via FedWorld, an aggre-
gation of federal BBS maintained by the Department of Commerce. IRIS can be reached directly by
modem at (703) 321-8020; FedWorld’s main number is (703) 321-3339. These are toll calls.
Tax FaxThe most frequently requested tax forms, instructions, and other information are available through IRS
Tax Fax at (703) 368-9694. Call from your fax machine and follow the voice prompts. Your request will
be transmitted directly back to you. Each call is limited to requesting three items; users pay the telephone
line charges.
December 28, 1998581998–52 I.R.B.
IF YOU LIVE IN THE...THEN MAIL YOUR ORDER TO. .
Western United StatesWestern Area Distribution Center
Rancho Cordova, CA 95743-0001
Central United StatesCentral Area Distribution Center
P.O. Box 8903
Bloomington, IL 61702-8903
Eastern United States orEastern Area Distribution Center
or a foreign countryP.O. Box 85074
Richmond, VA 23261-5074

Electronic Tax Products, Continued
Report of Print Dates The Service makes available a site on the Internet that shows print dates for returns processing forms. It
is in three parts:
• Schedule of anticipated print dates of annual returns,
• Schedule of anticipated print dates of quarterly returns, and
• Schedule of last revision dates for continuous use only forms.
The site address is http://www.irs.ustreas.gov/prod/bus_info/tax_pro/formsch.html. The site will be
updated weekly during peak printing periods and as necessary at other times.
Federal Tax Forms on CD-ROM
Information About The CD-ROM contains over 2,000 tax forms and publications for small businesses, retrurn preparers, and
Federal Tax Formsothers who frequently need current or prior year tax products. Most current tax forms on the CD-ROM
CD-ROMmay be filled in electronically, then printed out for submission. Other products on the CD-ROM include
the Internal Revenue Bulletin, Tax Supplements, and Internet resources for the tax professional with links
to the World Wide Web.
All necessary software to view the files must be installed from the CD-ROM. Software for Microsoft
Windows 3.x and Macintosh System 7.5 and later is included on the disk. The software will also run
under Windows 95/98/NT. All products are presented in Adobe’s Portable Document Format (PDF). A
copy of the Adobe Acrobat Reader is on the CD. In addition, the TIPs will be provided in the Standard
Generalized Markup Language (SGML).
System RequirementsFor system requirements, contact the National Technical Information Service (NTIS) help desk at
and How to Order the703-487-4608.
Federal Tax Forms
CD-ROMThe cost of the CD if purchased via the Internet at http://www.ustreas.gov/cdorders from NTIS is $13
(plus a $5 handling fee). If purchased using the following methods the cost is $20 (plus a $5 hadling fee).
• by phone - 1-877-CDFORMS (1-877-233-6767)
• by fax - (703) 605-6900
• by mail using the order form contained in IRS Publication 1045 (Tax Professionals Program)
• by mail to:
National Technical Information Service
5285 Port Royal Road
Springfield, VA 22161
There is a $7 discount per CD on orders of 50 or more copies.
1998–52 I.R.B.59December 28, 1998

Chapter 5
Requirements for Specific Tax Returns
Tax Returns (Form 1040, 1040A, 1120, Etc.)
Acceptable FormsThere are acceptable computer-generated versions of a tax return form (e.g., Form 1040, 1040A, 1120,
etc., which requires a signature and that establishes tax liability) that are permitted under the following
conditions:
• These substitute returns must be printed on plain white paper.
• Substitute returns and forms must conform to the physical layout of the corresponding Service form al-
though the typeface may differ. The text should match the text on the officially published form as
closely as possible; condensed text and abbreviations will be considered on a case-by-case basis.
Exception:All jurats (perjury statements) must be reproduced verbatim. No text can be added, deleted,
or changed in meaning. It must be readily identifiable as a valid tax return.
• Various computer-graphic print media such as laser printing, dot matrix addressable printing, etc., may
be used to produce the substitute forms.
• The substitute return must be the same exact number of pages, and contain the same line text as the of-
ficial return.
• All computer-generated tax returns MUST be submitted for approval prior to their original use. Should
you receive an approval letter for a return and the following year’s return has no changes except the
preprinted year, the latter return is not subject to approval. Exception:If the approval letter specifies
a one-time exception for your return, the next year’s return must be approved.
Computer- Generated The accepted condensed print format version for individual returns is the 1040PC “answer sheet format”
Condensed Formattax return. The approval process for Form 1040PC differs from that of traditional forms. See Chapter 7
Versionsfor additional information.
Prohibited FormsThe following are prohibited:
• Tax returns (e.g., Forms 1040, etc.) computer-generated on lined or color-barred paper.
• Tax returns that differ from the official IRS forms in a manner that makes them not standard or process-
able.
Changes Permitted toCertain changes (listed below) are permitted to the graphics of the form without prior approval, but these
Forms 1040 and 1040Achanges apply only to acceptable preprinted forms. Changes not requiring prior approval are good only
for the annual filing period, which is the current Tax Year. Such changes are valid in subsequent years
only if the official form does not change.
Other ChangesAll changes not listed here require prior approval from the Service BEFORE the form may be filed.
Not Listed
Changes Permitted to Graphics (Forms 1040A and 1040)
AdjustmentsYou may make minor vertical and horizontal spacing adjustments to allow for computer or word-pro-
cessing printing. This includes widening the amount columns or tax entry areas so long as the adjust-
ments do not exceed other provisions stated in revenue procedures. No prior approval is needed for these
changes.
December 28, 1998601998–52 I.R.B.

Changes Permitted to Graphics (Forms 1040A and 1040), Continued
Name and AddressThe horizontal rules and instructions within the name and address area may be removed and the entire
Areaarea left blank; no line or instruction can remain in the area. However, the statement regarding use of the
IRS mail label should be retained. The heavy ruled border (when present) that outlines the name and
address area must not be removed, relocated, expanded, or contracted.
Required FormatWhen the name and address area is left blank, the following format must be used when printing the tax-
payer’s name and address. Otherwise, unless the taxpayer’s preprinted label is affixed over the informa-
tion entered in this area, the lines must be filled in as shown:
• 1st name line (35 characters maximum)
• 2nd name line (35 characters maximum)
• In-care-of name line (35 characters maximum)
• City, State (25 char. max.), one blank char., & ZIP (five char.)
Conventional NameWhen there is no in-care-of name line, the name and address will consist of only three lines (single filer)
and Address Dataor four lines (joint filer).
Name and address (joint filer) with no in-care-of name line:
JOHN Z. JONES
MARY I. JONES
1234 ANYWHERE ST., APT 111
ANYTOWN, STATE 12321
Example of In-Name and address (single filer) with in-care-of name line:
Care-Of Name Line
JOHN Z. JONES
C/O THOMAS A. JONES
4311 SOMEWHERE AVE.
SAMETOWN, STATE 54345
Social Security The vertical lines separating the format arrangement of the SSN/EIN may be removed. When the vertical
Number (SSN) and lines are removed, the SSN and EIN formats must be 000-00-0000 or 00-0000000, respectively.
Employer Identification
Number (EIN) Area
Cents Column• You may remove the vertical rule that separates the dollars from the cents.
• All entries in the amount column should have a decimal point following the whole dollar amounts
whether or not the vertical line that separates the dollars from the cents is present.
• You may omit printing the cents, but all amounts entered on the form must follow a consistent format.
You are strongly urged to round off the figures to whole dollar amounts, following the official return in-
structions.
• Where several amounts are summed together, the total should be rounded off subsequent to the addition
(i.e, individual amounts should not be rounded off for computation purposes).
• When printing money amounts, you must use one of the following ten- character formats: (a)
0,000,000. (b) 000,000.00
• When there is no entry for a line, leave the line blank.
“Paid Preparer’s UseOn all forms, the paid preparer’s information area may not be rearranged or relocated. You may add three
Only” Arealines and remove the horizontal rules in the preparer’s address area.
Changes Permitted to Form 104A Graphics
GeneralNo prior approval is needed for the following changes (for use with computer-prepared forms only).
1998–52 I.R.B.61December 28, 1998

