Internal Revenue Bulletin 1998-31 (PDF rendition): IRS Revenue Rulings

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

INCOME TAX
Rev. Rul. 98–34, page 12.
Below-market loans; exempted loans; second mort-
gage loans under the MAHRA Act.A below-market sec-
ond mortgage loan made under the Multifamily Assisted
Housing Reform and Aff o rdability Act of 1997, by the
Department of Housing and Urban Development (HUD) to the
owner of a multifamily low-income rental property in connec-
tion with re s t ructuring the existing first mortgage on the
property, is exempted from section 7872 of the Code.
Rev. Rul. 98–36, page 6.
Federal rates; adjusted federal rates; adjusted federal
l o n g - t e rm rate, and the long-term exempt rate.F o r
purposes of sections 1274, 1288, 382, and other sections
of the Code, tables set forth the rates for August 1998.
T.D. 8775, page 4.
Final and temporary regulations under section 460 of the
Code explain how a taxpayer elects not to apply the look-
back method to long-term contracts in de minimiscases.
EXEMPT ORGANIZATIONS
Announcement 98–75, page 15.
A list is given of organizations now classified as private foun-
dations.
EMPLOYMENT TAX
T.D. 8772, page 8.
Final and temporary regulations under section 6011 of the
Code relate to the requirements for filing information returns
on magnetic media or in other machine-readable form.
Page 7.
Railroad retirement; rate determination; quarterly.The
Railroad Retirement Board has determined that the rate of
tax imposed by section 3221 of the Code shall be 35 cents
for the quarter beginning April 1, 1998, and 35 cents for the
quarter beginning July 1, 1998.
ADMINISTRATIVE
Announcement 98–72, page 14.
Rev. Proc. 98–35, 1998–21 I.R.B. 6, relating to specifica-
tions for the magnetic or electronic filing of 1998 Form s
1098, 1099, 5498, and W–2G, is corrected.
Announcement 98–73, page 14.
The Service will not assess penalties for missing or incor-
rect taxpayer identification numbers (TINs) on Form 1099–R
for 1996 and 1997. Listings of missing and incorrect TINs
will be sent to filers of this form in early August of this year.
Announcement 98–74, page 15.
REG–106031–98, 1998–26 I.R.B. 38, relating to the treat-
ment of foreign taxpayers trading in derivative financial in-
struments for their own account, is corrected.
Internal Revenue
bulletin
Bulletin No. 1998–31
August 3, 1998
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Tr e a s u r y
Internal Revenue Service
Finding Lists begin on page 18.
Index for January–July begins on page 20.

Mission of the Service
The purpose of the Internal Revenue Service is to collect
the proper amount of tax revenue at the least cost; serv e
the public by continually improving the quality of our prod-
ucts and services; and perf o rm in a manner warr a n t i n g
the highest degree of public confidence in our integrity, eff i-
c i e n c y, and fairn e s s .
2
Statement of Principles
of Internal Revenue
Tax Administration
The function of the Internal Revenue Service is to adm i n i s-
ter the Internal Revenue Code. Tax policy for raising re v e n u e
is determined by Congre s s .
With this in mind, it is the duty of the Service to carry out that
policy by correctly applying the laws enacted by Congress;
to determine the reasonable meaning of various Code provi-
sions in light of the Congressional purpose in enacting them;
and to perform this work in a fair and impartial manner, with
neither a government nor a taxpayer point of view.
At the heart of administration is interpretation of the Code. It
is the responsibility of each person in the Service, charged
with the duty of interpreting the law, to try to find the true
meaning of the statutory provision and not to adopt a
strained construction in the belief that he or she is “protect-
ing the revenue.” The revenue is properly protected only
when we ascertain and apply the true meaning of the statute.
The Service also has the responsibility of applying and
administering the law in a reasonable, practical manner.
Issues should only be raised by examining officers when
they have merit, never arbitrarily or for trading purposes.
At the same time, the examining officer should never hesi-
tate to raise a meritorious issue. It is also important that
c a re be exercised not to raise an issue or to ask a court to
adopt a position inconsistent with an established Serv i c e
p o s i t i o n .
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
t ry to overreach, and should be reasonable within the
bounds of law and sound administration. It should, howev-
e r, be vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax devices and
f r a u d .

The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
f rom the Superintendent of Documents on a subscription
basis. Bulletin contents of a permanent nature are consoli-
dated semiannually into Cumulative Bulletins, which are sold
on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and pro c e d u res that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field off i c e s ,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Tre a s u ry Department Regulations,
but they may be used as precedents. Unpublished ru l i n g s
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying pub-
lished rulings and procedures, the effect of subsequent leg-
islation, regulations, court decisions, rulings, and pro c e-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
P a rt III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross re f e rences to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking
and the disbarment and suspension list included in this part,
none of these announcements are consolidated in the Cumu-
lative Bulletins.
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a semiannual basis
and are published in the first Bulletin of the succeeding semi-
annual period, re s p e c t i v e l y.
3
Introduction
The contents of this publication are not copyrighted and may be reprinted freely.Acitation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

August 3, 199841998–31 I.R.B.
Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 1998. See Rev. Rul. 98–36, page 6.
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term
rates are set forth for the month of August 1998. See
Rev. Rul. 98–36, page 6.
Section 382.—Limitation on Net
Operating Loss Carryforwards
and Certain Built-In Losses
Following Ownership Change
The adjusted federal long-term rate is set forth
for the month of August 1998. See Rev. Rul. 98–36,
page 6.
Section 412.—Minimum Funding
Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 1998. See Rev. Rul. 98–36, page 6.
Section 460.—Special Rules for
Long-Term Contracts
26 CFR 1.460–6: Look-back method.
T.D. 8775
D E PA RTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Election Not to Apply Look-Back
Method in De MinimisCases
A G E N C Y: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
S U M M A RY: This document contains
regulations explaining how a taxpayer
elects under section 460(b)(6) not to
apply the look-back method to long-term
contracts in de minimis cases. The regula-
tions reflect changes to the law made by
the Taxpayer Relief Act of 1997 and af-
fect manufacturers and construction con-
tractors whose long-term contracts other-
wise are subject to the look-back method.
D ATES: Effective date:These regula-
tions are effective July 2, 1998.
Applicability date:These regulations
apply to long-term contracts completed in
taxable years ending after August 5, 1997.
FOR FURTHER INFORMATION CON-
TA C T: Leo F. Nolan II or John M.
Aramburu at (202) 622-4960 (not a toll-
free number).
SUPPLEMENTARYINFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under control number
1545–1572. Responses to this collection
of information are required for a taxpayer
to elect not to apply the look-back method
to long-term contracts in de minimis
cases. An agency may not conduct or
s p o n s o r, and a person is not required to
respond to, a collection of information
unless the collection of information dis-
plays a valid OMB control number.The
estimated average burden per respondent
is 0.2 hours.
Comments concerning the accuracy of
this burden estimate should be sent to the
Internal Revenue Service,Attn: IRS Re-
ports Clearance Officer, OP:FS:FP,Wash-
ington, DC 20224, and to the O ffice of
Management and Budget,Attn: Desk
O fficer for the Department of the Tr e a-
s u r y, Office of Information and Regula-
tory Affairs, Washington, DC 20503.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
This document contains amendments to
the Income Tax Regulations (26 CFR Part
1). Section 460(b)(6) of the Internal Rev-
enue Code was added by section 1211 of
the Taxpayer Relief Act of 1997, Public
Law 105–34, 111 Stat. 788, 998, to pro-
vide an election not to apply the look-
back method of section 460(b)(2) to long-
term contracts in de minimis cases. These
regulations provide guidance concerning
this new election.
Anotice of proposed rulemaking was
published in REG–120200–97, 1998–12
I.R.B. 32 for January 13, 1998 (63 F. R .
1932). No written comments were re-
ceived, and no public hearing was re-
quested or held. The proposed regulations
under section 460 are adopted by this
Treasury decision with one revision. T h e
final regulations provide that for long-
term contracts completed in taxable years
ending after August 5, 1997, an election
not to apply the look-back method under
section 460(b)(6) automatically revokes
an election under §1.460–6(e) to use the
delayed reapplication method.
Special Analyses
It has been determined that this final
regulation is not a significant regulatory
action as defined in EO 12866. T h e r e-
fore, a regulatory assessment is not re-
quired. It also has been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations. Moreover, it is
hereby certified that the collection of in-
formation in these regulations will not
have a significant economic impact on a
substantial number of small entities. This
certification is based on the fact that the
time required to prepare and file an elec-
tion statement is minimal and will not
have a significant impact on those small
entities that choose to make the election.
In addition, the election need only be
made once by a taxpayer. Therefore, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required.
Pursuant to section 7805(f) of the Inter-
nal Revenue Code, the notice of proposed
rulemaking preceding these regulations
was submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on the impact of the
proposed regulations on small business.
P a rt I. Rulings and Decisions Under the Internal Revenue Code of 1986

