Internal Revenue Bulletin 1997-16 (PDF rendition): IRS Revenue Rulings

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INCOME TAX
Rev. Rul. 97–13, page 4.
Special use value; farms; interest rates.The 1997
interest rates to be used in computing the special use
value of farm real property for which an election is made
under section 2032A of the Code are listed for estates
of decedents.
Notice 97–24, page 6.
Certain trust arrangements.This notice warns taxpay-
ers about “trust” arrangements that purport to reduce or
eliminate federal taxes in ways that are not permitted by
the tax law. The notice describes some typical abusive
trust arrangements and provides that, in appropriate
circumstances, taxpayers and/or promoters in these
trust arrangements may be subject to civil and/or
criminal penalties.
Notice 97–25, page 8.
T.D. 8560, 1994–2 C.B. 200; T.D. 8597, 1995–2 C.B.
147; and T.D. 8660, 1996–1 C.B. 195, relating to the
consolidated return investment adjustment provisions,
intercompany transactions provisions, and the provisions
limiting losses and deductions from transactions be-
tween members of a nonconsolidated controlled group,
are corrected.
EXEMPT ORGANIZATIONS
Announcement 97–39, page 27.
A list is given of organizations now classified as private
foundations.
ADMINISTRATIVE
Rev. Proc. 97–24, page 10.
General rules and specifications for private printing
of Forms W–2 and W–3.Specifications are set forth for
the private printing of paper substitutes for tax year
1997 Form W–2, Wage and Tax Statement, and Form
W–3, Transmittal of Wage and Tax Statements. Rev.
Procs. 96–24 and 96–24A superseded.
Announcement 97–40, page 28.
T.D. 8699, 1997–6 I.R.B. 4, pertaining to the credit for
employer FICA taxes paid with respect to certain tips
received by employees of food or beverage establish-
ments, is corrected.
Announcement 97–41, page 28.
T.D. 8677, 1996–30 I.R.B. 7, relating to the deductions
and losses of members of a consolidated group; the
carryover and carryback of losses to consolidated and
separate return years; and the built-in deduction rules,
is corrected.
Finding Lists begin on page 31.
Announcement of Disbarments and Suspensions begins on page 29.
Bulletin No. 1997–16
April 21, 1997
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.

Mission of the Service
The purpose of the Internal Revenue Service is to
collect the proper amount of tax revenue at the least
cost; serve the public by continually improving the
quality of our products and services; and perform in a
manner warranting the highest degree of public
confidence in our integrity, efficiency and fairness.
Statement of Principles
of Internal Revenue
Tax Administration
The function of the Internal Revenue Service is to
administer 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 provisions 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 ‘‘protecting the revenue.’’
The revenue is properly protected only when we as-
certain 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 hesitate
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, however, be
vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax
devices and fraud.
2

Introduction
The Internal Revenue Bulletin is the authoritative instru-
ment of the Commissioner of Internal Revenue for
announcing official rulings and procedures of the Inter-
nal Revenue Service and for publishing Treasury Deci-
sions, Executive Orders, Tax Conventions, legislation,
court decisions, and other items of general interest. It is
published weekly and may be obtained from the Superin-
tendent of Documents on a subscription basis. Bulletin
contents of a permanent nature are consolidated semi-
annually into Cumulative Bulletins, which are sold on a
single-copy basis.
It is the policy of the Service to publish in the Bulletin all
substantive 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 otherwise indicated. Proce-
dures relating solely to matters of internal 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 Ser-
vice 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 unwar-
ranted 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 published rulings and proce-
dures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be consid-
ered, and Service personnel and others concerned are
cautioned against reaching the same conclusions 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
Subparts. Also included in this part are Bank Secrecy
Act Administrative Rulings. Bank Secrecy Act Administra-
tive Rulings are issued by the Department of the
Treasury’s Office of the Assistant Secretary (Enforce-
ment).
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemak-
ing and the disbarment and suspension list included in
this part, none of these announcements are consoli-
dated in the Cumulative Bulletins.
The first Bulletin for each month includes an index for
the matters published during the preceding month.
These monthly indexes are cumulated on a quarterly and
semiannual basis, and are published in the first Bulletin
of the succeeding quarterly and semi-annual period,
respectively.
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, D.C. 20402.
3

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 2032A.—Valuation of
Certain Farm, Etc., Real Property
26 CFR 20.2032A–4: Method of valuing farm real
property.
Special use value; farms; interest
rates.The 1997 interest rates to be used
in computing the special use value of
farm real property for which an election
is made under section 2032A of the
Code are listed for estates of decedents.
Rev. Rul. 97–13
This revenue ruling contains a list of
the average annual effective interest
rates on new loans under the Farm
Credit Bank system. This revenue ruling
also contains a list of the states within
each Farm Credit Bank District.
Under § 2032A(e)(7)(A)(ii) of the In-
ternal Revenue Code, rates on new Farm
Credit Bank loans are used in comput-
ing the special use value of real prop-
erty used as a farm for which an
election is made under § 2032A. The
rates in this revenue ruling may be used
by estates that value farmland under
§ 2032A as of a date in 1997.
Average annual effective interest
rates, calculated in accordance with
§ 2032A(e)(7)(A) and § 20.2032A–4(e)
of the Estate Tax Regulations, to be
used under § 2032A(e)(7)(A)(ii), are set
forth in the accompanying Table of
Interest Rates (Table 1). The states
within each Farm Credit Bank District
are set forth in the accompanying Table
of Farm Credit Bank Districts (Table 2).
Rev. Rul. 81–170, 1981–1 C.B. 454,
contains an illustrative computation of
an average annual effective interest rate.
The rates applicable for valuation in
1996 are in Rev. Rul. 96–23, 1996–1
C.B. 198. For rate information for years
prior to 1996, see Rev. Rul. 95–38,
1995–1 C.B. 184, and other revenue
rulings that are referenced therein.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Lane Damazo of the Office of
Assistant Chief Counsel (Passthroughs
and Special Industries). For further in-
formation regarding this revenue ruling,
contact Lane Damazo on (202) 622–
3090 (not a toll-free call).
REV. RUL. 97–13 TABLE 1
TABLE OF INTEREST RATES
(Year of Valuation 1997)
Farm Credit Bank District in Which Property Is LocatedInterest Rate
Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8.88
Omaha . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8.09
Sacramento . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8.48
St. Paul . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8.39
Spokane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8.27
Springfield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8.57
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8.42
Wichita . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8.21
REV. RUL. 97–13 TABLE 2
TABLE OF FARM CREDIT BANK DISTRICTS
DistrictStates
Columbia . . . . . . . . . . . . . . . . . . . . . . . Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina,
Pennsylvania, South Carolina, Virginia, West Virginia.
Omaha . . . . . . . . . . . . . . . . . . . . . . . . . . Iowa, Nebraska, South Dakota, Wyoming.
Sacramento . . . . . . . . . . . . . . . . . . . . . . Arizona, California, Hawaii, Nevada, Utah.
St. Paul . . . . . . . . . . . . . . . . . . . . . . . . . Arkansas, Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, North Da-
kota, Ohio, Tennessee, Wisconsin.
Spokane . . . . . . . . . . . . . . . . . . . . . . . . Alaska, Idaho, Montana, Oregon, Washington.
Springfield . . . . . . . . . . . . . . . . . . . . . . Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York,
Rhode Island, Vermont.
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . Alabama, Louisiana, Mississippi, Texas.
Wichita . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado, Kansas, New Mexico, Oklahoma.
Section 6011.—General
Requirement of Return, State or
List
Printing of substitutes for Form W–2, Wage and
Tax Statement, and Form W–3, Transmittals of
Income and Tax Statements. See Rev. Proc. 97–24,
page 10.
Section 6041.—Information at
Source
26 CFR 1.6041: Return of information as to
payments of $600 or more.
Printing of substitutes for Form W–2, Wage and
Tax Statement, and Form W–3, Transmittal of
Income and Tax Statements. See Rev. Proc. 97–24,
page 10.
26 CFR 1.6041–2: Return of information as to
payments to employees.
Printing of substitutes for Form W–2, Wage and
Tax Statement, and Form W–3, Transmittal of
Income and Tax Statements. See Rev. Proc. 97–24,
page 10.
4

Section 6051.—Receipts for
Employees
26 CFR 31.6051–1: Statements for employees.
Printing of substitutes for Form W–2, Wage and
Tax Statement, and Form W–3, Transmittal of
Income and Tax Statements. See Rev. Proc. 97–24,
page 10.
Section 6071.—Time for Filing
Returns and Other Documents
26 CFR 31.6071(a)–1: Time for filing returns and
other documents.
Printing of substitutes for Form W–2, Wage and
Tax Statement, and Form W–3, Transmittal of
Income and Tax Statements. See Rev. Proc. 97–24,
page 10.
Section 6081.—Extension of Time
for Filing Returns
26 CFR 31.6081(a)–1: Extension of time for filing
returns.
Printing of substitutes for Form W–2, Wage and
Tax Statment, and Form W–3, Transmittal of
Income and Tax Statements. See Rev. Proc. 97–24,
page 10.
Section 6091.—Place for Filing
Returns or Other Documents
Printing of substitutes for Form W–2, Wage and
Tax Statement, and Form W–3, Transmittal of
Income and Tax Statements. See Rev. Proc. 97–24,
page 10.
5

Part III. Administrative, Procedural, and Miscellaneous
Certain Trust Arrangements
Notice 97–24
This notice is intended to alert tax-
payers about certain trust arrangements
that purport to reduce or eliminate fed-
eral taxes in ways that are not permitted
by federal tax law. (The notice refers to
such arrangements as ‘‘abusive trust
arrangements.’’ See Section I. ABUSIVE
TRUST ARRANGEMENTS—IN GEN-
ERAL, below.) The notice describes
some typical abusive trust arrangements,
as well as the tax benefits promised by
promoters, and then explains the correct
tax principles that apply to these trust
arrangements. Taxpayers should be
aware that abusive trust arrangements
will not produce the tax benefits adver-
tised by their promoters and that the
Internal Revenue Service is actively ex-
amining these types of trust arrange-
ments as part of the National Compli-
ance Strategy, Fiduciary and Special
Projects. Furthermore, in appropriate cir-
cumstances, taxpayers and/or the pro-
moters of these trust arrangements may
be subject to civil and/or criminal penal-
ties.
This notice should not, however, cre-
ate concerns about the legitimate uses of
trusts. For example, trusts are frequently
used properly in estate planning, to
facilitate the genuine charitable transfer
of property, and to hold property for
minors and incompetents.
Under the federal tax laws, trusts
generally are separate entities subject to
income tax (except for certain charitable
or pension trusts that are expressly ex-
empted by the tax laws and certain
grantor trusts described in sections 671–
679 of the Internal Revenue Code).
Under these laws and certain court de-
veloped doctrines, either the trust, the
beneficiary, or the transferor, as appli-
cable, must pay the tax on the income
realized by the trust including the in-
come generated by property held in
trust.
I. ABUSIVE TRUST ARRANGE-
MENTS—IN GENERAL
Abusive trust arrangements typically
are promoted by the promise of tax
benefits with no meaningful change in
the taxpayer’s control over or benefit
from the taxpayer’s income or assets.
The promised benefits may include re-
duction or elimination of income subject
to tax; deductions for personal expenses
paid by the trust; depreciation deduc-
tions of an owner’s personal residence
and furnishings; a stepped-up basis for
property transferred to the trust; the
reduction or elimination of self-
employment taxes; and the reduction or
elimination of gift and estate taxes.
These promised benefits are inconsistent
with the tax rules applicable to the
abusive trust arrangements, as described
below.
Abusive trust arrangements often use
trusts to hide the true ownership of
assets and income or to disguise the
substance of transactions. These arrange-
ments frequently involve more than one
trust, each holding different assets of the
taxpayer (for example, the taxpayer’s
business, business equipment, home, au-
tomobile, etc.), as well as interests in
other trusts. Funds may flow from one
trust to another trust by way of rental
agreements, fees for services, purchase
and sale agreements, and distributions.
Some trusts purport to involve charitable
purposes. In some situations, one or
more foreign trusts also may be part of
the arrangement.
II. EXAMPLES OF ABUSIVE TRUST
ARRANGEMENTS
Described below are five examples of
abusive trust arrangements that have
come to the attention of the Internal
Revenue Service. An abusive trust ar-
rangement may involve some or all of
the trusts described below. The type of
trust arrangement selected is dependent
on the particular tax benefit the arrange-
ment purports to achieve. In each of the
trusts described below, the original
owner of the assets that are nominally
subject to the trust effectively retains
authority to cause the financial benefits
of the trust to be directly or indirectly
returned or made available to the owner.
For example, the trustee may be the
promoter, or a relative or friend of the
owner who simply carries out the direc-
tions of the owner whether or not
permitted by the terms of the trust.
Often, the trustee gives the owner
checks that are pre-signed by the trustee,
checks that are accompanied by a rubber
stamp of the trustee’s signature, a credit
card or a debit card with the intention of
permitting the owner to obtain cash
from the trust or otherwise to use the
assets of the trust for the owner’s ben-
efit.
1.The Business Trust.The owner of
a business transfers the business to a
trust (sometimes described as an unin-
corporated business trust) in exchange
for units or certificates of beneficial
interest, sometimes described as units of
beneficial interest or UBI’s (trust units).
The business trust makes payments to
the trust unit holders or to other trusts
created by the owner (characterized ei-
ther as deductible business expenses or
as deductible distributions) that purport
to reduce the taxable income of the
business trust to the point where little or
no tax is due from the business trust. In
addition, the owner claims the arrange-
ment reduces or eliminates the owner’s
self-employment taxes on the theory that
the owner is receiving reduced or no
income from the operation of the busi-
ness. In some cases, the trust units are
supposed to be canceled at death or
‘‘sold’’ at a nominal price to the owner’s
children, leading to the contention by
promoters that there is no estate tax
liability.
2.The Equipment or Service Trust.
The equipment trust is formed to hold
equipment that is rented or leased to the
business trust, often at inflated rates.
The service trust is formed to provide
services to the business trust, often for
inflated fees. Under these abusive trust
arrangements, the business trust may
purport to reduce its income by making
allegedly deductible payments to the
equipment or service trust. Further, as to
the equipment trust, the equipment
owner may claim that the transfer of
equipment to the equipment trust in
exchange for the trust units is a taxable
exchange. The trust takes the position
that the trust has ‘‘purchased’’ the equip-
ment with a known value (its fair mar-
ket value) and that the value is the tax
basis of the equipment for purposes of
claiming depreciation deductions. The
owner, on the other hand, takes the
inconsistent position that the value of
the trust units received cannot be deter-
mined, resulting in no taxable gain to
the owner on the exchange. The equip-
ment or service trust also may attempt
to reduce or eliminate its income by
distributions to other trusts.
3.The Family Residence Trust.The
owner of the family residence transfers
the residence, including its furnishings,
to a trust. The parties claim inconsistent
tax treatment for the trust and the owner
(similar to the equipment trust). The
trust claims the exchange results in a
stepped-up basis for the property, while
the owner reports no gain. The trust
6