Changes Permitted to Form 104A Graphics, Continued
Line 4 of Form 1040AThis line may be compressed horizontally (to allow for same line entry for the name of the qualifying
child) by using the following caption: “Head of household; child’s name” (name field).
Other LinesAny line whose caption takes up two or more vertical lines may be compressed to one line by using con-
tractions, etc., and by removing instructional references.
Page 2 of Form 1040AAll lines must be present and numbered in the order shown on the official form. These lines may also be
compressed.
Color ScreeningIt is not necessary to duplicate the colorscreening used on the official form. A substitute Form 1040A
may be printed in black and white only, with no color screening.
Other ChangesNo other changes to the Form 1040A graphics are allowed without prior approval, except for the removal
Prohibitedof instructions and references to instructions.
Changes Permitted to Form 1040 Graphics
GeneralNo prior approval is needed for the following changes (for use with computer-prepared forms only).
Line 4 of Form 1040This line may be compressed horizontally (to allow for a larger entry area for the name of the qualifying
child) by using the following caption: “Head of household; child’s name” (name field).
Line 6c of Form 1040The vertical lines separating columns (1) through (4) may be removed. The captions may be shortened
to allow a one-line caption for each column.
Other LinesAny other line whose caption takes up two or more vertical lines may be compressed to one line by using
contractions, etc., and by removing instructional references.
Line 21 - Other IncomeThe fill-in portion of this line may be expanded vertically to three lines. The amount entry box must
remain a single entry.
Line 40 of Form 1040 - You may change the line caption to read “Tax” and computer print the words “Total includes tax from”
Ta xand either “Form(s) 8814”, or “Form 4972”.
Line 47 of Form 1040You may change the caption to read: “Other credits from Form” and computer-print only the form(s) that
apply.
Color ScreeningIt is not necessary to duplicate the color screening used on the official form. A substitute Form 1040 may
be printed in black and white only, with no color screening.
Other Changes No other changes to the Form 1040 graphics are permitted without prior approval except for the removal
Prohibitedof instructions and references to instructions.
December 28, 1998621998–52 I.R.B.

Chapter 6
Format and Content of Substitute Returns
Acceptable Formats for Computer-Generated Forms and Schedules
Exhibits and Use of Exhibits of acceptable computer-generated formats for the schedules usually attached to the Form 1040
Acceptable Computer-are shown in the Exhibits section of this revenue procedure.
Generated Formats• If your computer-generated forms appear exactly like the exhibits, no prior authorization is needed.
• Those who want to computer-generate forms not shown here may do so, but they must design such
forms themselves by following the manner and style of those in the Exhibits section of this revenue pro-
cedure, and by taking care to observe other requirements and conditions stated here. The Service
encourages the submission of all proposed forms covered by this revenue procedure.
InstructionsThe format of each substitute schedule or form must follow the format of the official schedule or form as
to item captions, line references, line numbers, sequence, form arrangement and format, etc. Basically,
try to make the form look like the official one, with readability and consistency being primary factors.
You may use periods and/or other similar special characters to separate the various parts and sections of
the form. DO NOT use alpha or numeric characters for these purposes. With the exceptions in the para-
graph below, all line numbers and items must be printed even though an amount is not entered on the line.
Line NumbersWhen a line on an official form is designated by a number or a letter, that designation (reference code)
must be used on a substitute form. The reference code must be printed to the left of the corresponding
captioned line and also immediately preceding the data entry field even if there is no reference code im-
mediately preceding the data entry field on the official form. If an entry field contains multiple lines but
shows the line references only one time on the left and right side of the form, do not use more than the
same number of line references on the substitute return.
In addition, the reference code that is immediately before the data field must either be followed by a peri-
od or enclosed in parentheses. There also must be at least two blank spaces between the period or the
right parenthesis and the first digit of the data field. (See example below.)
Decimal PointsA decimal point (i.e., a period) should be used for each money amount regardless of whether the amount
is reported in dollars and cents or in whole dollars, or whether or not the vertical line that separates the
dollars from the cents is present. The decimal points must be vertically aligned when possible.
Example:
5 STATE & LOCAL INC.
TAX....................5 495.00
6 REAL ESTATE
TAXES................6
7 PERSONAL PROPERTY
TAXES................7 198.00
or
5 STATE & LOCAL INC.
TAX...................(5) 495.00
6 REAL ESTATE
TAXES................(6)
7 PERSONAL PROPERTY
TAXES................(7) 198.00
Multiple Page FormsWhen submitting multiple page forms, send all pages of the form in the same package. If you are not pro-
ducing certain pages, please note that in your cover letter.
1998–52 I.R.B.63December 28, 1998

Additional Instructions for All Forms
Use of Your OwnInternal control numbers and identifying symbols of the computer preparer may be shown on the
Internal Controlsubstitute, if the use of such numbers or symbols is acceptable to the taxpayer and the taxpayer’s repre-
Numbers and sentative. If shown, such information must not be printed in the top
1
⁄
2
” clear area of any form or
Identifying Symbolsschedule requiring a signature. With the exception of the actual tax return form (i.e., Forms 1040, 1120,
940, 941, 5500 Series, etc.), you may print in the left vertical and bottom left margins. The bottom left
margin you may use extends 3
1
⁄
2
inches from the left edge of the form.
Descriptions forDescriptions for captions, lines, etc., appearing on the substitute forms may be limited to one print line
Captions, Lines, etc.by using abbreviations and contractions, and by omitting articles, prepositions, etc. However, sufficient
key words must be retained to permit ready identification of the caption, line, or item.
Derivation of Final Explanatory detail and/or intermediate calculations for derivation of final line totals may be included
Totalson the substitute. We prefer that such calculations be submitted in the form of a supporting statement. If
intermediate calculations are included on the substitute, the line on which they appear may not be num-
bered or lettered. Intermediate calculations may not be printed in the right column. This column is
reserved for official numbered and lettered lines that correspond to the ones on the official form. If a sup-
porting statement is submitted, intermediate calculations or subtotals may be formatted at the preparer’s
option.
Instructional TextText prescribed for the official form, which is solely instructional in nature, e.g., “Attach this schedule
Prescribed for theto Form 1040,” “See instructions,” etc., may be omitted from the substitute form.
Official Form
Mixing of Forms on Information for more than one schedule or form may not be shown on the same printout page. Both
the Same Page sides of the paper may be printed for multiple page official forms; but it is unacceptable to intermix
Prohibited single page schedules of forms, except for Schedules A and B (Form 1040), which are printed back to
back by the Service.
Schedule E can be printed on both sides of the paper, because the official form is multiple page, with page
2 continued on the back. However, do not print Schedule E on the front page and Schedule SE on the
back, or Schedule A on the front and Form 8615 on the back, etc. Both pages of a substitute form must
match the official form version it represents, except that the back page may be blank if the Service form
only contains the instructions thereon.
Identifying Computer-Identify all computer-prepared substitutes clearly; print the form designation
1
⁄
2
” from the top margin
Prepared Substitutesand 1
1
⁄
2
” from the left margin; print the title centered on the first line of print; and print the taxable year
and, where applicable, the sequence number on the same line
1
⁄
2
to 1” from right margin. Include the tax-
payer’s name and SSN on all forms and attachments. Also, print the OMB number as reflected on the
official form.
Negative AmountsNegative (or loss) monetary amount entries should be enclosed in brackets, or signed minus, to assist in
the accurate computation and input of form data. On many official forms the Service preprints brackets
in selected negative data fields, and these designations should be retained or inserted on affected substi-
tute forms.
December 28, 1998641998–52 I.R.B.

