Internal Revenue Bulletin 2001-13 (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. 2001–15, page 922.
Election in respect of losses attributable to a disaster.
This ruling lists the areas declared by the President to quali-
fy as major disaster or emergency areas during 2000 under
the Disaster Relief and Emergency Assistance Act.
Rev. Rul. 2001–16, page 936.
Interest rates; underpayments and overpayments.
The rate of interest determined under section 6621 of the
Code for the second calendar quarter of 2001, beginning
April 1, 2001, will be 8 percent for overpayments (7 per-
cent in the case of a corporation), 8 percent for under-
payments, and 10 percent for large corporate underpay-
ments. The rate of interest paid on the portion of a
corporate overpayment exceeding $10,000 will be 5.5
percent.
T.D. 8938, page 929.
This T.D. removes temporary regulations (T.D. 7530,
1978–1 C.B. 92) under section 367(c) of the Code that are
no longer necessary and, as a result, may be misleading.
The corresponding proposed regulations are also being with-
drawn by LR–230–76 in this Bulletin.
T.D. 8942, page 929.
REG–107186–00, page 973.
Temporary and proposed regulations under sections 6041,
6050S, 6051, and 6714 of the Code relate to the voluntary
electronic furnishing of payee statements to individuals for
whom Forms W-2, 1098-E, and 1098-T are filed. A public
hearing on the proposed regulations is scheduled for June 4,
2001.
REG–105801–00, page 965.
Proposed regulations under section 263(g) of the Code provide
guidance on capitalization of interest and carrying charges that
are properly allocable to personal property that is part of a
straddle. An amendment to section 1.1092(d)–1 is also pro-
posed to clarify the status of contingent payment debt instru-
ments. A public hearing is scheduled for May 22, 2001.
REG–107175–00, page 971.
Proposed regulations under section 1031 of the Code will
affect the eligibility of certain persons to serve as escrow hold-
ers of qualified escrow accounts, trustees of qualified trusts, or
as qualified intermediaries. The proposed regulations amend
the regulation defining a disqualified person for like-kind
exchanges to take into account changes in the banking indus-
try brought about by the enactment of the Gramm-Leach-Bliley
Act in 1999. A public hearing is scheduled for June 5, 2001.
Notice 2001–27, page 942.
Dealer in securities futures contracts.This notice solic-
its comments on the criteria that should be used to deter-
mine whether a taxpayer is a “dealer” in securities futures
contracts (or options on such contracts) for purposes of
section 1256(g)(9)(B) of the Code.
EMPLOYEE PLANS
Notice 2001–28, page 944.
Weighted average interest rate update.The weighted
average interest rate for March 2001 and the resulting per-
missible range of interest rates used to calculate current lia-
bility for purposes of the full funding limitation of section
412(c)(7) of the Code are set forth.
Internal Revenue
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Bulletin No. 2001–13
March 26, 2001
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Actions Relating to Court Decisions is on the page following the Introduction.
Announcement of Declaratory Judgement Proceedings Under Section 7428 begins on page 976.
Finding Lists begin on page ii.
(Continued on the next page)

March 26, 20012001–13 I.R.B.
REG–109481–99, page 961.
Proposed regulations under section 417 of the Code relate to
the special rule added by section 1451 of the Small Business
Job Protection Act of 1996 which permits the required written
explanation of certain annuity benefits to be provided by quali-
fied retirement plans after the annuity starting date.
EMPLOYMENT TAX
T.D. 8942, page 929.
REG–107186–00, page 973.
Temporary and proposed regulations under sections 6041,
6050S, 6051, and 6714 of the Code relate to the voluntary
electronic furnishing of payee statements to individuals for
whom Forms W-2, 1098-E, and 1098-T are filed. A public hear-
ing on the proposed regulations is scheduled for June 4, 2001.
ADMINISTRATIVE
T.D. 8942, page 929.
REG–107186–00, page 973.
Temporary and proposed regulations under sections 6041,
6050S, 6051, and 6714 of the Code relate to the voluntary
electronic furnishing of payee statements to individuals for
whom Forms W-2, 1098-E, and 1098-T are filed. A public
hearing on the proposed regulations is scheduled for June 4,
2001.
LR–230–76, page 945.
This document withdraws proposed regulations under sec-
tion 367(c) of the Code that correspond to temporary regu-
lations that are also being removed by T.D. 8938 in this
Bulletin. These regulations are being removed because they
are no longer necessary and, as a result, may be mislead-
ing.
REG–106446–98, page 945.
Proposed regulations under section 6015 of the Code pro-
vide guidance to married taxpayers who elected to file a joint
return and are seeking relief from joint and several liability. A
public hearing is scheduled for May 30, 2001.
Notice 2001–25, page 941.
This notice provides a method for transferring the estimated
tax payments made by an electing small business trust
(ESBT) to the account of the deemed owner of the ESBT. The
estimated tax payments made by the trust will be treated as
a payment of estimated tax made by the deemed owner of
the ESBT on Janaury 15, 2001. For purposes of the annual-
ized income installment method of section 6654(d)(2)(B) of
the Code, the deemed owner may take into account, as of
the last day of the deemed owner’s 2000 taxable year, all S
corporation items allocable to stock held by the ESBT.
Notice 2001–26, page 942.
This notice allows electing section 645 trusts to use the
reporting method described in Rev. Proc. 98–13, 1998–1
C.B. 370, or the reporting method described in sections
1.645–1(d)(i) and (ii)(A) of the proposed regulations.
Announcement 2001–28, page 975.
This announcement contains corrections to proposed regu-
lations (REG–106702–00, 2001–4 I.R.B. 424) regarding the
determination of basis of a partner’s interest.

2001–13 I.R.B.March 26, 2001
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents are consolidated semiannually into
Cumulative Bulletins, which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying pub-
lished rulings and procedures, the effect of subsequent leg-
islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a semiannual basis,
and are published in the first Bulletin of the succeeding semi-
annual period, respectively.
The IRS Mission
Provide America’s taxpayers top quality service by help-
ing them understand and meet their tax responsibilities
and by applying the tax law with integrity and fairness to
all.
Introduction
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

March 26, 20012001–13 I.R.B.
It is the policy of the Internal Revenue
Service to announce at an early date
whether it will follow the holdings in cer-
tain cases. An Action on Decision is the
document making such an announcement.
An Action on Decision will be issued at
the discretion of the Service only on un-
appealed issues decided adverse to the
government. Generally, an Action on De-
cision is issued where its guidance would
be helpful to Service personnel working
with the same or similar issues. Unlike a
Treasury Regulation or a Revenue Ruling,
an Action on Decision is not an affirma-
tive statement of Service position. It is not
intended to serve as public guidance and
may not be cited as precedent.
Actions on Decisions shall be relied
upon within the Service only as conclu-
sions applying the law to the facts in the
particular case at the time the Action on
Decision was issued. Caution should be
exercised in extending the recommenda-
tion of the Action on Decision to similar
cases where the facts are different. More-
over, the recommendation in the Action
on Decision may be superseded by new
legislation, regulations, rulings, cases, or
Actions on Decisions.
Prior to 1991, the Service published ac-
quiescence or nonacquiescence only in
certain regular Tax Court opinions. The
Service has expanded its acquiescence
program to include other civil tax cases
where guidance is determined to be help-
ful. Accordingly, the Service now may ac-
quiesce or nonacquiesce in the holdings
of memorandum Tax Court opinions, as
well as those of the United States District
Courts, Claims Court, and Circuit Courts
of Appeal. Regardless of the court decid-
ing the case, the recommendation of any
Action on Decision will be published in
the Internal Revenue Bulletin.
The recommendation in every Action
on Decision will be summarized as ac-
quiescence, acquiescence in result only,
or nonacquiescence. Both “acquies-
cence” and “acquiescence in result only”
mean that the Service accepts the holding
of the court in a case and that the Service
will follow it in disposing of cases with
the same controlling facts. However, “ac-
quiescence” indicates neither approval
nor disapproval of the reasons assigned
by the court for its conclusions; whereas,
“acquiescence in result only” indicates
disagreement or concern with some or all
of those reasons. “Nonacquiescence” sig-
nifies that, although no further review
was sought, the Service does not agree
with the holding of the court and, gener-
ally, will not follow the decision in dis-
posing of cases involving other taxpay-
ers. In reference to an opinion of a circuit
court of appeals, a “nonacquiescence” in-
dicates that the Service will not follow
the holding on a nationwide basis. How-
ever, the Service will recognize the
precedential impact of the opinion on
cases arising within the venue of the de-
ciding circuit.
The Actions on Decisions published in
the weekly Internal Revenue Bulletin are
consolidated semiannually and appear in
the first Bulletin for July and the Cumu-
lative Bulletin for the first half of the
year. A semiannual consolidation also ap-
pears in the first Bulletin for the follow-
ing January and in the Cumulative Bul-
letin for the last half of the year.
The Commissioner ACQUIESCES in
the following decision:
Farmland Industries, Inc. v.
Commissioner,
1
T.C. Memo. 1999-388
Actions Relating to Decisions of the Tax Court
1
Acquiescence relating to whether the gains and losses that a nonexempt cooperative realized from the disposition of certain property were patronage sourced for
purposes of subchapter T of the Internal Revenue Code.

March 26, 20019222001–13 I.R.B.
Section 165.—Losses
26 CFR 1.165–11: Election in respect of losses
attributable to a disaster.
Election in respect of losses attributable
to a disaster. This ruling lists the areas
declared by the President to qualify as
major disaster or emergency areas during
2000 under the Disaster Relief and
Emergency Assistance Act.
Rev. Rul. 2001–15
Under § 165(i) of the Internal Revenue
Code, if a taxpayer suffers a loss attribut-
able to a disaster occurring in an area sub-
sequently determined by the President of
the United States to warrant assistance by
the Federal Government under the Disas-
ter Relief and Emergency Assistance Act,
42 U.S.C. §§ 5121–5204c (1988 & Supp.
V 1993) (the Act), the taxpayer may elect
to claim a deduction for that loss on the
taxpayer’s federal income tax return for
the taxable year immediately preceding
the taxable year in which the disaster oc-
curred. For purposes of § 165(i), a disas-
ter includes an event declared a major dis-
aster or an emergency under the Act.
Section 1.165–11(e) of the Income Tax
Regulations provides that the election to
deduct a disaster loss for the preceding year
must be made by filing a return, an
amended return, or a claim for refund on or
before the later of (1) the due date of the
taxpayer’s income tax return (determined
without regard to any extension of time to
file the return) for the taxable year in which
the disaster actually occurred, or (2) the due
date of the taxpayer’s income tax return
(determined with regard to any extension of
time to file the return) for the taxable year
immediately preceding the taxable year in
which the disaster actually occurred.
The provisions of § 165(i) apply only
to losses that are otherwise deductible
under § 165(a). An individual taxpayer
may deduct losses if they are incurred in a
trade or business, if they are incurred in a
transaction entered into for profit, or if
they are casualty losses under § 165(c)(3).
The President has determined that dur-
ing 2000 the areas listed below have been
adversely affected by disasters of suffi-
cient severity and magnitude to warrant
assistance by the Federal Government
under the Act.
FURTHER INFORMATION
For further information regarding this
revenue ruling, contact Martin Scully Jr.
at (202) 622-4960 (not a toll-free call).
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Disaster AreaDisaster DescriptionDisaster Date
Alabama
Counties of DeKalb, Cherokee, and JacksonFEMA-1317-DRJanuary 20 - 29
Severe winter storm
Counties of Jefferson and TuscaloosaFEMA-1322-DRMarch 10 - 11
Severe storms and flooding
Counties of Cherokee, Dale, Etowah, Geneva, Henry, FEMA-1352-DRDecember 16 - 22
Houston, Jefferson, Limestone, Macon, St. Clair,Severe storms and tornadoes
and Tuscaloosa
Alaska
Municipality of Anchorage; Boroughs of Aleutians East, FEMA-1316-DRDecember 21, 1999-
Bristol Bay, Denali, Fairbanks North Star, Severe winter storms February 23, 2000
Kenai Peninsula, Kodia Island, Lake and Peninsula,and avalanches
and Matanaska-Susitna; and Census Areas of Bethel,
Dillingham, Southeast Fairbanks, Valdez-Cordova,
and Wade Hampton
Arizona
Counties of Cochise, La Paz, Maricopa, Pinal, Santa Cruz, FEMA-1347-DROctober 21 - November 8
and YavapaiSevere storms and flooding
Arkansas
Counties of Arkansas, Benton, Bradley, Calhoun, Clark, FEMA-3159-EMDecember 12 -
Cleveland, Columbia, Crawford, Crittenden, Cross, Dallas,Severe winter ice stormJanuary 8, 2001
Desha, Drew, Faulkner, Franklin, Garland, Grant,
Hempstead, Hot Spring, Howard, Jackson, Jefferson,
Johnson, Lafayette, Lee, Lincoln, Little River, Logan,
Lonoke, Madison, Miller, Mississippi, Monroe,
Montgomery, Nevada, Ouachita, Perry, Pike, Polk,

2001–13 I.R.B.923March 26, 2001
Disaster AreaDisaster DescriptionDisaster Date
Poinsett, Prairie, Pulaski, St. Francis, Saline, Scott,
Sebastian, Sevier, Washington, White, Woodruff,
Union, and Yell
Counties of Arkansas, Baxter, Benton, Boone, FEMA-1354-DRDecember 12 -
Bradley, Calhoun, Clark, Cleburne, Cleveland, Severe winter ice stormJanuary 8, 2001
Columbia, Conway, Crawford, Crittenden, Cross,
Dallas, Desha, Drew, Faulkner, Franklin, Fulton,
Garland, Grant, Hempstead, Hot Spring, Howard,
Independence, Izard, Jackson, Jefferson, Johnson,
Lafayette, Lee, Lincoln, Little River, Logan, Lonoke,
Madison, Marion, Miller, Mississippi, Monroe,
Montgomery, Nevada, Newton, Ouachita, Perry,
Pike, Polk, Poinsett, Pope, Prairie, Pulaski, St. Francis,
Saline, Scott, Searcy, Sebastian, Sevier, Sharp,
Stone, Union, Van Buren, Washington, White,
Woodroof, and Yell
California
Napa CountyFEMA-1342-DRSeptember 3
Earthquake
District of Columbia
District of ColumbiaFEMA-1325-DRJanuary 25 - 31
Severe winter storm
District of ColumbiaFEMA-1338-DRAugust 7
Severe thunderstorms
Florida
Counties of Bay, Calhoun, Escambia, Franklin, FEMA-1344-DRSeptember 21 -
Gulf, Jefferson, Leon, Okaloosa, and WalkullaTropical Storm HeleneOctober 4
Counties of Broward, Collier, Miami-Dade, and MonroeFEMA-1345-DROctober 3 - 11
Severe storms and flooding
Georgia
Counties of Banks, Barrow, Bartow, Butts, Carroll, FEMA-1311-DRJanuary 22-February 1
Catossa, Chattooga, Cherokee, Clarke, Cobb, Severe winter storm
Dawson, DeKalb, Douglas, Elbert, Fannin, Floyd,
Forsyth, Franklin, Fulton, Gilmer, Gordon, Greene,
Gwinnett, Habersham, Hall, Hart, Haralson, Henry,
Jackson, Jasper, Jones, Lamar, Lumpkin, Monroe,
Newton, Oconee, Oglethorpe, Paulding, Pickens,
Pike, Rabun, Rockdale, Spalding, Stephens,
Taliaferro, Union, Upson, Walker, Walton, White,
and Wilkes
Counties of Colquitt, Decatur, Grady, Mitchell, FEMA-1315-DRFebruary 14
Tift, and TurnerSevere storms and tornadoes
Hawaii
Hawaii CountyFEMA-1348-DROctober 28 - November 2
Severe storms and flooding