claims to be in the rental business and
purports to rent the residence back to
the owner; however, in most cases, little
or no rent is actually paid. Rather, the
owner contends that the owner and
family members are caretakers or pro-
vide services to the trust and, therefore,
live in the residence for the benefit of
the trust. Under some arrangements, the
family residence trust receives funds
from other trusts (such as a business
trust) which are treated as the income of
the trust. In order to reduce the tax
which might be due with respect to such
income (and any income from rent actu-
ally paid by the owner), the trust may
attempt to deduct depreciation and the
expenses of maintaining and operating
the residence.
4.The Charitable Trust.The owner
transfers assets to a purported charitable
trust and claims either that the payments
to the trust are deductible or that pay-
ments made by the trust are deductible
charitable contributions. Payments are
made to charitable organizations; how-
ever, in fact, the payments are princi-
pally for the personal educational, liv-
ing, or recreational expenses of the
owner or the owner’s family. For ex-
ample, the trust may pay for the college
tuition of a child of the owner.
5.The Final Trust.In some multi-
trust arrangements, the U.S. owner of
one or more abusive trusts establishes a
trust (the ‘‘final trust’’) that holds trust
units of the owner’s other trusts and is
the final distributee of their income. A
final trust often is formed in a foreign
country that will impose little or no tax
on the trust. In some arrangements,
more than one foreign trust is used, with
the cash flowing from one trust to
another until the cash is ultimately dis-
tributed or made available to the U.S.
owner, purportedly tax free.
III. LEGAL PRINCIPLES APPLI-
CABLE TO TRUSTS
As noted above, when trusts are used
for legitimate business, family or estate
planning purposes, either the trust, the
trust beneficiary, or the transferor to the
trust, as appropriate under the tax laws,
will pay the tax on the income gener-
ated by the trust property. When used in
accordance with the tax laws, trusts will
not transform a taxpayer’s personal, liv-
ing or educational expenses into deduct-
ible items, and will not seek to avoid
tax liability by ignoring either the true
ownership of income and assets or the
true substance of transactions. Accord-
ingly, the tax results that are promised
by the promoters of abusive trust ar-
rangements are not allowable under fed-
eral tax law. Contrary to promises made
in promotional materials, several well-
established tax principles control the
proper tax treatment of these abusive
trust arrangements.
1.Substance—not form—controls
taxation.The Supreme Court of the
United States has consistently stated that
the substance rather than the form of the
transaction is controlling for tax pur-
poses. See, for example,Gregory v.
Helvering,293 U.S. 465 (1935), XIV–1
C.B. 193;Helvering v. Clifford,309
U.S. 331 (1940), 1940–1 C.B. 105.
Under this doctrine, the abusive trust
arrangements may be viewed as sham
transactions, and the IRS may ignore the
trust and its transactions for federal tax
purposes. SeeMarkosian v. Commis-
sioner,73 T.C. 1235 (1980) (holding
that the trust was a sham because the
parties did not comply with the terms of
the trust and the supporting documents
and the relationship of the grantors to
the property transferred did not differ in
any material aspect after the creation of
the trust);Zmuda v. Commissioner,731
F.2d 1417 (9th Cir. 1984). Accordingly,
the income and assets of the business
trust, the equipment in the equipment
trust, the residence in the family resi-
dence trust, and the assets in the foreign
trust would all be treated as belonging
directly to the owner.
2.Grantors may be treated as owners
of trusts.The grantor trust rules provide
that if the owner of property transferred
to a trust retains an economic interest in,
or control over, the trust, the owner is
treated for income tax purposes as the
owner of the trust property, and all
transactions by the trust are treated as
transactions of the owner. Sections
671—677. In addition, a U.S. person
who directly or indirectly transfers prop-
erty to a foreign trust is treated as the
owner of that property if there is a U.S.
beneficiary of the trust. Section 679.
This means that all expenses and in-
come of the trust would belong to and
must be reported by the owner, and tax
deductions and losses arising from trans-
actions between the owner and the trust
would be ignored. Furthermore, there
would be no taxable ‘‘exchange’’ of
property with the trust, and the tax basis
of property transferred to the trust
would not be stepped-up for deprecia-
tion purposes. See Rev. Rul. 85–13,
1985–1 C.B. 184.
3.Taxation of Non-Grantor Trusts.If
the trust is not a sham and is not a
grantor trust, the trust is taxable on its
income, reduced by amounts distributed
to beneficiaries. The trust must obtain a
taxpayer identification number and file
annual returns reporting its income. The
trust must report distributions to benefi-
ciaries on a Form K–1, and the benefi-
ciary must include the distributed in-
come on the beneficiary’s tax return.
Sections 641, 651, 652, 661 and 662.
4.Transfers to trusts may be subject
to estate and gift taxes.Transfers to a
trust may be recognized as completed
gifts for federal gift tax purposes. Fur-
ther, whether or not the gift tax applies,
if the owner retains until the owner’s
death the use of, enjoyment of, or
income from the property placed in a
trust, the property will be subject to
federal estate tax when the transferor
dies. Section 2036(a).
5.Personal expenses are generally
not deductible.Personal expenses such
as those for home maintenance, educa-
tion, and personal travel are not deduct-
ible unless expressly authorized by the
tax laws. See section 262. The courts
have consistently held that non-
deductible personal expenses cannot be
transformed into deductible expenses by
the use of trusts. Furthermore, the costs
of creating these trusts are not deduct-
ible. See, for example,Schulz v. Com-
missioner,686 F.2d 490 (7th Cir. 1982);
Neely v. United States,775 F.2d 1092
(9th Cir. 1985); andZmuda.
6.A genuine charity must benefit in
order to claim a valid charitable deduc-
tion.Charitable trusts that are exempt
from tax are carefully defined in the tax
law. Arrangements are not exempt chari-
table trusts if they do not satisfy the
requirements of the tax law, including
the requirement that their true purpose is
to benefit charity. Furthermore, sup-
posed charitable payments made by a
trust are not deductible charitable contri-
butions where the payments are really
for the benefit of the owner or the
owner’s family members. See, for ex-
ample,Fausner v. Commissioner,55
T.C. 620 (1971).
7.Special rules apply to foreign
trusts.If an arrangement involves a
foreign trust, taxpayers should be aware
that a number of special provisions
apply to foreign trusts with U.S. grant-
ors or U.S. beneficiaries, including sev-
eral provisions added in 1996. For ex-
ample, a U.S. person that fails to report
a transfer of property to a foreign trust
or the receipt of a distribution from a
foreign trust is subject to a tax penalty
equal to 35 percent of the gross value of
7

the transaction. Other examples of these
provisions are the application of U.S.
withholding taxes to payments to for-
eign trusts and the application of U.S.
excise taxes to transfers of appreciated
property to foreign trusts. See sections
6048, 6677, 1441, and 1491.
8.Civil and/or criminal penalties
may apply.The participants in and pro-
moters of abusive trust arrangements
may be subject to civil and/or criminal
penalties in appropriate cases. See, for
example,United States v. Buttorff,761
F.2d 1056 (5th Cir. 1985);United States
v. Krall,835 F.2d 711 (8th Cir. 1987);
ZmudaandNeely.
IV. IRS ENFORCEMENT STRATEGY
FOR ABUSIVE TRUSTS
The Internal Revenue Service has
undertaken a nationally coordinated en-
forcement initiative to address abusive
trust schemes—the National Compliance
Strategy, Fiduciary and Special Projects.
This initiative involves Service person-
nel from the Assistant Commissioner
(Examination), Assistant Commissioner
(Criminal Investigation), and the Office
of Chief Counsel.
As part of this strategy, the Service
seeks to encourage voluntary compli-
ance with the tax law. Accordingly,
taxpayers who have participated in abu-
sive trust arrangements are encouraged
to file correct tax returns for 1996, as
well as amended tax returns for prior
years, consistent with the explanation of
the law set forth in this notice.
For information regarding issues ad-
dressed in this notice, taxpayers may
call (202) 622–4512 (not a toll-free
number).
Consolidated Returns; Consolidated
and Controlled Groups; Correction
Notice 97–25
AGENCY: Internal Revenue Service,
Treasury.
ACTION: Correcting Amendments.
SUMMARY: This document contains
technical corrections to final regulations
[T.D. 8560[1994–2 C.B. 200]; T.D.
8597[1995–2 C.B. 147]; T.D. 8660
[1996–1 C.B. 195]] which were pub-
lished in theFederal Registeron Mon-
day, August 15, 1994 (59 FR 41666);
Tuesday, July 18, 1995 (60 FR 36671);
and Thursday, March 14, 1996 (61 FR
10447); respectively. The final regula-
tions amend the consolidated return in-
vestment adjustment provisions,
intercompany transaction provisions and
the provisions limiting losses and deduc-
tions from transactions between mem-
bers of a nonconsolidated controlled
group.
DATES: The correcting amendments af-
fecting §§ 1.267(f)–1, 1.1502–13(f)(2)-
(ii), (g)(5), (l)(1), 1.1502–20, 1.1502–
32(b), and 1.1502–80(b) are effective
July 18, 1995. The correcting amemd-
ments affecting §§ 1.1502–11, 1.1502–
19, 1.1502–32(f), 1.1502–43, 1.1502–76
and 1.1502–80(d)(1) are effective Janu-
ary 1, 1995. The correcting amendments
affecting § 1.1502–13(f)(6) are effective
March 14, 1996. For dates of applicabil-
ity see §§ 1.267(f)–1(l), § 1.1502–
11(b)(5), 1.1502–13(l)(1), 1.1502–
13(f)(6)(v), 1.1502–19(h), 1.1502–32(h),
1.1502–76(b)(5), 1.1502–80(d), and
other relevant provisions.
FOR FURTHER INFORMATION CON-
TACT: William Barry of the Office of
Assistant Chief Counsel (Corporate),
(202) 622–7770 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations that are the
subject of these correcting amendments
are under sections 267 and 1502 of the
Internal Revenue Code.
Need for Correction
As published, the final regulations
contain errors and omissions which may
prove to be misleading and are in need
of clarification.
* * * * *
Accordingly, 26 CFR Part 1 is cor-
rected by making the following correct-
ing amendments:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
Part 1 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
§ 1.267(f)–1 [Corrected]
Par. 2. Section 1.267(f)–1 is amended
as follows:
1. In paragraph (c)(1)(iii), the first
sentence is revised.
2. Paragraph (l)(2) is revised.
The revisions read as follows:
§ 1.267(f)–1 Controlled groups.
* * * * *
(c) * * * (1) * * *
(iii) * * * To the extent S’s loss or
deduction from an intercompany sale of
property is taken into account under this
section as a result of B’s transfer of the
property to a nonmember that is a
person related to any member, immedi-
ately after the transfer, under sections
267(b) or 707(b), or as a result of S or
B becoming a nonmember that is related
to any member under section 267(b), the
loss or deduction is taken into account
but allowed only to the extent of any
income or gain taken into account as a
result of the transfer. * * *
* * * * *
(l) * * *
(2)Avoidance transactions.This
paragraph (l)(2) applies if a transaction
is engaged in or structured on or after
April 8, 1994, with a principal purpose
to avoid the rules of this section (and
instead to apply prior law). If this
paragraph (l)(2) applies, appropriate ad-
justments must be made in years begin-
ning on or after July 12, 1995, to
prevent the avoidance, duplication,
omission, or elimination of any item (or
tax liability), or any other inconsistency
with the rules of this section.
* * * * *
§ 1.1502–11 [Corrected]
Par. 3. Section 1.1502–11 is amended
by revising paragraph (b)(2)(iii), Ex-
ample 3. (e) to read as follows:
§ 1.1502–11 Consolidated taxable in-
come.
* * * * *
(b) * * *
(2) * * *
(iii) * * *
Example 3.* * *
(e) Under paragraph (b)(2)(ii) of this section,
S’s $30 of loss limited under this paragraph (b) is
treated as a separate net operating loss.
* * * * *
§ 1.1502–13 [Corrected]
Par. 4. Section 1.1502–13 is amended
as follows:
1. In paragraph (f)(2)(ii), a sentence
is added before the last sentence of the
paragraph.
2. In paragraph (f)(6) introductory
text, the last sentence is revised.
3. In paragraph (g)(5),Example 5.(c),
the tenth sentence is revised.
4. In paragraph (l)(1) the third,
fourth, and fifth sentences are revised.
The addition and revisions read as
follows:
8