Chapter 7
OCR Forms
Special Form 1040EZ Optical Character Recognition/Image Character Recognition (OCR/ICR)
Requirements
Form 1040EZ DesignedThe Form 1040EZ is designed in OCR/ICR format. The IRS has the capability to machine read this
in OCR/ICR Formatform by optical character recognition/image character recognition (OCR/ICR) equipment. Form 1040EZ
data may also be filed electronically or on a 1040PC format return.
An acceptable substitute OCR/ICR Form 1040EZ must generally be an exact replica of the official
OCR/ICR reproduction proof with respect to layout, content, and required OCR/ICR characteristics.
Paper RequirementsThe special paper requirements which must be met for the development of a substitute (privately printed)
for OCR/ICR Form OCR/ICR Form 1040EZ include the following:
1040EZ
1998–52 I.R.B.65December 28, 1998
PropertyRequirements
Color and quality of paperPaper must be white, OCR/ICR grade bond, with no fluorescent addi-
tives or water marks, and with zero rag content.
Reflectivity of paperMust be 80% or greater.
OpacityThe paper opacity ratio must be 80% or more.
Paper WeightSpecified paper weight is 20 lb. OCR/ICR bond (.0035”).
DirtMust not exceed 10 parts per million.
Finish (smoothness)Must be between 90 and 160 units (Sheffield).
PorosityPaper should have a Gurley reading between 15 and 95.
GlossPaper with shiny or lustrous appearance (glossy) should be avoided.
SizeForm trim size must be 8” 311”.

Special Form 1040EZ Optical Character Recognition/Image Character Recognition (OCR/ICR)
Requirements, Continued
Specific InkThe specific ink requirements which must be met for this form include the following:
Requirements
TypographyType must be substantially identical in both size and shape with corresponding type on the official form
reproduction proof.
Proper Alignment To assure proper alignment and position of handprinted characters representing return lines 1 through
and Position of Hand-10 tax data, they must be handprinted (entered) into the preprinted amount field boxes on the form.
printed CharactersA #2 lead wooden pencil, or blue, and/or black ink pen (ball point, fountain, or felt-tipped) is recom-
mended as the writing tool that will consistently provide the required stroke width and print contrast on
entered characters.
Reading of Handprinted Reading of handprinted characters requires adherence to the following techniques:
Character Techniques
• Enter numeric amount digits carefully and clearly. Fill at least 2/3 of the individual character box
height, keeping the character within the box with no overlapping or touching characters. Specific re-
quired digit constraints are shown below.
• When entering “fours”, keep the top open.
• When entering “ones”, do not use serifs.
• When entering “twos”, do not add extra loops.
• All character lines must be connected with no gaps.
Note:All the general and detailed provisions of this revenue procedure apply (in addition to this specific
OCR/ICR Section) to the development of substitute OCR/ICR Forms 1040EZ.
December 28, 1998661998–52 I.R.B.
PropertyRequirements
Print ColorThe face of the form prints in black and green, the back prints in black only
(70 % screen).
InkGreen ink used must be highly reflective OCR/ICR type, such as Flint
J-27975, or an exact match. Black ink used must be nonreflective.
Face RegistrationBlack to green must be .02” (plus or minus) both horizontally and vertically.
Face ScreenForms contain a green-screened background equal to a 15% tone of 110-line
screen. Follow registration marks on repro-proof for screen positioning.
Handprinted boxes are included on Page 1 of the reproduction proof and
should be printed as a 50% value of the recommended OCR/ICR green ink.
Inks used for handprinted boxes must reflect at least 90% of the background
on which it is printed as measured in the visible range.
Face MarginsApproximately 2/6” head from top trimmed edge to screen (
1
⁄
2
” to black
image). 1/6” outside from trimmed edges to screen.
Back Margins
1
⁄
2
” head, 5/16” foot, and 5/16” sides.
Back ScreenBack copy should be screened for 70% tone value.

Computer Generated Alternative Returns, 1040PC Format Return
IntroductionThe Internal Revenue Service offers an electronic approach for filing individual income tax returns. The
1040PC Format Return is an alternative to the conventional preprinted tax return. The 1040PC is an
answer sheet return, generated on a personal computer in a three-column format, that prints only tax data
that is input into the software. Tax returns are filed by tax preparers and taxpayers using commercially
available tax preparation software packages that include the 1040PC Format Return print option.
1040PC Format 1040PC Format Returns are computer-prepared, printed on plain white paper, signed and mailed to the
Returnsdesignated processing center, and processed like any other conventionally filed return.
Software Packages Preparers, or taxpayers, must purchase IRS-accepted tax preparation software packages that include
Must Be Purchasedthe 1040PC print option. All that is necessary to participate in 1040PC is a personal computer, accepted
software, a printer, and plain white paper. The 1040PC is attractive to tax preparers and taxpayers who
might not be interested or capable of electronic filing.
Options Available The Direct Deposit option is available to taxpayers filing 1040PC returns. Balance due returns may
to Taxpayersalso be filed using 1040PC. The payment may be forwarded to the Service Center with a separate pay-
ment voucher (Form 1040–V).
Use of the 1040PC All software used to generate the 1040PC Format Return must be tested and accepted by the
ProgramInternal Revenue Service. Testing will validate 1040PC returns generated by the software and that the
software program is in compliance with validity and consistency checks in the IRS 1040PC project spec-
ifications. Software developers who wish to participate in the 1040PC program must submit Form 9356,
Application for Software Developers to Participate in the 1040PC Answer Sheet for Individual Income
Tax Returns, to the 1040PC Filing Section.
Acceptance CodeUpon successful completion of software acceptance testing, the software developer will be issued a soft-
ware acceptance code that will be embedded into the software and print on every 1040PC return gener-
ated. This is not the same as the Source Code issued by the Substitute Forms Program or the approval
number which is generated for OCR Scannable Application Forms for Employee Plans.
References/ InformationThe Internal Revenue Service believes that 1040PC will prove beneficial to taxpayers, tax preparers,
on the 1040PCand the Service. For specific information about the alternative computer-generated 1040PC Format
Format ReturnReturn, refer to Publication 1678, Project 1040PC, Handbook for 1040PC Format Preparers and Publica-
tion 1630, Project 1040PC, Specifications for Software Developers. You may also call (202) 283-0823 or
write:
Internal Revenue Service
1040PC Filing Office, OP:FS:S:P:S
5000 Ellin Rd
Lanham, MD 20706
Form 941 Requirements – OCR
Form 941 NotThe Service is not currently machine reading (scanning) Form 941 or Schedule B (Form 941).
Machine ReadPrevious instructions labeled “Special Form 941 Requirements” have been removed from this revenue
procedure.
1998–52 I.R.B.67December 28, 1998