March 26, 20019242001–13 I.R.B.
Disaster AreaDisaster DescriptionDisaster Date
Idaho
Counties of Ada, Bannock, Bingham, Blaine, Boise, FEMA-1341-DRJuly 27-September 26
Clearwater, Custer, Elmore, Idaho, Jerome, Lemhi, Wildfires
Lewis, Lincoln, Power, and Valley; and the
Fort Hall Indian Reservation
Illinois
Counties of Bureau, Cook, DeWitt, DuPage, Ford, FEMA-3161-EMDecember 10 - 31
Fulton, Grundy, Henderson, Henry, Iroquois, Kane, Record/near record snow
Kankakee, Kendall, Lake, La Salle, Livingston, Marshall,
McDonough, McHenry, McLean, Menard, Ogle, Peoria,
Stark, Will, and Winnebago
Indiana
Counties of Allen, Carroll, Cass, Elkhart, Fulton, Howard, FEMA-3162-EMDecember 11 - 31
Huntington, Jasper, Kosciusko, Lagrange, Lake, Miami, Record/near record snow
Noble, Pulaski, St. Joseph, Steuben, White, and Whitley
Kansas
Counties of Crawford, Labette, and NeoshoFEMA-1327-DRApril 19 - 20
Severe storms and tornadoes
Kentucky
Counties of Ballard, Breckinridge, Carlisle, Crittenden, FEMA-1310-DRJanuary 3 - 4
Daviess, Hancock, Henderson, Hopkins, Livingston, Tornadoes, severe storms,
Spencer, and Webstertorrential rains and
flash flooding
Counties of Bath, Bourbon, Boyd, Carter, Fleming, FEMA-1320-DRFebruary 18-March 2
Greenup, Harrison, Johnson, Lawrence, Lewis, Mason, Severe storms and flooding
Nicholas, Oldham, Pendleton, Robertson, and Rowan
Louisiana
Parishes of Bienville, Claiborne, Lincoln, Ouachita, FEMA-1314-DRJanuary 27 - 30
Richland, Union, Webster, and West CarrollSevere winter storm
Parishes of Bienville, Bossier, Caddo, Claiborne, FEMA-1357-DRDecember 11 -
Lincoln, Ouachita, Union and WebsterSevere winter ice stormJanuary 3, 2001
Maine
Counties of Androscoggin, Aroostock, Franklin, FEMA-1326-DRMarch 28-April 26
Kennebec, Oxford, Piscataquis, Somerset, and WashingtonSevere storms, flooding,
and ice jams
Maryland
Baltimore City; and Counties of Anne Arundel, FEMA-1324-DRJanuary 25 - 30
Baltimore, Calvert, Caroline, Charles, Dorchester, Severe winter storm
Frederick, Howard, Kent, Montgomery, Prince Georges,
Queen Anne’s, St. Mary’s, and Talbot
Michigan
Counties of Oakland and WayneFEMA-1346-DRSeptember 10 - 11
Severe storms and flooding

2001–13 I.R.B.925March 26, 2001
Disaster AreaDisaster DescriptionDisaster Date
Minnesota
Counties of Becker, Chippewa, Clay, Clearwater, FEMA-1333-DRMay 17- July 26
Dakota, Dodge, Faribault, Fillmore, Freeborn, Severe storms, flooding,
Houston, Mahnomen, Mower, Norman, Ramsey, and tornadoes
Roseau, Winona, and Yellow Medicine; and the
White Earth Indian Reservation
Missouri
Counties of Crawford, Franklin, Gasconade, FEMA-1328-DRMay 6 - 7
Jefferson, St. Charles, Ste. Genevieve, St. Francois, Severe thunderstorms
St. Louis County, Warren, and Washingtonand flash flooding
Montana
Counties of Beaverhead, Big Horn, Blaine, FEMA-1340-DRJuly 13-September 25
Broadwater, Carbon, Carter, Cascade, Chouteau, Wildfires
Custer, Deer Lodge, Fallon, Fergus, Flathead,
Gallatin, Garfield, Glacier, Golden Valley, Granite,
Hill, Jefferson, Judith Basin, Lake, Lewis and Clark,
Liberty, Lincoln, Madison, Meagher, Mineral,
Missoula, Musselshell, Park, Petroleum, Phillips,
Pondera, Powder River, Powell, Prairie, Ravalli,
Rosebud, Sanders, Silver Bow, Stillwater,
Sweet Grass, Teton, Toole, Treasure, Wheatland,
and Yellowstone; and Indian Reservations of the
Blackfeet, Crow, Flathead, Fort Belknap,
Northern Cheyenne, and Rocky Boy’s
Counties of Carter, Fallon, Richland, Roosevelt, FEMA-1350-DROctober 31 - November 20
Sheridan, and WibauxSevere winter storms
New Jersey
Counties of Morris and SussexFEMA-1337-DRAugust 12 - 21
Severe storms, flooding
and mudslides
Counties of Atlantic, Bergen, Burlington, Camden, FEMA-3156-EMMay 30 - November 1
Cape May, Cumberland, Essex, Gloucester, Hudson, West Nile Virus
Hunterdon, Mercer, Middlesex, Monmouth, Morries,
Ocean, Passaic, Salem, Somerset, Sussex,
Union, and Warren
New Mexico
Counties of Bernalillo, Catron, Chaves, Cibola, FEMA-3154-EMMay 5 - July 7
Colfax, Curry, BeBaca, Dona Ana, Eddy, Grant, Severe fire threats
Guadalupe, Harding, Hidalgo, Lea, Lincoln,
Los Alamos, Luna, McKinley, Mora, Otero, Quay,
Rio Arriba, Roosevelt, San Juan, San Miguel,
Sandoval, Sante Fe, Sierra, Socorro, Taos, Torrance,
Union, and Valencia.
Counties of Bernalillo, Chaves, Cibola, DeBaca, FEMA-1329-DRMay 5 - June 9
Dona Ana, Eddy, Guadalupe, Lincoln, Los Alamos, Severe forest fire
McKinley, Mora, Otero, Rio Arriba, Sandoval,
San Juan, San Miguel, Santa Fe, Sierra, Socorro,
Taos, and Torrance

Disaster AreaDisaster DescriptionDisaster Date
New York
Counties of Albany, Allegany, Cattaraugus, Chenango, FEMA-1335-DRMay 3 - August 12
Columbia, Dutchess, Erie, Essex, Greene, Herkimer, Severe storms and flooding
Lewis, Livingston, Madison, Montgomery, Niagara,
Oneida, Onondaga, Orleans, Otsego, Rensselaer,
Schenectady, Schoharie, Steuben, Sullivan, Tioga,
Tompkins, Ulster, and Yates
New York City; and Counties of Albany, Allegany, Bronx, FEMA-3155-EMMay 22 - November 1
Broome, Cattaraugus, Cayuga, Chautauqua, Chenango, West Nile Virus
Chemung, Clinton, Columbia, Cortland, Delaware,
Dutchess, Erie, Essex, Franklin, Fulton, Genesee, Greene,
Hamilton, Herkimer, Jefferson, Kings, Lewis, Livingston,
Madison, Monroe, Montgomery, Nassau, Niagara, Oneida,
Onondaga, Ontario, Orange, Orleans, Oswego, Otsego,
Putnam, Queens, Rensselaer, Richmond, Rockland,
St. Lawrence, Saratoga, Schenectady, Schoharie, Schuyler,
Seneca, Steuben, Suffolk, Sullivan, Tioga, Tompkins,
Ulster, Warren, Washington, Wayne, Westchester,
Wyoming, and Yates
Counties of Cattaraugus, Chautauqua, and ErieFEMA-3157-EMNovember 19 - 21
Near record snow
North Carolina
Counties of Alamance, Anson, Cabarrus, Caswell, FEMA-1312-DRJanuary 24-February 1
Chatham, Davidson, Durham, Edgecombe, Franklin, Severe winter storm
Granville, Guilford, Halifax, Harnett, Hoke, Johnston,
Lee, Mecklenburg, Montgomery, Moore, Nash,
Northampton, Orange, Person, Randolph, Richmond,
Rockingham, Scotland, Stanly, Union, Vance, Wake,
Warren, and Wilson
North Dakota
Counties of Barnes, Benson, Bottineau, Burke, Burleigh, FEMA-1334-DRApril 5 - August 12
Cass, Cavalier, Dickey, Eddy, Emmons, Foster, Severe storms, flooding and
Grand Forks, Griggs, Kidder, LaMoure, Logan, ground saturation
McHenry, McIntosh, McLean, Morton, Mountrail,
Nelson, Oliver, Pembina, Pierce, Ramsey, Ransom,
Renville, Richland, Rolette, Sargent, Sheridan, Steele,
Stutsman, Towner, Traill, Walsh, Ward, and Wells; and
Indian Reservations of the Spirit Lake Tribal Reservation,
the Three Affiliated Tribes, and the Turtle Mountain
Band of the Chippewa.
Counties of Benson, Bowman, Cavalier, Divide, FEMA-1353-DRNovember 1 - 20
Golden Valley, McKenzie, Ramsey, Towner, and WilliamsSevere winter storms
and tornadoes
Ohio
Counties of Adams, Gallia, Jackson, Lawrence, FEMA-1321-DRFebruary 18-March 2
Meigs, Pike, and SciotoSevere storms and flooding
Lucas County FEMA-1339-DRJuly 29 - August 2
Severe storms and flooding
March 26, 20019262001–13 I.R.B.

Disaster AreaDisaster DescriptionDisaster Date
Greene CountyFEMA-1343-DRSeptember 20
Severe storms and a tornado
Oklahoma
Counties of Adair, Atoka, Bryan, Carter, Cherokee, FEMA-3158-EMDecember 25 -
Choctaw, Cleveland, Coal, Cotton, Creek, Garvin, Severe winter and ice stormJanuary 10, 2001
Grady, Haskell, Hughes, Jefferson, Johnston,
Latimer, LeFlore, Lincoln, Love, Marshall, McClain,
McCurtain, McIntosh, Murray, Muskogee, Okfuskee,
Oklahoma, Okmulgee, Pittsburg, Pontotoc,
Pottawatomie, Pushmataha, Seminole, Sequoyah,
Stephens, Tulsa, Wagoner, and Washington
-
Counties of Caddo, Carter, Comanche, Cotton, FEMA-1349-DROctober 21 - 29
Grady, Jackson, Jefferson, Kiowa, McClain, Severe storms and flooding
Oklahoma, and Tillman
Counties of Adair, Atoka, Beckham, Bryan, Caddo, FEMA-1355-DRDecember 25 -
Carter, Cherokee, Choctaw, Cleveland, Coal, Severe winter ice stormJanuary 10, 2001
Comanche, Cotton, Craig, Creek, Delaware, Garvin,
Grady, Greer, Harmon, Haskell, Hughes, Jackson,
Jefferson, Johnston, Latimer, LeFlore, Lincoln, Love,
Marshall, Mayes, McClain, McCurtain, McIntosh,
Murray, Muskogee, Nowata, Okfuskee, Oklahoma,
Okmulgee, Ottawa, Pittsburg, Pontotoc, Pottawatomie,
Pushmataha, Rogers Seminole, Sequoyah, Stephens,
Tillman, Tulsa, Wagoner, Washington, and Washita
South Carolina
Counties of Abbeville, Aiken, Allendale, Bamberg, FEMA-1313-DRJanuary 22-February 1
Barnwell, Berkley, Calhoun, Clarendon, Charleston, Severe winter storm
Collenton, Cherokee, Chester, Chesterfield, Darlington,
Dillon, Dorchester, Edgefield, Fairfield, Florence,
Georgetown, Greenwood, Kershaw, Lancaster, Laurens,
Lee, Lexington, Marion, Marlboro, McCormick,
Newberry, Orangeburg, Richland, Saluda, Spartanburg,
Sumter, Union, Williamsburg, and York
South Dakota
Counties of Custer, Fall River, Jackson, Pennington, FEMA-1330-DRApril 18 - 20
and ShannonSevere winter storm,
flooding, landslides,
and mudslides
Tennessee
Counties of Anderson, Benton, Cheatham, Davidson,FEMA-1331-DRMay 23 - 31
Henry, Hickman, Houston, Jackson, Knox, Lake, Severe storms, tornadoes,
Obion, Perry, Pickett, Stewart, Weakleyand flooding
Texas
Tarrant County FEMA-1323-DRMarch 28 - 29
Severe storms, tornadoes,
and flooding
2001–13 I.R.B.927March 26, 2001

Disaster AreaDisaster DescriptionDisaster Date
Counties of Borden, Bowie, Carson, Cass, Cherokee, FEMA-1356-DRDecember 12 -
Cooke, Dawson, Delta, Gains, Garza, Gray, Gregg, Severe winter ice stormJanuary 15, 2001
Grayson, Fannin, Franklin, Harrison, Hopkins, Hunt,
Lamar, Lynn, Marion, Montague, Morris, Panola, Rains,
Red River, Rusk, Smith, Titus, Upshur, and Wood
Vermont
Counties of Addison, Bennington, Orange, Rutland, FEMA-1336-DRJuly 14 - 18
Windham, and WindsorSevere storms and flooding
Counties of Bennington and RutlandFEMA-1358-DRDecember 16 - 18
Severe storms and flooding
Virginia
Cities of Alexandria, Colonial Heights, Danville, FEMA-1318-DRJanuary 25 - 30
Emporia, Fairfax, Franklin, Fredericksburg, Hopewell, Severe winter storm
Lynchburg, Manassas, Newport News, Norton, Petersburg,
Richmond, Suffolk, Williamsburg; and Counties of
Accomack, Albermarle, Alleghany, Amelia, Amherst,
Appomattox, Arlington, Augusta, Bath, Bedford,
Bland, Botetourt, Brunswick, Buchanan, Buckingham,
Campbell, Caroline, Carroll, Charles City, Charlotte,
Chesterfield, Clarke, Craig, Culpeper, Cumberland,
Dickenson, Dinwiddie, Essex, Fairfax, Fauquier, Floyd,
Fluvanna, Franklin, Frederick, Giles, Goochland,
Grayson, Greene, Greensville, Halifax, Hanover,
Henrico, Henry, Highland, Isle of Wight, James City,
King George, King William, King and Queen,
Lancaster, Lee, Loudon, Louisa, Lunenburg, Madison,
Mecklenburg, Middlesex, Montgomery, Nelson, New Kent,
Northampton, Northumberland, Nottoway, Orange,
Patrick, Pittsylvania, Powhatan, Prince Edward, Prince George,
Prince William, Pulaski, Rappahannock, Richmond, Roanoke,
Rockbridge, Rockingham, Russell, Scott, Shenandoah, Smyth,
Southampton, Spotsylvania, Stafford, Surry, Sussex, Tazewell,
Warren, Washington, Westmoreland, Wise, Wythe, and York
West Virginia
Counties of Barbour, Braxton, Cabell, Calhoun, Doddridge,FEMA-1319-DRFebruary 18 - 22
Gilmer, Harrison, Jackson, Kanawha, Lewis, Lincoln, Flooding, severe storms,
Marion, Mason, Monongalia, Pocohontas, Preston, Putnam, and landslides
Randolph, Ritchie, Roane, Taylor, Tucker, Tyler, Upshur,
Wetzel, and Wirt
Wisconsin
Counties of Adams, Ashland, Barron, Burnett, Columbia, FEMA-1332-DRMay 26 - July 19
Crawford, Dane, Dodge, Forest, Grant, Green, Iowa, Iron, Severe storms, flooding,
Jackson, Juneau, Kenosha, Lafayette, Milwaukee, Monroe, and tornadoes
Oneida, Polk, Racine, Richland, Rusk, Sauk, Sawyer,
Vernon, Walworth, Waukesha, and Washburn
Counties of Dane, Door, Green, Kenosha, Kewaunee, FEMA-3163-EMDecember 11 - 31
Manitowoc, Milwaukee, Racine, Rock, Sheboygan, Record/near record snow
and Walworth
March 26, 20019282001–13 I.R.B.