§ 1.1502–13 Intercompany transactions.
* * * * *
(f) * * *
(2) * * *
(ii) * * * B’s dividend received de-
duction under section 243(a)(3) is deter-
mined without regard to any intercom-
pany distributions under this paragraph
(f)(2) to the extent they are not included
in gross income. * * *
* * * * *
(6) * * * For this purpose, P stock is
any stock of the common parent held
(directly or indirectly) by another mem-
ber or any stock of a member (the
issuer) that was the common parent if
the stock was held (directly or indi-
rectly) by another member while the
issuer was the common parent.
* * * * *
(g) * * *
(5) * * *
Example 5.* * *
(c) * * * Under § 1.446–3(f), the deemed $100
up front payment by M1 to M2 is taken into
account over the term of the new contract in a
manner reflecting the economic substance of the
contract (for example, allocating the payment in
accordance with the forward rates of a series of
cash-settled forward contracts that reflect the
specified index and the $1,000 notional principal
amount).* * *
* * * * *
(l) * * * (1) * * * For example, S’s
and B’s items from S’s sale of property
to B which occurs in a consolidated
return year beginning before July 12,
1995, are taken into account under prior
law, even though B may dispose of the
property in a consolidated return year
beginning on or after July 12, 1995.
Similarly, an intercompany distribution
to which a shareholder becomes entitled
in a consolidated return year beginning
before July 12, 1995, but which is
distributed in a consolidated return year
beginning on or after that date is taken
into account under prior law (generally
when distributed), because this section
generally takes dividends into account
when the shareholder becomes entitled
to them but this section does not apply
at that time. If application of prior law
to S’s deferred gain or loss from a
deferred intercompany transaction (as
defined under prior law) occurring in a
consolidated return year beginning prior
to July 12, 1995, would be affected by
an intercompany transaction (as defined
under this section) occurring in a con-
solidated return year beginning on or
after July 12, 1995, S’s deferred gain or
loss continues to be taken into account
as provided under prior law, and the
items from the subsequent intercompany
transaction are taken into account under
this section. * * *
* * * * *
§ 1.1502–19 [Corrected]
Par. 5. Section 1.1502–19 is amended
as follows:
1. In paragraph (c)(1)(iii)(A), the last
sentence is revised.
2. Paragraph (g) is amended by:
a. Revising the first sentence of the
introductory text.
b. Revising the fourth and fifth sen-
tences inExample 1.(d).
c. Revising the first sentence inEx-
ample 4.(b).
d. Revising the first sentence inEx-
ample 6.(b).
The revisions read as follows:
§ 1.1502–19 Excess loss accounts.
* * * * *
(c) * * *
(1) * * *
(iii) * * *
(A) * * * An asset of S is not
considered to be disposed of or aban-
doned to the extent the disposition is in
complete liquidation of S or is in ex-
change for consideration (other than
relief from indebtedness);
* * * * *
(g)Examples.For purposes of the
examples in this section, unless other-
wise stated, P owns all 100 shares of the
only class of S’s stock and S owns all
100 shares of the only class of T’s
stock, the stock is owned for the entire
year, T owns no stock of lower-tier
members, the tax year of all persons is
the calendar year, all persons use the
accrual method of accounting, the facts
set forth the only corporate activity, all
transactions are between unrelated per-
sons, and tax liabilities are disregarded.
* * *
Example 1.* * *
(d) * * * Under section 301(d), P’s basis in the
T stock is $60. Under § 1.1502–13, and paragraph
(b)(2) of this section, S’s $160 gain from the
distribution is deferred and taken into account in
Year 5 as a result of P’s sale of the T stock. * * *
* * * * *
Example 4.* * *
(b)Analysis.Under paragraph (c)(2) of this
section, S is treated as disposing of each of its
shares of T’s stock immediately before T becomes
a nonmember. * * *
* * * * *
Example 6.* * *
(b)Analysis.Under paragraph (c)(1)(iii)(A) of
this section, P’s excess loss account on each of its
shares of S’s stock ordinarily is taken into account
at the time substantially all of S’s assets are
treated as disposed of, abandoned, or destroyed for
Federal income tax purposes. * * *
* * * * *
§ 1.1502–20 [Corrected]
Par. 6. Section 1.1502–20 is amended
as follows:
1. In paragraph (b)(6),Example 5.
(iii) is revised.
2. In paragraph (e)(3),Example 1.(i),
the third sentence is revised.
3. In paragraph (e)(3),Example 1.(ii)
is revised.
The revisions read as follows:
§ 1.1502–20 Disposition or deconsoli-
dation of subsidiary stock.
* * * * *
(b) * * *
(6) * * *
Example 5. * * *
(iii) T’s issuance of additional shares to the
public results in S’s intercompany loss being taken
into account under the acceleration rule of
§ 1.1502–13(d) because there is no difference
between P’s $100 basis in the T stock and the
$100 basis the T stock would have had if P and S
had been divisions of a single corporation. S’s loss
taken into account is disallowed under paragraph
(a)(1) of this section.
* * * * *
(e) * * *
(3) * * *
Example 1.* * * (i) * * * With the view
described in paragraph (e)(1) of this section, P
transfers land with a value of $100 and a basis of
$100 to T in exchange for preferred stock with a
$200 redemption price and liquidation preference.
* * *
(ii) Under section 305, the redemption premium
is treated as a distribution of property to which
section 301 and § 1.1502–13(f)(2) apply. Under
§§ 1.1502–13 and 1.1502–32, P’s aggregate basis
in the preferred and common stock is unaffected
by the deemed distributions.
* * * * *
§ 1.1502–32 [Corrected]
Par. 7. Section 1.1502–32 is amended
as follows:
1. In paragraph (b)(3)(ii)(A), the sec-
ond sentence is revised.
2. In paragraph (b)(3)(v), the last sen-
tence is revised.
3. In paragraph (b)(5)(ii),Example
5.(c), the second sentence is revised.
4. In paragraph (b)(5),Example 6.(b)
is revised.
5. In paragraph (f), a sentence is
added after the second sentence.
The addition and revisions read as
follows:
§ 1.1502–32 Investment adjustments.
* * * * *
(b) * * *
(3) * * *
9

(ii) * * * (A) * * * For example, S’s
dividend income to which § 1.1502–
13(f)(2)(ii) applies, and its interest ex-
cluded from gross income under section
103, are treated as tax-exempt income.
* * *
* * * * *
(v) * * * See § 1.1502–13(f)(2)(iv)
for taking into account distributions to
which section 301 applies (but not other
distributions treated as dividends) under
the entitlement rule.
* * * * *
(5) * * *
(ii) * * *
Example 5.* * *
(c) * * * Under § 1.1502–13(f)(2)(iv), S is
treated as making a $70 distribution to P at the
time P becomes entitled to the distribution. * * *
Example 6.* * *
(b)Analysis.Under section 358, P’s basis in the
S stock is increased by its basis in the T stock.
Under § 1.1502–13(f)(3) the money received is
treated as being taken into account immediately
after the transaction. Thus, the $10 is treated as a
dividend distribution under section 301 and under
paragraph (b)(3)(v) of this section, the $10 is a
distribution to which paragraph (b)(2)(iv) of this
section applies. Accordingly, P’s basis in the S
stock is $160 immediately after the merger, which
is then decreased by the $10 distribution taken
into account immediately after the transaction,
resulting in a basis of $150.
* * * * *
(f) * * * For example, if T merges
into S, S is treated, as the context may
require, as a successor to T and as
becoming a member of the group. * * *
* * * * *
§ 1.1502–43 [Corrected]
Par. 8. Section 1.1502–43 is amended
by revising paragraph (a)(3)(iii) to read
as follows:
§ 1.1502–43 Consolidated accumulated
earnings tax.
(a) * * *
(3) * * *
(iii) Earnings and profits resulting
from the disposition of a member’s
stock are determined without regard to
the stock basis adjustments under
§§ 1.1502–32 and 1.1502–33(c)(1).
* * * * *
§ 1.1502–76 [Corrected]
Par. 9. Section 1.1502–76 is amended
by revising paragraph (b)(4),Example
1.(a) and the first sentence ofExample
1.(c) to read as follows:
§ 1.1502–76 Taxable year of members
of group.
* * * * *
(b) * * *
(4) * * *
Example 1. Items allocated between consoli-
dated and separate returns.(a)Facts.P and S are
the only members of the P group. P sells all of S’s
stock to individual A on June 30, and therefore S
becomes a nonmember on July 1 of Year 2.
* * * * *
(c)Acquisition of another subsidiary before end
of tax year.The facts are the same as in paragraph
(a) of this Example 1, except that on July 31 P
acquires all the stock of T (which filed a separate
return for its year ending on November 30 of Year
1) and T therefore becomes a member on August
1 of Year 2. * * *
* * * * *
§ 1.1502–80 [Corrected]
Par. 10. Section 1.1502–80 is
amended as follows:
1. Paragraph (b) is revised.
2. In paragraph (d)(1), a sentence is
added to the end of the paragraph.
The addition and revision reads as
follows:
§ 1.1502–80 Applicability of other pro-
visions of law.
* * * * *
(b)Non-applicability of section 304.
Section 304 does not apply to any
acquisition of stock of a corporation in
an intercompany transaction or to any
intercompany item from such transaction
occurring on or after July 24, 1991.
* * * * *
(d) * * * (1) * * * For purposes of
this paragraph (d), any reference to a
transferor or transferee includes, as the
context may require, a reference to a
successor or predecessor.
* * * * *
Cynthia E. Grigsby,
Chief, Regulations Unit,
Assistant Chief Counsel (Corporate).
(Filed by the Office of the Federal Register on
March 13, 1997, 8:45 a.m., and published in the
issue of the Federal Register for March 14, 1997,
62 F.R. 12096)
General Rules for Filing and
Specifications for the Private
Printing of Substitute Forms W–2
and W–3
26 CFR 601.602: Forms and instructions. (Also
Part I, Sections 6011, 6041, 6051, 6071, 6081,
6091; 1.6041–1, 1.6041–2, 31.6051–1, 31.6051–2,
31.6071(a)–1, 31.6081(a)–1.)
Rev. Proc. 97–24
PART A. GENERAL
SECTION 1. PURPOSE
.01 The purpose of this revenue pro-
cedure is to provide the general rules for
filing and to state the requirements of
the Internal Revenue Service (IRS) and
the Social Security Administration
(SSA) for reproducing paper substitutes
for Form W–2, Wage and Tax State-
ment, and Form W–3, Transmittal of
Wage and Tax Statements, for amounts
paid during the 1997 calendar year. The
information reported on Forms W–2 and
W–3 is required to establish tax liability
for employees and their eligibility for
Social Security and Medicare benefits.
.02 Forms W–2 and W–3 have only
minor changes for 1997. Please see
‘‘Nature of Changes’’ (Section 2, below)
and the exhibits at the end of this
revenue procedure for changes to the
Form W–2 and W–3.
.03 For the purpose of this revenue
procedure, a substitute form is one that
is not printed by IRS.A substitute
Form W–2 or W–3 MUST conform to
the specifications in this revenue pro-
cedure to be acceptable to the IRS.
Preparers should also refer to the sepa-
rate instructions for Forms W–2 and the
instructions on Form W–3 for details on
how to complete these forms. See Part
C, Sec. 4.01, for information on order-
ing the official IRS forms and instruc-
tions. See Part B, Sec. 2, for require-
ments for substitute forms furnished to
employees.
.04 IRS has instituted a centralized
call site to answer questions related to
information returns (Forms W–2, W–3,
1099, etc.). The call-site phone number
is (304)263–8700(not a toll-free num-
ber).The number for Telecommunica-
tion Device for the Deaf (TDD) is
(304)267–3367 (not a toll-free number).
.05 IRS has established a personal
computer based Information Reporting
Program Bulletin Board System (IRP–
BBS) at the IRS Martinsburg Comput-
ing Center (IRS/MCC). This system pro-
vides access to the forms and
publications relating to information re-
turns, news of the latest changes, the
ability to receive answers to specific
questions, access to shareware, and
other features. The IRP–BBS is avail-
able for public use and can be reached
by dialing (304)264–7070(not a toll-
free number).The IRP–BBS is compat-
ible with most modems. For more infor-
10