Drafting Information
The principal author of these regula-
tions is Leo F. Nolan II, Office of Assis-
tant Chief Counsel (Income Tax and Ac-
counting). However, other personnel
from the IRS and Treasury Department
participated in their development.
*****
Adoption of Amendments to the
Regulations
A c c o r d i n g l y, 26 CFR parts 1 and 602
are amended as follows:
PART1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by removing the entry
for “§1.460–6T” to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
P a r. 2. In §1.460–0, the entry for
§1.460–6 is amended by adding entries
for paragraphs (i) and (j) and the entry for
§1.460–6Tis removed to read as follows:
§1.460–0 Outline of regulations under
section 460.
*****
§1.460–6 Look-back method.
*****
(i) [Reserved].
(j) Election not to apply look-back
method in de minimiscases.
*****
P a r. 3. In §1.460–6, paragraph (i) is
added and reserved and paragraph (j) is
added to read as follows:
§1.460–6 Look-back method.
*****
(i) [Reserved].
(j) Election not to apply look-back
method in de minimis cases. S e c t i o n
460(b)(6) provides taxpayers with an
election not to apply the look-back
method to long-term contracts in de min-
imis cases, effective for contracts com-
pleted in taxable years ending after A u-
gust 5, 1997. To make an election, a
taxpayer must attach a statement to its
timely filed original federal income tax
return (including extensions) for the tax-
able year the election is to become effec-
tive or to an amended return for that year,
provided the amended return is filed on or
before March 31, 1998. This statement
must have the legend “NOTIFICAT I O N
OF ELECTION UNDER SECTION
460(b)(6)”; provide the taxpayer’s name
and identifying number and the effective
date of the election; and identify the
trades or businesses that involve long-
term contracts. An election applies to all
long-term contracts completed during and
after the taxable year for which the elec-
tion is effective. An election may not be
revoked without the Commissioner’s con-
sent. For taxpayers who elected to use the
delayed reapplication method under para-
graph (e) of this section, an election under
this paragraph (j) automatically revokes
the election to use the delayed reapplica-
tion method for contracts subject to sec-
tion 460(b)(6). Aconsolidated group of
corporations, as defined in §1.1502–1(h),
is subject to consistency rules analogous
to those in paragraph (e)(2) of this section
and in paragraph (d)(4)(ii)(C) of this sec-
tion (concerning election to use simplified
marginal impact method).
§1.460–6T[Removed]
Par. 4. Section 1.460–6Tis removed.
PART602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
P a r. 5. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
P a r. 6. In §602.101, paragraph (c) is
amended by:
1. Removing the following entry from
the table:
§602.101 OMB Control numbers.
*****
(c) * * *
CFR part or sectionCurrent OMB
where identified andcontrol No.
described
* * * * *
1.460–6T . . . . . . . . . . . . . . .1545–1572
* * * * *
2. Revising the entry for §1.460–6 to
read as follows:
§602.101 OMB Control numbers.
* * * * *
(c) * * *
CFR part or sectionCurrent OMB
where identified andcontrol No.
described
* * * * *
1.460–6 . . . . . . . . . . . . . . . . .1545–1031
1545–1572
* * * * *
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved June 12, 1998.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on July
1, 1998, 8:45 a.m., and published in the issue of the
Federal Register for July 2, 1998, 63 F.R. 36180)
Section 467.—Certain Payments
for the Use of Property or
Services
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 1998. See Rev. Rul. 98–36, page 6.
Section 468.—Special Rules for
Mining and Solid Waste
Reclamation and Closing Costs
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 1998. See Rev. Rul. 98–36, page 6.
Section 482.—Allocation of
Income and Deductions Among
Taxpayers
Federal short-term, mid-term, and long-term
rates are set forth for the month of August 1998. See
Rev. Rul. 98–36, page 6.
Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 1998. See Rev. Rul. 98–36, page 6.
1998–31 I.R.B.5August 3, 1998

Section 642.—Special Rules for
Credits and Deductions
Federal short-term, mid-term, and long-term
rates are set forth for the month of August 1998. See
Rev. Rul. 98–36, page 6.
Section 807.—Rules for Certain
Reserves
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 1998. See Rev. Rul. 98–36, page 6.
Section 846.—Discounted
Unpaid Losses Defined
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 1998. See Rev. Rul. 98–36, page 6.
Section 1274.—Determination
of Issue Price in the Case of
Certain Debt Instruments Issued
for Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal rates;
adjusted federal long-term rate, and
the long-term exempt rate. For purposes
of sections 1274, 1288, 382, and other
sections of the Code, tables set forth the
rates for August 1998.
Rev. Rul. 98–36
This revenue ruling provides various
prescribed rates for federal income tax
purposes for August 1998 (the current
month.) Table 1 contains the short-term,
mid-term, and long-term applicable fed-
eral rates (AFR) for the current month for
purposes of section 1274(d) of the Inter-
nal Revenue Code. Table 2 contains the
short-term, mid-term, and long-term ad-
justed applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the ap-
propriate percentages for determining the
low-income housing credit described in
section 42(b)(2) for buildings placed in
service during the current month. Finally,
Table 5 contains the federal rate for deter-
mining the present value of an annuity, an
interest for life or for a term of years, or a
remainder or a reversionary interest for
purposes of section 7520.
August 3, 199861998–31 I.R.B.
REV. RUL. 98–36 TABLE 1
Applicable Federal Rates (AFR) for August 1998
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-Term
AFR5.48%5.41%5.37%5.35%
110% AFR6.04%5.95%5.91%5.88%
120% AFR6.60%6.49%6.44%6.40%
130% AFR7.15%7.03%6.97%6.93%
Mid-Term
AFR5.57%5.49%5.45%5.43%
110% AFR6.13%6.04%6.00%5.97%
120% AFR6.70%6.59%6.54%6.50%
130% AFR7.27%7.14%7.08%7.04%
150% AFR8.41%8.24% 8.16% 8.10%
175% AFR9.84% 9.61% 9.50% 9.42%
Long-Term
AFR 5.72%5.64% 5.60%5.57%
110% AFR6.30%6.20% 6.15%6.12%
120% AFR6.88%6.77%6.71%6.68%
130% AFR7.46%7.33% 7.26%7.22%

REV. RUL. 98–36 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for August 1998
Appropriate percentage for the 70% present value low-income housing credit8.32%
Appropriate percentage for the 30% present value low-income housing credit3.57%
1998–31 I.R.B.7August 3, 1998
REV. RUL. 98–36 TABLE 2
Adjusted AFR for August 1998
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
adjusted AFR 3.66%3.63%3.61%3.60%
Mid-term
adjusted AFR4.25%4.21% 4.19% 4.17%
Long-term
adjusted AFR5.01%4.95%4.92%4.90%
REV. RUL. 98–36 TABLE 3
Rates Under Section 382 for August 1998
Adjusted federal long-term rate for the current month5.01%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the
adjusted federal long-term rates for the current month and the prior two months.)5.15%
REV. RUL. 98-36 TABLE 5
Rate Under Section 7520 for August 1998
Applicable federal rate for determining the present value of an annuity, an interest for life or a
term of years, or a remainder or reversionary interest6.8%
Section 1288.—Treatment of
Original Issue Discount on
Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 1998. See Rev. Rul. 98–36, page 6.
Section 3221.—Rate of Tax
Determination of Quarterly Rate
of Excise Tax for Railroad
Retirement Supplemental
Annuity Program
In accordance with directions in Sec-
tion 3221(c) of the Railroad Retirement
Tax Act (26 U.S.C., Section 3221(c)), the
Railroad Retirement Board has deter-
mined that the excise tax imposed by such
Section 3221(c) on every employer, with
respect to having individuals in his em-
ploy, for each work-hour for which com-
pensation is paid by such employer for

services rendered to him during the quar-
ter beginning April 1, 1998, shall be at the
rate of 35 cents.
In accordance with directions in Sec-
tion 15(a) of the Railroad Retirement Act
of 1974, the Railroad Retirement Board
has determined that for the quarter begin-
ning April 1, 1998, 30.3 percent of the
taxes collected under Sections 3211 ( b )
and 3221(c) of the Railroad Retirement
Tax Act shall be credited to the Railroad
Retirement Account and 69.7 percent of
the taxes collected under such Sections
3211(b) and 3221(c) plus 100 percent of
the taxes collected under Section 3221(d)
of the Railroad Retirement Tax Act shall
be credited to the Railroad Retirement
Supplemental Account.
Dated: February 19, 1998.
By Authority of the Board.
Beatrice Ezerski,
Secretary to the Board.
(Filed by the Office of the Federal Register on
February 25, 1998, at 8:45 a.m., and published in the
issue of the Federal Register for February 26, 1998,
63 F.R. 9876)
In accordance with directions in Sec-
tion 3221(c) of the Railroad Retirement
Tax Act (26 U.S.C., Section 3221(c)), the
Railroad Retirement Board has deter-
mined that the excise tax imposed by such
Section 3221(c) on every employer, with
respect to having individuals in his em-
ploy, for each work-hour for which com-
pensation is paid by such employer for
services rendered to him during the quar-
ter beginning July 1, 1998, shall be at the
rate of 35 cents.
In accordance with directions in Sec-
tion 15(a) of the Railroad Retirement Act
of 1974, the Railroad Retirement Board
has determined that for the quarter begin-
ning July 1, 1998, 29.7 percent of the
taxes collected under Sections 3211 ( b )
and 3221(c) of the Railroad Retirement
Tax Act shall be credited to the Railroad
Retirement Account and 70.3 percent of
the taxes collected under such Sections
3211(b) and 3221(c) plus 100 percent of
the taxes collected under Section 3221(d)
of the Railroad Retirement Tax Act shall
be credited to the Railroad Retirement
Supplemental Account.
Dated: June 2, 1998.
By Authority of the Board.
Beatrice Ezerski,
Secretary to the Board.
(Filed by the Office of the Federal Register on June
11, 1998, at 8:45 a.m., and published in the issue of
the Federal Register for June 12, 1998, 63 F.R.
32259)
Section 6011.—General
Requirement of Return,
Statement or List
26 CFR 301.6011–2: Required use of magnetic
media.
T.D. 8772
D E PA RTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
Magnetic Media Filing
Requirements for Information
Returns
A G E N C Y: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
S U M M A RY: This document contains
final and temporary regulations relating to
the requirements for filing information re-
turns on magnetic media or in other ma-
chine-readable form under section
6 0 11(e) of the Internal Revenue Code
(Code). These regulations affect persons
filing information returns. These regula-
tions prescribe magnetic media filing re-
quirements for employers filing wage and
tax statements for employees in Puerto
Rico, U.S. Vi rgin Islands, Guam, and
American Samoa. In addition, these regu-
lations provide taxpayers with the guid-
ance to comply with the changes made to
the Code and to the administrative prac-
tices with respect to filing on magnetic
media or in other machine-readable form.
D ATES: Effective date:These regula-
tions are effective June 30, 1998.
Applicability date:These regulations
apply to information returns required to
be filed on or after January 1, 1997.
FOR FURTHER INFORMATION CON-
TA C T: Donna Joy Welch, (202) 622-
4910 (not a toll-free call), if the inquiry
relates to provisions of these regulations.
For further information, see the telephone
numbers listed at the beginning of SUP-
PLEMENTARYINFORMATION.
S U P P L E M E N TA RYI N F O R M AT I O N :
If the inquiry relates to magnetic media
filing and magnetic media specifications
for Form W–2, Form 499R–2/W–2PR,
Form W–2VI, Form W–2GU, and Form
W–2AS, persons residing in the following
locations should contact the correspond-
ing Social Security Administration office
(not a toll-free call):
Alabama (404) 562-1314 (Atlanta),
Alaska (206) 615-2125 (Seattle),
American Samoa (415) 744-4559 (San
Francisco),
Arizona (415) 744-4559 (San
Francisco),
Arkansas (501) 324-5466 (Little
Rock),
California (415) 744-4559 (San
Francisco),
Colorado (303) 844-2364 (Denver),
Connecticut (617) 565-2895 (Boston),
Delaware (215) 597-4632
(Philadelphia),
District of Columbia (215) 597-4632
(Philadelphia),
Florida (404) 562-1314 (Atlanta),
Georgia (404) 562-1314 (Atlanta),
Guam (415) 744-4559 (San Francisco),
Hawaii (415) 744-4559 (San
Francisco),
Idaho (206) 615-2125 (Seattle),
Illinois (312) 575-4244 (Chicago),
Indiana (312) 575-4244 (Chicago),
Iowa (816) 936-5649 (Kansas City),
Kansas (816) 936-5649 (Kansas City),
Kentucky (404) 562-1314 (Atlanta),
Louisiana (504) 389-0426 (Baton
Rouge),
Maine (617) 565-2895 (Boston),
Maryland (215) 597-4632
(Philadelphia),
Massachusetts (617) 565-2895
(Boston),
Michigan (312) 575-4244 (Chicago),
Minnesota (312) 575-4244 (Chicago),
Mississippi (404) 562-1314 (Atlanta),
Missouri (816) 936-5649 (Kansas
City),
Montana (303) 844-2364 (Denver),
Nebraska (816) 936-5649 (Kansas
City),
Nevada (415) 744-4559 (San
Francisco),
August 3, 199881998–31 I.R.B.