Disaster AreaDisaster DescriptionDisaster Date
Wyoming
Counties of Crook, Goshen, Platte, and WestonFEMA-1351-DROctober 31 -
Severe winter storms November 20
2001–13 I.R.B.929March 26, 2001
Section 367.—Foreign
Corporations
26 CFR 7.367(c)–1: Section 355 distribution treated
as an exchange (temporary).
T.D. 8938
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 7
Requirements Relating to
Certain Exchanges Involving a
Foreign Corporation
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Removal of temporary regula-
tions.
SUMMARY: This document removes
temporary regulations under section
367(c) that are no longer necessary and,
as a result, may be misleading.
DATES: Effective January 12, 2001.
FOR FURTHER INFORMATION CON-
TACT: Mark D. Harris at (202) 622-3860
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On December 30, 1977, the IRS and
Treasury published in the Federal Regis-
terproposed regulations (42 FR 65204)
and temporary regulations (42 FR 65152
[T.D. 7530, 1978–1 C.B. 92]) under sec-
tion 367(c) of the Internal Revenue Code.
The principal purpose of these regula-
tions, §§7.367(c)–1 and 7.367(c)–2, was
to distinguish between the treatment of
transfers described in section 367(c) be-
fore and after the enactment of the Tax
Reform Act of 1976 (the Act) (90 Stat.
1634). Before enactment of the Act,
transfers described in section 367(c) were
subject to a ruling requirement. After en-
actment of the Act, transfers described in
section 367(c) were within the scope of
§§7.367(b)–1 through 7.367(b)–12. In
light of the substantial time that has
passed since enactment of the Act and,
moreover, in light of the fact that
§§1.367(b)–1 through 1.367(b)–6 have
substantially superceded §§7.367(b)–1
through 7.367(b)–12, §§7.367(c)–1 and
7.367(c)–2 are no longer necessary and
may be misleading.
Accordingly, this document removes
§§7.367(c)–1 and 7.367(c)–2.
* * * * *
Removal of Temporary Regulations
Accordingly, under the authority of 26
U.S.C. 7805, 26 CFR part 7 is amended as
follows:
PART 7—TEMPORARY INCOME TAX
REGULATIONS UNDER THE TAX
REFORM ACT OF 1976
Paragraph 1. The authority citation for
part 7 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
§§7.367(c)–1 and 7.367(c)–2
[Amended]
Par. 2. Sections 7.367(c)–1 and
7.367(c)–2 are removed.
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved December 28, 2000.
Jonathan Talisman,
Acting Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on January
11, 2001, 8:45 a.m., and published in the issue of the
Federal Register for January 12, 2001, 66 F.R. 2821)
Section 6041.—Information at
Source
26 CFR 1.6041–2T: Return of information as to
payments to employees (temporary).
T.D. 8942
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 31, 301, and 602
Electronic Payee Statements
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains
temporary regulations under sections
6041 and 6051 relating to the voluntary
electronic furnishing of payee statements
on Forms W-2, “Wage and Tax State-
ment,” and under section 6050S relating
to the voluntary electronic furnishing of
statements to individuals for whom Forms
1098-T, “Tuition Payments Statement,”
and Forms 1098-E, “Student Loan Inter-
est Statement,” are filed. The regulations
will affect persons required by the forego-
ing Internal Revenue Code sections to
furnish these statements (furnishers) who
wish to furnish these statements electroni-
cally. The regulations will also affect in-
dividuals, principally employees, stu-
dents, and borrowers (recipients), who
consent to receive these statements elec-
tronically. The text of the temporary reg-
ulations also serves as the text of the pro-
posed regulations set forth in the notice of
proposed rulemaking (REG–107186–00)
on this subject on page 973 of this Bul-
letin. The temporary regulations do not
affect the requirement to file copy A of
Forms W-2 with the Social Security Ad-
ministration or the requirement to file
Forms 1098-T or Forms 1098-E with the
IRS.

DATES: Effective Date: These regula-
tions are effective February 14, 2001.
Applicability Date: These regulations
apply to statements to recipients required
to be furnished under sections 6041(d),
6050S(d), and 6051 after December 31,
2000.
FOR FURTHER INFORMATION CON-
TACT: Laura C. Nash at (202) 622-4910
(not a toll free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These temporary regulations are being
issued without prior notice and public pro-
cedure pursuant to the Administrative Pro-
cedure Act (5 U.S.C. 553). For this reason,
the collection of information contained in
these regulations has been reviewed, and
pending receipt and evaluation of public
comments, approved by the Office of Man-
agement and Budget (OMB) under control
number 1545-1729. Responses to this col-
lection of information are required if a per-
son required by section 6050S(d) to furnish
statements to recipients for whom Forms
1098-T or Forms 1098-E are filed, or a per-
son required by sections 6041(d) and 6051
to furnish payee statements on Forms W-2,
wishes to furnish the statements electroni-
cally using website technology.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless the collec-
tion of information displays a valid control
number assigned by the Office of Manage-
ment and Budget.
For further information concerning this
collection of information, and where to
submit comments on the collection of in-
formation and the accuracy of the estimated
burden, and suggestions for reducing this
burden, please refer to the preamble to the
cross-referencing notice of proposed rule-
making (REG–107186–00).
Books and records relating to a collec-
tion of information must be retained as long
as their contents may become material 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) relating to sections 6041(d) and
6050S(d), to the Regulations on Employ-
ment Taxes and Collection of Income Tax
at Source (26 CFR part 31) relating to
section 6051, and to the Regulations on
Procedure and Administration (26 CFR
Part 301) relating to section 6724. Sec-
tions 6041(d) and 6050S(d) generally re-
quire certain persons to furnish a state-
ment to a person with respect to whom an
information return is required to be filed
with the Federal government under sec-
tions 6041(a) and 6050S(a). Section 6051
requires certain persons to furnish a writ-
ten statement to an employee regarding
remuneration paid by such person to the
employee. The foregoing statements
(specified statements) are generally re-
quired to be furnished to recipients on or
before January 31 of the year following
the calendar year for which the related in-
formation returns are required to be filed
or in which the wages or other compensa-
tion was paid.
These temporary regulations state that
furnishers may provide the written state-
ments required by sections 6041(d),
6050S(d), and 6051 in an electronic format
in lieu of a paper format. In addition, the
temporary regulations provide furnishers
with a method of furnishing these state-
ments electronically using website technol-
ogy. Furnishers who use this website tech-
nology and satisfy the requirements of the
temporary regulations are treated as timely
furnishing the statements under sections
6041(d), 6050S(d), and 6051.
The objective of the temporary regula-
tions is to facilitate the voluntary elec-
tronic furnishing of these statements.
This objective is consistent with the gen-
eral goals of (i) section 2001 of the Inter-
nal Revenue Service Restructuring and
Reform Act of 1998 to eliminate barriers,
provide incentives, and use competitive
forces to increase electronic filing over
the next ten years and (ii) the Electronic
Signatures in Global and National Com-
merce Act (E-SIGN Act) to facilitate vol-
untary use of certain electronic records.
However, furnishers are not required to
use the website technology described in
the temporary regulations if they wish to
continue to provide paper statements.
Thus, the temporary regulations do not re-
quire a furnisher to invest in new delivery
systems or to meet any new legal require-
ments to furnish a statement.
A major impetus for publishing these
temporary regulations was the large num-
ber of requests for published guidance
from lenders, educational institutions,
employers and other furnishers who want
the option of delivering statements to re-
cipients in an electronic format. In addi-
tion, the Information Reporting Program
Advisory Committee of the Internal Rev-
enue Service (IRPAC) and the Electronic
Tax Administration Advisory Committee
(ETAAC) also strongly support providing
furnishers with the option of furnishing
statements electronically.
At its May 11, 2000, public meeting,
IRPAC advocated issuance of guidance
permitting furnishers to use website tech-
nology to furnish statements electronically.
The IRS consulted with IRPAC representa-
tives to ensure that the temporary regula-
tions provide furnishers with clear, practi-
cal, and administrable procedures for the
voluntary electronic furnishing of the speci-
fied statements. The temporary regulations
incorporate many of IRPAC’s suggestions
and those of other furnishers.
These temporary regulations also strike
a balance between furnishers’ desires to
reduce costs and modernize business
processes by furnishing statements elec-
tronically and the tax administration con-
cern that employees, students, and bor-
rowers must be able to access electronic
statements so that they can timely file ac-
curate income tax returns. The consumer
consent provisions of section 101(c)(1) of
the E-SIGN Act strike a similar balance
between businesses’ desire to transmit
records electronically and concerns about
consumers’ abilities to access and use
those records. Therefore, these temporary
regulations include disclosure provisions
that are consistent with the Congression-
ally-approved consent provisions of the
E-SIGN Act. These disclosure provisions
will ensure that recipients will obtain the
information they need to make an in-
formed choice to receive the statements
electronically and to access them timely.
The IRS and the Treasury Department
invite comments about whether the provi-
sions of these temporary regulations
should apply to statements required to be
furnished to recipients under other sec-
tions of the Internal Revenue Code. In
addition, comments are invited about
whether furnishers will use other tech-
nologies (such as e-mail) to furnish state-
March 26, 20019302001–13 I.R.B.

ments electronically and whether they
need guidance on the conditions under
which those statements will be considered
timely furnished. Finally, comments are
invited on whether the final regulations
should prescribe standards to ensure con-
fidentiality of taxpayer information
posted on a website. Until final regula-
tions are issued, the Treasury Department
and the IRS expect that furnishers will
take reasonable precautions to ensure
confidentiality of taxpayer information.
Explanation of Provisions
This temporary regulation provides
guidance under §§1.6041–2T(a)(5) (by
cross-reference to the regulations under
section 6051), 1.6050S–1T(a),
1.6050S–2T(a), and 31.6051–1T(j) re-
garding the electronic furnishing of speci-
fied statements. The temporary regula-
tions provide that the written statements
required by sections 6041(d), 6050S(d),
and 6051 may be furnished in an elec-
tronic format. In addition, the temporary
regulations provide that a furnisher that
complies with the consent, required dis-
closures, format, posting, notice, and re-
tention provisions of the temporary regu-
lations is treated as timely furnishing the
specified statements under sections
6041(d), 6050S(d), and 6051.
Consent
The temporary regulations provide that
a recipient must have affirmatively con-
sented to receive the statement electroni-
cally and must not have withdrawn that
consent before the statement is furnished.
The consent or, alternatively, its confir-
mation must be made electronically in a
manner that reasonably demonstrates that
the recipient can access the statement in
the electronic format in which it will be
furnished to the recipient. A furnisher
must take certain actions, including ob-
taining from the recipient a new elec-
tronic consent or confirmation of consent
to receive the statement electronically, if a
change in the hardware or software
needed to access a statement creates a ma-
terial risk that the recipient will not be
able to access the statement.
Required Disclosures
Prior to or at the time a recipient con-
sents to receive a statement electronically,
the furnisher must provide a clear and
conspicuous statement to the recipient
containing certain disclosures. These re-
quired disclosures are similar to the con-
sumer consent provisions in the E-SIGN
Act and, like those provisions, require a
furnisher to inform a recipient about, for
example, the scope and duration of a con-
sent to receive an electronic statement,
the ability to revoke that consent, the
hardware and software required to access,
print, and retain an electronic statement,
and the ability to obtain a paper state-
ment.
Format
The temporary regulations require that
the electronic version of a statement fur-
nished to a recipient contain all required
information and comply with applicable
revenue procedures relating to substitute
statements.
Posting
The temporary regulations generally
require that the furnisher post the state-
ments on a website accessible to recipi-
ents on or before January 31 of the year
following the calendar year to which the
statements relate.
Notice
The temporary regulations generally
require the furnisher to notify a recipient
that the statement is posted on a website
on or before January 31 of the year fol-
lowing the calendar year to which the
statement relates. The notice may be de-
livered by mail, electronic mail, or in per-
son and must provide instructions to the
recipient on how to access and print the
statement. If a furnisher later posts cor-
rected statements on the website, the fur-
nisher must notify the recipients of that
posting within 30 days after the posting.
Retention
The temporary regulations generally
require the furnisher to maintain access to
the statements on the website through Oc-
tober 15 of the year following the calen-
dar year to which the statements relate. In
addition, the furnisher generally must
maintain access to corrected statements
that are posted on the website through Oc-
tober 15 of the year following the calen-
dar year to which the statements relate or
for 90 days after that posting, whichever
is later.
Special Analyses
It has been determined that this tempo-
rary regulation is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assess-
ment is not required. It has also been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
Chapter 5) does not apply to these regula-
tions.
Because no preceding notice of pro-
posed rulemaking is required for this tem-
porary regulation, the provisions of the
Regulatory Flexibility Act do not apply.
However, an initial Regulatory Flexibility
Analysis was prepared for the proposed
regulations published elsewhere in this
issue of the Federal Register. Pursuant to
section 7805(f) of the Internal Revenue
Code, that notice of proposed rulemaking
will be 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 temporary
regulations is Eric Lucas, formerly of the
Office of Associate Chief Counsel (Proce-
dure and Administration). However,
other personnel from the IRS and Trea-
sury Department participated in their de-
velopment.
* * * * *
Amendments to the Regulations
Accordingly, 26 CFR parts 1, 31, 301,
and 602 are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in nu-
merical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6041–2T also issued under
26 U.S.C. 6041(d). * * *
Section 1.6050S–1T also issued under
26 U.S.C. 6050S(g).
Section 1.6050S–2T also issued under
26 U.S.C. 6050S(g).* * *
Par. 2. Section 1.6041–2T is added to
read as follows:
2001–13 I.R.B.931March 26, 2001