mation concerning this system, call IRS/
MCC at (304)263–8700(not a toll-free
number).
.06 Employers are reminded that un-
der Section 6722 of the Internal Rev-
enue Code (IRC) they can be assessed a
penalty of $50 per Form W–2 that is not
furnished to an employee on a form
acceptable to the IRS (up to $100,000).
To be acceptable to IRS, the Form W–2
must be either the ‘‘official’’ form or a
substitute form with the core data placed
exactly as specified in Part B., Section
2.04 of this Revenue Procedure. No IRS
office is authorized to allow deviations
from this Revenue Procedure.
.07 This revenue procedure super-
sedes Rev. Procs. 96–24 and 9624A,
1996–5 I.R.B., dated January 29, 1996,
and 1996–15 I.R.B., dated April 8, 1996
(Reprinted as Publication 1141, Revised
4–96).
SEC. 2. NATURE OF CHANGES
.01 The text and exhibits were up-
dated for tax year 1997.
.02 Only 7 inch width Forms W–2
and W–3 are acceptable for SSA pro-
cessing. The exhibits for the printing of
7.5 and 8 inch width Forms W–2 and
W–3 have been removed because 7.5
and 8 inch forms cannot be put through
SSA scanning equipment. Keying from
the paper documents will be necessary
for any 7.5 and 8 inch forms submitted
to SSA.
.03Information has been added
that will require businesses terminat-
ing operations to give their employees
Form W–2 when the employer files
the final Form 941, Employer’s Quar-
terly Federal Tax Return. This also
changes the filing date Form W–2
must be sent to SSA. See Part A,
Section 3.06 below for new informa-
tion.
.04 The Void Box on Form W–2,
Copy A, was enlarged and set with bold
rules. This was requested by SSA to
bring more attention to voided forms so
void totals are not included in subtotals
and total on Forms W–2 and W–3.
.05Form W–2, Box 13, added codes
R, S, and T for medical savings,
SIMPLE retirement account, and
adoption assistance payment. More
details about these new codes can be
found beginning in Part B, Sec.
1.04.16 below.
.06 New paragraph was added to the
paperwork reduction act notice at the
direction of OMB.
.07 Added information stating House-
hold Employers with only one house-
hold employee must file Form W–3
with Form W–2. This is based on an
agreement between SSA and IRS. See
Part B, Section 1.10 below for new
requirement.
.08 Form W–3, boxes 13 and 14, and
their related instructions have been de-
leted. SSA says they no longer need this
information. See Part A, Section 4.04.
.09 Changed the instructions for sub-
stitute forms W–2 to require that em-
ployers may provide multiple occur-
rences of box 13 but the boxes should
use the same codes as those assigned by
IRS. See Part B, Section 2.04.14 below
for new information.
.10 Provided examples of the various
types of information that should go in
box 14, Form W–2. See Part B, Section
2.04.19 for details.
.11 The section titled ‘‘Where to File’’
in the general instructions on the em-
ployer’s copy of the official Form W–3
must be printed in its entirety on all
substitute Forms W–3.
.12 The tax year(1997)must be
printed in non-reflective black ink on all
copies of Form W–2 and Form W–3
using 24 pt OCR–A font. The forms
identification numbers, e.g., 22222 or
33333, at the top of the forms must be
printed in non-reflective black ink. It is
imperative that SSA’s scanning equip-
ment be able to recognize the form
number so that, for example, a Form
W–3 is recognized and is not scanned or
keyed as a Form W–2. The form num-
ber ( W–2 and W–3), and the signature
line information on Form W–3, must be
printed in non-reflective black ink. The
word ‘‘Form’’ as well as the form
title(s), e.g., Wage and Tax Statement
and Transmittal of Wage and Tax State-
ments, should be printed in red OCR
drop-out ink.
.13 The correct scanable image depth
of Form W–2, Copy A, must be 4.833
inches, instead of 5.5 inches as previ-
ously stated. The correct scannable im-
age depth of Form W–3 on a page must
be 4.167 inches, and not 4.4 inches as
previously stated. See exhibits A and B.
.14 The Catalog Number, shown on
the 1997 Form W–2 as ‘‘Cat. No.
10134D’’, and the Catalog Number
shown on the 1996 Form W–3 as No.
10159Y, is used for IRS distribution
purposes and should not be printed on
substitute Forms W–3 or W–2 (Copy A
or employee copies).
.15 Added information regarding ex-
tensions of time to file for more than 50
employers. See Part A, Section 3.08, for
the new information.
.16 The zip code for P.O. Box number
reserved for the Information Returns
Magnetic Media Reporting Program has
changed. See Part A, Section 3.01.2, for
the new zip code.
.17 The Earned Income Credit notifi-
cation to employees has been removed
from the back of Copy C, and must now
be printed on the back of Copy B, Form
W–2.
.18 Added information on how forms
can be ordered through computer on-line
services.
.19 Various editorial changes were
made.
SEC. 3. GENERAL RULES FOR
FILING FORMS W–2
.01 Employers MUST use magnetic
media for filing with SSA if they pre-
pare and file 250 or more 1997 Forms
W–2 (Copy A). This requirement applies
unless:
1. The employer can establish that
filing on magnetic media will result in
undue hardship, AND
2. The employer is granted a waiver
of the requirement by IRS.
To request a waiver of the magnetic
media filing requirement, for the current
tax year only, submit Form 8508,Re-
quest for Waiver From Filing Informa-
tion Returns on Magnetic Media,to:
If by Postal Service:
Internal Revenue Service
Martinsburg Computing Center
P.O. Box 1359
Martinsburg, WV25402–1359
Or, if by truck or air freight:
IRS—Martinsburg Computing Center
Magnetic Media Reporting
Route 9 and Needy Road
Martinsburg, WV 25401.
Forms may also be FAXED to the
IRS/MCC at (304) 264–5602.
Form 8508 may be obtained through
electronic options on the Internet at
http://www.irs.ustreas.gov, or by calling
1–800–829–3676. Form 8508 also may
be obtained directly from the IRS
Martinsburg Computing Center (IRS/
MCC) at the above address or by calling
(304)263–8700 (not a toll-free number).
The number for Telecommunication De-
vice for the Deaf (TDD) is (304)267–
3367 (not a toll-free number). It is
recommended that completed requests
for waivers (Form 8508) be submitted at
least 45 days before but no later than
the due date of the return (see Sec. 3.06,
11

below). The requestor will receive an
approval or denial letter from IRS, but
must allow at least30days for IRS to
respond. If you have any questions
concerning Form 8508, contact IRS/
MCC at the address or phone number
shown above. Employers who do not
comply with the magnetic media filing
requirements for Form W–2 and who
are not granted a waiver may be subject
to certain penalties. Since many states
and local governments accept Form
W–2 data on magnetic media, savings
may be obtained if magnetic media is
used for filing with both SSA and state
or local governments. In many in-
stances, the state or local government is
willing to accept the data format specifi-
cations set out in SSA’s Technical Infor-
mation Bulletin (TIB) No. 4, Magnetic
Media Reporting. You must contact each
individual state or local taxing agency to
receive approval and make arrangements
to file on magnetic media.
EMPLOYERS WHO FILE FORM
W–2 INFORMATION ON MAGNETIC
MEDIA WITH SSA MUST NOT SEND
THE SAME DATA TO SSA ON PAPER
FORMS W–2. This would result in
duplicate reporting and may subject the
filer to an unnecessary contact by the
IRS.
.02 TIB–4,Magnetic Media Report-
ing, Submitting Annual W–2 Copy A
Information to the Social Security Ad-
ministration,(SSA Pub. No. 42–007,
revisedOct., 1996) contains the specifi-
cations and procedures for filing Form
W–2 information on magnetic media
with SSA. Specifications for both tape
and diskette reporting for Forms W–2
are included in the TIB–4.
.03 TIB–4 may be obtained by writ-
ing to:
Social Security Administration
OCRO, DEA
Attn: Resubmittal Unit
300 North Greene Street
Baltimore, MD 21201.
Employers may call their local SSA
Magnetic Media Coordinator (MMC) to
obtain the TIB–4 (see list of Magnetic
Media Coordinators’ telephone numbers
in the Appendix). The TIB–4 is also on
the SSA Annual Wage Reporting Bulletin
Board System (AWRBBS). The number
for the AWRBBS is (410)965–1133 (not
atoll-free number). Employers using
magnetic media are cautioned to obtain
the most recent revision of the TIB–4
and supplementsdue to possible changes
in the specifications and procedures.
.04 Employers not using magnetic
media must file a paper Copy A of
Form W–2 with SSA on either the IRS
printed official form or a privately
printed substitute paper form that ex-
actly meets the specifications shown in
Parts B and C.
.05 Employers can design their own
statements to give to employees. This
applies to both employers who file with
SSA either on magnetic media or paper
Forms W–2, Copy A. Employee state-
ments designed by employers must com-
ply with the requirements shown in
Parts B and C, below.
NOTE: Copy A must not be filed on
paper with SSA when the same Form
W–2 information is filed on magnetic
media. Therefore, magnetic media fil-
ers who use the official IRS printed
form or any other pre-printed form
are advised not to print Copy A, or to
discard a printed Copy A, to prevent
duplicate information from being sub-
mitted to SSA.
.06 Beginning January 1, 1997, if
you are terminating your business,
you must provide your employees
with Forms W–2 on or before the due
date of the business filing its final
Form 941. Employers must also file
Forms W–2 and W–3 with SSA on or
before the last day of the month
following the due date of the final
Form 941. See Rev. Proc. 96–57, Au-
tomatic Extensions for Forms W–2,
Internal Revenue Bulletin 1996–53
dated 12/30/96, for more information.
Note: Use of a reporting agent or
other third-party payroll service pro-
vider does not relieve an employer of
the responsibility to ensure that tax
and information returns are sent out
and/or filed correctly and on time.
.071997Forms W–2, whether filed
on magnetic media or paper, must be
submitted to SSA on or beforeMarch
2, 1998.In addition, the employee cop-
ies must be furnished to the employee
on or before January 31, 1998. If em-
ployment ended before December 31,
1997, the employee may be furnished
his/her copy any time after employment
ends, but no later than January 31, 1998.
However, if the employee requests Form
W–2, you must furnish him or her the
completed copies within 30 days of the
request or of the final wage payment,
whichever is later. This requirement is
met if the form is properly addressed,
mailed, and postmarked on or before the
due date. Failure to timely file with SSA
or to timely provide the employee cop-
ies may subject the employer to penal-
ties. Employers needing additional time
to file Form W–2 information (paper or
magnetic media) with SSA may request
an extension of time to file by submit-
ting Form 8809,Request for Extension
of Time to File Information Returns,to
the IRS/MCC at the address (or alterna-
tive address) listed in Sec. 3.01, above.
The extension request should be filed as
early as possible, but must be post-
marked no later than the due date of the
forms (March 2, 1998).DO NOT
SEND FORM 8809 TO SSA.
NOTE: APPROVAL OF THE EX-
TENSION IS NOT AUTOMATIC. Ap-
proval or denial is based on administra-
tive criteria and guidelines. The
requestor will receive an approval or
denial letter from IRS and must allow at
least 30 days for IRS to respond. Form
8809 may be obtained through elec-
tronic options on the Internet at http://
www.irs.ustreas.gov; by modem to IRIS
(703)321–8020; or by using the IRS Fax
Forms Program (703)487–4160, or by
calling 1–800–829–3676. You can also
contact IRS/MCC (See the address and
phone number in Sec. 3.01, above).
.08 If requesting extensions of time
for more than 10 employers, IRS en-
courages filers to submit the request on
tape, tape cartridge, 5 1/4 or 3 1/2-inch
diskette, or electronically through the
Information Reporting Program Bulletin
Board System (IRP–BBS).Transmitters
requesting an extension of time to file
more than 50 payers are required to
file the extension request on magnetic
media or electronically.Transmitters
who submit requests for multiple payers
will receive one approval letter with an
attached list of payers covered under
that approval. Publication 1220,Specifi-
cations for Filing Forms 1098, 1099
series, 5498 and W–2G Electronically
or on Magnetic Media,provides infor-
mation on how to file requests for
extensions of time on tape, diskette, or
electronically.
NOTE:To file a request for extensions
of time magnetically or electronically
for multiple payers, third party filers
and/transmitters, must have an IRS
Transmitter Control Code (Authoriza-
tion to file information returns).
SEC. 4. GENERAL RULES FOR
FILING FORM W–3
.01 Employers submitting Form W–2
(Copy A) on paper to SSA must trans-
mit Forms W–2 with Form W–3.
.02 Form W–3 must be the same
width (7 inches) as the Forms W–2
filed.
12