OCR Scannable Application Forms for Employee Plans
OCR ScannableForms 4461, 4461–A, 4461-–B, 5300, 5303, 5307, 5310–A, 5310–A, and 6406 are OCR scannable
Documentsdocuments submitted to key district offices for employee plans matters. They may be submitted as com-
puter-generated substitute forms if the requirements of this section are satisfied.
OCR Data Sheet An OCR data sheet must be generated according to the following requirements:
Requirements• Set at least 1” margin at top, bottom, and both sides.
• A data element consists of a less than sign (delimiter), information or at least 5 blank spaces, and a
greater than sign (delimiter). All data elements from page one of the application forms listed above
must be printed on the OCR data sheet, even if no information is entered between the delimiters.
• Each data element must start at the left margin.
• One line for each data field, except for employer and plan name fields which may be two lines. How-
ever, only one set of delimiters may bracket the field, even if the field is on two lines.
• Each data element must appear on the OCR data sheet in the same sequence as printed on the
preprinted form, reading top to bottom and from left to right.
• Each data field must be sequentially numbered at left commencing with 1. See Notice 90–38 for ex-
amples of the acceptable format.
• The data sheet must be printed on 8
1
⁄
2
” x 11” white nonrecycled paper suitable for use with printing
equipment and duplicating machines. A photocopy is not acceptable. Heavyweight bond paper and
onion skin paper are not acceptable.
• Use 10 pitch type in a standard business font (e.g., courier, elite, pica).
• Add at least two spaces before and after each less than and greater than sign (delimiters).
• Do not fold or staple the OCR data sheet. It may remain loose, or be paper or spring clipped to the ap-
plication.
• At the top of the OCR data sheet add the heading “OCR Data Sheet, File With Application Form (Enter
Form Number), Approval Number” (leave nine spaces for approval number).
Where To Send OCRThe OCR data sheet must be submitted for approval to EP OCR Forms Coordinator, OP:E:EP:FC,
Data Sheet forRoom 2232, 1111 Constitution Ave., NW, Washington, DC 20224.
Approval
Submission The OCR data sheet must be submitted with a complete word-for-word identical copy of the applica-
Requirements tion form except as described below. This copy may be a photocopy or a computer-generated substitute
form. Computer-generated substitute forms may be submitted for approval to the address above.
However, except for the OCR data sheet, such approval is not required if the requirements of this revenue
procedure are satisfied. If approval is requested, leave nine spaces for the approval number above the
OMB approval number.
Procedures for FilingThe OCR data sheet replaces the first copy of page 1 of the application which must otherwise be
the OCR Data Sheetsubmitted in duplicate. To avoid confusion when generating the OCR data sheet, the following wording
should be deleted from page 1 of the application: “File page 1 of the form in duplicate” and “Both copies
of this page must be signed”. If the Procedural Requirements Checklist is being generated, the following
line item statements should be modified as indicated. The question “Has page one been submitted in
duplicate” should be modified to read, “Have you submitted the OCR data sheet?”, and the question
“Have you signed both copies of page 1 of the application?” should be modified to read “Have you
signed the application?”
Nonscannable EPNonscannable EP application forms, e.g., Form(s) 5305 and 5306, may be computer generated.
Application FormsThey need not be submitted for approval if the requirements of this revenue procedure are satisfied. If
approval is desired, these forms may be submitted to the Substitute Forms Coordinator.
December 28, 1998681998–52 I.R.B.

Chapter 8
Miscellaneous Forms and Programs
Paper Substitutes for Form 1042–S
Paper SubstitutesPaper substitutes for Form 1042–S, Foreign Person’s U.S. Source Income Subject to Withholding, that
totally conform to the specifications contained in this procedure may be privately printed without prior
approval from the Internal Revenue Service. Proposed substitutes not conforming to these specifications
must be submitted for consideration.
Timeframe forThe request should be submitted by November 15 of the year prior to the year the form is to be
Submission of Form used. This is to allow the Service adequate time to respond and the submitter adequate time to make
1042–S any corrections. These requests should contain a copy of the proposed form, the need for the specific
deviation(s), and the number of information returns to be printed.
RevisionsForm 1042–S is subject to annual review and possible change. Withholding agents and form suppliers
are cautioned against overstocking supplies of the privately printed substitutes.
Obtaining CopiesCopies of the official form for the reporting year may be obtained from most Service offices. The Service
provides only cut sheets (no carbon interleaves) of these forms. Continuous fan-fold/pin-fed forms are
not provided.
Instructions ForInstructions for withholding agents:
Withholding Agents
• Only original copies may be filed with the Service. Carbon copies and reproductions are not accept-
able.
• The term “Recipient’s U.S. taxpayer identification number” for an individual means the social security
number (SSN) or individual taxpayer identification number (ITIN), consisting of nine digits separated
by hyphens as follows: 000-00-0000. For all other recipients, the term means employer identification
number (EIN). The EIN consists of nine digits separated by hyphen as follows: 00-0000000. The tax-
payer identification number (TIN) must be in one of these formats.
• Withholding agents are requested to type or machine print whenever possible, provide quality data en-
tries on the forms (that is, use black ribbon and insert data in the middle of blocks well separated from
other printing and guidelines), and take other measures to guarantee a clear, sharp image. Withholding
agents are not required, however, to acquire special equipment solely for the purpose of preparing these
forms.
• On corrected returns, the words CORRECTED RETURN must be typed in all capital letters in the top
1/4” , right of center margin. All required information must be completed on a corrected return since it
replaces and supersedes the information return previously filed.
• Substitute forms prepared in continuous or strip form must be burst and stripped to conform to the size
specified for a single form before they are filed with the Service. The dimensions are found below.
Computer cards are acceptable provided they meet all requirements regarding layout, content, and size.
1998–52 I.R.B.69December 28, 1998

PropertySubstitute Forms Format Requirements
PrintingPrivately printed substitute Forms 1042-S must be exact replicas of the of-
ficial forms with respect to layout and contents. Only the dimensions of
the substitute form may differ and the printing of the Government Printing
Office symbol must be deleted. The exact dimensions are found below.
Line EntriesLine 1 must be present, line 2 may be omitted if it is not needed. If line 2 is
omitted, also omit line 3.
BoxesNone of the boxes can be omitted. Each box (a through h) must be present
and in the exact order. The box for each payment amount must contain the
appropriate caption.
Color Quality of Paper• Paper For Copy A must be white chemical wood bond, or equivalent, 20
pound (basis 17 322-500), plus or minus 5 percent; or offset book
paper, 50 pound (basis 25 338-500). No optical brighteners may be
added to the pulp or paper during manufacture. The paper must consist
of principally bleach chemical woodpulp or recycled printed paper. It
also must be suitable sized to accept ink without feathering.
• Copies B, C, D (for Recipient), and E (For Withholding Agent) are pro-
vided in the official assembly solely for the convenience of the withhold-
ing agent. Withholding agents may choose the format, design, color and
quality of the paper used for these copies.
Color and Quality of InkAll printing must be in a high quality non-gloss black ink. Bar codes
should be free from picks and voids.
TypographyType must be substantially identical in size and shape to corresponding
type on the official form. All rules on the document are either 1 point
(0.015”) or 3 point (0.045”). Vertical rules must be parallel to the left edge
of the document; horizontal rules, parallel to the top edge.
Dimensions• The official form is 8” wide 35-1/2” deep, exclusive of a
1
⁄
2
snap stub on
the left side of the form. The snap feature is not required on substitutes.
• The width of a substitute Copy A must be a minimum of 7” and a maxi-
mum of 8”, although adherence to the size of the official form is pre-
ferred. If the width of substitute Copy A is reduced from that of the offi-
cial form, the width of each field on the substitute form must be reduced
proportionately. The left margin must be 1/2” and free of all printing
other than that shown on the official form.
• The depth of a substitute Copy A must be a minimum of 5 1/6” and a
maximum of 5 1/2”.
CarbonsCarbonized forms or “spot carbons” are not permissible. Interleaved car-
bons, if used, must be of good quality to preclude smudging and should be
black.
Other CopiesCopies B, C, and D are required to be furnished for the convenience of
payees who are required to send a copy of the form with other federal and
state returns they file. Copy E may be desired as a withholding agent’s
record/copy.
Assembly If all five parts are present, the parts of the assembly shall be arranged from
top to bottom as follows: Copy A (Original) “For Internal Revenue Ser-
vice,” Copies B, C, and D “For Recipient,” and Copy E “For Withholding
Agent.”
December 28, 1998701998–52 I.R.B.
Substitute Forms
Format Requirements