New Hampshire (617) 565-2895
(Boston),
New Jersey (212) 264-5643 (New
York),
New Mexico (505) 262-6048
(Albuquerque),
New York (212) 264-5643 (New York),
North Carolina (404) 562-1314
(Atlanta),
North Dakota (303) 844-2364
(Denver),
Ohio (312) 575-4244 (Chicago),
Oklahoma (405) 951-3007 (Oklahoma
City),
Oregon (206) 615-2125 (Seattle),
Pennsylvania (215) 597-4632
(Philadelphia),
Puerto Rico (787) 766-5574 (San
Juan),
Rhode Island (617) 565-2895
(Boston),
South Carolina (404) 562-1314
(Atlanta),
South Dakota (303) 844-2364
(Denver),
Tennessee (404) 562-1314 (Atlanta),
Texas-Central/South (210) 229-6433
(San Antonio),
Texas-Dallas County (214) 767-6777
(Dallas),
Texas-North (817) 978-3123 (Forth
Worth),
Texas-Southeast (713) 718-3015
(Houston),
Texas-West (505) 262-6048
(Albuquerque),
Utah (303) 844-2364 (Denver),
Vermont (617) 565-2895 (Boston),
Virgin Islands (787) 766-5574 (San
Juan),
Virginia (215) 597-4632
(Philadelphia),
Washington (206) 615-2125 (Seattle),
West Virginia (215) 597-4632
(Philadelphia),
Wisconsin (312) 575-4244 (Chicago),
and
Wyoming (303) 844-2364 (Denver).
If the inquiry relates to either the
waiver procedure for all forms described
in these regulations or the magnetic media
specifications for Forms 1042–S, 1098,
1099 series, 5498, 8027, or W–2G, per-
sons should contact the Internal Revenue
Service, Martinsburg Computing Center,
P.O. Box 1359, Martinsburg, West Vi r-
ginia 25402-1359; telephone (304) 263-
8700 (not a toll-free call).
Background
Section 6011(e) authorizes the Secre-
tary to prescribe regulations providing the
standards for determining which returns
must be filed on magnetic media or in
other machine-readable form. Section
6 0 11(e) was added to the Internal Rev-
enue Code (Code) by section 319 of the
Tax Equity and Fiscal Responsibility Act
of 1982, Public Law 97–248, 96 Stat.
610; and was amended by section 109 of
the Interest and Dividend Tax Compli-
ance Act of 1983, Public Law 98–67, 97
Stat. 383; and section 7713 of the Rev-
enue Reconciliation Act of 1989 (1989
Act), Public Law 101–239, 103 Stat.
2394. As amended by the 1989 Act, sec-
tion 6011(e)(2)(A) provides that the Sec-
retary shall not require any person to file
returns on magnetic media unless the per-
son is required to file at least 250 returns
during the calendar year.
On October 10, 1996, final and tempo-
rary regulations (T.D. 8683) amending the
existing regulations relating to the re-
quirements for filing information returns
on magnetic media or in other machine-
readable form under section 6011(e) were
published in the Federal Register( 6 1
F.R. 53058 [T.D. 8683, 1996–2 C.B.
169]). Anotice of proposed rulemaking
(REG–209803–95) cross-referencing the
temporary regulations was published in
the Federal Registerfor the same day
(61 F.R. 53161 [REG–209803–95,
1996–2 C.B. 497]). These regulations
were issued at the request of the Social
Security Administration (the SSA) that
regulations be issued to require employers
required to file 250 or more Forms
499R–2/W–2PR (Withholding Statement
(Puerto Rico)), Forms W–2VI (U.S. Vir-
gin Islands Wage and Tax Statement),
Forms W–2GU (Guam Wage and Ta x
Statement), and Forms W–2AS (Ameri-
can Samoa Wage and Tax Statement) to
file these forms with the SSAon magnetic
media. Filing these forms on magnetic
media will reduce administrative burdens
and will increase accurate processing of
information. These regulations also re-
flect the changes made to the Code and to
the administrative practices with respect
to filing on magnetic media or in other
machine-readable form.
One written comment responding to
this notice was received. No public hear-
ing was requested or held. After consid-
eration of the comment, the proposed reg-
ulations are adopted as modified and the
corresponding temporary regulations are
removed. The comment is discussed
below.
Summary of Comment
The commentator suggests that the def-
inition of magnetic mediais too restric-
tive and that it does not encompass the
use of additional technology that would
facilitate the underlying reporting require-
ments. The commentator suggests that
the definition is not broad enough to in-
clude the use of digital filing, specifically
2D barcode. Neither the IRS nor the SSA
utilize digital filing technology at this
time. However, the IRS and the SSAare
committed to utilizing available technol-
ogy that would facilitate the purpose of
information reporting. Therefore, the reg-
ulations make clear that the use of other
media may be permitted in the future as
provided in applicable regulations, rev-
enue procedures, or publications.
Relationship to Treasury Decision 8734
Treasury Decision 8734 was published
in the Federal Registeron October 14,
1997 (62 F.R. 53387 [T.D. 8734, 1997–44
I.R.B. 5]) and removed §§1.6045–1Tand
1 . 6 0 4 5 – 2 Te ffective January 1, 1999.
This document removes §§1.6045–1T
amd 1.6045–2Te ffective June 30, 1998.
Because this document removes these
sections at an earlier date, a document
will be published later to amend T. D .
8734 to take this into account.
Special Analyses
It is hereby certified that the regula-
tions in this document will not have a sig-
nificant economic impact on a substantial
number of small entities. This certifica-
tion is based on a determination that these
regulations impose no additional report-
ing or recordkeeping requirement and
prescribe only the method of filing infor-
mation returns that are already required to
be filed. Further, these regulations are
consistent with the requirements imposed
by statute. Section 6011(e)(2)(A) pro-
vides that, in prescribing regulations pro-
viding standards for determining which
returns must be filed on magnetic media
or in other machine-readable form, the
1998–31 I.R.B.9August 3, 1998

Secretary shall not require any person to
file returns on magnetic media unless the
person is required to file at least 250 re-
turns during the calendar year. Consistent
with the statutory provision, these regula-
tions do not require information returns to
be filed on magnetic media unless 250 or
more returns are required to be filed. Fur-
t h e r, the economic impact caused by fil-
ing on magnetic media should be mini-
mal. If a taxpayer’s operations are
computerized, reporting in accordance
with the regulations should be less costly
than filing on paper. If the taxpayer’s op-
erations are not computerized, the incre-
mental cost of magnetic media reporting
should be minimal in most cases because
of the availability of computer service bu-
reaus. In addition, the regulations provide
that the IRS may waive the magnetic
media filing requirements upon a showing
of hardship. It is anticipated that the
waiver authority will be exercised so as
not to unduly burden taxpayers lacking
both the necessary data processing facili-
ties and access at a reasonable cost to
computer service bureaus. Accordingly, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required.
It has been determined that this Tr e a-
sury decision is not a significant regula-
tory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required.
Pursuant to section 7805(f) of the Inter-
nal Revenue Code, the notice of proposed
rulemaking preceding these regulations
was submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on its impact on
small business.
Drafting Information
The principal author of these regula-
tions is Donna Joy Welch, Office of As-
sistant Chief Counsel (Income Tax and
Accounting). However, other personnel
from the IRS and the Treasury Depart-
ment participated in the development of
the regulations.
*****
Adoption of Amendments to the
Regulations
A c c o r d i n g l y, 26 CFR parts 1 and 301
are amended as follows:
PART1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
§§1.6045–1Tand 1.6045–2T
[Removed]
P a r. 2. Sections 1.6045–1Ta n d
1 . 6 0 4 5 – 2 T, currently in effect, are re-
moved.
P a r. 3. Section 1.6045-1, currently in
effect, is amended by:
1. Revising paragraph (l).
2. Removing the language “§1.6045–
1T(l)” and adding “paragraph (l) of this
section” in its place in paragraph (q).
The revision reads as follows:
§1.6045–1 Returns of information of
brokers and barter exchanges.
* * * * *
(l) Use of magnetic media.For infor-
mation returns filed after December 31,
1996, see §301.6011–2 of this chapter for
rules relating to filing information returns
on magnetic media and for rules relating
to waivers granted for undue hardship. A
broker or barter exchange that fails to file
a Form 1099 on magnetic media, when
required, may be subject to a penalty
under section 6721 for each such failure.
See paragraph (j) of this section.
* * * * *
Par. 4. Section 1.6045–2, currently in
effect, is amended by:
1. Revising paragraph (g)(2).
2. Removing the language “§1.6045–
2T(g)(2)” and adding “paragraph (g)(2) of
this section” in its place in paragraph (i).
The revision reads as follows:
§1.6045–2 Furnishing statement required
with respect to certain substitute
payments.
* * * * *
(g) * * *
(2) Use of magnetic media.For infor-
mation returns filed after December 31,
1996, see §301.6011–2 of this chapter for
rules relating to filing information returns
on magnetic media and for rules relating
to waivers granted for undue hardship. A
broker or barter exchange that fails to file
a Form 1099 on magnetic media, when
required, may be subject to a penalty
under section 6721 for each such failure.
See paragraph (g)(4) of this section.
* * * * *
PART301—PROCEDURE AND
ADMINISTRATION
P a r. 5. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 6. Section 301.6011-2 is amended
by:
1. Revising paragraphs (a)(1), (b)(1),
(b)(2), (c)(1) heading, (c)(1)(i), (c)(1)(iii),
(c)(2), (d), (f), (g) heading, and (g)(2).
2. Adding paragraph (c)(1)(iv).
3. Removing paragraphs (c)(3) and
(c)(4) and the last sentence of paragraph
(e).
The revisions and addition read as fol-
lows:
§301.6011–2 Required use of magnetic
media.
(a) * * *
(1) Magnetic media.The term m a g-
netic mediameans any media permitted
under applicable regulations, revenue
procedures or publications, or, in the case
of returns filed with the Social Security
Administration, Social Security Adminis-
tration publications. These generally in-
clude magnetic tape, tape cartridge, and
diskette, as well as other media (such as
electronic filing) specifically permitted
under the applicable regulations, proce-
dures, or publications.
* * * * *
(b) Returns re q u i red on magnetic
m e d i a .(1) If the use of Form 1042-S,
1098, 1099 series, 5498, 8027, W-2G, or
other form treated as a form specified in
this paragraph (b)(1) is required by the
applicable regulations or revenue proce-
dures for the purpose of making an infor-
mation return, the information required
by the form must be submitted on mag-
netic media, except as otherwise provided
in paragraph (c) of this section. Returns
on magnetic media must be made in ac-
cordance with applicable revenue proce-
dures or publications (see §601.601(d)-
(2)(ii)(b) of this chapter). Pursuant to
these procedures, the consent of the Com-
missioner of Internal Revenue (or other
authorized officer or employee of the In-
August 3, 1998101998–31 I.R.B.