.03 Form W–3 should only be used to
transmit paper Forms W–2 (Copy A).
Magnetic media filers do not file Form
W–3. Employers using magnetic media
must transmit Form W–2 data with
Form 6559,Transmitter Report and
Summary of Magnetic Media,(and Form
6559–A,Continuation Sheet for Form
6559,if necessary). These forms may be
obtained by calling either your SSA
MMC (see listing in Appendix) or IRS
at 1–800–829–3676.
.04For 1997Forms W–3, entries are
not needed for Adjusted total social
security wages and tips(formerly box
13)and Adjusted total Medicare wages
and tips(formerly box 14).
PART B. REQUIREMENTS FOR
FILING PAPER SUBSTITUTES
SEC. 1. REQUIREMENTS FOR
SUBSTITUTE ‘‘PRIVATELY PRINTED’’
FORMS SUBMITTED TO SSA
(FORMS W–2, COPY A, AND FORMS
W–3)
.01 Employers may file privately
printed substitute Forms W–2 and W–3
with SSA. The substitute form must be
an exact replica of the IRS printed form
(or official reproduction proof) with re-
spect to layout and contents because it
will be read by machine. The Govern-
ment Printing Office (GPO) symbol
must be deleted (see Sec. 1.16, below).
The specifications and allowable toler-
ances for the Copy A of substitute
Forms W–2 are provided later in this
Revenue Procedure. See Exhibit A for
Form W–2 specifications. The specifica-
tions for Forms W–3 are provided in
Exhibit B.
.02 Paper for substitute Forms W–2,
Copy A, and Form W–3 (cut sheets and
continuous pinfeed forms) that are to be
filed with SSA must be white 100%
bleached chemical wood,18–20 pound
paper only,optical character recognition
(OCR) bond produced in accordance
with the specifications shown as fol-
lows:
Paper Requirements
1 Acidity: pH value, average, not
less than . . . . . . . . . . . . . . . . . . . . 4.5
2 Basis Weight 17 x 22
500 cut sheets. . . . . . . . . . . . . .18–20
Metric equivalent grams per.
sq. meter . . . . . . . . . . . . . . . . . .60–75
A tolerance of ±5 pct. shall be al-
lowed.
3 Stiffness: Average, each direction,
not less than Gurley milligrams—
Cross direction . . . . . . . . . . . . . .50
Machine direction. . . . . . . . . . . .80
4 Tearing Strength: Average, each
direction, not less than—Grams . .40
5 Opacity: Average, not less
than—Percent . . . . . . . . . . . . . . . . .82
6 Reflectivity: Average not less
than—percent . . . . . . . . . . . . . . . . .68
7 Thickness:
Average . . . . . . . . . . . . . . inch 0.0038
Metric equivalent . . . . . . . mm 0.097
A tolerance of ±0.0005 inch
(0.0127mm) shall be allowed. Paper
shall not vary more than 0.0004
inch (0.012mm) from one edge to
the other.
8 Porosity: Average, not less
than—seconds. . . . . . . . . . . . . . . . .10
9 Finish (smoothness):
Average, each side—seconds. .20–55
(For information only, the
Sheffield equivalent unit . .170–d100
10 Dirt: Average, each side, not to
exceed— Parts per million . . . . . . .8
NOTE: Reclaimed fiber in any per-
centage is permitted, provided the re-
quirements of this standard are met.DO
NOT USE RECYCLED PAPER.
.03 All printing for Copy A (of
Forms W–2) and Form W–3 will be in
red OCR dropout ink, as specified be-
low, except for the form identifying
numbers ‘22222’ or ‘33333’ at the top
of the form, as well as thetax year at
the bottomof the form (see Exhibits C
and D), must be printed innon-
reflective black ink.All other printing
will be in red OCR drop-out ink meet-
ing, or comparable to, the specifications
in this paragraph. The OCR drop-out ink
for paper Forms W–2, Copy A, and
W–3 is specified as Flint Ink (formerly
Sinclair and Valentine) J–6983 red ink
or equivalent. This is the same ink that
is used for Copy A of the Form 1099
series. The use of this is required for
1997Forms W–3 and W–2, Copy A.
NOTE:Printing in any other red OCR
dropout ink must be cleared by contact-
ing Banc-Tech Corp., Attn: Forms De-
signer & Analyst, P.O. Box 660204,
MS–77, Dallas, TX 75266 (214–579–
6927—This is a voice mail number.
Leave a message and your call will be
returned).
.04 Type must be substantially identi-
cal in size and shape with corresponding
type on the official form. The form
identifying number MUST be printed in
non-reflective black ink using an
OCR–A font; 10 characters per inch.
1. On Form W–3 and Copy A of
Forms W–2, all the perimeter rules
must be 1-point (0.014 inch), while
all other rules must be one-half point
(0.007 inch).
2. Vertical rules must be parallel to
the left edge of the form; horizontal
rules parallel to the top edge.
.05 Two official Forms W–2 (Copy
A), or one official Form W–3 are con-
tained on a single page that is 7 inches
wide (exclusive of any snap-stubs) by
11 inches deep. The form identifying
number for the official forms (7 inches
wide) is ‘22222’ (5 digits) for Form
W–2 and ‘33333’ (5 digits) for Form
W–3. The top margin for1997Forms
W–3 and W–2, Copy A is .375 inch (3/8
inch). The right margin must be .15 inch
and the left margin .35 inch (plus or
minus .0313 inch). The margins are
unchanged from1996. Margins must be
free of all printing. For Forms W–2,
Copy A, the combination width of Box
1, ‘‘Control number’’, and the box con-
taining the form identifying number
(22222) must always be 2.0 inches. For
Form W–3, the combined width of these
boxes must always be 2.2 inches.
NOTE:All form identifying numbers
are to be printed in non-reflective black
ink, using OCR-A font, printed 10 char-
acters per inch.
.06 The depth of the individual scan-
nable image on a page must be the same
as that of the IRS printed forms. For
Form W–2, the depth is 4.833 inches
(see Exhibit A). The scannable image
depth of the Form W–3 on a page must
be 4.167 inches (see Exhibit B).
.07 The words‘‘Do NOT Cut or
Separate Forms on This Page’’must be
printed in red OCR dropout ink between
the two Forms W–2 on Copy A only
(see Exhibit A). Perforations are re-
quired on all copies (except Copy A) to
enable the separation of individual
forms. Continuous pinfeed copy A forms
must be separated at the page perfora-
tion into individual 119deep pages be-
fore submission to SSA. The pinfeed
strips must also be removed. However,
the two W–2 documents contained on
the 119deep pagemust notbe separated.
.08 The words‘‘For Paperwork Re-
duction Act Notice, see separate in-
structions’’,mustbe printed in red
OCR drop-out ink on Forms W–2, Copy
A (see Exhibit A for format and loca-
tion).
.09 The Office of Management and
Budget (OMB) Numbermustbe printed
13

oneachply of Form W–2 and W–3 (see
Exhibits A and B for format and loca-
tion).
.10 The section titled ‘‘Where to
File’’ in the general instructions on the
employer’s copy of the official Form
W–3,must beprinted in its entirety on
all substitute Forms W–3 (see Exhibit
B).Household employers filing Forms
W–2 for household employees should
send the forms to thesame address
shown listed in the instructions.
Note: Household employers, even
those with only one household em-
ployee, must file Form W–3 with
Form W–2. On Form W–2, mark the
‘‘Hshld. Emp.’’ Box in Box 15, and on
Form W–3 mark the ‘‘Hshld.’’ Box in
Box b.
.11 The Paperwork Reduction Act
Notice must be printed on Form W–3
(see Exhibit B for format and location).
.12Privately printed continuous sub-
stitute Forms W–2, Copy A, must be
perforated at each 119page depth. No
perforations are allowed between the
individual forms (5 1/2 inch Forms
W–2) on a single copy page of Copy A.
Continuous pinfeed Copy A forms must
be separated at the page perforation
prior to submitting them to SSA. Two
Copy A forms are contained on one
page. The two copies must remain to-
gether on the page. Only the pages are
to be separated (burst). Perforations are
required between all the otherindividual
copies on a page (Copies 1, B, C, 2, and
D) included in the set.
.13 The back of a substitute Form
W–2, Copy A, and Form W–3 (page 1)
must be free of all printing.
.14 Spot carbons areNOT permitted
for Copy A of Forms W–2 or for Form
W–3. Interleaved carbon should be
black and must be of good quality to
assure legibility of information on all
copies and to preclude smudging.
.15 Chemical transfer paper is permit-
ted for Form W–2, Copy A, and Form
W–3 only if the following standards are
met:
1. Onlychemically backedpaper is
acceptable for Copy A.
2. Carbon coated forms are not per-
mitted. Front and back chemically
treated paper cannot be processed prop-
erly by machine.
3. Chemically transferred images
must be black in color.
.16 The GPO symbol must not be
placed on substitute Copy A of Forms
W–2.
.17 The Catalog Number, shown on
the 1997 Form W–2 as ‘‘Cat. No.
10134D’’, and the Catalog Number
shown on the 1996 Form W–3 as ‘‘Cat.
No.10159Y’’, is used for IRS distribu-
tion purposes and should not be printed
on substitute forms.
SEC. 2. REQUIREMENTS FOR
SUBSTITUTE FORMS FURNISHED
TO EMPLOYEES (COPIES B, C,
AND 2 OF FORMS W–2)
.01 All employers (including those
who file on magnetic media and do not
file a paper Copy A) must furnish
employees with at least two copies of
the Forms W–2 (three or more for
employees required to file a state, city,
or local income tax return). The dimen-
sions of these copies (Copies B, C, etc.)
but not copy A, may be expanded from
the dimensions of the official form to
allow space for conveying additional
information, such as additional entries
required for Boxes 13 or 14, withhold-
ing from pay for health insurance, union
dues, bonds, charity, etc. The require-
ment that a maximum of three items are
permitted in Box 13 of Form W–2
applies only to the paperCopy Athat is
filed with SSA. As long as sufficient
space is provided on the substitute em-
ployee copies, as many items as needed
may be placed in Box 13 or box 14.
Also, on these copies (Copies B, C,
etc.), the size of these boxes may be
adjusted. (However, see the minimum
sizes for certain boxes, below). This
may permit the employer to eliminate
other statements or notices that would
otherwise be furnished to employees.
1. The MAXIMUM allowable dimen-
sions for employee copies of Forms
W–2 are:
(a) depth should be no more than 6.5
inches;
(b) width should be no more than 8.5
inches.
2. The MINIMUM allowable dimen-
sions for employee copies of Forms
W–2 are:
(a) 2.67 inches by 5.0 inches.
(b) horizontal or vertical format is
permitted.
NOTE: These minimum and maximum
size specifications are for1997only and
may change for future years. The maxi-
mum width of 8.5 inches is for em-
ployee copies of Form W–2 only. The
width of the paper Copy A, submitted to
SSA, is specified in Part B, section 1.05
above.
.02 The paper for all copies should
be white. The substitute Copy B (or its
equal), that employees are instructed to
attach to their Federal income tax return,
must be at least 12 pound paper (basis
17 x 22–500), while the other copies
furnished the employee should be at
least 9-pound paper (basis 17 x 22–
500).
.03 Interleaved carbon and chemical
transfer paper for employee copies must
meet the following standards:
1. All copies must be CLEARLY
LEGIBLE;
2. All copies must have the capa-
bility to be photocopied; and
3. Fading must not be of such a
degree as to preclude legibility and the
ability to photocopy.
In general, black chemical transfer
inks are preferred; other colors are per-
mitted only if the above standards are
met. ‘‘Spot carbons’’ are NOT permitted
(See Part B, Sec. 1.15, above, for stan-
dards for chemical transfer paper for
Copy A.)
.04 The following requirements gov-
ern the private printing of employee
copies of Forms W–2. All substitutes
must be a form, which contains boxes,
box numbers, and box titles that, where
applicable, match the IRS printed form.
The placement, numbering, and size of
certain boxes (the ‘‘core’’ information)
is specified as follows:
1. The items and box numbers that
constitute the core data are:
Box 1—Wages, tips, other compensa-
tion,
Box 2—Federal income tax withheld,
Box 3—Social Security Wages/
Railroad Retirement Com-
pensation,
Box 4—Social Security tax withheld/
Railroad Retirement Tax
Withheld,
Box 5—Medicare wages and tips/
Railroad Retirement Tips,
and
Box 6—Medicare tax withheld/
Railroad Retirement Tax
Withheld.
NOTE: Railroad employees may not be
subject to Social Security coverage but
are subject to Railroad Retirement Tax
Tier I and II coverage. Railroad Com-
pensation employers may make the
above modifications to Forms W–2 but
only for substitute Forms W–2 furnished
to employees andnotfor any Copy A
forms to be filed with SSA.
The ‘‘core’’ boxesmustbe printed in
the exact order on each line as on the
IRS printed form (see the Exhibits at the
end of this revenue procedure). Boxes 1
and 2 must be next to each other, with
14

Boxes 3 and 4 below on the next line,
and Boxes 5 and 6 on the line below
Boxes 3 and 4.
2. The block of core data (Boxes 1
through 6) must be placed in the upper
right of the form. Substitute employee
copies of Form W–2, which are printed
using a vertical format with dimensions
smaller than the IRS printed form, may
have the core data entirely on the top of
the form (see Exhibit F). In no instance
will boxes or other information be per-
mitted to the right of the core data.
Standard margins or a small amount of
other blank space may appear to the top
or right of this data. The form title,
number, or copy (Copy B, C, etc.) may
be at the top of the form. Also, a
reversed or blocked-out area to accom-
modate a postal permit number or other
postal considerations is permitted at the
upper right of the form.
3. Boxes 1 through 6 must each be a
minimum of 1 3/8 inches wide and 1/4
inch deep.
4. Other required boxes:
—Employer identification number
(EIN),
—Employer’s name, address, and ZIP
code,
—Employee’s Social Security num-
ber, and
—Employee’s name, address, and ZIP
code.
These items are required to be present
on the form and must be in boxes
similar to those on the IRS printed form.
However, they may be placed in any
location, other than the top or upper
right. The lettering system used on the
IRS printed form (‘‘a’’ through ‘‘f’’)
need not be used. The employer’s EIN
may be included in the box for the
employer’s name and address. If this is
done, a separate box for the EIN is not
required. The Control number box (Box
‘‘a’’ on the IRS printed form) is not
required.
5. The Tax Year(1997) MUSTbe
clearly printed on all copies of substitute
Forms W–2. It is recommended (but not
required) that this information be lo-
cated to the right of the form title on the
lower left of the Form W–2.The tax
year must also be printed in non-
reflective black ink using 24 pt
OCR–A font.
6. If applicable, Social Security tips
MUSTbe shown separately from Social
Security wages. A separate box is not
required unless Social Security tips are
to be reported.
Boxes 1 and 2 on Copy B are
required to be outlined in bold 2-point
rule (see Exhibit E) or highlighted in
some manner to distinguish these boxes.
7. If a box for Advance EIC (Earned
Income Credit) payments (Box 9) is
present, the box must be outlined in
bold 2-point rule or highlighted in some
manner to distinguish this box. How-
ever, if no amounts are paid for Ad-
vance EIC, this box is not required and
may be omitted by printers. Do not use
Box 9 for any other purpose than report-
ing Advance EIC payments.
8. If Allocated tips (Box 8) are being
reported for the individual employee (or
class of employees that are being pro-
vided Forms W–2), it is recommended
(but not required) that this box also be
outlined in bold 2-point rule or high-
lighted on Copy B. However, if allo-
cated tips are not being reported, this
box may be omitted by printers.
9. If Form W–2 contains additional
data concerning payroll deductions (e.g.,
saving bonds withholding, retirement
withholding, or payroll savings), there
should be a special highlighting of the
areas pertaining to Federal income tax
withheld; wages, tips, and other com-
pensation; or Advance EIC (Earned In-
come Credit) payments that are related
to those items.
10. Employers who are required to
report or withhold state income tax
information are required to include the
following boxes on substitute Forms
W–2:
Box 16—State and Employer’s state
identification (I.D.) number,
Box 17—State wages, tips, etc., and
Box 18—State income tax withheld.
11. Employers who are required to
report or withhold local income tax
information are required to include the
following boxes on substitute Forms
W–2:
Box 19—Locality name
Box 20—Local wages, tips, etc., and
Box 21—Local income tax.
12. If state or local tax information is
required, this information is also consid-
ered ‘‘core data.’’ The state and local
informationMUSTbe placed at the
bottom of the form. See the exhibits at
the end of this revenue procedure.
13. Other boxes on the IRS printed
form (Boxes 7 through 15) need not
appear on substitute Forms W–2 pro-
vided to employeesunlessan employer
has that item of information to report to
an employee. For example, if an em-
ployee did not have Social Security tips
(Box 7), Allocated tips (Box 8), or
Advance EIC payments (Box 9), the
form could be printed without these
boxes. However, if the employer had
provided amounts for dependent care
benefits, those amounts would be re-
quired to be reported separately and
shown in a box labeled ‘‘Box 10, De-
pendent care benefits,’’ as on the IRS
printed form and the exhibits in this
revenue procedure.
14. Employers may provide multiple
entries in Box 13, but each entry should
use the same codes as assigned by the
IRS for that type of item. (See Refer-
ence Guide for Box 13 Codes in the
1997 Form W–2 instructions). For ex-
ample, employers reporting deferred
compensation must label the box as
‘‘13d’’ and not as ‘‘13a’’, even though it
is the first or only item to go in this
box. Use the codes shown with the
dollar amount. On Copy A, Form W–2,
do not enter more than three codes in
this box. If more than three items need
to be reported in box 13, use a separate
Form W–2 to report the additional items
(see Multiple Forms in the 1997 Form
W–2 instructions). However, employers
may enter more than three codes in box
13 of Copies 1, 2, B, C, and D of Form
W–2. Do not report in box 13 any items
that are not listed ascodes A–Tin the
Form W–2 instructions. Do not report
the same Federal tax data to the SSA on
more than one Copy A, Form W–2.
15. If you are a military employer
and provide your employee with basic
quarters, subsistence allowances, and
combat zone compensation, report the
amount in Box 13, Form W–2, using
code Q.
16. Beginning January 1, 1997, em-
ployer’s contributions to an employee’s
Medical Savings Account’s (MSAs),
must be reported in Box 13, Form W–2,
using code R.
17. Beginning January 1, 1997, an
employees elective contributions to a
salary reduction SIMPLE retirement ac-
count must be included in Box 13, Form
W–2, using code S. However, if the
amount is contributed to a SIMPLE that
is part of a section 401(k) arrangement,
that amount must be reported in Box 13,
Form W–2, using code D.
18. Beginning January 1, 1997,
amounts paid or expenses incurred by
an employer to or for an employee for
qualified adoption expenses must be
reported in Box 13, Form W–2, using
code T.
Note: See the 1997 Form W–2 in-
structions for more information re-
garding codes R, S, and T.
15