Specifications for Filing Substitute Schedules K–1
Schedule K–1Prior approval is NOT required for a substitute Schedule K-1 that accompanies Form 1065 (for partner-
Requirementsship), Form 1120S (for small business corporation), or a Form 1041 (for fiduciary) when the substitute
Schedule K-1 meets all of the following requirements.
• The Schedule K-1 must contain the payer and recipient’s name, address and SSN/EIN.
• The Schedule K-1 must contain all the items required for use by the taxpayer.
• The line items must be in the same order and arrangement as those on the official form.
• Each taxpayer’s information must be on a separate sheet of paper. Therefore, all continuously printed
substitutes must be separated, by taxpayer, before filing with the Service.
• Schedule K-1 for recipients must have instructions for required line items attached.
• You may be subject to penalties if you file Schedules K-1 with the Service and furnish Schedules K-1
to partners, shareholders, or beneficiaries that do not conform to the specifications of this revenue pro-
cedure.
• The amount of each partner’s shareholder’s or beneficiary’s share of each line item must be shown.
The furnishing of a total amount of each line item and a percentage (or decimal equivalent) to be ap-
plied to such total amount by the partner, shareholder, or beneficiary does not satisfy the law and the
specifications of this revenue procedure.
• If you file Schedules K-1 not conforming to the above specifications, IRS may consider these as not
processable and return them to you to be filed correctly. You may also be subjected to the penalty as
mentioned.
Procedures for Printing Internal Revenue Service Envelopes
Procedures forOrganizations are permitted to produce substitute tax return envelopes. Use of substitute return
Printing IRSenvelopes that comply with the requirements set forth in this section will assist in delivery of mail by
Envelopesthe U.S. Postal Service and facilitate internal sorting once the envelopes are received at the Internal Rev-
enue Service Centers.
The permanent five-digit ZIP codes must be utilized when mailing returns to the prescribed service cen-
ter:
1998–52 I.R.B.71December 28, 1998
Service CenterZip Code
Atlanta, GA39901
Kansas City, MO64999
Austin, TX73301
Philadelphia, PA19255
Memphis, TN37501
Andover, MA05501
Cincinnati, OH45999
Holtsville, NY00501
Ogden, UT84201
Fresno, CA93888

Procedures for Printing Internal Revenue Service Envelopes, Continued
Sorting of Returns The sorting of returns by form type is accomplished by the preprinted bar codes on return envelopes
by Form Typethat are included in each specific type of form or package mailed to the taxpayer. The 32 bit bar code
located to the left of the address on each envelope identifies the type of form that person is filing and
assists the Service in consolidating like returns for processing. Failure to use the envelopes furnished by
the Service results in additional processing time and effort, and possibly delays the timely deposit of
funds, processing of returns, and issuance of refund checks.
Sorting of Returns The Internal Revenue Service will not furnish or sell bulk quantities of preprinted tax return envelopes
by ZIP+4 or 9 Digitto taxpayers or tax practitioners. A suitable alternative has been developed that will accommodate
ZIP Codesthe sorting needs of both the IRS and the U.S. Postal Service. The new alternative is based on the use of
ZIP + 4 or 9 digit ZIP codes for mailing various types of tax returns to the different area service centers.
Essentially, the Postal Service will utilize the last four digits to identify and sort the various form types
into separate groups for processing. The list of add-on four digits or + 4 portion of the 9 digit ZIP codes
with the related form designations is provided below and is to become a permanent part of the five digit
service center ZIP codes shown above.
Add-on Four Digits
or + 4 Portion of the
9 Digit ZIP Codes
Reproducible ProgramThe Reproducible Program that in past years supplied the envelope Reproduction Proofs was abolished
Is AbolishedSeptember 30, 1996. The IRS will no longer provide camera copy to practitioners for the production of
envelopes. Practitioners must develop their own camera copy.
December 28, 1998721998–52 I.R.B.
Form ZIP + FOURPackage
XXXXX-0001Reserved
XXXXX-00021040
XXXXX-0005941
XXXXX-0006940
XXXXX-0008943
XXXXX-00111065
XXXXX-00121120
XXXXX-00131120S
XXXXX-00141040EZ
XXXXX-00151040A
XXXXX-00205500-CR
XXXXX-00245500EZ
XXXXX-0027990
XXXXX-00312290
XXXXX-00445500

Procedures for Printing Internal Revenue Service Envelopes, Continued
Guidelines for HavingUse of preparer company names, addresses, and logos is permissible as long as prescribed clear areas
Envelopes Preprintedare not invaded. The government recommends that the envelope stock have an average opacity not less
than 89 percent and contain a minimum of 50 percent waste paper. Use of carbon-based ink is essential
for effective address and bar code reading. Envelope construction can be of side seam or diagonal seam
design. The government recommends that the size of the envelope should be 5-3/4” by 9”. Continuous
pin-fed construction is not desirable but is permissible if the glued edge is at the top. This requirement
is firm because mail opening equipment is designed to slice or otherwise open the bottom edge of each
envelope.
Envelopes/Zip CodesThe above procedures or guidelines are written for the user having envelopes preprinted. Many practi-
tioners may not wish to have volumes of the different envelopes with differing ZIP codes/form designa-
tions preprinted for reasons of low volume, warehousing, waste, etc. In this case, the practitioner can type
or machine print the addresses with the appropriate ZIP codes to accommodate sorting. If the require-
ments/guidelines outlined in this section cannot be met, then use of only the appropriate five digit service
center ZIP code is needed.
Procedures for Substitute Form 5471 and Form 5472
Form 5471 andThis section covers instructions for producing substitutes for:
Form 5472
• Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations and ac-
companying Schedules J, M, N, and O.
• Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation
Engaged in a U.S. Trade or Business (Under Sections 6038A and 6038C of the Internal Revenue Code).
Paper and Computer-Paper and computer-generated substitutes for Form 5471 and the accompanying Schedules J, M, N,
Generated Substitutes and O, and Form 5472 that totally conform to the specifications contained in this procedure may be pri-
vately printed, but must have prior approval and are subject to annual review from the Internal Revenue
Service.
Official Forms Can Copies of the official forms for the reporting year may be obtained from most Service offices. The
Be Obtained From Service provides only cut sheets of these forms. Continuous fan-folded/pin-fed forms are not provided.
Most Service Offices
Quality Substitute The Service will accept quality substitute tax forms that are consistent with the official forms they
Formsrepresent AND that do not have an adverse impact on our processing. Therefore, only those substitute
forms that conform to, and do not deviate from, the corresponding official forms are acceptable.
Computer- Prepared If the substitute returns and schedules meet the guidelines prescribed herein, the Service will (for
Tax Formsfiling purposes) accept computer-prepared Forms 5471 and 5472 filled in by a computer, word process-
ing equipment or similar automated equipment or a combination of computer-prepared/generated and
filled in information. They may be filed separately or attached to individual or business income tax
returns.
Format ArrangementThe specifications for Form 5471 and 5472 are as follows:
• The substitute must follow the design of the official form as to format, arrangement, item caption, line
numbers, line references, and sequence. It must be an exact textual and graphic MIRROR image of the
official form for it to be acceptable.
• The filer must use one of the official ten character amount formats. All entries in the amount column
should have a decimal point following the whole dollar amounts whether or not the vertical line that
separates the dollars from the cents is present. It must follow a consistent format.
1998–52 I.R.B.73December 28, 1998