ternal Revenue Service) to a magnetic
medium must be obtained by submitting
Form 4419 (Application for Filing Infor-
mation Returns Magnetically/Electroni-
cally) prior to submitting a return de-
scribed in this paragraph (b)(1) on the
magnetic medium.
(2) If the use of Form W–2 (Wage and
Tax Statement), Form 499R–2/W–2PR
( Withholding Statement (Puerto Rico)),
Form W–2VI (U.S. Vi rgin Islands Wa g e
and Tax Statement), Form W – 2 G U
(Guam Wage and Tax Statement), Form
W–2AS (American Samoa Wage and Tax
Statement), or other form treated as a
form specified in this paragraph (b)(2) is
required for the purpose of making an in-
formation return, the information required
by the form must be submitted on mag-
netic media, except as otherwise provided
in paragraph (c) of this section. Returns
described in this paragraph (b)(2) must be
made in accordance with applicable So-
cial Security Administration procedures
or publications (which may be obtained
from the local office of the Social Secu-
rity Administration).
* * * * *
(c) E x c e p t i o n s—(1) Low-volume fil-
e r s / 2 5 0 - t h re s h o l d—(i) In general.N o
person is required to file information re-
turns on magnetic media unless the per-
son is required to file 250 or more returns
during the calendar year. Persons filing
fewer than 250 returns during the calen-
dar year may make the returns on the pre-
scribed paper form, or, alternatively, such
persons may make returns on magnetic
media in accordance with paragraph (b)
of this section.
* * * * *
(iii) No aggregation.Each type of in-
formation return described in paragraphs
(b)(1) and (2) of this section is considered
a separate return for purposes of this para-
graph (c)(1). Therefore, the 250-thresh-
old applies separately to each type of
form required to be filed.
(iv) Examples.The provisions of para-
graph (c)(1)(iii) of this section are illus-
trated by the following examples:
Example 1.For the calendar year ending Decem-
ber 31, 1998, Company X is required to file 200 re-
turns on Form 1099–INTand 350 returns on Form
1099–MISC. Company X is not required to file
Forms 1099–INTon magnetic media but is required
to file Forms 1099–MISC on magnetic media.
Example 2.During the calendar year ending De-
cember 31, 1998, Company Yhas 275 employees in
Puerto Rico and 50 employees in American Samoa.
Company Yis required to file Forms 499R–2/
W–2PR on magnetic media but is not required to file
Forms W–2AS on magnetic media.
Example 3.For the calendar year ending Decem-
ber 31, 1998, Company Z files 300 original returns
on Form 1099–DIVand later files 70 corrected re-
turns on Form 1099–DIV. Company Z is required to
file the original returns on magnetic media. How-
ever, Company Z is not required to file the corrected
returns on magnetic media because the corrected re-
turns fall under the 250-threshold. See §301.6721–
1(a)(2)(ii).
(2) Waiver.(i) The Commissioner may
waive the requirements of this section if
hardship is shown in a request for waiver
filed in accordance with this paragraph
(c)(2)(i). The principal factor in deter-
mining hardship will be the amount, if
any, by which the cost of filing the infor-
mation returns in accordance with this
section exceeds the cost of filing the re-
turns on other media. Notwithstanding
the foregoing, if an employer is required
to make a final return on Form 941, or a
variation thereof, and expedited filing of
Forms W–2, Forms 499R–2/W–2PR,
Forms W–2VI, Forms W–2GU, or Form
W–2AS is required, the unavailability of
the specifications for magnetic media fil-
ing will be treated as creating a hardship
(see §31.6071(a)–1(a)(3)(ii) of this chap-
ter). Arequest for waiver must be made
in accordance with applicable revenue
procedures or publications (see
§ 6 0 1 . 6 0 1 ( d ) ( 2 ) ( i i ) (b) of this chapter).
Pursuant to these procedures, a request
for waiver should be filed at least 45 days
before the due date of the information re-
turn in order for the Service to have ade-
quate time to respond to the request for
waiver.The waiver will specify the type
of information return and the period to
which it applies and will be subject to
such terms and conditions regarding the
method of reporting as may be prescribed
by the Commissioner.
(ii) The Commissioner may prescribe
rules that supplement the provisions of
paragraph (c)(2)(i) of this section.
(d) Paper form re t u r n s .Returns sub-
mitted on paper forms (whether or not
machine-readable) permitted under para-
graph (c) of this section shall be in accor-
dance with applicable Internal Revenue
Service or Social Security Administration
procedures.
* * * * *
(f) Failure to file. If a person fails to
file an information return on magnetic
media when required to do so by this sec-
tion, the person is deemed to have failed
to file the return. In addition, if a person
making returns on a paper form under
paragraph (c) of this section fails to file a
return on machine-readable paper form
when required to do so by this section, the
person is deemed to have failed to file the
return. See sections 6652, 6693, and
6721 for penalties for failure to file cer-
tain returns. See also section 6724 and
the regulations under section 6721 for the
specific rules and limitations regarding
the penalty imposed under section 6721
for failure to file on magnetic media.
(g) Effective dates.* * *
(2) Paragraphs (a)(1), (b)(1), (b)(2),
(c)(1)(i), (c)(1)(iii), (c)(1)(iv), (c)(2), (d),
(e), and (f) of this section are effective for
information returns required to be filed
after December 31, 1996. For informa-
tion returns required to be filed after De-
cember 31, 1989, and before January 1,
1997, see section 6011(e).
§301.6011–2T[Removed].
P a r. 7. Section 301.6011 – 2 Tis re-
moved.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved May 22, 1998.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on June
29, 1998, 8:45 a.m., and published in the issue of the
Federal Register for June 30, 1998, 63 F.R. 35517)
Section 7520.—Valuation Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 1998. See Rev. Rul. 98–36, page 6.
Section 7872.—Treatment of
Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 1998. See Rev. Rul. 98–36, page 6.
1998–31 I.R.B.11August 3, 1998