19. Employers may use Box 14 for
any other information you want to give
your employee. Please label each item.
Examples are union dues, health insur-
ance, premiums deducted, nontaxable
income, voluntary after-tax contribu-
tions, or educational assistance pay-
ments.
.05 Substitute forms for employees
(Copies B, C, and 2 of Forms W–2)
must meet the following requirements:
1. All copies of Forms W–2 must
clearly show the form number, the form
title, and the tax year. The title of Form
W–2 is ‘‘Wage and Tax Statement.’’ It is
recommended (but not required) that
this be located on the bottom left of
Form W–2. The reference to the Depart-
ment of the Treasury—Internal Revenue
Service must be on all copies of Form
W–2 provided to the employee. It is
recommended (but not required) that
this be located on the bottom right of
Form W–2.
2. If the substitute forms arenot
labeledas to the disposition of the
copies, then written notification must be
provided to each employee as specified
below:
(a) The first copy of the form (Copy
B) is filed with the employee’s Federal
tax return.
(b) The second copy of the form
(Copy C) is for the employee’s records.
(c) If applicable, the third copy
(Copy 2) of the form is filed with the
employee’s state, city, or local income
tax return.
3. If the substitute forms arelabeled,
the forms must contain the applicable
description:
‘‘Copy B, to be filed with employee’s
Federal tax return,’’and‘‘Copy C, for
employee’s records.’’ It is recommended
(but not required) that this be located on
the lower left of Form W–2. The desig-
nation ‘‘Form W–2, is recommended
(but not required) to be located on the
lower left of Form W–2 and Department
of the Treasury—Internal Revenue Ser-
vice.’’ It is recommended (but not re-
quired) that this be located on the lower
right of Form W–2.
4. Instructions similar to those con-
tained on the back of Copies B and C of
the official Form W–2 must be provided
to each employees. Employers may
modify or delete certain information in
these instructions (such as modification
for employees of railroads to cover
Railroad Retirement Tier I and II Com-
pensation and Taxes. Employers are al-
lowed to delete instructions that do not
apply to the employee. For example, if
none of the employees have dependent
care benefits (Box 10), the employer
may delete the instructions for that item.
Also, if an employer will only be report-
ing amounts for a 401(k) plan in Box
13, those instructions may be modified
to cover only Section 401(k) contribu-
tions.
5. You must notify employees who
have no income tax withheld that they
may be able to claim a tax refund
because of the earned income credit
(EIC). You will meet this notification
requirement if you issue the IRS Form
W–2 with the EIC notice on the back of
the employee’s copy (Copy B), or a
substitute Form W–2 with the same
statement. You may also meet the re-
quirement by providing a substitute
Form W–2 without the EIC notice and
Notice 797, Possible Federal Tax Re-
fund Due to the Earned Income Credit
(EIC), or your own statement that con-
tains the same wording. For more infor-
mation about notification requirements,
see Notice 1015(formerly Pub. 1325),
Employers-Have You Told Your Em-
ployees About the Earned Income Credit
(EIC).
NOTE: Printers are cautioned that the
rules set forth here (Part B. Sec. 2)
apply to employee copies (Copies B, C,
etc.) only. Paper filers who send Copy A
of Form W–2 to SSA must follow the
requirements in Part B. Sec. 3, below
for those paper submissions.
SEC. 3. GENERAL RULES FOR
FILING ‘‘PAPER SUBSTITUTES’’
FOR FORMS W–2 AND W–3
.01 Paper substitutes that conform to-
tally to the specifications contained in
this revenue procedure may be privately
printed without the prior approval of the
IRS. Penalties may be assessed for not
complying with the form specifications
set forth in this publication. SUBSTI-
TUTE FORMS THAT DO NOT CON-
FORM TOTALLY TO THESE SPECI-
FICATIONS ARE NOT ACCEPTABLE.
This applies to both paper substitutes
that are filed with SSA and those that
are given to employees.Forms should
notbe submitted to IRS or SSA for
specific approval.However, if you are
uncertain of any specification set forth
herein and want that specification clari-
fied, you may submit a letter citing the
specification in question, your interpre-
tation of that specification, and an ex-
ample of how the form would appear if
produced using your understanding of
the specification. Any questions pertain-
ing to Copies B, C, and 2 of Forms
W–2 should be sent to:
Internal Revenue Service
ATTN: Substitute Form W–2
Coordinator
T:C:O:L,Room 7510
1111 Constitution Avenue, N.W.
Washington, DC 20224
Any questions pertaining to Copy A,
Form W–2, and Form W–3 should be
forwarded to:
Social Security Administration
Data Operations Center
1150 E. Mountain Drive
Wilkes-Barre, PA 18702–7997
Attn: Program Analyst Office
NOTE: You should allow at least30
days for the IRS and SSA to respond.
.02 Forms W–2 and W–3 are subject
to annual review and possible change.
Employers are cautioned against over-
stocking supplies of privately printed
substitutes.
.03 Copies of the current year IRS
printed Forms W–2 and W–3 and the
instructions for these forms may be
obtained through electronic options on
the Internet at http://www.irs.ustreas.gov,
or from most IRS offices or by calling
1–800–829–3676. The IRS provides
only cut sheet sets.
.04 Substitute Forms W–2 and W–3
transmitted to SSA should generally
contain only data that is required by the
Form W–2, the Form W–2 instructions,
and this revenue procedure.
.05 Substitute Forms W–2, Copy A,
and W–3 are machine imaged and
scanned by Social Security, therefore
these forms must meet the same specifi-
cations as Forms W–2 and W–3 pro-
duced by IRS. The vertical and horizon-
tal spacing for all Federal payment and
data boxes on Form W–2 must be in
compliance with the specifications con-
tained herein.
.06 All ballot boxes on Forms W–2,
Copy A (Box 15), and W–3 (Box ‘‘b’’)
must be 8-point boxes.
NOTE: If a box is marked, more than
50% of the applicable ballot box must
be covered by an ‘‘X’’.
.07 Copy A of Form W–2 and Form
W–3 must have the form producer’s
EIN entered to the left of ‘‘Department
of Treasury’’.
PART C. ADDITIONAL INSTRUC-
TIONS
SEC. 1. INSTRUCTIONS FOR
FORMS PRINTERS
.01 Except as provided below, if
magnetic media is not used for filing
16

with SSA, the substitute copies of
Forms W–2 assembly should be ar-
ranged in the same order as the IRS
printed Forms W–2. Copy A should be
first, followed sequentially by perforated
sets (Copies 1, B, C, 2, and D). The
substitute form to be filed by the em-
ployer with SSA must carry the designa-
tion ‘‘Copy A.’’
NOTE:Magnetic media filers do not
submit Copy A of Form W–2 or Form
W–3. Form 6559 is the transmittal for
magnetic media filed Form W–2 data.
1. It is not a requirement that pri-
vately printed substitute forms contain a
copy to be retained by employers (Copy
D). However, employers must be pre-
pared to verify or duplicate this infor-
mation if it is requested by the IRS or
SSA. Paper filers that do not keep Copy
D should be able to generate a facsimile
of Copy A in case of loss.
2. Except as provided in the arrange-
ment of the official assemblies, addi-
tional copies that may be prepared by
employers shall not be placed ahead of
the copy ‘‘For EMPLOYEE’S
RECORDS,’’ Form W–2 (Copy C).
3. Instructions similar to those con-
tained on the back ofCopies B and C
of the official form MUST be provided
to each employee. These instructions
may be printed on the back of the
substitute Copy B and C or may be
provided to employees on a separate
statement. Do not print these instruc-
tions on the back the the copy that is to
be filed with the employee’s state or
local returns.
.02 All privately printed Forms W–3
and Forms W–2 (Copy A), must have
the tax year, form number, and form
title printed on the bottom face of each
form using identical type to that of the
official format.The tax year must be
printed in non-reflective black ink
using 24 pt OCRA-font, on all copies
of Forms W–2, and Forms W–3. The
form title(s), e.g., Wage and Tax
Statement must be printed in red
OCR drop-out ink on Form W–2,
Copy A, and Form W–3. The form
identifying number of Forms W–2
and W–3, must be printed n black
reflective ink, using OCRA-font,
printed 10 characters per inch. The
word ‘‘Form’’ on the W–2 and W–3
must be printed in red OCR drop-out
ink.
.03 The substitute Form W–2, Copy
B, which employees attach to their Fed-
eral income tax return, must be at least
12-pound paper (basis 17 x 22–500)
while the other copies furnished to em-
ployee’s should be at least 9-pound
paper (basis 17 x 22–500).
.04 Employee copies of Forms W–2
(Copies B, C, etc.), including those that
are printed on a single sheet of paper,
MUSTbe produced so as to be easily
separated by the employee. Perforations
between the individual copies that are
printed on a single sheet of paper satisfy
this requirement.
.05 The Form W–2, Copy A, and the
OCR bond Form W–3 that are filed
with SSA must have no printing on the
reverse side.
.06 Instructions similar to those pro-
vided as part of the official form must
be provided as part of any substitute
Form W–3.
.07 The copy of the substitute Form
W–3 that contains the instructions and is
to be retained by the employer should
be at least 18-pound paper (basis 17 x
22–500).
SEC. 2. INSTRUCTIONS FOR
EMPLOYERS
.01 Only originals or ribbon copies of
Copy A (Forms W–2) and Form W–3
may be filed with SSA.Carbon copies
and photocopies are not acceptable.
.02 Employers should type or ma-
chine print entries on forms whenever
possible and provide good quality data
entries by using a high quality type face,
inserting data in the middle of blocks
that are well separated from other print-
ing and guidelines, and taking any other
measures that will guarantee clear, sharp
images. The employer must provide a
machine scannable form for Copy A.
The employer must also provide payee
copies (Copies B, C, and 2) that are
legible and capable of being photocop-
ied (by the employee).
.03 The Employer Identification
Number (EIN) may be entered in the
Employer’s name and address box on
Copy A of Forms W–2 (Box ‘‘c’’ on the
IRS printed Form W–2). If this is done,
the EIN need not be entered in the box
provided for the EIN (Box ‘‘b’’ on the
IRS printed Form W–2). The EIN must
be entered in Box ‘‘e’’ of the Form
W–3.
.04 The employer’s name, address,
and EIN may be preprinted.
.05 The optional employer’s state
number may be pre-printed in the em-
ployer’s name, address, and ZIP code
box. If this is done, the Employer’s state
I.D. Number section in Box 16 of
Forms W–2 need not be completed, as
long as the applicable state taxing au-
thority does not object.Please check
with the appropriate state taxing au-
thority before doing this.
.06 Generally, an agent that has an
approved Form(s) 2678, Employer Ap-
pointment of Agent, should enter its
name as the employer in box c of Form
W–2, and file one Form W–2. However,
if the agent is acting as an agent for two
or more employers, or is an employer
and is acting as an agent for another
employer, and pays social security
wages in excess of the wage base to an
individual, special reporting for pay-
ments to that individual is needed. The
agent should file separate Forms W–2
reflecting the wages paid by each em-
ployer. Box ‘‘c’’ of Form W–2 should
include name of agent, agent for (name
of employer), and address of agent.
Each Form W–2 should reflect the EIN
of the agent in Box ‘‘b’’. In addition the
employer’s EIN should be shown in
Box ‘‘h’’ of Form W–3.
.07 The preparation and filing in-
structions for Forms W–2 are contained
in the 1997 Instructions for Form W–2.
The preparation and filing instructions
for Form W–3 are contained as part of
the 1997 Form W–3 snap set assembly.
.08 To avoid confusion and questions
by employees, employers are encour-
aged to delete the following items from
the employee copies of Forms W–2 that
are provided to employees:
1 Form identifying number (e.g.,
22222);
2 The words ‘‘subtotal’’ and ‘‘void’’
and their boxes;
3 Any other captions or box number
that would not be of any informational
use to employees (unless otherwise re-
quired).
.09 Employers should use the IRS
supplied label when filing Form W–3
with SSA. The label should be placed
inside the brackets printed in boxes ‘‘e’’
and ‘‘f’’.
SEC. 3.
OFFICE OF MANAGEMENT AND
BUDGET (OMB) REQUIREMENTS FOR
SUBSTITUTE FORMS
.01 The Paperwork Reduction Act re-
quires: (1) OMB approval of IRS tax
forms, (2) that each form (all copies)
show the OMB approval number and,
when appropriate, the form’s expiration
date, and (3) that the form (or its
instructions) state why IRS is collecting
the information, how we will use it and
whether it must be given to us. The
official IRS form (or instructions) will
contain this information.
17