§1.6041–2T Return of information as to
payments to employees (temporary).
(a)(1) through (4) [Reserved]
(5) Statement for employees. An em-
ployer that is required under
§1.6041–2(a) to file Form W-2 with re-
spect to an employee is also required
under section 6041(d) and 6051 to furnish
a written statement to the employee. This
written statement must be furnished on
Form W-2 in accordance with section
6051 and the regulations.
(b) and (c). For further guidance, see
§1.6041–2(b) and (c).
Par. 3. Sections 1.6050S–1T and
1.6050–2T are added to read as follows:
§1.6050S–1T Information reporting for
payments and reimbursements or refunds
of qualified tuition and related expenses
(temporary).
(a) Electronic furnishing of
statements—(1) In general. A person re-
quired by section 6050S(d) to furnish a
written statement (furnisher) to the indi-
vidual to whom it is required to be fur-
nished (recipient) may furnish the state-
ment in an electronic format in lieu of a
paper format. A furnisher who meets the
requirements of paragraphs (a)(2) through
(7) of this section is treated as furnishing
the statement in a timely manner.
(2) Consent—(i) In general. The recip-
ient must have affirmatively consented to
receive the statement in an electronic for-
mat and must not have withdrawn that
consent before the statement is furnished.
The consent must be made electronically
in a manner that reasonably demonstrates
that the recipient can access the statement
in the electronic format in which it will be
furnished to the recipient. Alternatively,
the consent may be made in a different
manner (for example, in an e-mail or in a
paper document) if it is confirmed elec-
tronically in the manner described in the
preceding sentence.
(ii) Change in hardware or software re-
quirements. If a change in the hardware
or software required to access the state-
ment creates a material risk that the recip-
ient will not be able to access the state-
ment, the furnisher must, prior to
changing the hardware or software, pro-
vide the recipient with a notice. The no-
tice must describe the revised hardware
and software required to access the state-
ment and inform the recipient that a new
consent to receive the statement in the re-
vised electronic format must be provided
to the furnisher. After implementing the
revised hardware and software, the fur-
nisher must obtain from the recipient, in
the manner described in paragraph
(a)(2)(i) of this section, a new consent or
confirmation of consent to receive the
statement electronically.
(iii) Example. The following example
illustrates the rules of this paragraph
(a)(2):
Example. Furnisher F sends Recipient R an
e-mail stating that R may consent to receive state-
ments required by section 6050S(d) electronically
on a website instead of in a paper format. The
e-mail contains an attachment instructing R how to
consent to receive the statements electronically. The
e-mail attachment uses the same electronic format
that F will use for the electronically furnished state-
ments. R opens the attachment, reads the instruc-
tions, and submits the consent in the manner pro-
vided in the instructions. R has consented to receive
the statements electronically in the manner de-
scribed in paragraph (a)(2)(i) of this section.
(3) Required disclosures—(i) In gen-
eral. Prior to, or at the time of, a recipi-
ent’s consent, the furnisher must provide
to the recipient a clear and conspicuous
disclosure statement containing each of
the disclosures described in paragraphs
(a)(3)(ii) through (viii) of this section.
(ii) Paper statement. The recipient
must be informed that the statement will
be furnished on paper if the recipient does
not consent to receive it electronically.
(iii) Scope and duration of consent.
The recipient must be informed of the
scope and duration of the consent. For
example, the recipient must be informed
whether the consent applies to statements
furnished every year after the consent is
given until it is withdrawn in the manner
described in paragraph (a)(3)(v)(A) of
this section or only to the statement re-
quired to be furnished on or before the
January 31 immediately following the
date on which the consent is given.
(iv) Post-consent request for a paper
statement. The recipient must be in-
formed of any procedure for obtaining a
paper copy of the recipient’s statement
after giving the consent described in para-
graph (a)(2)(i) of this section.
(v) Withdrawal of consent. The recipi-
ent must be informed that—
(A) The recipient may withdraw a con-
sent at any time by furnishing the with-
drawal in writing (electronically or on
paper) to the person whose name, mailing
address, telephone number, and e-mail ad-
dress is provided in the disclosure state-
ment;
(B) The furnisher will confirm the
withdrawal in writing (either electroni-
cally or on paper); and
(C) A withdrawal of consent does not
apply to a statement that was furnished
electronically in the manner described in
this paragraph (a) before the withdrawal
of consent is furnished.
(vi) Notice of termination. The recipi-
ent must be informed of the conditions
under which a furnisher will cease fur-
nishing statements electronically to the
recipient.
(vii) Updating information. The recipi-
ent must be informed of the procedures
for updating the information needed by
the furnisher to contact the recipient.
(viii) Hardware and software require-
ments. The recipient must be provided
with a description of the hardware and
software required to access, print, and re-
tain the statement, and the date when the
statement will no longer be available on
the website.
(4) Format. The electronic version of
the statement must contain all required in-
formation and comply with applicable
revenue procedures relating to substitute
statements to recipients.
(5) Posting. The furnisher must on or
before January 31 of the year following
the calendar year to which the statement
relates (or such other date permitted or re-
quired for furnishing the statement) post it
on a website accessible to the recipient.
(6) Notice—(i) In general. The fur-
nisher must on or before January 31 of the
year following the calendar year to which
the statement relates (or such other date
permitted or required for furnishing the
statement) notify the recipient that the
statement is posted on a website. The no-
tice may be delivered by mail, electronic
mail, or in person. The notice must pro-
vide instructions on how to access and
print the statement. The notice must in-
clude the following statement in capital
letters, “IMPORTANT TAX RETURN
DOCUMENT AVAILABLE.” If the no-
tice is provided by electronic mail, the
foregoing statement should be on the sub-
ject line of the electronic mail and sent
with high importance.
(ii) Undeliverable electronic address.
If an electronic notice described in para-
March 26, 20019322001–13 I.R.B.

2001–13 I.R.B.933March 26, 2001
graph (a)(6)(i) of this section is returned
as undeliverable, and the correct elec-
tronic address cannot be obtained from
the furnisher’s records or from the recipi-
ent, then the furnisher must furnish the
notice by mail or in person within 30 days
after the electronic notice is returned.
(iii) Corrected statements. A furnisher
must notify a recipient that it has posted
corrected statements on a website within
30 days of such posting in the manner de-
scribed in paragraph (a)(6)(i) of this sec-
tion. This notice must be furnished by
mail or in person if—
(A) An electronic notice of the website
posting of an original statement was re-
turned as undeliverable; and
(B) The recipient has not provided a
new e-mail address.
(7) Retention. The furnisher must
maintain access to the statements on the
website through October 15 of the year
following the calendar year to which the
statements relate (or the first business day
after such October 15, if October 15 falls
on a Saturday, Sunday, or legal holiday).
The furnisher must maintain access to
corrected statements that are posted on
the website through October 15 of the
year following the calendar year to which
the statements relate (or the first business
day after such October 15, if October 15
falls on a Saturday, Sunday, or legal holi-
day) or the date 90 days after the cor-
rected statements are posted, whichever is
later.
(b) Effective date. This section applies
to statements required to be furnished
under section 6050S(d) after December
31, 2000.
§1.6050S–2T Information reporting for
payments of interest on qualified
education loans (temporary).
(a) Electronic furnishing of state-
ments—(1) In general. A person required
by section 6050S(d) to furnish a written
statement (furnisher) to the individual to
whom it is required to be furnished (recip-
ient) may furnish the statement in an elec-
tronic format in lieu of a paper format. A
furnisher who meets the requirements of
paragraphs (a)(2) through (7) of this sec-
tion is treated as furnishing the statement
in a timely manner.
(2) Consent—(i) In general. The recip-
ient must have affirmatively consented to
receive the statement in an electronic for-
mat and must not have withdrawn that
consent before the statement is furnished.
The consent must be made electronically
in a manner that reasonably demonstrates
that the recipient can access the statement
in the electronic format in which it will be
furnished to the recipient. Alternatively,
the consent may be made in a different
manner (for example, in an e-mail or in a
paper document) if it is confirmed elec-
tronically in the manner described in the
preceding sentence.
(ii)Change in hardware or software re-
quirements. If a change in the hardware or
software required to access the statement
creates a material risk that the recipient will
not be able to access the statement, the fur-
nisher must, prior to changing the hardware
or software, provide the recipient with a no-
tice. The notice must describe the revised
hardware and software required to access
the statement and inform the recipient that a
new consent to receive the statement in the
revised electronic format must be provided
to the furnisher. After implementing the re-
vised hardware and software, the furnisher
must obtain from the recipient, in the man-
ner described in paragraph (a)(2)(i) of this
section, a new consent or confirmation of
consent to receive the statement electroni-
cally.
(iii) Example. The following example
illustrates the rules of this paragraph
(a)(2):
Example. Furnisher F sends Recipient R an
e-mail stating that R may consent to receive state-
ments required by section 6050S(d) electronically
on a website instead of in a paper format. The
e-mail contains an attachment instructing R how to
consent to receive the statements electronically. The
e-mail attachment uses the same electronic format
that F will use for the electronically furnished state-
ments. R opens the attachment, reads the instruc-
tions, and submits the consent in the manner pro-
vided in the instructions. R has consented to receive
the statements electronically in the manner de-
scribed in paragraph (a)(2)(i) of this section.
(3) Required disclosures—(i) In gen-
eral. Prior to, or at the time of, a recipi-
ent’s consent, the furnisher must provide
to the recipient a clear and conspicuous
disclosure statement containing each of
the disclosures described in paragraphs
(a)(3)(ii) through (viii) of this section.
(ii) Paper statement. The recipient
must be informed that the statement will
be furnished on paper if the recipient does
not consent to receive it electronically.
(iii) Scope and duration of consent.
The recipient must be informed of the
scope and duration of the consent. For
example, the recipient must be informed
whether the consent applies to statements
furnished every year after the consent is
given until it is withdrawn in the manner
described in paragraph (a)(3)(v)(A) of
this section or only to the statement re-
quired to be furnished on or before the
January 31 immediately following the
date on which the consent is given.
(iv) Post-consent request for a paper
statement. The recipient must be in-
formed of any procedure for obtaining a
paper copy of the recipient’s statement
after giving the consent described in para-
graph (a)(2)(i) of this section.
(v) Withdrawal of consent. The recipi-
ent must be informed that—
(A) The recipient may withdraw a consent
at any time by furnishing the withdrawal in
writing (electronically or on paper) to the
person whose name, mailing address, tele-
phone number, and e-mail address is pro-
vided in the disclosure statement;
(B) The furnisher will confirm the
withdrawal in writing (either electroni-
cally or on paper); and
(C) A withdrawal of consent does not
apply to a statement that was furnished
electronically in the manner described in
this paragraph (a) before the withdrawal
of consent is furnished.
(vi) Notice of termination. The recipient
must be informed of the conditions under
which a furnisher will cease furnishing
statements electronically to the recipient.
(vii) Updating information. The recipi-
ent must be informed of the procedures
for updating the information needed by
the furnisher to contact the recipient.
(viii) Hardware and software require-
ments. The recipient must be provided
with a description of the hardware and
software required to access, print, and re-
tain the statement, and the date when the
statement will no longer be available on
the website.
(4) Format. The electronic version of
the statement must contain all required in-
formation and comply with applicable
revenue procedures relating to substitute
statements to recipients.
(5) Posting. The furnisher must on or
before January 31 of the year following
the calendar year to which the statement
relates (or such other date permitted or re-
quired for furnishing the statement) post it
on a website accessible to the recipient.

(6) Notice—(i) In general. The fur-
nisher must on or before January 31 of the
year following the calendar year to which
the statement relates (or such other date
permitted or required for furnishing the
statement) notify the recipient that the
statement is posted on a website. The no-
tice may be delivered by mail, electronic
mail, or in person. The notice must pro-
vide instructions on how to access and
print the statement. The notice must in-
clude the following statement in capital
letters, “IMPORTANT TAX DOCU-
MENT RETURN AVAILABLE.” If the
notice is provided by electronic mail, the
foregoing statement should be on the sub-
ject line of the electronic mail and sent
with high importance.
(ii) Undeliverable electronic address.
If an electronic notice described in para-
graph (a)(6)(i) of this section is returned
as undeliverable, and the correct elec-
tronic address cannot be obtained from
the furnisher’s records or from the recipi-
ent, then the furnisher must furnish the
notice by mail or in person within 30 days
after the electronic notice is returned.
(iii) Corrected statements. A furnisher
must notify a recipient that it has posted
corrected statements on a website within
30 days of such posting in the manner de-
scribed in paragraph (a)(6)(i) of this sec-
tion. This notice must be furnished by
mail or in person if—
(A) An electronic notice of the website
posting of an original statement was re-
turned as undeliverable; and
(B) The recipient has not provided a
new e-mail address.
(7) Retention. The furnisher must
maintain access to the statements on the
website through October 15 of the year
following the calendar year to which the
statements relate (or the first business day
after such October 15, if October 15 falls
on a Saturday, Sunday, or legal holiday).
The furnisher must maintain access to
corrected statements that are posted on
the website through October 15 of the
year following the calendar year to which
the statements relate (or the first business
day after such October 15, if October 15
falls on a Saturday, Sunday, or legal holi-
day) or the date 90 days after the cor-
rected statements are posted, whichever is
later.
(b) Effective date. This section applies
to statements required to be furnished
under section 6050S(d) after December
31, 2000.
PART 31—EMPLOYMENT TAXES
AND COLLECTION OF INCOME TAX
AT SOURCE
Par. 4. The authority citation for part
31 is amended to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 31.6051–1T also issued under
26 U.S.C. 6051. * * *
Par. 5. Section 31.6051–1T is added to
read as follows:
§31.6051–1T Statements for employees
(temporary).
(a) through (i) [Reserved]. For further
guidance, see §31.6051–1(a) through (i).
(j) Electronic furnishing of statements—
(1) In general. A person required by sec-
tion 6051 to furnish a written statement on
Form W-2 (furnisher) to the individual to
whom it is required to be furnished (recipi-
ent) may furnish the Form W-2 in an elec-
tronic format in lieu of a paper format. A
furnisher who meets the requirements of
paragraphs (j)(2) through (7) of this section
is treated as furnishing the Form W-2 in a
timely manner.
(2) Consent—(i) In general. The recipi-
ent must have affirmatively consented to
receive the Form W-2 in an electronic for-
mat and must not have withdrawn that con-
sent before the Form W-2 is furnished. The
consent must be made electronically in a
manner that reasonably demonstrates that
the recipient can access the Form W-2 in
the electronic format in which it will be fur-
nished to the recipient. Alternatively, the
consent may be made in a different manner
(for example, in an e-mail or in a paper
document) if it is confirmed electronically
in the manner described in the preceding
sentence.
(ii) Change in hardware or software re-
quirements. If a change in hardware or
software required to access the Form W-2
creates a material risk that the recipient will
not be able to access the Form W-2, the fur-
nisher must, prior to changing the hardware
or software, provide the recipient with a no-
tice. The notice must describe the revised
hardware and software required to access
the Form W-2 and inform the recipient that
a new consent to receive the Form W-2 in
the revised electronic format must be pro-
vided to the furnisher. After implementing
the revised hardware and software, the fur-
nisher must obtain from the recipient, in the
manner described in paragraph (j)(2)(i) of
this section, a new consent or confirmation
of consent to receive the Form W-2 elec-
tronically.
(iii) Example. The following example il-
lustrates the rules of this paragraph (j)(2):
Example. Furnisher F sends Recipient R an e-mail
stating that R may consent to receive Forms W-2 elec-
tronically on a website instead of in a paper format.
The e-mail contains an attachment instructing R how
to consent to receive Forms W-2 electronically. The
e-mail attachment uses the same electronic format that
F will use for its electronically furnished Forms W-2.
R opens the attachment, reads the instructions, and
submits the consent in the manner provided in the in-
structions. R has consented to receive Forms W-2
electronically in the manner described in paragraph
(j)(2)(i) of this section.
(3) Required disclosures—(i) In gen-
eral. Prior to, or at the time of, a recipi-
ent’s consent, the furnisher must provide
to the recipient a clear and conspicuous
disclosure statement containing each of
the disclosures described in paragraphs
(j)(3)(ii) through (viii) of this section.
(ii) Paper statement. The recipient
must be informed that the Form W-2 will
be furnished on paper if the recipient does
not consent to receive it electronically.
(iii) Scope and duration of consent.
The recipient must be informed of the
scope and duration of the consent. For
example, the recipient must be informed
whether the consent applies to Forms W-2
furnished every year after the consent is
given until it is withdrawn in the manner
described in paragraph (j)(3)(v)(A) of this
section or only to the Form W-2 required
to be furnished on or before the January
31 immediately following the date on
which the consent is given.
(iv) Post-consent request for a paper
statement. The recipient must be in-
formed of any procedure for obtaining a
paper copy of the recipient’s Form W-2
after giving the consent described in para-
graph (j)(2)(i) of this section.
(v) Withdrawal of consent. The recipi-
ent must be informed that—
(A) The recipient may withdraw a con-
sent at any time by furnishing the with-
drawal in writing (electronically or on
paper) to the person whose name, mailing
address, telephone number, and e-mail ad-
dress is provided in the disclosure state-
ment;
(B) The furnisher will confirm the
withdrawal in writing (either electroni-
cally or on paper); and
March 26, 20019342001–13 I.R.B.