26 CFR 1.7872–5T: Exempted Loans (temporary).
Below-market loans; exempted
loans; second mortgage loans underthe
M A H R AA c t .Abelow-market second
mortgage loan made under the Multifam-
ily Assisted Housing Reform and Afford-
ability Act of 1997, by the Department of
Housing and Urban Development (HUD)
to the owner of a multifamily low-income
rental property in connection with restruc-
turing the existing first mortgage on the
p r o p e r t y, is exempted from section 7872
of the Code.
Rev. Rul. 98–34
ISSUE
If the Department of Housing and
Urban Development (“HUD”) makes a
below-market second mortgage loan in
accordance with the Multifamily Assisted
Housing Reform and Affordability Act of
1997, 111 Stat. 1384 (“MAHRAAct”), is
that loan exempt from § 7872 of the Inter-
nal Revenue Code?
FACTS
Limited partnership PRSowns a multi-
family low-income rental property subject
to a first mortgage that secures a nonre-
course first mortgage note with an out-
standing principal balance of $100x( t h e
“Existing Mortgage loan”). The Existing
Mortgage loan is insured by the Federal
Housing Administration (“FHA”). P R S,
as owner of the property, receives both
rental payments from the property’s ten-
ants and, under a project-based assistance
contract, certain additional payments
from HUD. (Collectively, the payments
are referred to as “Contract Rents.”) The
Contract Rents exceed the rents that
would be received with respect to compa-
rable unassisted rental properties in the
same housing market (“Street Rents”). If
the project-based assistance from HUD
were reduced so that Contract Rents re-
flected Street Rents, P R Swould not be
able to satisfy its debt service obligation
on the Existing Mortgage loan.
Congress enacted the MAHRAAct to
reduce the federal government’s cost of
rental subsidies, to minimize FHAm o r t-
gage insurance risks, and to ensure the
continued viability of multifamily rental
housing projects. S e e§ 511(b) of the
MAHRAAct; H.R. Conf. Rep. No. 297,
105th Cong., 1st Sess. 137–39 (1997).
To achieve these goals, the MAHRAAct
permits owners of eligible multifamily
housing projects with expiring project-
based assistance contracts to enter into
mortgage restructuring and rental assis-
tance sufficiency plans with HUD or a
participating administrative entity acting
on behalf of HUD.
In accordance with the MAHRAA c t ,
the following actions occur:
(1) Project-based assistance payments
to P R Sare reduced so that the Contract
Rents received by P R Sreflect Street
Rents.
(2) HUD makes a $35xcash payment
to the holder of the Existing Mortgage
loan on behalf of PRSto reduce the out-
standing principal balance of the Existing
Mortgage loan to $65x.
(3) The terms of the Existing Mortgage
loan are modified, resulting in a new first
mortgage loan with an outstanding princi-
pal balance of $65x(“New First Mortgage
loan”). The New First Mortgage loan
provides for interest above the applicable
Federal rate under § 1274(d) (“AFR”).
Debt service on the New First Mortgage
loan is supportable by the reduced Con-
tract Rents.
(4) In consideration for the payment in
step (2), PRSexecutes a nonrecourse note
to HUD (the “Second Mortgage loan”) se-
cured by a second mortgage. The Second
Mortgage loan has a principal balance of
$ 3 5x, provides for interest below the
AFR, and qualifies as indebtedness under
general principles of federal income tax
law.The Second Mortgage loan is made
in accordance with § 517(a)(1)(B) of the
MAHRAAct.
LAWAND ANALYSIS
In general, § 7872 defines a below-
market loan as any loan on which the in-
terest rate charged is less than the A F R .
Section 7872(b) provides that the bor-
rower of a below-market term loan is
treated as having received from the
lender, on the date the loan is made, cash
in an amount equal to the excess of the
amount loaned over the present value of
all payments required under the loan (the
“imputed transfer”). Section 7872(b) fur-
ther provides that a below-market term
loan is treated as having original issue
discount (“OID”) in an amount equal to
the imputed transfer, which is in addition
to any other OID on the loan determined
without regard to § 7872(b).
Section 1.7872–5T(a)(1) of the tempo-
rary Income Tax Regulations provides
that, notwithstanding any other provision
of § 7872 and the regulations thereunder,
§ 7872 does not apply to the loans listed
in § 1.7872–5T(b) because the interest
arrangements of those loans do not have a
significant effect on the federal tax liabil-
ity of the borrower or the lender. Section
1.7872–5T(a)(2) provides, however, that
if a taxpayer structures a transaction as a
loan exempt under § 1.7872–5T(b) and
one of the principal purposes of so struc-
turing the transaction is the avoidance of
federal tax, then the transaction will be
recharacterized as a tax avoidance loan
under § 7872(c)(1)(D).
Section 1.7872–5T(b)(5) provides an
exemption for loans that are subsidized by
a federal, state, or municipal government
(or any agency or instrumentality
thereof), and that are made available
under a program of general application to
the public.
Under § 1.7872–5T(b)(15), other loans
described in revenue rulings or revenue
procedures may be exempted from § 7872
if the Commissioner finds that the factors
justifying the exemption for those loans
are sufficiently similar to the factors justi-
fying the other exemptions listed in
§ 1.7872–5T.
The legislative history of § 7872 indi-
cates that most government-subsidized
loans, such as government-insured resi-
dential mortgage loans, were intended to
be exempt from § 7872. S e e1 Senate
Comm. on Finance, 98th Cong., 2d Sess.,
Deficit Reduction Act of 1984: Explana-
tion of Provisions Approved by the Com-
mittee on March 21, 1984, at 482 (S. Prt.
169).
The factors justifying exemption of the
Second Mortgage loan from § 7872 are
similar to the factors justifying the ex-
emption for government subsidized loans
made available under a program of gen-
eral application to the public, which are
exempt from § 7872 under § 1.7872–
5T(b)(5).
The MAHRAAct was enacted as a re-
form measure to reduce HUD’s cost of re-
newing project-based assistance contracts
on multifamily low-income rental proper-
ties while ensuring the continued viability
of these multifamily rental housing pro-
August 3, 1998121998–31 I.R.B.

jects. The interest arrangements of the
Second Mortgage loan to PRSare, there-
fore, not structured with a principal pur-
pose of avoiding federal tax.
HOLDING
The Second Mortgage loan is exempt
from § 7872.
DRAFTING INFORMATION
The principal authors of this revenue
ruling are David B. Silber and Tina Jan-
notta of the Office of Assistant Chief
Counsel (Financial Institutions and Prod-
ucts). However, other personnel from the
IRS and Treasury Department partici-
pated in its development. For further in-
formation regarding this notice, contact
Tina Jannotta on (202) 622–3940 (not a
toll-free call).
1998–31 I.R.B.13August 3, 1998

August 3, 1998141998–31 I.R.B.
1998 Form Specifications; Correction
Announcement 98–72
This announcement corrects Rev. Proc. 98–35, 1998–21 I.R.B. 6, relating to specifications for the magnetic or electronic filing of
1998 Forms 1098, 1099, 5498, and W–2G.
On page 6 of the Bulletin, the bullet relating to Form 8809 is incorrectly stated as follows:
Form 8809, 8027, – Request forExtension of Time to File Information Returns (ForForms W–2, W–2G, 1042–S, 1099,
1098, and 5498)
The correct wording is as follows:
Form 8809 – Request forExtension of Time to File Information Returns (ForForms W–2, W–2G, 1042–S, 1099, 1098,
5498, and 8027)
On page 16, under Section 10, Due Dates, the date for Forms 5498 and 5498–MSAis incorrectly stated as follows:
Forms 5498 and 5498–MSA
Participant Copy – June 1, 1999
IRS Copy – June 1, 1999
The correct date to use is:
Forms 5498 and 5498–MSA
Participant Copy – May 31, 1999
IRS Copy – May 31, 1999
Penalty Relief for TIN Errors on
1996 & 1997 Forms 1099–R
Announcement 98–73
In early August, the Internal Revenue
Service (IRS) will send certain filers of
Form 1099–R (payers of distributions
from pensions, annuities, retirement or
profit-sharing plans, individual retirement
accounts, insurance contracts, etc.) lists of
payees whose taxpayer identification
numbers (TINs) on 1996 Forms 1099–R
filed with the IRS have been identified as
missing or incorrect based on the IRS
matching process. Most of these listings
will be included with the Notice 972CG,
but some will be sent separately.The law
provides a penalty of $50 per return for
filing an information return with a miss-
ing or incorrect TIN. For 1996 and 1997,
for the Forms 1099–R only, the IRS will
not assess this TIN penalty, merely be-
cause the TIN has been identified as miss-
ing or incorrect based on the IRS match-
ing process. In certain cases this penalty
may be assessed after an examination of a
payer’s returns. Payers should use these
listings to correct their records and per-
form necessary solicitations to obtain cor-
rect payee information to establish rea-
sonable cause for any TIN penalties in
future years.
The IRS will still send out proposed
penalty notices for the 1996 Form 1099-
R, as well as for other information re-
turns, in early August to those who filed
late or failed to file on magnetic media
when required to do so.
Questions & Answers on the Form
1099–R TIN Listing
Q1. Why is the IRS sending this listing?
A1. The IRS is sending this listing so that
the payer can compare the data on it
to the information in its records and
then take steps to secure correct
payee information so that future in-
formation returns may be filed accu-
rately.
Q2. What is contained in this listing?
A2. This listing consists of the Forms
1099–R filed for Tax Year 1996 that
have been identified as having miss-
ing or incorrect TINs based on the
records of the IRS and the Social Se-
curity Administration (SSA).
Q3. When does the IRS consider a TIN to
be missing or incorrect?
A3. ATIN is identified as missing if
there is no entry in the TIN block of
a Form 1099 or if the number is ob-
viously incorrect. Anumber is obvi-
ously incorrect if, for example, it
does not have nine characters or it
includes alpha characters. ATIN is
identified as incorrect if the name/
TIN combination on a Form 1099
does not match the name/TIN com-
bination found in IRS and SSAfiles.
Q4. What should be done with the infor-
mation in the listing?
A4. The payer should compare the infor-
mation in the listing with its records
to identify accounts or records with
the same name/TIN combination and
account or other number (if pro-
vided). The IRS recommends that
the payer contact these payees and
ask them for the correct name/TIN
combination that can be used on fu-
ture information returns. Although a
certified TIN is not required from
these payees, the payer may use
Form W–9, “Request for Ta x p a y e r
Identification Number and Certifica-
tion,” for this purpose. The payer
should also check its records for er-
rors (such as transposition of digits)
so that the correct name/TIN combi-
nation can be used on any future in-
formation returns.
Q5. What should be done if the payer
does not have a payee’s TIN?
A5. The payer should comply with the
TIN solicitation requirements in
Regulations section 301.6724–1(e).
In addition, Federal income taxes
P a rt IV. Items of General Intere s t