.02 As it applies to substitute IRS
forms, this means:
1. All substitute forms (all copies)
mustshow the OMB number as it
appears on the official IRS printed form
(see Exhibits A and B).
2. The OMB number must be in one
of the following formats:
OMB No. 1545–0008 (preferred),
or
OMB # 1545–0008
3. You must inform the users of your
substitute forms of the reasons for IRS
collection, use, and requirements, as
stated in the instructions for the official
IRS form.
Sec. 4. FORMS and PUBLICATIONS
.01 Electronic access to IRS tax
forms, instructions, publications, and
other tax data is available through the
following:
Modem: IRIS at FedWorld (703)
321–8020
Technical questions regarding
FedWorld can be directed to the
FedWorld help desk 24 hours a day at
(703) 487–4608.
Internet: Telnet—iris.irs.ustreas.gov
FTP—ttp.irs.ustreas.gov
WWW—http://www.irs.ustreas.gov
Fax Forms: (703) 487–4160
.02 Over 100 of the most requested
forms and instructions may be obtained
via your fax machine. Just call
(703)487–4160 from the telephone con-
nected to your fax machine.
.03 A CD–ROM containing over
2,000 tax forms, instructions, and publi-
cations may be purchased from the
Government Printing Office (GPO), Su-
perintendent of Documents (Supt.
Docs.). Current tax year materials, and
tax forms from 1991 and publications
from 1994, are included on the disc. To
order the CD–ROM, contact Supt. Docs.
at (202) 512–1800 (select Option #1), or
by computer through GPO’s Internet
Web Site (http;//www.access.gpo.gov/su
docs).
.04 List of Social Security Adminis-
trations Magnetic Media Coordinators is
included in the Appendix.
Sec. 5 EFFECT ON OTHER REVENUE
PROCEDURES
.01 Rev. Procs. 96–24 and 96–24A,
I.R.B. 1996–5, dated January 29, 1996,
and I.R.B. 1996–15, dated April 8,
1996, (Reprinted as Publication 1141,
Revised4–96), is superseded.
18

19

20

21

22

23

24

25

Part IV. Items of General Interest
Foundations Status of Certain
Organizations
Announcement 97–39
The following organizations have
failed to establish or have been unable
to maintain their status as public chari-
ties or as operating foundations. Accord-
ingly, grantors and contributors may not,
after this date, rely on previous rulings
or designations in the Cumulative List
of Organizations (Publication 78), or on
the presumption arising from the filing
of notices under section 508(b) of the
Code. This listing doesnotindicate that
the organizations have lost their status
as organizations described in section
501(c)(3), eligible to receive deductible
contributions.
Former Public Charities. The follow-
ing organizations (which have been
treated as organizations that are not
private foundations described in section
509(a) of the Code) are now classified
as private foundations:
Absecon Police Athletic League Pal,
Absecon, NJ
African-American Adventure, Inc.,
Hyattsville, MD
Ageless Wisdom Seminary, Scottsdale,
AZ
Alyce Bartholomew Childrens Museum,
Laporte, IN
Amethyst Foundation Judi Laws,
Philadelphia, PA
Amoco Dealers & Jobbers for Kids,
Inc., Clearwater, FL
Anderson Art Association, Anderson, SC
Anderson Community Aquatics Club,
Inc., Anderson, IN
Anderson Urban League, Anderson, SC
Arts and Humanities Council of Pickens
County, Incorporated, Reform, AL
California Earthquake Legacy, San
Francisco, CA
California Foundation for the Blind, San
Francisco, CA
Camera Arts Foundation, Santa Ana, CA
Camp Rainbow, Encino, CA
C and D for Youth, Inc., Stockton, CA
Castro Valley Group Home, Castro
Valley, CA
CDF Museum Foundation, Ione, CA
Center for Constitutional Issues in
Technology, Los Altos, CA
Center for Creative Education, Seattle,
WA
Center for Creative Work, Inc., San
Francisco, CA
Center for the Support & Protection of
Indian Religious & Indigenous
(Center for the Spirit), Oakland, CA
Charles Thaxton, Konos Connection,
Ramona, CA
Children Loving Others With Needs,
Spring Valley, CA
Childrens Literacy Corporation of
America, Inc., Portland, OR
Childrens Services of Central California,
Fresno, CA
Chitman Education and Research Fund,
Inc., San Diego, CA
Christian Airline Personnel Missionary
Outreach, Everett, WA
Christians Neighbors Network, Menlo
Park, CA
CHS Properties I, Pasadena, CA
Coalition for Kids, Inc., Grants Pass,
OR
Coalition for the Creative Arts,
Berkeley, CA
Clergy Wellness Program, Hood River,
OR
Committee To Aid Ukraine of Northern
California, San Francisco, CA
Conejo Open Alternative School
Taskforce, Newbury Park, CA
Consumer Advocates for Legal Justice,
West Hills, CA
Cook Inlet Vigil, Homer, AK
Cooley S Landing Center Incorporated,
East Palo Alto, CA
Copper Mountain Foundation, Cordova,
AK
Create the Magic of Giving Foundation,
Redondo Beach, CA
Delphi Academy, Nicasio, CA
Delta Rebels Manteca Youth Football,
Manteca, CA
Destiny Bound Corporation, Santa
Barbara, CA
Dots for Tots, Inc., Tigard, OR
Earth Children, San Diego, CA
East Honolulu Girls Softball Amateur
Softball Association Jr Olympics,
Honolulu, HI
Educational Theatre for Higher Inner
Consciousness, Santa Rosa, CA
Eighty First Avenue Softball Club,
Mercer Island, WA
Everglades Equestrian Society, Inc.,
Bonita Springs, FL
Exodus Foundation, Las Vegas, NV
Gambling Problems Information, Inc.,
San Jose, CA
Garmons Group Home, Stockton, CA
Gentle Shepard Ministries, Inc., North
Hollywood, CA
Glea Foundation, Honolulu, HI
Global Relief and Childrens Services,
Olympia, WA
Great Basin Nature Interpreters, Reno,
NV
Greater Redmond Foundation, Seattle,
WA
Greek Folklore Dance Company,
Fremont, CA
Gunther Klaus African Foundation, Los
Angeles, CA
Guye Peak Alpine Foundation, Issaquah,
WA
Hendersonville Friends of Chamber
Music, Hendersonville, NC
Jewel Baker Education Foundation,
Berkeley, CA
Jus County Cloggers of San Jose,
Sunnyvale, CA
Kahala Foundation, Honolulu, HI
Kappa Alpha of Theta Tau Theta
Sorority, Inc., Visalia, CA
Kapuna Foundation, Wailuku, HI
Kathleen A Toon Ministries, Hesperia,
CA
Kings Court Play RS, Inc., San
Francisco, CA
Klamath Siskiyou Coalition, Cave
Junction, OR
Knix Swim Club, Eagle River, AK
Korean American Children & Youths
Choir, Irvine, CA
Lake Region Basketball Officials
Association, Lakeland, FL
Lamar County Literacy Council, Inc.,
Paris, TX
Laredo Independent School District,
Laredo, TX
Leonia Education Association
Scholarship Corp., Inc., Leonia, NJ
Miami Killian Senior High School Band
Patrons, Incorporated, Miami, FL
Michigan Wrestling Federation, Clinton
Twp., MI
Mid America Games for the Disabled,
Inc., Mission, KS
National Transplant Action, Inc.,
Washington, DC
New Group Theatre Troupe, El Paso,
TX
North Texas State Soccer Association
Desoto, Desoto, TX
Northwest Indiana Excellence in Theatre
Foundation, Inc., Hammond, IN
Organization of Positive Youth, Inc.,
Philadelphia, PA
Parents on the Move, Inc., Irwinton, GA
Peninsula Scholarship
Foundation-Reach, Yorktown, VA
Pennsylvania Babe Ruth Leagues, Inc.,
Greentown, PA
Plan II Students Association, Austin, TX
Ramazzini Institute for Occupational
and Env. Health Res., Inc., Solomons,
MD
271997–16 I.R.B.

Reading Fleming Middle School PTO,
Flemington, NJ
Ress of Puerto Rico, Inc., San Juan, PR
RSD Foundation, Houston, TX
Safety First Foundation, Inc., Tucker,
GA
Salvageable Consumable Recyclable
Arts Parts, Houston, TX
Science Alliance for Valuing the
Environment, Inc., Sylvania, OH
Second Mile, Austin, TX
Theatre of Dare, Nags Head, NC
Tom Martino Help Center Foundation,
Littleton, CO
Troup Band Booster Club, Troup, TX
Troy Area Gators, Troy, MI
Union County Housing Asst. Corp,
Union, NJ
Vox Theatre Company, Philadelphia, PA
If an organization listed above sub-
mits information that warrants the re-
newal of its classification as a public
charity or as a private operating founda-
tion, the Internal Revenue Service will
issue a ruling or determination letter
with the revised classification as to
foundation status. Grantors and contribu-
tors may thereafter rely upon such rul-
ing or determination letter as provided
in section 1.509(a)–7 of the Income Tax
Regulations. It is not the practice of the
Service to announce such revised classi-
fication of foundation status in the Inter-
nal Revenue Bulletin.
Credit for Employer Social Security
Taxes Paid on Employee Tips;
Correction
Announcement 97–40
AGENCY: Internal Revenue Service,
Treasury.
ACTION: Correction to the removal of
temporary regulations.
SUMMARY: This document contains a
correction to the removal of temporary
regulations (T.D. 8699[1997–6 I.R.B. 4])
which were published in theFederal
Registeron Friday, December 20, 1996
(61 FR 67212). That publication re-
moves the temporary regulations per-
taining to the credit for employer FICA
taxes paid with respect to certain tips
received by employees of food or bever-
age establishments.
EFFECTIVE DATE: December 20,
1996.
FOR FURTHER INFORMATION CON-
TACT: Jean M. Casey, (202) 622–6060
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The removal of temporary regulations
that is subject to this correction is under
section 45B of the Internal Revenue
Code.
Need for Correction
As published, the removal of tempo-
rary regulations (T.D. 8699) contains an
error which may prove to be misleading
and is in need of clarification.
Correction of Publication
Accordingly, the publication of the
removal of temporary regulations (T.D.
8699) which is the subject of FR Doc.
96–32249 is corrected as follows:
On page 67212, column 3, in the
heading, the RIN‘‘RIN 1545–AS19’’is
corrected to read‘‘RIN 1545–AV06’’.
Cynthia E. Grigsby,
Chief, Regulations Unit,
Assistant Chief Counsel (Corporate).
(Filed by the Office of the Federal Register on
March 11, 1997, 8:45 a.m., and published in the
issue of the Federal Register for March 12, 1997,
62 F.R. 11324)
Consolidated Returns—Limitations
on the Use of Certain Losses and
Deductions; Correction
Announcement 97–41
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correction to final and tem-
porary regulations.
SUMMARY: This document contains a
correction to final and temporary regula-
tions (T.D. 8677[1996–30 I.R.B. 7])
which were published in the Federal
Register on Thursday, June 27, 1996 (61
FR 33321). The final and temporary
regulations relate to the deductions and
losses of members and also to the
carryover and carryback of losses to
consolidated and separate return years
and to the built-in deduction rules.
EFFECTIVE DATE: June 27, 1996.
FOR FURTHER INFORMATION CON-
TACT: Diana Fulton at (202) 622–7550
(not a toll-free number).
SUPPLEMENTARY INFORMATION
Background
The final and temporary regulations
that are the subject of this correction are
under section 1502 of the Internal Rev-
enue Code.
Need for Correction
As published, the final and temporary
regulations contain an error which may
prove to be misleading and is in need of
clarification.
Correction of Publication
Accordingly, the publication of the
final and temporary regulations [T.D.
8677] which are the subject of FR Doc.
96–15823 is corrected as follows:
§ 1.1502–13 [Corrected]
On page 33323, the twentieth entry in
the table is corrected to read as follows:
Affected
sectionRemoveAdd
* * * * *
1.1502–13(h)(2),
Example 2(b)
1.1502–
22(c)
1.1502–22T
* * * * *
Cynthia E. Grigsby,
Chief, Regulations Unit,
Assistant Chief Counsel (Corporate).
(Filed by the Office of the Federal Register on
March 14, 1997, 8:45 a.m., and published in the
issue of the Federal Register for March 17, 1997,
62 F.R. 12541)
281997–16 I.R.B.