Procedures for Substitute Form 5471 and Form 5472, Continued
Format Arrangement• The reference code must be printed to the left of the corresponding captioned line and also immediately
(continued)preceding the data entry field EVEN if there is no reference code preceding the data entry field on the
official form. The reference code that is immediately before the data field must either be followed by a
period or enclosed in parentheses. There also must be at least two blank spaces between the period or
the right parenthesis and the first digit of the data field.
• The size of the page must be the same as the official form (8
1
⁄
2
” 311”).
• The acceptable type is “Helvetica”.
• The spacing of the type must be 6 lines/inch vertical, 10 or 12 print characters per inch horizontally.
• A
1
⁄
2
to 1/4” margin must be maintained across the top, bottom, and both sides (exclusive of any pin-fed
holes).
• The substitute form must be of the same number of pages as the official one.
• The preprinted brackets in the money fields should be retained.
• The filer must COMPLETELY fill in all the specified numbers or referenced lines as they appear on the
official form (not just totals) BEFORE attaching any supporting statement.
• Supporting statements are NEVER to be used until the required official form they support are first to-
tally filled in (completed). A blank or incomplete form that refers to a supporting statement, in lieu of
completing a tax return, is unacceptable.
• Descriptions for captions, lines, etc., appearing in the substitute forms may be limited to one print line
by using abbreviations and contractions, and by omitting articles, prepostitons, etc. However, suffi-
cient key words must be retained to permit ready identification of the caption, line, or item.
• Text prescribed for the official form, which is solely instructional in nature, e.g., “Attach this schedule
to Form 1040”, “See instruction”, etc., may be omitted from the form.
Filing InstructionsInstructions for filing substitute forms are the same as for filing official forms.
December 28, 1998741998–52 I.R.B.

Chapter 9
Alternative Methods of Filing
Forms for Electronically Filed Returns
Electronic FilingElectronic filing is a method by which qualified filers transmit tax return information directly to an
ProgramIRS Service Center over telephone lines in the format of the official Internal Revenue Service forms. The
Service accepts both refund and balance due indiviual tax returns that are filed electronically.
Applying for theAnyone wishing to participate in the Electronic Filing Program for individual income tax returns
Electronic Filing must submit a Form 8633, Application To Participate in the IRS e-file Program. (Note: For business
Program returns, prospective participants must submit a Form 9041, Application For Electronic/Magnetic Media
Filing of Business and Employee Benefit Plan Returns.)
Mailing Intructions
1998–52 I.R.B.75December 28, 1998
IF AN APPLICATION IS FILED FOR...THEN MAIL IT TO:
Form 8633 for Individual Income Taxes (regular mail)Internal Revenue Service
Andover Service Center
Attn: EFU Acceptance - Stop 983
P.O. Box 4099
Woburn, MA 01888-4099
Form 8633 for Individual Income Taxes (overnight mail)Internal Revenue Service
Andover Service Center
Attn: EFU Acceptance -Stop 983
310 Lowell Street
Andover, MA 05501
Form 9041 for Forms 1065Internal Revenue Service
Andover Service Center
Attn: EFU Acceptance - Stop 983
P.O. Box 4050
Woburn, MA 01888-4050
Form 9041 for Forms 1041Internal Revenue Service
Philadelphia Service Center
Attn: DP 115
11601 Roosevelt Blvd.
Philadelphia, PA 19154
Form 9041 for Forms 5500, 5500–C/R, and 5500–EZInternal Revenue Service
Attn: EFU (EPMF), Stop 261
P.O. Box 30309, A.M.F.
Memphis, TN 38310

Forms for Electronically Filed Returns, Continued
Obtaining the The taxpayer signature does not appear on the electronically transmitted tax return and is obtained by
Taxpayer Signaturethe qualified electronic filer on Form 8453, U. S. Individual Income Tax Declaration for Electronic Filing,
for Forms 1040, 1040A, and 1040EZ. Form 8453, which serves as a transmittal for the associated non
electronic (paper) documents, such as Forms W-2, W-2G, and 1099–R, is a one-page form and can only
be approved through the Substitute Forms Program in that format. For specific information about elec-
tronic filing, refer to Publication 1345, Handbook for Electronic Filers of Individual Income Tax Returns.
(Note: For business returns, the electronic/magnetic media participants must use the official Form 8453-
E, F or P, or an approved substitute that duplicates the official form in language, format, content, color,
and size.)
Guidelines forA participant in the electronic filing program who wants to develop a substitute form should follow
Preparing Substitutethe guidelines for preparing substitute forms throughout this publication, and send a sample of the
Forms in the Electronic form for approval to the Substitute Forms Coordinator at the address in Chapter 2. Forms 8453
Filing Programprepared using a font where all IRS-approved wording will not fit on a single page will not be accepted
as a substitute form. This applies primarily to dot-matrix printers, although forms prepared similarly on
laser and inkjet printers will also be rejected. PLEASE NOTE: Use of unapproved forms could result in
suspension of the participant from the electronic filing program.
FTD Magnetic Tape Payments
Instructions forPublication 1315 provides the requirements and instructions for reporting agents who sumit Federal
Reporting Agents Tax Deposits (FTD) payment information on magnetic tape. Magnetic tape submissions for FTD can be
made for Forms 940, 941, 942, 943, 720, CT–1, 990–PF, 990–T, 990–C, 1042, 1120, and Schedule A
(Form 941) Backup Withholding.
Instructions for BanksRevenue Procedure 89–49 (Pub. 1374) provides the requirements and instructions for certain banks
and Fiduciaries and fiduciaries to submit quarterly Form 1041–ES payments on magnetic tape through the Federal Tax
Deposit (FTD) system.
Effect on Other Documents
DocumentsThis revenue procedure supersedes Revenue Procedure 97–54, I.R.B. 1997–50.
Effect on Other
December 28, 1998761998–52 I.R.B.

1998–52 I.R.B.77December 28, 1998

December 28, 1998781998–52 I.R.B.

1998–52 I.R.B.79December 28, 1998

December 28, 1998801998–52 I.R.B.

1998–52 I.R.B.81December 28, 1998

December 28, 1998821998–52 I.R.B.

1998–52 I.R.B.83December 28, 1998

December 28, 1998841998–52 I.R.B.

1998–52 I.R.B.85December 28, 1998

December 28, 1998861998–52 I.R.B.