should be withheld from any pay-
ments made to the payee that are
designated distributions under Code
section 3405. In the case of nonperi-
odic payments, a flat rate of 10%
should be withheld on non-eligible
rollover distributions. On eligible
rollover distributions, the withhold-
ing rate of 20% should continue to
be used. In the case of periodic pay-
ments, the payer should withhold
using the wage withholding rates for
a single taxpayer claiming zero (0)
allowances .
Q6. What should be done if a payee re-
fuses or neglects to provide a TIN?
A6. The payer should withhold under the
provisions of Code section 3405. See
Q&A5.
Q7. What should be done if a payee pro-
vides the same name and TIN that
was on the listing?
A7. The payer should continue to use the
name and TIN provided and keep a
copy on file of the documentation re-
ceived from the payee.
Q8. What should be done if a TIN was
actually on file but was left off the
Form 1099 or reported incorrectly?
A8. The payer should make the change to
its records and use the correct infor-
mation on future filings.
Q9. Will the IRS impose a penalty under
Code section 6721 with respect to
the information returns merely be-
cause a TIN is identified as missing
or incorrect on this listing?
A9. No. In August 1998 (for Tax Ye a r
1996), the IRS is providing this list-
ing so that payers can obtain correct
name/TIN information for use on
any future Forms 1099–R filed. In-
correct name/TIN combinations and
missing TINs on future Forms 1099–
R filed may result in a penalty.
Q10. Is this listing a notification, under
Code section 3405(e)(12)(B), that
the TIN furnished by the payee is
incorrect?
A10. No. The informational listing pro-
vided in August 1998 will not be
treated as a notice under Code sec-
tion 3405(e)(12)(B) that the T I N
furnished by the payee is incorrect.
In 1998 (for Tax Year 1996), the
IRS is only providing this informa-
tional listing so that payers can con-
tact these payees and obtain correct
name/TIN information for use on
future Forms 1099–R filed.
Q11. Where can I find additional infor-
mation about the reasonable cause
regulations and requirements for
missing and incorrect name/TIN
combinations?
A11. See Publication 1586, “Reasonable
Cause Regulations and Require-
ments for Missing and Incorrect
Name/TINs.”
Q12. Since it is likely that Forms 1099–R
for Tax Year 1997 have already
been filed with the missing or in-
correct information found on this
listing, will penalty relief for 1997
also be granted?
A12. Yes. For Tax Year 1997, this relief
will be granted for the TIN penalty
for Forms 1099–R only.
Q13. Who should be called with any
questions?
A13. The Information Reporting Pro-
gram Centralized Call Site may be
called at (304) 263-8700 (not a toll-
free number) between 8:30 a.m.
and 4:30 p.m. (EST). Payers may
also access the Information Returns
Program Bulletin Board using stan-
dard personal computing equipment
at (304) 264-7070 (not a toll-free
number).
Trading Safe Harbors;
Correction
Announcement 98–74
A G E N C Y: Internal Revenue Service
(IRS), Treasury.
ACTION: Correction to notice of pro-
posed rulemaking and notice of public
hearing.
S U M M A RY: This document contains
corrections to REG–106031–98, which
was published in the Federal Registeron
F r i d a y, June 12, 1998 (63 F.R. 32164
[1998–26 I.R.B. 38]), relating to the treat-
ment of foreign taxpayers trading in de-
rivative financial instruments for their
own account.
FOR FURTHER INFORMATION CON-
TA C T: Milton Cahn, (202) 622-3870
(not a toll-free number).
SUPPLEMENTARYINFORMATION:
Background
The notice of proposed rulemaking that
is the subject of this correction is under
section 864(b) of the Internal Revenue
Code.
Need for Correction
As published, REG–106031–98 con-
tains errors which may prove to be mis-
leading and are in need of clarification.
Correction of Publication
Accordingly, the publication of the no-
tice of proposed rulemaking (REG-
106031-98), which is the subject of FR
Doc. 98-15452, is corrected as follows:
1. On page 32164, column 3, in the
preamble under the paragraph heading
“Background”, the second paragraph, line
3, the language “promulgated in 1972.
Since the” is corrected to read “promul-
gated in 1968. Since the”.
2. On page 32165, column 2, in the pre-
amble under the paragraph heading “2. E l i-
gible Nondealer”, the third paragraph, line
9, the language “securities in 475(c)(1)(B),
including” is corrected to read “securities
in section 475(c)(1)(B), including”.
§1.864(b)–1 [Corrected]
3. On page 32166, columns 2 and 3,
§1.864(b)–1(b) (1) introductory text, the
last line in column 2 and the first line in
column 3, the language “n o n d e a l e ris a
person that is not a resident of the United
States and is not,” is corrected to read
“n o n d e a l e ris a foreign corporation or a
person that is not a resident of the United
States, and either of which is not,”.
Cynthia E. Grigsby,
Chief, Regulations Unit,
Assistant Chief Counsel (Corporate).
(Filed by the Office of the Federal Register on July
14, 1998, 8:45 a.m., and published in the issue of the
Federal Register for July 15, 1998, 63 F.R. 38139)
Foundations Status of Certain
Organizations
Announcement 98–75
The following organizations have
failed to establish or have been unable to
1998–31 I.R.B.15August 3, 1998

maintain their status as public charities or
as operating foundations. A c c o r d i n g l y,
grantors and contributors may not, after
this date, rely on previous rulings or des-
ignations in the Cumulative List of Orga-
nizations (Publication 78), or on the pre-
sumption arising from the filing of notices
under section 508(b) of the Code. T h i s
listing does notindicate that the organiza-
tions have lost their status as org a n i z a-
tions described in section 501(c)(3), eligi-
ble to receive deductible contributions.
Former Public Charities.The following
o rganizations (which have been treated as
o rganizations that are not private founda-
tions described in section 509(a) of the
Code) are now classified as private foun-
d a t i o n s :
ABetter Option Dwelling Enterprise,
Inc., Laurel, MD
African Family Services Center, New
York, NY
American Aid for Polands Environment
Foundation Inc., Chicago, IL
Angela Barber Foundation, Ashland, OR
Aradia Inc. Aradia Theatre, Buskirk, NY
Bread of Life Outreach Deliverance, East
Orange, NJ
Cleveland Haddassah House, Inc.,
Beachwood, OH
Delaware Crime Prevention Association,
Dover, DE
Dixie Hollins Band Boosters, Inc.,
St. Petersburg, FL
Doniphan Education Foundation,
Doniphan, NE
Environmental Technology Synthests,
Beltsville, MD
For a Better Life Foundation, Chicago, IL
Glen Shumate Ministries, Inc., Corbin,
KY
Good Stewards, Woodbury, MN
Gospel Music Museum & Archives Inc.,
Huntsville, AK
Hans Lehfeldt Charitable Trust, New
York, NY
Help or Motivate Everybody, Inc., Dallas,
TX
Henrietta J. Gersoni Educational
Foundation, Stockton, CA
Hine-2 Corporation, Portland, ME
Hintz Research Foundation, Rock Island,
IL
Hope & Charity Incorporated, Pittsburg,
PA
Impoverished, Inc., Chicago, IL
International Center for Addiction and
AIDSTraining, Inc., Rochester, NY
Itis H. Chidester Scout Museum of
Southern Arizona, Tucson, AR
Lochearn Child Care & Development
Center, Baltimore, MD
Living History Society of Delaware, Inc.,
Dover, DE
Sayre Charitable Union, Sayre, OK
Shelter Plus Inc., North Miami, FL
Sphere, Inc., Dixmont, ME
Steve Nelson Ministries, Gallatin, TN
TASCA, Raleigh, NC
Team Jesus Inc., Amory, MS
Vanguard Communications, St. Louis,
MO
Visions & Associates, Bath, OH
Westwood Education Foundation,
Mapleton, IA
If an organization listed above submits
information that warrants the renewal of
its classification as a public charity or as a
private operating foundation, the Internal
Revenue Service will issue a ruling or de-
termination letter with the revised classi-
fication as to foundation status. Grantors
and contributors may thereafter rely upon
such ruling or determination letter as pro-
vided in section 1.509(a)–7 of the Income
Tax Regulations. It is not the practice of
the Service to announce such revised clas-
sification of foundation status in the Inter-
nal Revenue Bulletin.
August 3, 1998161998–31 I.R.B.

1998–31 I.R.B.17August 3, 1998
Revenue rulings and revenue pro c e d u re s
( h e reinafter re f e rred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
e f f e c t :
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. T h u s ,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with m o d i f i e d, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
D i s t i n g u i s h e ddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to Abut not
to B, and the new ruling holds that it ap-
plies to both Aand B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified a n d
c l a r i f i e d, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. Ar u l i n g
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, m o d i f i e d
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
s e d e d .
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

August 3, 1998181998–31 I.R.B.
Numerical Finding List
1
Bulletins 1998–29 and 30
Announcements:
98–62, 1998–29 I.R.B. 13
98–68, 1998–29 I.R.B. 14
98–69, 1998–30 I.R.B. 16
98–70, 1998–30 I.R.B. 17
98–71, 1998–30 I.R.B. 17
Notices:
98–36, 1998–29 I.R.B. 8
98–37, 1998–30 I.R.B.13
Proposed Regulations:
REG–104641–97, 1998–29 I.R.B. 9
REG–110403–98, 1998–29 I.R.B.11
REG–116608–97, 1998–29 I.R.B. 12
REG–119227–97, 1998–30 I.R.B. 13
Revenue Procedures:
98–43, 1998–29 I.R.B. 8
Revenue Rulings:
98–35, 1998–30 I.R.B. 4
Treasury Decisions:
8771, 1998–29 I.R.B. 6
8773, 1998–29 I.R.B. 4
8774, 1998–30 I.R.B. 5
1
Acumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1998–1 through 1998–28
will be found in Internal Revenue Bulletin 1998–29,
dated July 20, 1998.

1998–31 I.R.B.19August 3, 1998
Finding List of Current Action on
Previously Published Items
1
Bulletins 1998–29 and 30
*Denotes entry since last publication
1
Acumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1998–1 through 1998–28 will be found in Internal
Revenue Bulletin 1998–29, dated July 20, 1998.