Announcement of the Expedited Suspension of Attorneys, Certified Public
Accountants, Enrolled Agents, and Enrolled Actuaries From Practice Before the
Internal Revenue Service
Under title 31 of the Code of Federal
Regulations, section 10.76, the Director
of Practice is authorized to immediately
suspend from practice before the Inter-
nal Revenue Service any practitioner
who, within five years, from the date
the expedited proceeding is instituted,
(1) has had a license to practice as an
attorney, certified public accountant, or
actuary suspended or revoked for cause;
or (2) has been convicted of any crime
under title 26 of the United States Code
or, of a felony under title 18 of the
United States Code involving dishonesty
or breach of trust.
Attorneys, certified public accoun-
tants, enrolled agents and enrolled actu-
aries are prohibited in any Internal Rev-
enue Service matter from directly or
indirectly employing, accepting assis-
tance from, being employed by, or shar-
ing fees with, any practitioner disbarred
or suspended from practice before the
Internal Revenue Service.
To enable attorneys, certified public
accountants, enrolled agents, and en-
rolled actuaries to identify practitioners
under expedited suspension from prac-
tice before the Internal Revenue Service,
the Director of Practice will announce in
the Internal Revenue Bulletin the names
and addresses of practitioners who have
been suspended from such practice, their
designation as attorney, certified public
accountant, enrolled agent, or enrolled
actuary, and date or period of suspen-
sion. This announcement will appear in
the weekly Bulletin at the earliest practi-
cable date after such action and will
continue to appear in the weekly Bulle-
tins for five successive weeks or for as
many weeks as is practicable for each
attorney, certified public accountant, en-
rolled agent, or enrolled actuary so
suspended and will be consolidated and
published in the Cumulative Bulletin.
The following individuals have been
placed under suspension from practice
before the Internal Revenue Service by
virtue of the expedited proceeding pro-
visions of the applicable regulations:
NameAddressDesignationDate of Suspension
Loberg, ThomasSt. Paul, MNCPAIndefinite from November 13, 1996
Rose Ann GalatiThousand Oaks, CACPAIndefinite from November 25, 1996
Labendeira, AnthonyFresno, CACPAIndefinite from November 25, 1996
Nation, D. MarkAlbuquerque, NMCPAIndefinite from November 25, 1996
Behren, Daryl D.Visalia, CACPAIndefinite from November 25, 1996
Murphy, Virginia T.Laurinburg, NCCPAIndefinite from November 25, 1996
Best III, James M.Monroe, NCCPAIndefinite from November 25, 1996
Rehm, AyshaTulsa, OKCPAIndefinite from November 25, 1996
Dineen, Lee M.Castle Hayne, NCCPAIndefinite from December 12, 1996
Miele, Ralph J.North Babylon, NYCPAIndefinite from February 14, 1997
29

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as ‘‘rulings’’)
that have an effect on previous rulings
use the following defined terms to de-
scribe the effect:
Amplifieddescribes a situation where
no change is being made in a prior
published 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 ampli-
fied. (Compare withmodified, below).
Clarifiedis 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 es-
sential difference between them.
Modifiedis 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
applies to both A and B, the prior ruling
is modified because it corrects a pub-
lished position. (Compare withamplified
andclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered de-
terminative with respect to future trans-
actions. This term is most commonly
used in a ruling that lists previously
published rulings that are obsoleted be-
cause of changes in law or regulations.
A ruling may also be obsoleted because
the substance has been included in regu-
lations subsequently adopted.
Revokeddescribes situations where
the position in the previously published
ruling is not correct and the correct
position is being stated in the new
ruling.
Supersededdescribes 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 previ-
ously published over a period 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,modifiedandsuper-
sededdescribes a situation where the
substance of a previously published rul-
ing 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 su-
perseded.
Supplementedis 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
published that includes the list in the
original ruling and the additions, and
supersedes all prior rulings in the series.
Suspendedis 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
formerly 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 Procedural 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.
30

Numerical Finding List
1
Bulletin 1997–1 through 1997–15
Announcements:
97–1, 1997–2 I.R.B.63
97–2, 1997–2 I.R.B.63
97–3, 1997–2 I.R.B.63
97–4, 1997–3 I.R.B.14
97–5, 1997–3 I.R.B.15
97–6, 1997–4 I.R.B.11
97–7, 1997–4 I.R.B.12
97–8, 1997–4 I.R.B.12
97–9, 1997–5 I.R.B.27
97–10, 1997–10 I.R.B.64
97–11, 1997–6 I.R.B.19
97–12, 1997–7 I.R.B.55
97–13, 1997–8 I.R.B.38
97–14, 1997–8 I.R.B.38
97–15, 1997–9 I.R.B.23
97–16, 1997–9 I.R.B.23
97–17, 1997–9 I.R.B.23
97–18, 1997–10 I.R.B.67
97–19, 1997–10 I.R.B.68
97–20, 1997–11 I.R.B.22
97–21, 1997–11 I.R.B.23
97–22, 1997–12 I.R.B.47
97–23, 1997–11 I.R.B.23
97–24, 1997–11 I.R.B.24
97–25, 1997–12 I.R.B.47
97–26, 1997–12 I.R.B.48
97–27, 1997–13 I.R.B.30
97–28, 1997–14 I.R.B.15
97–29, 1997–14 I.R.B.16
97–30, 1997–14 I.R.B.16
97–31, 1997–14 I.R.B.16
97–32, 1997–14 I.R.B.17
97–33, 1997–15 I.R.B.8
97–34, 1997–15 I.R.B.8
97–35, 1997–15 I.R.B.9
97–36, 1997–15 I.R.B.10
97–37, 1997–15 I.R.B.10
97–38, 1997–15 I.R.B.10
Notices:
97–1, 1997–2 I.R.B.22
97–2, 1997–2 I.R.B.22
97–3, 1997–1 I.R.B.8
97–4, 1997–2 I.R.B.24
97–5, 1997–2 I.R.B.25
97–6, 1997–2 I.R.B.26
97–7, 1997–1 I.R.B.8
97–8, 1997–4 I.R.B.7
97–9, 1997–2 I.R.B.35
97–10, 1997–2 I.R.B.41
97–11, 1997–2 I.R.B.50
97–12, 1997–3 I.R.B.11
97–13, 1997–6 I.R.B.13
97–14, 1997–8 I.R.B.23
97–15, 1997–8 I.R.B.23
97–16, 1997–9 I.R.B.15
97–17, 1997–10 I.R.B.34
97–18, 1997–10 I.R.B.35
97–19, 1997–10 I.R.B.40
97–20, 1997–10 I.R.B.52
97–21, 1997–11 I.R.B.9
97–22, 1997–13 I.R.B.9
97–23, 1997–14 I.R.B.8
Proposed Regulations:
REG–209332–80, 1997–14 I.R.B.9
REG–209040–88, 1997–7 I.R.B.34
REG–209121–89, 1997–11 I.R.B.15
REG–208288–90, 1997–11 I.R.B.14
REG–209494–90, 1997–8 I.R.B.24
REG–208172–91, 1997–10 I.R.B.59
REG–209672–93, 1997–6 I.R.B.15
REG–209709–94 1997–13 I.R.B.12
REG–209729–94, 1997–11 I.R.B.19
REG–209762–95, 1997–3 I.R.B.12
REG–209817–96, 1997–7 I.R.B.41
REG–209824–96, 1997–11 I.R.B.19
REG–254394–96, 1997–14 I.R.B.14
REG–209828–96, 1997–6 I.R.B.15
REG–209830–96, 1997–15 I.R.B.7
REG–209834–96, 1997–4 I.R.B.9
REG–209839–96, 1997–8 I.R.B.26
REG–242996–96, 1997–9 I.R.B.18
REG–246018–96, 1997–8 I.R.B.30
REG–247678–96, 1997–6 I.R.B.17
REG–247862–96, 1997–8 I.R.B.32
REG–248770–96, 1997–8 I.R.B.33
REG–249819–96, 1997–7 I.R.B.50
REG–252231–96, 1997–7 I.R.B.52
REG–252233–96, 1997–9 I.R.B.19
REG–252665–96, 1997–12 I.R.B.46
Revenue Procedures:
97–1, 1997–1 I.R.B.11
97–2, 1997–1 I.R.B.64
97–3, 1997–1 I.R.B.84
97–4, 1997–1 I.R.B.96
97–5, 1997–1 I.R.B.132
97–6, 1997–1 I.R.B.153
97–7, 1997–1 I.R.B.185
97–8, 1997–1 I.R.B.187
97–9, 1997–2 I.R.B.56
97–10, 1997–2 I.R.B.59
97–11, 1997–6 I.R.B.13
97–12, 1997–4 I.R.B.7
97–13, 1997–5 I.R.B.18
97–14, 1997–5 I.R.B.20
97–15, 1997–5 I.R.B.21
97–16, 1997–5 I.R.B.25
97–17, 1997–9 I.R.B.15
97–18, 1997–10 I.R.B.53
97–19, 1997–10 I.R.B.55
97–20, 1997–11 I.R.B.10
97–21, 1997–12 I.R.B.44
97–22, 1997–13 I.R.B.9
Revenue Rulings:
97–1, 1997–2 I.R.B.10
97–2, 1997–2 I.R.B.7
97–3, 1997–2 I.R.B.5
97–4, 1997–3 I.R.B.6
97–5, 1997–4 I.R.B.5
97–6, 1997–4 I.R.B.4
97–7, 1997–5 I.R.B.14
97–8, 1997–7 I.R.B.4
97–9, 1997–9 I.R.B.4
97–10, 1997–10 I.R.B.31
97–11, 1997–10 I.R.B.5
97–12, 1997–11 I.R.B.5
97–14, 1997–11 I.R.B.5
97–15, 1997–12 I.R.B.42
97–16, 1997–13 I.R.B.4
97–17, 1997–14 I.R.B.5
97–18, 1997–15 I.R.B.4
Social Security Domestic Coverage Threshold
1997–9, I.R.B.17
Treasury Decisions:
8688, 1997–3 I.R.B.7
8689, 1997–3 I.R.B.9
8690, 1997–5 I.R.B.5
8691, 1997–5 I.R.B.16
8692, 1997–3 I.R.B.4
8693, 1997–6 I.R.B.9
8694, 1997–6 I.R.B.11
8695, 1997–4 I.R.B.5
8696, 1997–6 I.R.B.4
8697, 1997–2 I.R.B.11
8698, 1997–7 I.R.B.29
8699, 1997–6 I.R.B.4
8700, 1997–7 I.R.B.5
8701, 1997–7 I.R.B.23
8702, 1997–8 I.R.B.4
8703, 1997–8 I.R.B.18
8704, 1997–8 I.R.B.12
8705, 1997–8 I.R.B.16
8706, 1997–9 I.R.B.11
8707, 1997–7 I.R.B.17
8708, 1997–10 I.R.B.14
8709, 1997–9 I.R.B.5
8710, 1997–13 I.R.B.4
8711, 1997–12 I.R.B.35
8712, 1997–12 I.R.B.4
8713, 1997–14 I.R.B.4
8714, 1997–15 I.R.B.5
1
A cumulative list of all Revenue Rulings,
Revenue Procedures, Treasury Decisions, etc.,
published in Internal Revenue Bulletins 1996–27
through 1996–53 will be found in Internal
Revenue Bulletin 1997–1, dated January 6, 1997.
31

Finding List of Current Action on
Previously Published Items
1
Bulletin 1997–1 through 1997–15
*Denotes entry since last publication
Revenue Procedures:
66–3
Modified by
97–11, 1997–6 I.R.B.13
87–21
Modified by
97–11, 1997–6 I.R.B.13
92–20
Modified by
97–1, 1997–1 I.R.B.11
92–20
Modified by
97–10, 1997–2 I.R.B.59
92–90
Superseded by
97–1, 1997–1 I.R.B.11
94–52
Revoked by
97–11, 1997–6 I.R.B.13
96–1
Superseded by
97–1, 1997–1 I.R.B.11
96–2
Superseded by
97–2, 1997–1 I.R.B.64
96–3
Superseded by
97–3, 1997–1 I.R.B.84
96–4
Superseded by
97–4, 1997–1 I.R.B.96
96–5
Superseded by
97–5, 1997–1 I.R.B.132
96–6
Superseded by
97–6, 1997–1 I.R.B.153
96–7
Superseded by
97–7, 1997–1 I.R.B.185
96–8
Superseded by
97–8, 1997–1 I.R.B.187
97–2
Amplified by
97–21, 1997–12 I.R.B.44
Revenue Rulings:
70–480
Revoked by
97–6, 1997–4 I.R.B.4
72–527
Obsoleted by
8704, 1997–8 I.R.B.12
Revenue Rulings—Continued
74–59
Revoked by
8708, 1997–10 I.R.B.14
92–19
Supplemented in part by
97–2, 1997–2 I.R.B.7
96–12
Superseded by
97–3, 1997–1 I.R.B.84
96–13
Modified by
97–1, 1997–1 I.R.B.11
96–22
Superseded by
97–3, 1997–1 I.R.B.84
96–34
Superseded by
97–3, 1997–1 I.R.B.84
96–39
Superseded by
97–3, 1997–1 I.R.B.84
96–43
Superseded by
97–3, 1997–1 I.R.B.84
96–56
Superseded by
97–3, 1997–1 I.R.B.84
1
A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1996–27 through 1996–53 will be found in Inter-
nal Revenue Bulletin 1997–1, dated January 6,
1997.
32