(C) A withdrawal of consent does not
apply to a Form W-2 that was furnished
electronically in the manner described in
this paragraph (j) before the withdrawal
of consent is furnished.
(vi) Notice of termination. The recipi-
ent must be informed of the conditions
under which a furnisher will cease fur-
nishing statements electronically to the
recipient (for example, termination of the
recipient’s employment with furnisher-
employer).
(vii) Updating information. The recipi-
ent must be informed of the procedures
for updating the information needed by
the furnisher to contact the recipient.
(viii) Hardware and software require-
ments. The recipient must be provided
with a description of the hardware and
software required to access, print, and re-
tain the Form W-2, and the date when the
Form W-2 will no longer be available on
the website. The recipient must be in-
formed that the Form W-2 may be re-
quired to be printed and attached to a Fed-
eral, State, or local income tax return.
(4) Format. The electronic version of
the Form W-2 must contain all required
information and comply with applicable
revenue procedures relating to substitute
statements to recipients.
(5) Posting. The furnisher must on or
before January 31 of the year following
the calendar year to which the Form W-2
relates (or such other date permitted or re-
quired for furnishing the Forms W-2) post
it on a website accessible to the recipient.
(6) Notice—(i) In general. The fur-
nisher must on or before January 31 of the
year following the calendar year to which
the Form W-2 relates (or such other date
permitted or required for furnishing the
Form W-2) notify the recipient that the
Form W-2 is posted on a website. The no-
tice may be delivered by mail, electronic
mail, or in person. The notice must pro-
vide instructions on how to access and
print the statement. The notice must in-
clude the following statement in capital
letters, “IMPORTANT TAX RETURN
DOCUMENT AVAILABLE.” If the no-
tice is provided by electronic mail, the
foregoing statement should be on the sub-
ject line of the electronic mail and sent
with high importance.
(ii) Undeliverable electronic address.
If an electronic notice described in para-
graph (j)(6)(i) of this section is returned
as undeliverable, and the correct elec-
tronic address cannot be obtained from
the furnisher’s records or from the recip-
ient, then the furnisher must furnish the
notice by mail or in person within 30
days after the electronic notice is re-
turned.
(iii) Corrected Forms W-2. A furnisher
must notify a recipient that it has posted
corrected Forms W-2 on a website within
30 days of such posting in the manner de-
scribed in paragraph (j)(6)(i) of this sec-
tion. This notice must be furnished by
mail or in person if—
(A) An electronic notice of the website
posting of an original Form W-2 was re-
turned as undeliverable; and
(B) The recipient has not provided a
new e-mail address.
(7) Retention. The furnisher must
maintain access to the Forms W-2 on the
website through October 15 of the year
following the calendar year to which the
Forms W-2 relate (or the first business
day after October 15, if October 15 falls
on a Saturday, Sunday, or legal holiday).
The furnisher must maintain access to
corrected Forms W-2 that are posted on
the website through October 15 of the
year following the calendar year to which
the Forms W-2 relate (or the first business
day after such October 15, if October 15
falls on a Saturday, Sunday, or legal holi-
day) or the date 90 days after the cor-
rected forms are posted, whichever is
later.
(b) Effective date. Paragraph (j) of this
section applies to Forms W-2 required to
be furnished under section 6051 after De-
cember 31, 2000.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 6. The authority citation for part
301 continues to read in part as follows:
Authority 26 U.S.C. 7805 * * *
Par. 7. Section 301.6724–1T is added
to read as follows:
§301.6724–1T Reasonable cause
(temporary).
(a) through (d)(2) [Reserved]. For fur-
ther information, see §301.6724–1 (a)
through (d)(2).
(d)(3) Special rule for furnishers of
electronic statements. A filer may seek a
waiver for reasonable cause pursuant to
§301.6724–1(c)(6), for failing to timely
furnish a statement in the following situa-
tion. If the recipient of the statement
withdraws a consent to receive the state-
ment in an electronic format, the filer will
be deemed to have acted in a responsible
manner under §301.6724–1(d) if the filer
furnishes a paper statement on or before
the date 30 days after the date the with-
drawal of consent is received.
(e) through (n) [Reserved]. For further
guidance, see §301.6724–1(e) through
(n).
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 8. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 9. In §602.101, paragraph (b) is
amended by adding entries to the table in
numerical order to read as follows:
§602.101 OMB Control numbers.
* * * * *
(b) * * *
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved January 10, 2001.
Jonathan Talisman,
Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on Feb-
ruary 13, 2001, 8:45 a.m., and published in the issue
of the Federal Register for February 14, 2001, 66
F.R. 10191)
2001–13 I.R.B.935March 26, 2001

Section 6621.— Determination
of Interest Rate
26 CFR 301.6621–1: Interest rate.
Interest rates; underpayments and
overpayments. The rate of interest deter-
mined under section 6621 of the Code for
the second calendar quarter of 2001,
beginning April 1, 2001, will be 8 percent
for overpayments (7 percent in the case of
a corporation), 8 percent for underpay-
ments, and 10 percent for large corporate
underpayments. The rate of interest paid
on the portion of a corporate overpayment
exceeding $10,000 is 5.5 percent.
Rev. Rul. 2001–16
Section 6621 of the Internal Revenue
Code establishes the rates for interest on
tax overpayments and tax underpayments.
Under § 6621(a)(1), the overpayment rate
beginning April 1, 2001, is the sum of the
federal short-term rate plus 3 percentage
points (2 percentage points in the case of
a corporation), except the rate for the por-
tion of a corporate overpayment of tax ex-
ceeding $10,000 for a taxable period is
the sum of the federal short-term rate plus
0.5 of a percentage point for interest com-
putations made after December 31, 1994.
Under § 6621(a)(2), the underpayment
rate is the sum of the federal short-term
rate plus 3 percentage points.
Section 6621(c) provides that for pur-
poses of interest payable under § 6601 on
any large corporate underpayment, the un-
derpayment rate under § 6621(a)(2) is de-
termined by substituting “5 percentage
points” for “3 percentage points.” See
§ 6621(c) and § 301.6621–3 of the Regula-
tions on Procedure and Administration for
the definition of a large corporate under-
payment and for the rules for determining
the applicable date. Section 6621(c) and
§ 301.6621–3 are generally effective for
periods after December 31, 1990.
Section 6621(b)(1) provides that the
Secretary will determine the federal short-
term rate for the first month in each calen-
dar quarter.
Section 6621(b)(2)(A) provides that the
federal short-term rate determined under
§ 6621(b)(1) for any month applies during
the first calendar quarter beginning after
such month.
Section 6621(b)(2)(B) provides that in
determining the addition to tax under
§ 6654 for failure to pay estimated tax for
any taxable year, the federal short-term
rate that applies during the third month
following such taxable year also applies
during the first 15 days of the fourth
month following such taxable year.
Section 6621(b)(3) provides that the
federal short-term rate for any month is
the federal short-term rate determined
during such month by the Secretary in ac-
cordance with § 1274(d), rounded to the
nearest full percent (or, if a multiple of
1/2 of 1 percent, the rate is increased to
the next highest full percent).
Notice 88–59, 1988–1 C.B. 546, an-
nounced that, in determining the quarterly
interest rates to be used for overpayments
and underpayments of tax under § 6621,
the Internal Revenue Service will use the
federal short-term rate based on daily
compounding because that rate is most
consistent with § 6621 which, pursuant to
§ 6622, is subject to daily compounding.
Rounded to the nearest full percent, the
federal short-term rate based on daily
compounding determined during the
month of January 2001 is 5 percent. Ac-
cordingly, an overpayment rate of 8 per-
cent (7 percent in the case of a corpora-
tion) and an underpayment rate of 8
percent are established for the calendar
quarter beginning April 1, 2001. The
overpayment rate for the portion of a cor-
porate overpayment exceeding $10,000
for the calendar quarter beginning April 1,
2001, is 5.5 percent. The underpayment
rate for large corporate underpayments
for the calendar quarter beginning April 1,
2001, is 10 percent. These rates apply to
amounts bearing interest during that cal-
endar quarter.
Under § 6621(b)(2)(B), the 9 percent
rate that applies to estimated tax under-
payments for the first calendar quarter in
2001, as provided in Rev.Rul. 2000–57,
2000–50 I.R.B. 579, also applies to such
underpayments for the first 15 days in
April 2001.
Interest factors for daily compound in-
terest for annual rates of 5.5 percent, 7
percent, 8 percent, and 10 percent are
published in Tables 16, 19, 21, and 25 of
Rev. Proc. 95–17, 1995–1 C.B. 556, 570,
573, 575, and 579.
Annual interest rates to be compounded
daily pursuant to § 6622 that apply for
prior periods are set forth in the tables ac-
companying this revenue ruling.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Raymond Bailey of the Office of
Associate Chief Counsel (Procedure &
Administration), Administrative Provi-
sions & Judicial Practice Division. For
further information regarding this revenue
ruling, contact Mr. Bailey at (202) 622-
6226 (not a toll-free call).
March 26, 20019362001–13 I.R.B.
CFR part or section whereCurrent OMB
identified and describedcontrol No.
* * * * *
1.6041–2T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1545–1729
* * * * *
1.6050S–1T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1545–1729
1.6050S–2T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1545–1729
* * * * *
31.6051–1T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1545–1729
* * * * *

TABLE OF INTEREST RATES
FROM JAN. 1, 1987 - DEC. 31, 1998
OVERPAYMENTSUNDERPAYMENTS
1995–1 C.B.1995–1 C.B.
RATE TABLE PGRATE TABLE PG
Jan. 1, 1987—Mar. 31, 19878%215759%23577
Apr. 1, 1987—Jun. 30, 19878%215759%23577
Jul. 1, 1987—Sep. 30, 19878%215759%23577
Oct. 1, 1987—Dec. 31, 19879%2357710%25579
Jan. 1, 1988—Mar. 31, 198810%7362711%75629
Apr. 1, 1988—Jun. 30, 19889%7162510%73627
Jul. 1, 1988—Sep. 30, 19889%7162510%73627
Oct. 1, 1988—Dec. 31, 198810%7362711%75629
Jan. 1, 1989—Mar. 31, 198910%2557911%27581
Apr. 1, 1989—Jun. 30, 198911%2758112%29583
Jul. 1, 1989—Sep. 30, 198911%2758112%29583
Oct. 1, 1989—Dec. 31, 198910%2557911%27581
Jan. 1, 1990—Mar. 31, 199010%2557911%27581
Apr. 1, 1990—Jun. 30, 199010%2557911%27581
Jul. 1, 1990—Sep. 30, 199010%2557911%27581
Oct. 1, 1990—Dec. 31, 199010%2557911%27581
Jan. 1, 1991—Mar. 31, 199110%2557911%27581
Apr. 1, 1991—Jun. 30, 19919%2357710%25579
Jul. 1, 1991—Sep. 30, 19919%2357710%25579
Oct. 1, 1991—Dec. 31, 19919%2357710%25579
Jan. 1, 1992—Mar. 31, 19928%696239%71625
Apr. 1, 1992—Jun. 30, 19927%676218%69623
Jul. 1, 1992—Sep. 30, 19927%676218%69623
Oct. 1, 1992—Dec. 31, 19926%656197%67621
Jan. 1, 1993—Mar. 31, 19936%175717%19573
Apr. 1, 1993—Jun. 30, 19936%175717%19573
Jul. 1, 1993—Sep. 30, 19936%175717%19573
Oct. 1, 1993—Dec. 31, 19936%175717%19573
Jan. 1, 1994—Mar. 31, 19946%175717%19573
2001–13 I.R.B.937March 26, 2001
TABLE OF INTEREST RATES
PERIODS BEFORE JUL. 1, 1975 - PERIODS ENDING DEC. 31, 1986
OVERPAYMENTS AND UNDERPAYMENTS
In 1995–1 C.B.
PERIODRATEDAILY RATE TABLE
Before Jul. 1, 19756%Table 2, pg. 557
Jul. 1, 1975—Jan. 31, 19769%Table 4, pg. 559
Feb. 1, 1976—Jan. 31, 19787%Table 3, pg. 558
Feb. 1, 1978—Jan. 31, 19806%Table 2, pg. 557
Feb. 1, 1980—Jan. 31, 198212%Table 5, pg. 560
Feb. 1, 1982—Dec. 31, 198220%Table 6, pg. 560
Jan. 1, 1983—Jun. 30, 198316%Table 37, pg. 591
Jul. 1, 1983—Dec. 31, 198311%Table 27, pg. 581
Jan. 1, 1984—Jun. 30, 198411%Table 75, pg. 629
Jul. 1, 1984—Dec. 31, 198411%Table 75, pg. 629
Jan. 1, 1985—Jun. 30, 198513%Table 31, pg. 585
Jul. 1, 1985—Dec. 31, 198511%Table 27, pg. 581
Jan. 1, 1986—Jun. 30, 198610%Table 25, pg. 579
Jul. 1, 1986—Dec. 31, 19869%Table 23, pg. 577

TABLE OF INTEREST RATES—Continued
FROM JAN. 1, 1987 - DEC. 31, 1998
OVERPAYMENTSUNDERPAYMENTS
1995–1 C.B.1995–1 C.B.
RATE TABLE PGRATE TABLE PG
Apr. 1, 1994—Jun. 30, 19946%175717%19573
Jul. 1, 1994—Sep. 30, 19947%195738%21575
Oct. 1, 1994—Dec. 31, 19948%215759%23577
Jan. 1, 1995—Mar. 31, 19958%215759%23577
Apr. 1, 1995—Jun. 30, 19959%2357710%25579
Jul. 1, 1995—Sep. 30, 19958%215759%23577
Oct. 1, 1995—Dec. 31, 19958%215759%23577
Jan. 1, 1996—Mar. 31, 19968%696239%71625
Apr. 1, 1996—Jun. 30, 19967%676218%69623
Jul. 1, 1996—Sep. 30, 19968%696239%71625
Oct. 1, 1996—Dec. 31, 19968%696239%71625
Jan. 1, 1997—Mar. 31, 19978%215759%23577
Apr. 1, 1997—Jun. 30, 19978%215759%23577
Jul. 1, 1997—Sep. 30, 19978%215759%23577
Oct. 1, 1997—Dec. 31, 19978%215759%23577
Jan. 1, 1998—Mar. 31, 19988%215759%23577
Apr. 1, 1998—Jun. 30, 19987%195738%21575
Jul. 1, 1998—Sep. 30, 19987%195738%21575
Oct. 1, 1998—Dec. 31, 19987%195738%21575
March 26, 20019382001–13 I.R.B.
TABLE OF INTEREST RATES
FROM JANUARY 1, 1999 - PRESENT
NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS
1995–1 C.B.
RATETABLEPAGE
Jan. 1, 1999—Mar. 31, 19997%19573
Apr. 1, 1999—Jun. 30, 19998%21575
Jul. 1, 1999—Sep. 30, 19998%21575
Oct. 1, 1999—Dec. 31, 19998%21575
Jan. 1, 2000—Mar. 31, 20008%69623
Apr. 1, 2000—Jun. 30, 20009%71625
Jul. 1, 2000—Sep. 30, 20009%71625
Oct. 1, 2000—Dec 31, 20009%71625
Jan. 1, 2001—Mar. 31 20019%23577
Apr. 1, 2001—Jun. 30 20018%21575