Index
Internal Revenue Bulletins
1998–1 Through 1998–30
The abbreviation and number in pare n-
thesis following the index entry refer to
the specific item; numbers in roman and
italic type following the parenthesis refer
to the Internal Revenue Bulletin in which
the item may be found and the page
number on which it appears.
Key to Abbreviations:
RRRevenue Ruling
RPRevenue Procedure
TDTreasury Decision
CDCourt Decision
PLPublic Law
EOExecutive Order
DODelegation Order
TDOTreasury Department Order
TCTax Convention
SPRStatement of Procedural
Rules
P T EP rohibited Tr a n s a c t i o n
E x e m p t i o n
EMPLOYMENT TAX
Magnetic media; electronic filing; 1998
Form W–4 specifications (RP26) 13,
26
Proposed regulations:
26 CFR 31.3121(v)(2)–1, revised;
FICAand FUTAtaxation of amounts
under employee benefit plans (REG–
209484–87; REG–209807–95) 8, 40
26 CFR 31.6053–1, –4; electronic tip
reports (REG–104691–97) 11, 13
Student FICAexception (RP16) 5,19
26 CFR 31.6302–1(f)(4), revised; fed-
eral employment tax deposits d e
m i n i m i srule (REG–110403–98) 29,
11
Regulations:
26 CFR 31.6302–1(f)(4), 31.6302–1T,
added; federal employment tax de-
posits de minimisrule (TD 8771) 29,
6
ESTATE TAX
Regulations:
26 CFR 20.2041–3, 20.2056(d)–2,
amended; 20.2046–1, revised; prop-
erty interests and disclaimer (TD
8744) 7, 20
E S TATE TA X — C o n t i n u e d
26 CFR 25.2702–5, –7, amended; qual-
ified prsonal residence trust, sale of
residence (TD 8743) 7, 26
26 CFR 25.2511–1, 25.2514–3,
25.2518–1, –2, amended; property
interests and disclaimers (TD 8744)
7, 20
Revocable trust; election (RP13) 4, 21
Special use value; farms; interest rates
(RR 22) 19, 5
Underpayment interest, interest expense
deduction, estates (RP15) 4, 25
Valuation of compensatory stock options
(RP34) 18, 15
EXCISE TAX
Bows and arrows; taxable and nontaxable
articles (RR 5) 2, 20
Deposit of excise taxes, amendment (No-
tice 36) 29, 8
Federal excise taxes for consular officers
and employees, exemption (RR 24) 19,
6
Proposed regulations:
26 CFR 40.0–1T, added; 40.6011 ( a ) –
1 T, added; 40.6302(c)–2T, added;
deposits of excise taxes (REG–
102894–97) 3, 59
26 CFR 48.4052–1, added; 48.4081–1,
amended; 48.4082–6 through –10
and intermediary sections, 48.4091–
3, added; 48.4101–2, amended;
48.4101–3, 48.6427–10, –11, added;
kerosene tax, aviation fuel tax, tax
on heavy trucks and trailers (REG–
119227–97) 30, 13
26 CFR 54.4980B–1, added; group
health plans continuation coverage
requirements (REG–209485–86) 11,
21
Regulations:
26 CFR 40.0–1(a), amended;
4 0 . 6 0 11 ( a ) –1(a)(2)(iii), 40.5302(c)–
1, amended,4 0 . 6 3 0 2 ( c ) – 2 ( b ) ( 2 ) ( i i i ) ,
added; deposits of excise taxes (TD
8740) 3, 4
26 CFR 40.6011 ( a ) – 1 ( b ) ( 2 ) ( v i ) ,
amended; 48.4082–5T, removed;
48.4082–5, added; 48.4081–1,
amended; 48.4082–5T, redesignated;
48.6416(b)(4)–1, removed; 48.6421–
3(d)(2), amended; 48.6427–3(d)(2),
amended; 48.6715–1(a)(3), revised;
4 8 . 6 7 1 5 – 2 T, removed; gasoline and
diesel fuel excise tax; special rules for
Alaska, definitions (TD 8748) 8, 2 4
EXCISE TA X — C o n t i n u e d
Regulations:
26 CFR 48.4081–1T, 48.4082–6T
through –10Tand intermediary sec-
tions, 48.4091–3T, 48.4101–2T, –3T,
4 8 . 6 4 2 7 – 1 0 T, –11 T, added; 145.4052–
1, amended; kerosene, aviation fuel,
heavy trucks and trailers tax (TD
8774) 30, 5
GIFT TAX
Nonstatutory stock option, transfer (RR
21) 18, 7
Qualifying income interest, disposition
(RR 8) 7, 24
Valuation of compensatory stock options
(RP34) 18, 15
INCOME TAX
Advance pricing agreements, small busi-
ness taxpayers (Notice 10) 6, 9
Article XIII (8) Rev. Proc. (RP21) 8, 27
Automobile owners and lessees (RP2 4 )
10, 31;(RP30) 17,6
Books and records; automatic data pro-
cessing system (RP25) 11, 7
Business expenses:
U n d e rground waste storage tank (RR
25) 19, 4
Capital gains and charitable remainder
trusts (Notice 20) 13, 25
Classification settlement program:
Extended until further notice (Notice
21) 15, 14
Disclosure authorization list (RP43) 29, 8
Domestic assets/liability and investment
yield percentages (RP31) 23, 9
Education loans (Notice 7) 3, 54
Elections under section 7704(g) (Notice
3) 3, 48
Electronic Federal Tax Payment System:
Batch filers and bulk filers (RP32) 17,
11
Electronic funds transfer; failure to de-
posit penalty (Notice 30) 22, 9
Employee plans:
Administrative programs; closing
agreements (RP22) 12, 11
Determination letters (RP6) 1, 1 8 3;
(RP14) 4,22
Discrimination; CODAs (Notice 1) 3,
42
Eligible deferred compensation plans
(Notice 8) 4, 6
August 3, 1998201998–31 I.R.B.

INCOME TA X — C o n t i n u e d
Group health plans; COBRAcontinua-
tion coverage; HIPA Ap o r t a b i l i t y
(Notice 12) 5, 12
Net unrealized appreciation; capital
gains (Notice 24) 17, 5
Funding:
Full funding limitations, weighted
average interest rate for Janu-
ary 1998 (Notice 9) 4, 8; Feb-
ruary 1998 (Notice 15) 9,8 ;
March 1998 (Notice 18) 12,11;
April 1998 (Notice 26) 18, 14;
May 1998 (Notice 32) 22,23;
June 1998 (Notice 33) 25,10;
July 1998 (Notice 37) 30, 13
Letter rulings, etc. (RP4) 1, 113
Limitations on benefits and contribu-
tions (RR 1) 2, 5
Minimum Funding Standards (RP1 0 )
2, 35
Minimum:
Remedial amendments (RP42) 28,
9
Qualification (Notice 29) 22, 8;
CODAs (RR 30) 25, 8
Recovery of basis; retirees (Notice 2)
2, 22
SIMPLE-IRAs (Notice 4) 2,25
Technical advice (RP5) 1, 155
User fees (RP8) 1, 225
Environmental cleanup costs; letter
rulings (RP17) 5, 21
Exempt Organizations:
Letter rulings, etc. (RP4) 1, 113
Organizations excepted from reporting
lobbying expenditures (RP19) 7,
30
Tax consequences of physicians re-
cruitment incentives provided by
hospitals (RR 15) 12, 6
Technical advice (RP5) 1, 155
User fees (RP8) 1, 225
Failure to deposit federal tax; penalty
abatement (Notice 14) 8, 27
Foreign partnerships, reporting transfer of
property by U.S. persons (Notice 17)
11, 6
Foreign tax credit abuse (Notice 5) 3, 49
Fringe benefits aircraft valuation formula,
first half of 1998 (RR 14) 11, 4
Fuel from a nonconventional source,
credit; section 29 inflation adjustment;
reference price for 1997 (Notice 28)
19, 7
Hybrid arrangements, treatment under
subpart F (Notice 35) 27, 35
INCOME TA X — C o n t i n u e d
Insurance companies:
Discounting estimated salvage recover-
able (RP12) 4, 18
Interest rate tables (RR 2) 2,15
Loss reserves; discounting unpaid
losses (RP11) 4, 9
Interest:
Investment:
Federal short-term, mid-term, and
long-term rates for January 1998
(RR4) 2, 1 8; February 1998
(RR7) 6, 6; March 1998 (RR11 )
10, 1 3; April 1998 (RR 18) 14,
2 2; May (RR 23) 18,5; J u n e
1998 (RR 28) 22,5; July 1998
(RR 33) 27, 26
Rates, underpayments and overpay-
ments (RR 17) 13, 21; c a l e n d a r
quarter beginning July 1, 1998
(RR 32) 25,4
Inventory:
LIFO:
Price indexes; department stores for
November 1997 (RR 6) 4, 4; De-
cember 1997 (RR 9) 6,5; January
1998 (RR 16) 13,1 8; February
1998 (RR 20) 15,8; March 1998
(RR 26) 21,4; April 1998 (RR
29) 24,4; May 1998 (RR 35) 30,
4
Shrinkage estimates:
Changing method of accounting for
estimating inventory shrinkage
(RP29) 15, 22
Letter rulings, determination letters, and
information letters issued by Associate
Chief Counsel (Domestic), Associate
Chief Counsel (EBEO), A s s o c i a t e
Chief Counsel (Enforcement Litiga-
tion), and Associate Chief Counsel
(International) (RP1) 1, 7
Losses attributable to a disaster during
1997 (RR 12) 10, 5
Low-income housing tax credit (Notice
13) 6, 19
Satisfactory bond; “bond factor”
amounts for the period October
through December 1997 (RR 3) 2, 4;
January–March 1998 (RR 13) 11,4;
April-June 1998 (RR 31) 25,4
Magnetic media/electronic filing:
Specifications for 1998 Forms 1098,
1099, 5498, and W–2G (RP35) 19,
6
Form 1040NR (RP36) 23,10
Methods of accounting; involuntary
changes (Notice 31) 22, 10
INCOME TA X — C o n t i n u e d
Package design; amortization; capitaliza-
tion; amortizable section 197 intangible
(RP39) 26, 36
Passive foreign investment companies:
Shareholders may use rules of sec.
1.1295–1T(b)(4), (f), and (g) to tax-
able years beginning before January
1, 1998 (Notice 22) 17, 5
Private letter rulings under sections 877,
2107, and 2501(a)(3)(Notice 34) 27, 30
Proposed regulations:
26 CFR 1.32–3, added; EIC eligibility
requirements (REG–116608–97) 29,
12
26 CFR 1.72(p)–1, amended; loans to
plan participants (REG–209476–82)
8, 36
26 CFR 1.141–7, 1.142(f)(4)–1, 1.150–
5, added; 1.141–8, –15, amended;
obligations of states and political
subdivisions (REG–110965–97) 13,
42
26 CFR 1.195–1, added; election to
amortize start-up expenditures
(REG–209373–81) 14,26
26 CFR 1.356–6, added; reorg a n i z a-
tions, nonqualified preferred stock
(REG–121755–97) 9, 13
26 CFR 1.368–1, amended; corporate
r e o rganizations, continuity of inter-
est (REG–120882–97) 14, 25
26 CFR 1.401(a)(9)–1, amended; quali-
fied plans and individual retirement
plans, required distributions (REG–
209463–82) 4, 27
26 CFR 1.417(e)–1 and paragraph (d),
revised; 1.417(e)–1Tand paragraph
(d), revised; valuation of plan dis-
tributrions (TD 8768) 20, 4
26 CFR 1.460–6, amended; election
not to apply look-back method in de
m i n i m i scases (REG–120200–97)
12, 32
26 CFR 1.469–10, revised; 1.7704–1,
added; investment income, passive
activity income and loss rules for
publicly traded partnerships
(REG–105163–97) 8, 31
26 CFR 1.475(g)–2, new; 1.482–8,
added; 1.482–0, –1, –2, 1.863,
1.863–7(a)(1), 1.864–4, –6, 1.894–1,
amended; 1.482–9, redesignated;
global dealing operation allocation
and sourcing of income and deduc-
tions among taxpayers (REG–
208299–90) 16, 26
1998–31 I.R.B.21August 3, 1998