Social Security Contribution and
Benefit Base for 1999
Under authority contained in the Social
Security Act (“the Act”), the Commis-
sioner, Social Security Administration,
has determined and announced (63 F.R.
58446, dated October 30, 1998) that the
contribution and benefit base for remu-
neration paid in 1998, and self-employ-
ment income earned in taxable years be-
ginning in 1999 is $72,600.
“Old-Law” Contribution and Benefit
Base
General.The 1999 “old-law” contribu-
tion and benefit base is $53,700. This is
the base that would have been effective
under the Act without the enactment of
the 1977 amendments. The base is com-
puted under section 230(b) of the Act as it
read prior to the 1977 amendments.
The “old-law” contribution and benefit
base is used by:
(a) the Railroad Retirement program to
determine certain tax liabilities and tier II
benefits payable under that program to
supplement the tier I payments which cor-
respond to basic Social Security benefits,
(b) the Pension Benefit Guaranty Cor-
poration to determine the maximum
amount of pension guaranteed under the
Employee Retirement Income Security
Act (as stated in section 230(d) of the So-
cial Security Act),
(c) Social Security to determine a year
of coverage in computing the special min-
imum benefit, as described earlier, and
(d) Social Security to determine a year
of coverage (acquired whenever earnings
equal or exceed 25 percent of the “old-
law” base for this purpose only) in com-
puting benefits for persons who are also
eligible to receive pensions based on em-
ployment not covered under section 210
of the Act.
Domestic Employee Coverage
Threshold
General.Section 2 of the “Social Secu-
rity Domestic Employment Reform Act of
1994” (Pub. L. 103–387) increased the
threshold for coverage of a domestic em-
ployee’s wages paid per employer from
$50 per calendar quarter to $1,000 in cal-
endar year 1994. The statute holds the
coverage threshold at the $1,000 level for
1995 and then increases the threshold in
$100 increments for years after 1995. The
formula for increasing the threshold is
provided in section 3121(x) of the Inter-
nal Revenue Code.
Computation.Under the formula, the
domestic employee coverage threshold
amount for 1999 shall be equal to the
1995 amount of $1,000 multiplied by the
ratio of the national average wage index
for 1997 to that for 1993. If the amount so
determined is not a multiple of $100, it
shall be rounded to the next lower multi-
ple of $100.
Domestic Employee Coverage Thresh-
old Amount.The ratio of the national av-
erage wage index for 1997, $27,426.00,
compared to that for 1993, $23,132.67, is
1.1855960. Multiplying the 1995 domes-
tic employee coverage threshold amount
of $1,000 by the ratio of 1.1855960 pro-
duces the amount of $1,185.60, which
must then be rounded to $1,100. Accord-
ingly, the domestic employee coverage
threshold amount is determined to be
$1,100 for 1999.
(Filed by the Office of the Federal Register on
October 29, 1998, 8:45 a.m., and published in the
issue of the Federal Register for October 30, 1998,
63 F.R. 58446)
1998–52 I.R.B.87December 28, 1998

December 28, 1998881998–52 I.R.B.
Deletions from Cumulative List
of Organizations Contributions
to Which Are Deductible Under
Section 170 of the Code
Announcement 98–114
The names of organizations that no
longer qualify as organizations described
in section 170(c)(2) of the Internal Rev-
enue Code of 1986 are listed below.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an orga-
nization ceases to qualify under section
170(c)(2) if the organization has not
timely filed a suit for declaratory judg-
ment under section 7428 and if the con-
tributor (1) had knowledge of the revoca-
tion of the ruling or determination letter,
(2) was aware that such revocation was
imminent, or (3) was in part responsible
for or was aware of the activities or omis-
sions of the organization that brought
about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on (DATE) 1998,
and would end on the date the court first
determines that the organization is not de-
scribed in section 170(c)(2) as more par-
ticularly set forth in section 7428(c)(1).
For individual contributors, the maxi-
mum deduction protected is $1,000, with
a husband and wife treated as one contrib-
utor. This benefit is not extended to any
individual who was responsible, in whole
or in part, for the acts or omissions of the
organization that were the basis for revo-
cation.
Atkins-Chambers Post No. 254 of
American Legion, Inc., Eden, NC
Institute for Higher Healing, Inc.
Richmond, VA
Muscular Dystrophy Aid Society, Inc.
Houston, TX
Tarp Institute, Inc.
Arlington, VA
Notice of Disposition of
Declaratory Judgment
Proceedings Under Section
7428
This announcement serves notice to
donors that on July 23, 1998, the United
States Court of Federal Claims entered a
Stipulation of Dismissal on the Complaint
with reference to the organization listed
below. The Court agreed that the parties
be treated as if the Section 7428 declara-
tory judgment action had not been filed,
which means that the organization’s revo-
cation notice is final and the organization
listed below is not described in section
170(c)(2) and is not recognized as tax ex-
empt under section 501(c)(3) of the Inter-
nal Revenue Code.
LAC Facilities, Inc.
Miami, FL
Part IV. Items of General Interest

1998–52 I.R.B.89December 28, 1998
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