TABLE OF INTEREST RATES
FROM JANUARY 1, 1999 - PRESENT
CORPORATE OVERPAYMENTS AND UNDERPAYMENTS
OVERPAYMENTSUNDERPAYMENTS
1995–1 C.B.1995–1 C.B.
RATE TABLE PGRATE TABLE PG
Jan. 1, 1999—Mar. 31, 19996%175717%19573
Apr. 1, 1999—Jun. 30, 19997%195738%21575
Jul. 1, 1999—Sep. 30, 19997%195738%21575
Oct. 1, 1999—Dec. 31, 19997%195738%21575
Jan. 1, 2000—Mar. 31, 20007%676218%69623
Apr. 1, 2000—Jun. 30, 20008%696239%71625
Jul. 1, 2000—Sep. 30, 20008%696239%71625
Oct. 1, 2000—Dec. 31, 20008%696239%71625
Jan. 1, 2001—Mar. 31, 20018%215759%23577
Apr. 1, 2001—Jun. 30, 20017%195738%21575
2001–13 I.R.B.939March 26, 2001
TABLE OF INTEREST RATES FOR
LARGE CORPORATE UNDERPAYMENTS
FROM JANUARY 1, 1991 - PRESENT
1995–1 C.B.
RATETABLEPG
Jan. 1, 1991—Mar. 31, 199113%31585
Apr. 1, 1991—Jun. 30, 199112%29583
Jul. 1, 1991—Sep. 30, 199112%29583
Oct. 1, 1991—Dec. 31, 199112%29583
Jan. 1, 1992—Mar. 31, 199211%75629
Apr. 1, 1992—Jun. 30, 199210%73627
Jul. 1, 1992—Sep. 30, 199210%73627
Oct. 1, 1992—Dec. 31, 19929%71625
Jan. 1, 1993—Mar. 31, 19939%23577
Apr. 1, 1993—Jun. 30, 19939%23577
Jul. 1, 1993—Sep. 30, 19939%23577
Oct. 1, 1993—Dec. 31, 19939%23577
Jan. 1, 1994—Mar. 31, 19949%23577
Apr. 1, 1994—Jun. 30, 19949%23577
Jul. 1, 1994—Sep. 30, 199410%25579
Oct. 1, 1994—Dec. 31, 199411%27581
Jan. 1, 1995—Mar. 31, 199511%27581
Apr. 1, 1995—Jun. 30, 199512%29583
Jul. 1, 1995—Sep. 30, 199511%27581
Oct. 1, 1995—Dec. 31, 199511%27581
Jan. 1, 1996—Mar. 31, 199611%75629
Apr. 1, 1996—Jun. 30, 199610%73627
Jul. 1, 1996—Sep. 30, 199611%75629
Oct. 1, 1996—Dec. 31, 199611%75629
Jan. 1, 1997—Mar. 31, 199711%27581
Apr. 1, 1997—Jun. 30, 199711%27581
Jul. 1, 1997—Sep. 30, 199711%27581
Oct. 1, 1997—Dec. 31, 199711%27581
Jan. 1, 1998—Mar. 31, 199811%27581
Apr. 1, 1998—Jun. 30, 199810%25579
Jul. 1, 1998—Sep. 30, 199810%25579

TABLE OF INTEREST RATES FOR
LARGE CORPORATE UNDERPAYMENTS—Continued
FROM JANUARY 1, 1991 - PRESENT
1995–1 C.B.
RATETABLEPG
Oct. 1, 1998—Dec. 31, 199810%25579
Jan. 1, 1999—Mar. 31, 19999%23577
Apr. 1, 1999—Jun. 30, 199910%25579
Jul. 1, 1999—Sep. 30, 199910%25579
Oct. 1, 1999—Dec. 31, 199910%25579
Jan. 1, 2000—Mar. 31, 200010%73627
Apr. 1, 2000—Jun. 30, 200011%75629
Jul. 1, 2000—Sep. 30, 200011%75629
Oct. 1, 2000—Dec. 31, 200011%75629
Jan. 1, 2001—Mar. 31, 200111%27581
Apr. 1, 2001—Jun. 30, 200110%25579
March 26, 20019402001–13 I.R.B.
TABLE OF INTEREST RATES FOR CORPORATE
OVERPAYMENTS EXCEEDING $10,000
FROM JANUARY 1, 1995 - PRESENT
1995–1 C.B.
RATETABLEPG
Jan. 1, 1995—Mar. 31, 19956.5%18572
Apr. 1, 1995—Jun. 30, 19957.5%20574
Jul. 1, 1995—Sep. 30, 19956.5%18572
Oct. 1, 1995—Dec. 31, 19956.5%18572
Jan. 1, 1996—Mar. 31, 19966.5%66620
Apr. 1, 1996—Jun. 30, 19965.5%64618
Jul. 1, 1996—Sep. 30, 19966.5%66620
Oct. 1, 1996—Dec. 31, 19966.5%66620
Jan. 1, 1997—Mar. 31, 19976.5%18572
Apr. 1, 1997—Jun. 30, 19976.5%18572
Jul. 1, 1997—Sep. 30, 19976.5%18572
Oct. 1, 1997—Dec. 31, 19976.5%18572
Jan. 1, 1998—Mar. 31, 19986.5%18572
Apr. 1, 1998—Jun. 30, 19985.5%16570
Jul. 1. 1998—Sep. 30, 19985.5%16570
Oct. 1, 1998—Dec. 31, 19985.5%16570
Jan. 1, 1999—Mar. 31, 19994.5%14568
Apr. 1, 1999—Jun. 30, 19995.5%16570
Jul. 1, 1999—Sep. 30, 19995.5%16570
Oct. 1, 1999—Dec. 31, 19995.5%16570
Jan. 1, 2000—Mar. 31, 20005.5%64618
Apr. 1, 2000—Jun. 30, 20006.5%66620
Jul. 1, 2000—Sep. 30, 20006.5%66620
Oct. 1, 2000—Dec. 31, 20006.5%66620
Jan. 1, 2001—Mar. 31, 20016.5%18572
Apr. 1, 2001—Jun. 30, 20015.5%16570

Estimated Tax Election for
Owners of ESBTs
Notice 2001–25
PURPOSE AND BACKGROUND
This notice provides guidance to elect-
ing small business trusts (ESBTs) and in-
dividuals who are treated as the owners of
ESBTs (deemed owners) under subpart E,
part I, subchapter J, chapter 1 of the Inter-
nal Revenue Code (subpart E), regarding
estimated tax payments mistakenly made
by ESBTs rather than the deemed owners
of the ESBTs for taxable years ending on
December 29, 30, or 31, 2000. Questions
have arisen whether these estimated tax
payments made by ESBTs (under the
ESBTs’ employer identification numbers
(EINs)) for the 2000 taxable year can be
credited to the accounts of the deemed
owners of the ESBTs, and whether any
penalties for underpayment of estimated
tax are applicable.
Proposed Income Tax Regulations
(REG–251701–96, 2001–4 I.R.B. 396)
under § 1361(e) and § 641(c) were pub-
lished in the Federal Register on Decem-
ber 29, 2000 (65 Fed. Reg. 82963) pro-
viding guidance with respect to ESBTs.
Section 1.641(c)–1(a) provides that an
ESBT is treated as two separate trusts for
purposes of determining income tax. The
portion of an ESBT that consists of stock
in one or more S corporations (the S por-
tion) is treated as one trust. The portion
of an ESBT that consists of all the other
assets in the trust is treated as a separate
trust. The grantor or another person may
be treated as the owner of all or a portion
of either or both trusts under subpart E
(grantor portion).
Section 1.641(c)–1(c) provides that the
grantor or another person who is treated
as the owner of a portion of the ESBT in-
cludes in computing taxable income items
of income, deductions, and credits against
tax attributable to that portion of the
ESBT under § 671.
Section 1.641(c)–1(j) provides that
§ 1.641(c)–1(a), (b), and (c) are proposed
to be applicable for taxable years of
ESBTs that end on and after December
29, 2000.
Prior to the issuance of the proposed
ESBT regulations, some taxpayers took
the position that an ESBT election could
be made for a grantor trust and that the
rules relating to the taxation of ESBTs ap-
plied to the entire portion of the trust
holding S corporation stock. Consistent
with this position, these ESBTs made esti-
mated tax payments for the 2000 taxable
year under the trusts’ EINs, and the
deemed owners did not take into account
the S corporation income in calculating
their estimated tax payments for the 2000
taxable year.
Section 6654(a) provides that except as
otherwise provided in § 6654, in the case
of any underpayment of estimated tax by
an individual, there shall be added to the
tax under chapter 1 and the tax under
chapter 2 for the taxable year an amount
determined by applying (1) the underpay-
ment rate established by § 6621, (2) to the
amount of the underpayment, (3) for the
period of the underpayment.
Section 6654(d)(2)(B) provides that in
the case of any required installment, the
annualized income installment is the ex-
cess of (i) the amount equal to the applic-
able percentage of the tax for the taxable
year computed by placing on an annual-
ized basis the taxable income, alternative
minimum taxable income, and adjusted
self-employment income for months in
the taxable year ending before the due
date for the installment, over (ii) the ag-
gregate amount of any prior required in-
stallments for the taxable year.
Section 6654(e)(3)(A) provides that no
addition to tax shall be imposed under
§ 6654(a) with respect to any underpay-
ment to the extent the Secretary deter-
mines that by reason of casualty, disaster,
or other unusual circumstances the impo-
sition of such addition to tax would be
against equity and good conscience.
SCOPE
This notice provides a method for hav-
ing the estimated tax payments that were
made by an ESBT under the trust’s EIN
credited to the deemed owner’s account
for estimated tax purposes. This notice
also provides that for purposes of the
deemed owner’s computation of annual-
ized income installments under
§ 6654(d)(2)(B), the deemed owner may
take into account, as of the last day of the
deemed owner’s 2000 taxable year, the S
corporation pass-thru items allocable to
stock held by the ESBT.
METHOD FOR CREDITING
ESTIMATED TAX PAYMENTS TO
DEEMED OWNER AND
CALCULATING ANY
UNDERPAYMENT OF ESTIMATED
TAX PENALTY
An ESBT that wants estimated tax pay-
ments that were made by the trust under
the trust’s EIN to be treated as made by
the deemed owner of the ESBT must file
Form 1041-T, Allocation of Estimated Tax
Payments to Beneficiaries, in the time and
manner specified in the Instructions to
Form 1041-T with the following modifi-
cations. At the top of the Form 1041-T,
the following statement should be written,
“FILED PURSUANT TO NOTICE 2001-
25.” Each reference in the Form 1041-T
to beneficiary is deemed to refer to the
deemed owner of the ESBT solely for
purposes of this notice and the Form
1041-T should be completed accordingly.
The trust’s estimated tax payments in-
cluded on Form 1041-T will be treated as
a payment of estimated tax made by the
deemed owner of the ESBT on January
15, 2001.
If the deemed owner of the ESBT is re-
quired to file Form 2210, Underpayment
of Estimated Tax by Individuals, Estates,
and Trusts, the deemed owner may use
Schedule AI, Annualized Income Install-
ment Method. For this purpose, the
deemed owner may take into account, as
of the last day of the deemed owner’s
2000 taxable year, all S corporation items
allocable to the grantor portion of the
ESBT.
EFFECTIVE DATE
This notice applies only for taxable
years of ESBTs and of the deemed owners
of those ESBTs ending on December 29,
30, or 31, 2000.
DRAFTING INFORMATION
The principal author of this notice is
James A. Quinn of the Office of the Associ-
ate Chief Counsel (Passthroughs and Spe-
cial Industries). For further information re-
2001–13 I.R.B.941March 26, 2001
Part III. Administrative, Procedural, and Miscellaneous

garding this notice contact Mr. Quinn at
(202) 622-3060 (not a toll-free call).
Trust 645 Election
Notice 2001–26
This notice provides guidance regard-
ing the election for a trust to be treated as
part of an estate under § 645 of the Inter-
nal Revenue Code and the filing of a
Form 1041, U.S. Income Tax Return for
Estates and Trusts, for the first (short)
taxable year of the trust.
Section 645 provides that a qualified
revocable trust may elect to be treated and
taxed for income tax purposes as part of
an estate (and not as a separate trust) for
all taxable years of the estate ending after
the date of the decedent’s death and be-
fore the applicable date described in
§ 645(b)(2).
Rev. Proc. 98–13, 1998–1 C.B. 370, sets
forth procedures for making the § 645 elec-
tion and filing the appropriate tax returns. A
qualified revocable trust that will make the
§ 645 election generally is required to ob-
tain a taxpayer identification number (TIN)
and to file a Form 1041 for the trust’s short
taxable year beginning with the decedent’s
death and ending December 31 of that year.
A trust does not have to file a short year re-
turn if: (1) the Form 1041 for the estate’s
first taxable year is filed before the due date
for filing a Form 1041 for the trust for the
taxable year ending after the date of the
decedent’s death; (2) the trust items attrib-
utable to the decedent are reported pursuant
to § 1.671–4(b)(2)(i)(A) or (B); and (3) the
entire trust is a qualified revocable trust.
Under Rev. Proc. 98–13, if the trust is
required to file a Form 1041 for the short
taxable year, a copy of the required elec-
tion statement must be attached to that
form. The original of the required state-
ment must be attached to the Form 1041
filed for the estate’s first taxable year.
The § 645 election is considered made on
the first to occur of the filing of the es-
tate’s Form 1041 with the original re-
quired statement attached or the filing of
the trust’s Form 1041 with the copy of the
required statement attached. Once the
election is made, the items of income, de-
ductions, and credits attributable to the
trust for the short year must be excluded
from the trust’s Form 1041 and reported
on the estate’s Form 1041.
Proposed income tax regulations under
§ 645 published in the Federal Register on
December 18, 2000 (65 Fed. Reg. 79015),
contain different procedures for making
the election and filing the short year re-
turn for the trust. These procedures are
proposed to replace the procedures in
Rev. Proc. 98–13 when the regulations are
finalized. Under the proposed regula-
tions, the § 645 election is considered
made upon the filing of the Form 1041,
with the required election statement at-
tached, for the first taxable year of the es-
tate, or if there is no personal representa-
tive, for the first taxable year of the trust
filing as an estate. Section 1.645–1(c) of
the proposed Income Tax Regulations.
The proposed regulations also provide
that if the § 645 election will be made, the
trust is not required to obtain a TIN for
the trust or file a Form 1041 for the short
year. In such a situation, the trust’s items
of income, deductions, and credits are in-
cluded on the combined Form 1041 for
the electing trust and related estate under
the TIN for the related estate. Section
1.645–1(d)(1)(i) and (ii)(A).
The Internal Revenue Service has re-
ceived numerous requests that taxpayers
be permitted to use the procedures in the
proposed regulations prior to the time that
the final regulations are issued. Accord-
ingly, estates and qualifying revocable
trusts of decedents who die after Decem-
ber 31, 1999, and before the effective date
of the final § 645 regulations, may
choose to use either the election and re-
porting procedures set forth in Rev. Proc.
98–13, or the election and reporting pro-
cedures set forth in § 1.645–1(c) and
§ 1.645–1(d)(1)(i) and (ii)(A) of the pro-
posed regulations.
The principal author of this notice is
Pietro Canestrelli of the Office of Associ-
ate Chief Counsel (Passthroughs and Spe-
cial Industries). For further information
regarding this notice contact Pietro
Canestrelli at (202) 622-3060 (not a toll-
free call).
Dealers in Securities Futures
Contracts; Request for
Comments
Notice 2001–27
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of solicitation of com-
ments.
SUMMARY: This notice was published
in the Federal Register on March 7, 2001,
as BPG-132413-00. The IRS and Trea-
sury Department are soliciting comments
on the criteria that should be used to de-
termine whether a taxpayer is a dealer in
securities futures contracts (or options on
such contracts) for purposes of section
1256 of the Internal Revenue Code.
DATES: Written and electronic comments
are requested on or before May 5, 2001.
ADDRESSES: Send submissions to:
CC:M&SP:RU (BPG–132413–00), room
5226, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand de-
livered between the hours of 8 a.m. and 5
p.m. to: CC:M&SP:RU (BPG–132413–
00), Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue NW.,
Washington, DC. Alternatively, taxpayers
may submit comments electronically via
the Internet by submitting comments di-
rectly to the IRS Internet site at
http://www.irs.gov/tax_regs/regslist.html.
FOR FURTHER INFORMATION CON-
TACT: Concerning the notice, Patrick E.
White (202) 622–3920; concerning submis-
sion and delivery of comments, Treena Gar-
rett, (202) 622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
The Commodities Futures Modernization
Act of 2000, enacted as part of the Consoli-
dated Appropriations Act, 2001 (Public Law
106–554, 114 Stat. 2763), authorizes the
trading of securities futures contracts, a new
type of derivative financial product. An-
other portion of the same enactment—the
Community Renewal Tax Relief Act of
2000 (the Act)—prescribes the tax treat-
ment of these financial products. In general,
gain or loss is recognized on securities fu-
tures contracts upon disposition, and the
character of such gain or loss is determined
by newly enacted section 1234B.
The timing and character of gains and
losses on dealersecurities futures con-
tracts, however, is determined by section
1256. Thus, dealer securities futures con-
tracts are subject to mark-to-market treat-
ment, and capital gains or losses are
March 26, 20019422001–13 I.R.B.