INCOME TA X — C o n t i n u e d
26 CFR 1.513–7, added; travel and tour
activities of tax exempt org a n i z a-
tions (REG–121268–97) 20, 12
26 CFR 1.702–1, 1.954–1, 301.7701–3,
amended; 1.952–1(b), (c), redesig-
nated 1.954–2(a)(5), (6), 1.954–
4(b)(2)(iii), 1.954–9, 1.956–2(a)(3),
added (REG–104537–97) 16, 21
26 CFR 1.732–1, amended; 1.732–2,
amended; 1.734–1(e), added; 1.743–
1, revised; 1.751–1, amended;
1.755–1, revised; 1.1017–1, revised;
adjustments to basis of partnership
property and partnership interest
(REG–209682–94) 17, 20
26 CFR 1.864(b)–1; trading safe har-
bors (REG–106031–98) 26, 38
26 CFR 1.925(a)–1, (b)–1, added;
1.927(e)–1, amended; foreign sales
corporation transfer pricing source
and grouping rules (REG–102144–
98) 15, 25
26 CFR 1.1092(c)–1, added; equity op-
tions without standard terms, special
rules and definitions (REG–104641–
97) 29, 9
26 CFR 1.1291–1, 1.1293–1, 1.1295–1,
–3, 1.1297–3(c), added; 1.1296–4,
amended; passive foreign investment
company preferred shares, special
income exclusion (REG–11 5 7 9 5 –
97) 8, 33
26 CFR 1.1361–0, amended; 1.1361–1,
amended; 1.1361–1(d)(3), removed;
1.1361–2 through –6 and intermedi-
ary sections, added; 1.1362–0,
amended; 1.1362–2, amended;
1.1362–8, added; 1.1368–0,
amended; 1.1368–2(d)(2), amended;
1.1374–8(b), amended; S corpora-
tion subsidiaries (REG–251698–96)
20, 14
26 CFR 1.1397E–1, added; qualified
zone academy bonds (REG–
119449–97) 10, 35
26 CFR 1.1502–3(c), revised; 1.1502–
4(f)(3), (g)(3), added; 1.1502–9(b)-
(1)(v), added; 1.1502–21(c)(1)(iii),
amended; consolidated returns, limi-
tations on the use of certain losses
and credits (REG–104062–97) 10, 3 4
26 CFR 1.6031–1, removed;
1.6031(a)–1, added; 1.6063–1,
amended; partnership returns
(REG–209322–82) 15, 26
26 CFR 1.7702B–1, –2, added; quali-
fied long-term care insurance con-
tracts (REG–109333–97) 9, 9
INCOME TA X — C o n t i n u e d
26 CFR 301.6159–1, amended; agree-
ments for tax liability installment
payments (REG–100841–97) 8, 30
26 CFR 301.6404–2, added; abatement
of interest (REG–209276–87) 11, 18
26 CFR 301.7433–1(a), (d), (e), and
(f), revised; civil cause of action for
certain unauthorized collection ac-
tions (REG–251502–96) 9, 14
26 CFR 54.9812–1, added; mental
health parity; HIPA A( R E G –
109704–97) 3, 60
Qualified Funeral Trust; guidance (Notice
6) 3, 52
Qualified intermediary agreements:
Guidance provided to foreign financial
institutions (RP27) 15, 15
Qualified mortgage bonds, mortgage
credit certificates:
Guidance provided regarding use of na-
tional and area median gross income
figures by issuers (RP28) 15, 14
Qualified Subchapter S Trust (QSST)
conversion to Electing Small Business
Trust (ESBT) 10, 30
Qualified Zone Academy Zone Bonds
(RP) 3, 100
Real estate transactions (RP20) 7, 32
Regulations:
26 CFR 1.32–3T, added; EIC eligibility
requirements (TD 8773) 29, 4
26 CFR 1.61–12, 1.249–1, 1.1016–5,
1.1275–1, amended; 1.163–13,
1.171–5, added; 1.171–1, –2, –3, –4,
revised; 1.1016–9, removed; amorti-
zable bond premium (TD 8746) 7, 4
26 CFR 1.141–0, –2, amended;
1.141–7, –8, removed; 1.141–7T,
– 8 T, –15T, 1.142(f)(4)–1T, 1.150–
5T, added; 1.141–15, revised; oblig-
ations of states and political subdivi-
sions (TD 8757) 13, 4
26 CFR 1.166–3(a)(3), 1.1001–4,
added; 1.166–3T, 1.1001–4T, re-
moved; modifications of bad debts
and dealer assignments of notional
principal contracts (TD 8763) 15, 5
26 CFR 1.280B–1, added; building de-
molition, definition of structure (TD
8745) 7, 15
26 CFR 1.338–2, 1.368–1, –2,
amended; 1.368–1T, added; corpo-
rate reorganizations, continuity of in-
terest, and continuity of business en-
terprise (TD 8760) 14, 4; (TD 8761)
14, 13
INCOME TA X — C o n t i n u e d
26 CFR 1.354–1, 1.355–1, 1.356–3,
amended; reorganizations, treatment
of warrants as securities (TD 8752)
9, 4
26 CFR 1.356–6T, added; reorg a n i z a-
tions, nonqualified preferred stock
(TD 8753) 9, 6
26 CFR 1.367(a)–1T, –3, amended;
1 . 3 6 7 ( a ) – 3 T, removed; 1.367(a)–8,
1.367(b)–1, –4, added; 1.367(d)–1T,
amended; 1.6038B–1, added;
1 . 6 0 3 8 B – 1 T; 7.367(b)–1, –4, –7,
amended; certain transfers of stock
or securities by U.S. persons to for-
eign corporations (TD 8770) 27, 4
26 CFR 1.411(d)–4, amended; permit-
ted elimination of preretirement op-
tional forms of benefit (TD 8769)
28, 4
26 CFR 1.446–1, amended; 1.446–1T,
removed; 301.9100–0, added;
301.9100–1, revised; 301.9100–2,
–3, added; 301.9100–1T, –2T, –3T;
removed extensions of time to make
elections (TD 8742) 5, 4
26 CFR 1.453.11; installment obliga-
tions received from liquidating cor-
porations (TD 8762) 14, 15
26 CFR 1.460–0, amended; 1.460–6T,
added; election not to apply look-
back method in de minimisc a s e s
(TD 8756) 12, 4
26 CFR 1.468A–2, –3, –8, amended;
nuclear decommissioning funds; re-
vised schedules of ruling amounts
(TD 8758) 13, 15
26 CFR 1.904–5(o), 1.904–5T, 1.954–
0(b), 1.954–1, amended; 1.954–1T,
– 2 T, –9T, added; 301.7701–3(f)(1),
amended; controlled foreign corpo-
ration relating to partnerships and
branches (TD 8767) 16, 4
26 CFR 1.905–2, amended; foreign tax
credit filing requirements (TD 8759)
13, 19
26 CFR 1.925(a)–1T, 1.925(b)–
1T(b)(3)(i), amended; 1.927(e)–1T,
revised; foreign sales corporation
transfer pricing source and grouping
rules (TD 8764) 15, 9
26 CFR 1.985–1, –5(a), amended;
1.985–7, added; dollar approximate
separate transactions method of ac-
counting (DASTM) to profit and loss
method of accounting, change from
P&Lmethod to DASTM (TD 8765)
16, 11
August 3, 1998221998–31 I.R.B.

INCOME TA X — C o n t i n u e d
26 CFR 1.1271–1, 1.1275–1, amended;
debt instruments with original issue
discount, annuity contracts (TD
8754) 10, 15
26 CFR 1.1202–0, –2, added; qualified
small business stock (TD 8749) 7,
16
26 CFR 1.1290–0, amended; 1.1294–0,
added; a. 1291–0T, amended;
1 . 1 2 9 1 – 1 T, added; 1.1291–9,
amended; 1.1293–0, –1T, added;
1.1295–0, –1T, –3T, 1.1297–3T(c),
added; passive foreign investment
company preferred shares, special
income exclusion (TD 8750) 8, 4
26 CFR 1.1396–1; empowerment zone
employment credit, qualified zone
employees (TD 8747) 7, 18
26 CFR 1.1397E–1T, added; qualified
zone academy bonds (TD 8755) 10,
21
26 CFR 1.1502–3, –4, –9(a), –21T(c)-
(1)(iii), amended; 1.1502–3T, –4T,
– 9 T, –55T, added; 1.1502–23T(b),
(c), redesignated; consolidated re-
turns, limitations on the use of cer-
tain losses and credits, overall for-
eign loss accounts (TD 8751) 10, 23
26 CFR 54.9801–2T, amended;
54.9801–4T, –5T, revised; 54.9804–
1T, redesignated; 54.9806–1T, redes-
ignated; 54.9812–1T, added; mental
health parity, interim rules (TD
8741) 3, 6
Relocation payments:
Authorized by sec. 105(a)(11) of Hous-
ing and Community Development
Act, not includible in gross income
(RR 19) 15, 5
Renewable electricity production credit;
calendar year 1998 inflation adjustment
factor and reference prices. (Notice 27)
18, 14
Reorganizations; exchange of securities
(RR 10) 10, 11
Reproduction of Forms 1096, 1098, 1099,
5498, and W–2G (RP37) 26, 6
Rulings:
Areas in which advance rulings will not
be issued:
Associate Chief Counsel (Domes-
tic), Associate Chief Counsel
(EBEO)(RP3) 1, 100
Associate Chief Counsel (Interna-
tional) (RP7) 1, 222
Rural airports (RP18) 6, 20
Social security benefits under U.S.-
Canada treaty, recent changes (Notice
23) 18, 9
Spin-off of subsidiary (RR 27) 22, 4
Technical advice to district directors and
chiefs, appeals offices, Associate Chief
Counsel (Domestic), Associate Chief
Counsel (EBEO), Associate Chief
Counsel (Enforcement Litigation), and
Associate Chief Counsel (International)
(RP2) 1, 74
Tentative differential earnings rate for
1997 (Notice 19) 13, 24
Treatment of hybrid arrangements under
subpart F (Notice 11) 6, 18
Trust, election to treat U.S. person;
domestic trust (Notice 25) 18, 11
Waiver of period of stay in foreign coun-
try (RP38) 27, 29
Withholding regulations:
Effective date of sec. 1441 withholding
regulations amended (Notice 16) 15,
12
1998–31 I.R.B.23August 3, 1998
INCOME TA X — C o n t i n u e dINCOME TA X — C o n t i n u e d

Notes
August 3, 1998241998–31 I.R.B.

Notes
1998–31 I.R.B.25August 3, 1998

Notes
August 3, 1998261998–31 I.R.B.

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