December 28, 1998901998–52 I.R.B.
Numerical Finding List
1
Bulletins 1998–29 through 51
Announcements:
98–62, 1998–29 I.R.B. 13
98–68, 1998–29 I.R.B. 14
98–69, 1998–30 I.R.B. 16
98–70, 1998–30 I.R.B. 17
98–71, 1998–30 I.R.B. 17
98–72, 1998–31 I.R.B.14
98–73, 1998–31 I.R.B.14
98–74, 1998–31 I.R.B.15
98–75, 1998–31 I.R.B.15
98–76, 1998–32 I.R.B.64
98–77, 1998–34 I.R.B.30
98–78, 1998–34 I.R.B.30
98–79, 1998–34 I.R.B.31
98–80, 1998–34 I.R.B.32
98–81, 1998–36 I.R.B.35
98–82, 1998–35 I.R.B. 17
98–83, 1998–36 I.R.B. 36
98–84, 1998–38 I.R.B.30
98–85, 1998–38 I.R.B.30
98–86, 1998–38 I.R.B.31
98–87, 1998–40 I.R.B.11
98–88, 1998–41 I.R.B. 14
98–89, 1998–40 I.R.B.11
98–90, 1998–42 I.R.B.22
98–91, 1998–40 I.R.B.12
98–92, 1998–41 I.R.B.15
98–93, 1998–43 I.R.B.10
98–94, 1998–43 I.R.B.32
98–95, 1998–44 I.R.B.13
98–96, 1998–44 I.R.B.18
98–97, 1998–44 I.R.B.18
98–98, 1998–44 I.R.B.18
98–99, 1998–46 I.R.B.34
98–100, 1998–46 I.R.B.42
98–101, 1998–45 I.R.B.27
98–102, 1998–45 I.R.B.28
98–103, 1998–47 I.R.B.12
98–104, 1998–47 I.R.B. 13
98–105, 1998–49 I.R.B.21
98–106, 1998–48 I.R.B.10
98–107, 1998–48 I.R.B.10
98–108, 1998–48 I.R.B.12
98–109, 1998–50 I.R.B.20
98–110, 1998–50 I.R.B.21
98–111, 1998–50 I.R.B.21
98–112, 1998–51 I.R.B.46
98–113, 1998–51 I.R.B.48
Court Decisions:
2063, 1998–49 I.R.B. 6
2064, 1998–37 I.R.B. 4
2065, 1998–39 I.R.B.7
Notices:
98–36, 1998–29 I.R.B. 8
98–37, 1998–30 I.R.B.13
98–38, 1998–34 I.R.B.7
98–39, 1998–33 I.R.B.11
98–40, 1998–35 I.R.B. 7
98–41, 1998–33 I.R.B.12
98–42, 1998–33 I.R.B.12
98–43, 1998–33 I.R.B.13
98–44, 1998–34 I.R.B.7
Notices—Continued
98–45, 1998–35 I.R.B.7
98–46, 1998–36 I.R.B. 21
98–47, 1998–37 I.R.B. 8
98–48, 1998–39 I.R.B.17
98–49, 1998–38 I.R.B.5
98–50, 1998–44 I.R.B.10
98–51, 1998–44 I.R.B. 11
98–52, 1998–46 I.R.B. 16
98–53, 1998–46 I.R.B. 24
98–54, 1998–46 I.R.B. 25
98–55, 1998–46 I.R.B. 26
98–56, 1998–47 I.R.B.9
98–57, 1998–47 I.R.B.9
98–58, 1998–49 I.R.B. 13
98–59, 1998–49 I.R.B.16
98–60, 1998–49 I.R.B.16
98–61, 1998–51 I.R.B. 13
98–62, 1998–51 I.R.B. 15
98–63, 1998–51 I.R.B. 15
Railroad Retirement Quarterly Rates:
1998–31 I.R.B. 7
1998–50 I.R.B. 4
Proposed Regulations:
REG–209446–82, 1998–36 I.R.B. 24
REG–209060–86, 1998–39 I.R.B. 18
REG–209769–95, 1998–41 I.R.B.8
REG–209813–96, 1998–35 I.R.B. 9
REG–246256–96, 1998–34 I.R.B.9
REG–104641–97, 1998–29 I.R.B. 9
REG–104565–97, 1998–39 I.R.B.21
REG–105170–97, 1998–50 I.R.B. 10
REG–106177–97, 1998–37 I.R.B.33
REG–109708–97, 1998–45 I.R.B.29
REG–115446–97, 1998–36 I.R.B. 23
REG–116608–97, 1998–29 I.R.B. 12
REG–118926–97, 1998–39 I.R.B.23
REG–118966–97, 1998–39 I.R.B.29
REG–119227–97, 1998–30 I.R.B. 13
REG–122488–97, 1998–42 I.R.B. 19
REG–101363–98, 1998–40 I.R.B.10
REG–102023–98, 1998–48 I.R.B. 6
REG–106221–98, 1998–41 I.R.B.10
REG–110332–98, 1998–33 I.R.B.18
REG–110403–98, 1998–29 I.R.B.11
REG–115393–98, 1998–39 I.R.B.34
Revenue Procedures:
98–40, 1998–32 I.R.B. 6
98–41, 1998–32 I.R.B. 7
98–42, 1998–28 I.R.B. 9
98–43, 1998–29 I.R.B. 8
98–44, 1998–32 I.R.B. 11
98–45, 1998–34 I.R.B.8
98–46, 1998–36 I.R.B. 21
98–47, 1998–37 I.R.B. 8
98–48, 1998–38 I.R.B.7
98–49, 1998–37 I.R.B. 9
98–50, 1998–38 I.R.B.8
98–51, 1998–38 I.R.B.20
98–52, 1998–37 I.R.B. 12
98–53, 1998–40 I.R.B.9
98–54, 1998–43 I.R.B.7
98–55, 1998–46 I.R.B.27
98–56, 1998–46 I.R.B.33
Revenue Procedures—Continued
98–57, 1998–48 I.R.B.5
98–58, 1998–49 I.R.B.19
98–59, 1998–50 I.R.B.8
98–60, 1998–51 I.R.B. 16
Revenue Rulings:
98–34, 1998–31 I.R.B. 12
98–35, 1998–30 I.R.B. 4
98–36, 1998–31 I.R.B.6
98–37, 1998–32 I.R.B.5
98–38, 1998–32 I.R.B.4
98–39, 1998–33 I.R.B.4
98–40, 1998–33 I.R.B.4
98–41, 1998–35 I.R.B.6
98–42, 1998–35 I.R.B. 5
98–43, 1998–36 I.R.B. 9
98–44, 1998–37 I.R.B.4
98–45, 1998–38 I.R.B.4
98–46, 1998–39 I.R.B. 10
98–47, 1998–39 I.R.B. 4
98–48, 1998–39 I.R.B. 6
98–49, 1998–40 I.R.B.4
98–50, 1998–40 I.R.B.7
98–51, 1998–43 I.R.B.4
98–52, 1998–45 I.R.B.4
98–53, 1998–46 I.R.B.12
98–54, 1998–46 I.R.B.14
98–55, 1998–47 I.R.B. 5
98–56, 1998–47 I.R.B.5
98–57, 1998–49 I.R.B.4
98–60, 1998–51 I.R.B.6
98–61, 1998–51 I.R.B.8
98–62, 1998–51 I.R.B.4
Tax Convention:
1998–43 I.R.B. 6
Treasury Decisions:
8771, 1998–29 I.R.B. 6
8772, 1998–31 I.R.B. 8
8773, 1998–29 I.R.B. 4
8774, 1998–30 I.R.B. 5
8775, 1998–31 I.R.B.4
8776, 1998–33 I.R.B.6
8777, 1998–34 I.R.B.4
8778, 1998–36 I.R.B. 4
8779, 1998–36 I.R.B. 11
8780, 1998–39 I.R.B.14
8781, 1998–40 I.R.B. 4
8782, 1998–41 I.R.B.5
8783, 1998–41 I.R.B.4
8784, 1998–42 I.R.B.4
8785, 1998–42 I.R.B.5
8786, 1998–44 I.R.B. 4
8787, 1998–46 I.R.B. 5
8788, 1998–45 I.R.B.6
8790, 1998–50 I.R.B.4
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1998–1 through 1998–28
will be found in Internal Revenue Bulletin 1998–29,
dated July 20, 1998.

1998–52 I.R.B.91December 28, 1998
Finding List of Current Action on
Previously Published Items
1
Bulletins 1998–29 through 51
*Denotes entry since last publication
Notices:
87–13
Modified by
98–49, 1998–38 I.R.B. 5
87–16
Modified by
98–49, 1998–38 I.R.B. 5
Revenue Procedures:
83–58
Obsoleted by
98–37, 1998–32 I.R.B. 5
88–17
Clarified, modified, and superseded by
98–54, 1998–43 I.R.B. 7
94–23
Amplified and superseded by
98–55, 1998–46 I.R.B. 27
97–40
Amplified and superseded by
98–55, 1998–46 I.R.B. 27
97–60
Superseded by
98–50, 1998–38 I.R.B. 8
97–61
Superseded by
98–51, 1998–38 I.R.B. 20
98–14
Modified by
98–53, 1998–40 I.R.B. 9
Revenue Rulings:
57–271
Obsoleted by
98–37, 1998–32 I.R.B. 5
67–301
Modified by
98–41, 1998–35 I.R.B. 6
70–225
Obsoleted by
98–44, 1998–37 I.R.B. 4
71–277
Obsoleted by
98–37, 1998–32 I.R.B. 5
71–434
Obsoleted by
98–37, 1998–32 I.R.B. 5
71–574
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–75
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–120
Obsoleted by
98–37, 1998–32 I.R.B. 5
Revenue Rulings—Continued
72–121
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–122
Obsoleted by
98–37, 1998–32 I.R.B. 5
74–77
Obsoleted by
98–37, 1998–32 I.R.B. 5
75–19
Obsoleted by
98–37, 1998–32 I.R.B. 5
76–562
Obsoleted by
98–37, 1998–32 I.R.B. 5
77–214
Obsoleted by
98–37, 1998–32 I.R.B. 5
79–106
Obsoleted by
98–37, 1998–32 I.R.B. 5
83–113
Obsoleted by
98–37, 1998–32 I.R.B. 5
85–143
Obsoleted by
98–37, 1998–32 I.R.B. 5
88–8
Obsoleted by
98–37, 1998–32 I.R.B. 5
88–76
Obsoleted by
98–37, 1998–32 I.R.B. 5
88–79
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–4
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–5
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–6
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–30
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–38
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–49
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–50
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–53
Obsoleted by
98–37, 1998–32 I.R.B. 5
Revenue Rulings—Continued
93–81
Obsoleted by
98–37, 1998–32 I.R.B. 5
3–91
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–92
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–93
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–5
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–6
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–30
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–51
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–79
Obsoleted by
98–37, 1998–32 I.R.B. 5
95–2
Obsoleted by
98–37, 1998–32 I.R.B. 5
95–9
Obsoleted by
98–37, 1998–32 I.R.B. 5
97–37
Obsoleted by
98–39, 1998–33 I.R.B. 4
1
A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1998–1 through 1998–28 will be found in Internal
Revenue Bulletin 1998–29, dated July 20, 1998.

December 28, 1998921998–52 I.R.B.
Notes

1998–52 I.R.B.93December 28, 1998
Notes

Notes
December 28, 1998941998–52 I.R.B.

INTERNAL REVENUE BULLETIN
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