treated as 60 percent long-term capital
gain or loss and 40 percent short-term
capital gain or loss. Section 1256(g)(9)
defines dealer securities futures contracts
as securities futures contracts (and op-
tions on such contracts) that are traded on
a qualified board or exchange and are en-
tered into by a dealer in the normal course
of the dealer’s business of dealing in such
contracts or options. For this purpose, a
person is a dealerin securities futures
contracts or options on such contracts if
the Secretary of the Treasury determines
that the person performs functions with
respect to such contracts or options simi-
lar to the functions performed with re-
spect to stock options by persons regis-
tered with a national securities exchange
as a market maker or specialist in listed
options. The Act requires the Secretary of
the Treasury or his delegate to make this
determination no later than July 1, 2001.
The legislative history of the Act states
the following with respect to the determi-
nation process:
The determination of who is a
dealer in securities futures contracts
is to be made in a manner that is
appropriate to carry out the purposes
of the provision, which generally is
to provide comparable tax treatment
between dealers in securities futures
contracts, on the one hand, and deal-
ers in equity options, on the other.
Although traders in securities futures
contracts (and options on such con-
tracts) may not have the same mar-
ket-making obligations as market
makers or specialists in equity
options, many traders are expected to
perform analogous functions to such
market makers or specialists by pro-
viding market liquidity for securities
futures contracts (and options) even
in the absence of a legal obligation to
do so. Accordingly, the absence of
market-making obligations is not
inconsistent with a determination
that a class of traders are dealers in
securities futures contracts (and
options), if the relevant factors,
including providing market liquidity
for such contracts (and options),
indicate that the market functions of
the traders is comparable to that of
equity options dealers.
H.R. Conf. Rep. No. 106–1033, 106th
Cong., 2d Sess. 1036 (2000).
The IRS and Treasury Department,
therefore, seek taxpayers’ suggestions con-
cerning both the substance of these deter-
minations and the manner in which they
should be made. As described in more de-
tail below, of particular interest are com-
ments that will aid in establishing objective
criteria and processes for making the deter-
minations. In addition, comments are so-
licited in certain specific areas.
First, comments are requested about
the activities and obligations of equity op-
tions dealers, especially those activities
and obligations that contribute to the es-
tablishment and maintenance of an or-
derly market. For purposes of this notice,
the term equity options dealermeans a
market maker or specialist described in
section 1256(g)(8) with respect to options
that are described in section 1256(g)(6)
without regard to the requirement that in-
dices be narrow based. Any relevant way
in which the activities and obligations of
market makers differ from those of spe-
cialists should be described; and the sig-
nificance of this difference for any com-
ment or other response to this notice
should be explained when relevant.
Among the questions on which infor-
mation is sought are the following: What
are the activities imposed on, or under-
taken by, equity option dealers that are
considered making a market? Do equity
option dealers engage in activities that ex-
tend beyond making a market but that
contribute to the establishment and main-
tenance of orderly markets? For example,
equity options dealers trading for their
own accounts (and not in response to or-
ders placed by an off-exchange customer)
may be a significant source of market vol-
ume. Is that the case? If so, to what ex-
tent does this added volume contribute to
market liquidity? Are there other ways in
which these dealers contribute to the mar-
kets in which they participate? What dif-
ferences are there, in scale or kind, be-
tween the activities of equity options
dealers and similar activities of other mar-
ket participants?
Although some relevant activities of
equity options dealers may be ongoing,
other critical activities may commence,
or change significantly in nature or scope,
during periods of market disequilibrium.
Information with respect to equity options
dealers’ activities at these times will be
particularly welcome.
Second, information is requested re-
garding activities of traders
1
on futures
markets. Although traders on futures
markets may not have specific market-
making obligations, their trading activi-
ties may contribute to the establishment
and maintenance of orderly markets. Is
that typically the case? Descriptions of
trading activities on futures markets gen-
erally will be helpful, and insights and
supporting data on the nature and extent
of trading by specific groups of futures
traders will be particularly useful. Rele-
vant groups for this purpose may be based
on the type of contract traded, the extent
of trading for one’s own account (as op-
posed to trading in response to orders
from off-exchange customers), and the
class of exchange membership.
This discussion should be accompa-
nied, if possible, by an explanation of the
extent to which the activities of traders in
securities futures contracts are expected
to resemble the activities of the specific
groups described. In general, expecta-
tions of how trading in securities futures
contracts may or may not differ from trad-
ing in current products will also be help-
ful.
Third, comments are solicited on ad-
ministrable and economically meaningful
criteria for identifying any traders that
should be treated as dealers in securities
futures contracts. Criteria for identifying
these persons might include, among oth-
ers, the nature and extent of trading activ-
ities (including the extent to which the
person’s trading is concentrated in certain
products), class of exchange membership,
capital, and share of net income derived
from trading activities. Should it be pos-
sible for a person to be a dealer in securi-
ties futures contracts with respect to some
such contracts but not with respect to oth-
ers?
If a taxpayer’s satisfaction of the sug-
gested criteria may vary over time, com-
ments are also requested respecting rules
for determining when a taxpayer be-
comes, or ceases to be, a dealer in securi-
ties futures contracts. For example,
should it be possible for the status as a
2001–13 I.R.B.943March 26, 2001
1
The references here, and in the following para-
graphs, to tradersare not intended to exclude any
taxpayers who are not treated as traders for tax pur-
poses but who may perform functions similar to the
functions performed by equity options dealers.

dealer in securities futures contracts to
change within a single taxable year or
only between taxable years? Does a tax-
payer need to know before it enters a
transaction whether it is treated as a
dealer for purposes of that transaction?
Will special rules be required for taxpay-
ers who have not previously traded in the
contracts? (Initially, all taxpayers fall
into this category.) Comments regarding
both substantive criteria and the method
of application will be useful.
Comments
Written or electronic comments (a
signed original and eight (8) copies, if
written) should be timely submitted (in
the manner described in the AD-
DRESSES portion of this notice) to the
IRS. All comments will be available for
public inspection and copying.
Drafting Information
The principal authors of this notice are
Patrick E. White, Office of Associate
Chief Counsel (Financial Institutions and
Products), and Matthew J. Eichner, Office
of Tax Analysis, United States Depart-
ment of the Treasury. However, other
personnel from the IRS and Treasury De-
partment participated in its development.
Lon B. Smith,
Acting Associate Chief Counsel
(Financial Institutions & Products)
Weighted Average Interest Rate
Update
Notice 2001–28
Notice 88–73 provides guidelines for
determining the weighted average interest
rate and the resulting permissible range of
interest rates used to calculate current lia-
bility for the purpose of the full funding
limitation of § 412(c)(7) of the Internal
Revenue Code as amended by the Om-
nibus Budget Reconciliation Act of 1987
and as further amended by the Uruguay
Round Agreements Act, Pub. L. 103-465
(GATT).
The average yield on the 30-year Trea-
sury Constant Maturities for February
2001 is 5.45 percent.
The following rates were determined
for the plan years beginning in the month
shown below.
March 26, 20019442001–13 I.R.B.
90% to 105%90% to 110%
WeightedPermissiblePermissible
MonthYearAverageRangeRange
March20015.875.29 to 6.175.29 to 6.46
Drafting Information
The principal author of this notice is
Todd Newman of the Employee Plans,
Tax Exempt and Government Entities Di-
vision. For further information regarding
this notice, please call Mr. Newman at
(202) 283-9702 (not a toll-free number).

Withdrawal of Notice of
Proposed Regulations
Requirements Relating to
Certain Exchanges Involving a
Foreign Corporation
LR–230–76
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Withdrawal of notice of pro-
posed regulations.
SUMMARY: This document withdraws
proposed regulations under section
367(c). The proposed regulations corre-
spond to temporary regulations that are
also being removed by T.D. 8938 on page
929 of this Bulletin. The temporary regu-
lations are being removed because they
are no longer necessary and, as a result,
may be misleading.
FOR FURTHER INFORMATION CON-
TACT: Mark D. Harris at (202) 622-3860
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On December 30, 1977, the IRS and
Treasury published in the Federal Register
proposed regulations (42 FR 65204) and
temporary regulations (42 FR 65152) under
section 367(c) of the Internal Revenue
Code. The principal purpose of these regu-
lations, §§7.367(c)–1 and 7.367(c)–2, was
to distinguish between the treatment of
transfers described in section 367(c) before
and after the enactment of the Tax Reform
Act of 1976 (the Act) (90 Stat. 1634). Be-
fore enactment of the Act, transfers de-
scribed in section 367(c) were subject to a
ruling requirement. After enactment of the
Act, transfers described in section 367(c)
were within the scope of §§7.367(b)–1
through 7.367(b)–12. In light of the sub-
stantial time that has passed since enact-
ment of the Act and, moreover, in light of
the fact that §§1.367(b)–1 through
1.367(b)–6 have substantially superceded
§§7.367(b)–1 through 7.367(b)–12,
§§7.367(c)–1 and 7.367(c)–2 are no longer
necessary and may be misleading.
Accordingly, the IRS and Treasury
through T.D. 8938 are removing tempo-
rary regulations §§7.367(c)–1 and
7.367(c)–2 in T.D. 7530. Correspond-
ingly, this document removes proposed
regulations §§7.367(c)–1 and 7.367(c)–2.
* * * * *
Withdrawal of Proposed Amendments
to the Regulations
Accordingly, under the authority of 26
U.S.C. 7805, proposed regulations under
26 CFR part 7 relating to §§7.367(c)–1
and 7.367(c)–2, as published December
30, 1977 (42 FR 65204), are withdrawn.
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
(Filed by the Office of the Federal Register on Janu-
ary 11, 2001, 8:45 a.m., and published in the issue of
the Federal Register for January 12, 2001, 66 F.R.
2856)
Notice of Proposed Rulemaking
and Notice of Public Hearing
Relief From Joint and Several
Liability
REG–106446–98
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains
proposed regulations relating to relief
from joint and several liability under sec-
tion 6015 of the Internal Revenue Code.
The regulations reflect changes in the law
made by the IRS Restructuring and Re-
form Act of 1998. The regulations pro-
vide guidance to married individuals fil-
ing joint returns who may seek relief from
joint and several liability. This document
also provides notice of a public hearing
on these proposed regulations.
DATES: Written or electronically gener-
ated comments and requests to speak (with
outlines of oral comments) at the public
hearing scheduled for May 30, 2001, must
be received by April 27, 2001.
ADDRESSES: Send submissions to
CC:M&SP:RU (REG–106446–98), room
5228, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand de-
livered Monday through Friday between
the hours of 8 a.m. and 5 p.m. to:
CC:M&SP:RU (REG–106446–98), Couri-
ers Desk, Internal Revenue Service, 1111
Constitution Avenue, N.W., Washington,
DC. Alternatively, taxpayers may submit
comments electronically via the Internet by
selecting the “Tax Regs” option on the IRS
Home Page, or by submitting comments di-
rectly to the IRS Internet site at
http://www.irs.gov/tax_regs/regslist.html.
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regula-
tions, Bridget E. Finkenaur, 202-622-
4940; concerning submissions of
comments, the hearing and/or to be
placed on the building access list to attend
the hearing, Guy Traynor, 202-622-7190
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained
in this notice of proposed rulemaking has
been submitted to the Office of Manage-
ment and Budget for review in accordance
with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507). Comments on the col-
lection of information should be sent to the
Office of Management and Budget, Attn:
Desk Officer for the Department of the
Treasury, Office of Information and Regu-
latory Affairs, Washington, DC 20503, with
copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer,
W:CAR:MP:FP:S:O, Washington, DC
20224. Comments on the collection of in-
formation should be received by March 19,
2001. Comments are specifically requested
concerning:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the Internal
Revenue Service, including whether the
information will have practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of the
information to be collected may be enhanced;
How the burden of complying with the
proposed collection of information may be
2001–13 I.R.B.945March 26, 2001
Part IV. Items of General Interest

minimized, including through the applica-
tion of automated collection techniques or
other forms of information technology; and
Estimates of capital or start-up costs and
costs of operation, maintenance, and pur-
chase of services to provide information.
The collection of information in this
proposed regulation is in §1.6015–5. In-
dividuals may request relief from joint
and several liability by timely filing Form
8857, “Request for Innocent Spouse Re-
lief (And Separation of Liability and Eq-
uitable Relief),” or a written statement
that contains the information required on
Form 8857, that is signed under penalties
of perjury. This collection of information
is required in order for an individual to re-
quest relief from joint and several liabil-
ity. This information will be used to carry
out the internal revenue laws. The likely
respondents are individuals.
The reporting burden contained in
§1.6015–5 is reflected in the burden of
Form 8857. The estimated burden is:
learning about the law or the form, 17
min.; preparing the form, 17 min.; and
copying, assembling, and sending the
form to the IRS, 20 min. The reporting
burden contained in §1.6015–5 for the
statement signed under penalties of per-
jury is estimated as: learning about the
law, 20 min.; preparing the statement
signed under penalties of perjury, 30 min.;
and copying, assembling, and sending the
statement to the IRS, 20 min.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
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
Section 6013(d)(3) provides that spouses
who file a joint Federal income tax return
are jointly and severally liable for liabilities
with respect to tax arising from that return.
The term taxincludes additions to tax,
penalties, and interest. See sections
6665(a)(2) and 6601(e)(1). Joint and sev-
eral liability allows the IRS to collect the
entire liability from either spouse signing
the joint return, without regard to whom the
items of income, deduction, credit, or basis
that gave rise to the liability are attribut-
able. Before the enactment of the Internal
Revenue Service Restructuring and Reform
Act of 1998, Public Law 105–206 (112
Stat. 685) (1998) (RRA), section 6013(e)
provided the only relief from joint and sev-
eral liability, and it only applied in very
limited circumstances.
Section 3201 of the RRA repealed sec-
tion 6013(e) and replaced it with section
6015. Section 6015 applies to liabilities
that arise after July 22, 1998, and liabilities
that arose prior to July 22, 1998, which re-
mained unpaid as of that date. The provi-
sions of section 6015 expand the relief
available to spouses or former spouses who
wish to be relieved from all or a portion of
the joint and several liability arising from a
joint individual Federal income tax return.
Section 6015 makes the requirements for
relief from joint and several liability, for-
merly in section 6013(e), less restrictive
(section 6015(b)), and adds two other relief
provisions. One provision, section 6015(c),
permits the allocation of a deficiency be-
tween certain estranged spouses or former
spouses in proportion to their respective er-
roneous items or in accordance with other
allocation rules. The other provision, sec-
tion 6015(f), gives the Secretary equitable
discretion to grant relief from joint and sev-
eral liability. The three relief provisions
have different eligibility requirements and
provide different types of relief.
This document contains proposed
amendments to the Income Tax Regula-
tions (26 CFR part 1) that are necessary to
carry out the provisions of section 6015.
The proposed regulations provide detailed
guidance on the three types of relief from
joint and several liability under section
6015.
Explanation of Provisions
In General
To qualify for relief from joint and sev-
eral liability, a requesting spouse(as defined
in the regulations) must elect the application
of section 6015(b) or 6015(c), or request eq-
uitable relief under section 6015(f), within 2
years of the first collection activity after
July 22, 1998, with respect to the requesting
spouse. Relief under section 6015 is only
available for income taxes required under
Subtitle A (including self-employment
taxes). Relief is not available for other taxes
reported on a taxpayer’s income tax return
(e.g., domestic services employment taxes
under section 3510).
The proposed regulations define several
terms, some of which are unique to specific
provisions, and others of which are gener-
ally applicable to section 6015. One gener-
ally applicable term is an item. An item is
generally defined as that which is required
to be separately reported on an individual
income tax return. However, amounts re-
ceived from investments that are required to
be separately reported on an individual in-
come tax return and that are from the same
source are aggregated and treated as one
item. For example, assume an individual
receives $700 in dividends and $1,000 in in-
terest from X Co. Although dividends and
interest are required to be separately re-
ported on the individual’s income tax return,
they are considered one item for purposes of
section 6015 because the dividends and in-
terest are both from X Co. Items include,
but are not limited to, gross income, deduc-
tions, credits, and basis. An erroneous item
is defined as any item resulting in an under-
statement or deficiency in tax to the extent
such item is omitted from, or improperly re-
ported (including improperly characterized)
on, an individual income tax return.
Innocent Spouse Relief Under Section
6015(b)
In enacting section 6015, Congress fo-
cused, in part, on the limitations of sec-
tion 6013(e). H.R. Conf. Rep. No. 599,
105
th
Cong., 2d Sess. 249 (1998). Thus,
certain limitations under section 6013(e)
have been eliminated in section 6015.
For example, section 6013(e) required
that there be a substantial understatement
attributable to a grossly erroneousitem,
whereas section 6015(b) only requires
that there be an understatementof an er-
roneousitem. Another difference is that,
unlike section 6013(e), section 6015(b)
expressly provides for partial relief if a re-
questing spouse did not know, and had no
reason to know, of only a portion of the
understatement. One procedural differ-
ence is that a requesting spouse must now
elect the application of section 6015(b).
Otherwise, section 6015(b) provides
the same type of relief as was available
under section 6013(e). In addition, as
with section 6013(e), if a requesting
spouse qualifies for relief under section
March 26, 20019462001–13 I.R.B.

2001–13 I.R.B.947March 26, 2001
6015(b), refunds are available for
amounts that the requesting spouse paid
toward the liability for which relief was
granted. Much of the language in section
6015(b) is identical to that of section
6013(e). Accordingly, the case law inter-
preting this language under section
6013(e) will be applied in interpreting the
same language under section 6015(b).
The proposed regulations define under-
statementby reference to section
6662(d)(2)(A). Consistent with the inter-
pretation of section 6013(e), the proposed
regulations also clarify that “knowledge
or reason to know” of an understatement
exists only when either the requesting
spouse actually knew of the erroneous
item giving rise to the understatement, or
a reasonable person in similar circum-
stances would have known of the item.
Allocation of Deficiency Under Section
6015(c)
Section 6015(c) is one of the new relief
provisions added by section 3201 of the
RRA. Section 6015(c) basically provides
relief for an estranged or former spouse
by allowing the requesting spouse to elect
to limit the requesting spouse’s liability
for a deficiency to the portion of the defi-
ciency allocated to the requesting spouse.
As with section 6015(b), the relief under
section 6015(c) must be elected. Unlike
section 6015(b), refunds are not available
under section 6015(c).
Of the three relief provisions in section
6015, section 6015(c) comes closest to
being a mechanical test. Unlike the other
two relief provisions, section 6015(c)
does not require a determination that it
would be inequitable to hold the request-
ing spouse liable in order for the request-
ing spouse to obtain relief. Several objec-
tive tests apply to determine whether a
requesting spouse qualifies for relief.
Among the requirements for relief under
section 6015(c) is the requirement that the
requesting spouse be divorced, widowed,
or legally separated, or not have been a
member of the same household as the
nonrequesting spouse at any time during
the 12-month period ending on the date an
election for relief is filed. The proposed
regulations provide rules for determining
whether spouses are members of the same
household in particular situations.
Relief under section 6015(c) is not avail-
able for the portion of a deficiency attribut-
able to an erroneous item of the nonre-
questing spouse if the Secretary demon-
strates that the requesting spouse had actual
knowledge of that item at the time the re-
questing spouse signed the joint return. If
the requesting spouse had actual knowl-
edge of only a portion of the erroneous
item, partial relief may be available for the
amount of the deficiency attributable to the
portion of the item of which the requesting
spouse did not have actual knowledge.
Reason to know of an erroneous item or a
portion thereof is not sufficient to disqual-
ify a requesting spouse from relief under
section 6015(c). Hence, it may be easier to
qualify for relief under this provision than
under section 6015(b).
Knowledge of an item means knowledge
of the receipt or expenditure. It does not
mean knowledge of the proper tax treat-
ment of the item or how (or whether) it was
actually reported on the return. This
knowledge standard is consistent with the
knowledge standard adopted by the United
States Tax Court and other courts. See
Cheshire v. Commissioner, 115 T.C. No. 15
(August 30, 2000) (knowledge requirement
under section 6015(c) does not require re-
questing spouse to possess knowledge of
the tax consequences arising from the erro-
neous item or that the item reported on the
return is incorrect; rather the statute re-
quires only a showing that the requesting
spouse actually knew of the erroneous
item); Wiksell v. Commissioner, 215 F.3d
1335 (9th Cir. 2000) (knowledge inquiry in
section 6015(c) focuses on whether the tax-
payer had knowledge of the erroneous
item, not the tax consequences of that
item). Also, under the proposed regula-
tions, a requesting spouse could have actual
knowledge of an erroneous item without
necessarily knowing its source. Thus, if W
knew that H received $1,000 of interest in-
come, W would have actual knowledge of
that item even if W thought that the interest
was tax-exempt, or even if W did not know
from whom the interest was received. Sim-
ilarly, W would have actual knowledge of
the item even if W had thought (incor-
rectly) that H had included the interest in-
come on the return. A requesting spouse’s
failure to review a completed joint return
will not negate a demonstration by the Sec-
retary that the requesting spouse had actual
knowledge of an item.
To demonstrate that a requesting spouse
had actual knowledge of an erroneous item,
the Secretary may rely upon all of the facts
and circumstances. One relevant factor is
whether the requesting spouse made an ef-
fort to be shielded from liability by deliber-
ately avoiding learning about an item. An-
other relevant factor is whether the
requesting spouse had an ownership inter-
est in the property that gave rise to the item.
The proposed regulations provide that joint
ownership is a factor supporting a finding
that the requesting spouse had actual
knowledge of an erroneous item.
The proposed regulations also provide
that the portion of the deficiency for which
the requesting spouse remains liable is in-
creased (up to the entire amount of the defi-
ciency) by the value of any disqualified as-
sets transferred to the requesting spouse by
the nonrequesting spouse. Disqualified as-
sets are defined as those assets transferred
for the principal purpose of avoidance of
tax or payment of tax. Any assets trans-
ferred during the period beginning 12
months before the mailing date of the first
letter of proposed deficiency and continu-
ing to the present are presumed to be dis-
qualified assets. However, the requesting
spouse can rebut the presumption by show-
ing that the principal purpose of the transfer
was not the avoidance of tax or payment of
tax. In addition, the presumption does not
apply to transfers of assets pursuant to a di-
vorce or separate maintenance or child
support agreement. The IRS and Treasury
Department are particularly interested in re-
ceiving comments on whether there should
be a de minimisexception to the presump-
tion, and if so, the appropriate amount for
such an exception.
If a requesting spouse qualifies to elect
the application of section 6015(c), section
6015(d) generally provides that erroneous
items are allocated between the spouses
as if they had filed separate returns. In
addition, section 6015(g) directs the Sec-
retary to establish alternative methods of
allocating erroneous items, other than the
method in section 6015(d). Under the
proposed regulations, erroneous income
items are generally allocated to the spouse
who earned the income or who owned the
investment or business producing the in-
come. If both spouses had an ownership
interest in an investment or business, an
erroneous income item from that invest-
ment or business is allocated between
them in proportion to their respective
ownership interests. Erroneous business

or investment deductions are generally al-
located to the spouse who owned the busi-
ness or investment. If both spouses had
an ownership interest in the business or in-
vestment, an erroneous deduction related
to that business or investment is allocated
between them in proportion to their re-
spective ownership interests. Personal de-
ductions are generally allocated 50% to
each spouse, unless the evidence shows
that a different allocation is appropriate.
Section 6015(d) also provides rules for
allocating a deficiency. Under the pro-
posed regulations, a portion of the defi-
ciency is allocated under the “proportionate
allocation method,” that is, in proportion to
each spouse’s share of erroneous items.
The proposed regulations provide addi-
tional rules regarding the allocation of other
portions of the deficiency. First, any por-
tion of the deficiency attributable to certain
disallowed credits and taxes (other than in-
come tax and alternative minimum tax) is
allocated entirely to one spouse or the
other. Second, any portion of the defi-
ciency attributable to the liability of the
child of the requesting or nonrequesting
spouse is allocated under special rules.
Third, any portion of the deficiency attrib-
utable to the alternative minimum tax under
section 55 is allocated between the spouses
in proportion to their individual shares of
the total alternative minimum taxable in-
come as defined under section 55(b)(2).
Fourth, any portion of the deficiency attrib-
utable to accuracy-related penalties under
section 6662 and fraud penalties under sec-
tion 6663 is allocated to the spouse to
whom the item giving rise to the penalty is
allocable.
The proposed regulations provide one
alternative allocation method, which must
be used in place of the general allocation
method when there are erroneous items
taxed at different rates. This method en-
sures that the allocation of the liability is
not skewed, for example, when the defi-
ciency items consist of ordinary income
items and capital gains.
Equitable Relief Under Section 6015(f)
Section 6015(f) is the other new relief
provision that was added by section 3201
of the RRA. Section 6015(f) authorizes
the Secretary to grant equitable relief
from joint and several liability to request-
ing spouses who do not qualify for relief
under section 6015(b) or 6015(c). The
proposed regulations provide that the Sec-
retary has the discretion to grant equitable
relief and that the discretion may be exer-
cised if it would be inequitable to hold the
requesting spouse jointly and severally li-
able. Equitable relief is only available to
requesting spouses who fail to qualify for
relief under sections 6015(b) and 6015(c).
However, section 6015(f) may not be
used to circumvent the “no refund” rule of
section 6015(c). Therefore, equitable re-
lief under section 6015(f) is not available
to refund liabilities already paid, for
which the requesting spouse would other-
wise qualify for relief under section
6015(c).
Section 6015(f) directs the Secretary to
prescribe procedures regarding when eq-
uitable relief may be granted. These pro-
posed regulations provide general infor-
mation on section 6015(f) and refer
individuals seeking more detailed guid-
ance to the relevant revenue rulings, rev-
enue procedures, or other published guid-
ance issued on this topic. The detailed
guidance on section 6015(f) is currently
provided in Revenue Procedure 2000–15
(2000–5 I.R.B. 447).
Other Considerations
In addition to the three types of relief
from joint and several liability, section
6015 has many provisions that are rele-
vant when a requesting spouse elects re-
lief under section 6015(b) or 6015(c), or
requests relief under section 6015(f). The
proposed regulations provide detailed
guidance on these other provisions:
1. Types of Relief Considered.
There are certain statutory conse-
quences to electing the application of sec-
tion 6015(b) or section 6015(c) (e.g., sus-
pension of the statute of limitations on
collection). Therefore, the IRS will not
automatically consider such relief unless
the requesting spouse affirmatively elects
the application of at least one of those
sections. If a spouse requests relief under
section 6015(f) alone, relief will only be
considered under that section. However,
if a requesting spouse elects the applica-
tion of either section 6015(b) or 6015(c),
the IRS will automatically consider
whether the requesting spouse qualifies
for relief under the other relief provisions
of section 6015.
2. Time and Manner of Requesting
Relief.
Relief under section 6015 must be
elected or requested within two years
from the first collection activity(as de-
fined in the proposed regulations) after
July 22, 1998, against the requesting
spouse with respect to the joint and sev-
eral liability. In addition, relief may be
elected or requested before the com-
mencement of collection activity. How-
ever, the election may not be made, nor
may relief be requested, before the tax-
payer receives a notification of an audit
or a letter or notice from the Secretary
indicating that there may be an outstand-
ing liability with regard to the joint re-
turn. The proposed regulations provide
that the Secretary will not consider pre-
mature claims.
3. Determinations.
The proposed regulations provide that
a requesting spouse generally only re-
ceives one final determination of relief
under section 6015. However, a second
election under section 6015(c) may be
considered, and a final determination
may be rendered on that election, if, at
the time of the second election, but not
at the time of the first election, the re-
questing spouse is divorced, legally sep-
arated, widowed, or has not been a
member of the same household as the
nonrequesting spouse at any time during
the 12-month period ending on the date
the election was filed.
4. Community Property.
Under section 6015 and the proposed
regulations, the operation of community
property law is not considered in deter-
mining to which spouse an erroneous
item is allocable.
5. Duress.
The proposed regulations amend
§1.6013–4 to clarify that if a spouse as-
serts and establishes that he or she
signed a joint return under duress, then
the return is not a joint return, and he or
she is not jointly and severally liable for
the liability arising from that return.
Therefore, in such a case, relief from
joint and several liability under section
6015 is not necessary and inapplicable.
March 26, 20019482001–13 I.R.B.

Highlighted Issues
These proposed regulations contain de-
tailed guidance on the three types of relief
available under section 6015, as well as the
other provisions contained in section 6015.
Although public comment is sought on all
of the issues in the proposed regulations,
the IRS and Treasury Department are par-
ticularly interested in receiving comments
on the issues highlighted below. These is-
sues present the most challenge in adminis-
tering section 6015(c).
1. Knowledge: The contrasting stand-
ards of the relief provisions are most evi-
dent in the respective knowledge limita-
tions. Under section 6015(b), relief is not
available unless the requesting spouse
demonstrates that he or she had no knowl-
edge or reason to know of the item giving
rise to the understatement at the time the
joint return was signed. In contrast, section
6015(c) provides that, assuming all of the
qualifications are met, relief is available un-
less the Secretary demonstrates that the re-
questing spouse had actual knowledge of
the item giving rise to the deficiency. Ac-
tual knowledge cannot be inferred from the
requesting spouse’s reason to know of the
erroneous item. The Secretary bears the
burden of proof with respect to the knowl-
edge limitation of section 6015(c). In con-
trast, the requesting spouse bears the bur-
den of proof with respect to the knowledge
and reason to know limitations of section
6015(b). The IRS and Treasury Depart-
ment are specifically seeking comments on
the definition of item, because it is knowl-
edge of an item that will disqualify a re-
questing spouse from receiving relief under
sections 6015(b) and 6015(c).
2. Alternative Allocation Methods: Sec-
tion 6015(g)(1) directs the Secretary to pre-
scribe regulations providing alternative al-
location methods, and the proposed
regulations provide one that is discussed
above. The proposed regulations also pro-
vide that additional alternative allocation
methods may be provided in subsequent
guidance. The IRS and Treasury Depart-
ment are specifically interested in receiving
comments about the alternative allocation
method provided in the proposed regula-
tions, and any other allocation methods that
should be considered.
3. Interests of the Nonrequesting Spouse:
It is anticipated that relief under section
6015 will be granted more frequently than
it was under section 6013(e). Accordingly,
section 6015 provides safeguards to protect
nonrequesting spouses from erroneous de-
terminations granting relief to their respec-
tive requesting spouses. The proposed reg-
ulations provide that the Secretary must
give a nonrequesting spouse notice that the
requesting spouse filed a claim for relief
and an opportunity to participate in the de-
termination of whether relief is appropriate.
In fashioning these safeguards, the IRS
and Treasury Department are attempting to
balance the rights and interests of both the
requesting spouse and the nonrequesting
spouse. A spouse who signs a joint return is
jointly and severally liable for the entire lia-
bility, and the Secretary may collect the en-
tire liability from either spouse. Therefore, a
determination that one spouse is relieved of
joint and several liability may have no legal
effect on the amount of the other spouse’s li-
ability. However, a nonrequesting spouse
does have a practical interest in the outcome
of an innocent spouse determination because
if the requesting spouse is relieved of liabil-
ity, the IRS’s only recourse is to collect that
liability from the nonrequesting spouse. The
IRS and Treasury Department recognize that
Congress intended that the IRS take into ac-
count the nonrequesting spouse’s views
when it makes a determination of relief. See
H.R. Conf. Rep. No. 599, 105
th
Cong., 2d
Sess. 251, 255 (1998). In addition, informa-
tion provided by a nonrequesting spouse is
helpful in many cases to determine the ap-
propriate amount of relief, if any.
Under the proposed regulations, a nonre-
questing spouse will have an opportunity to
participate in any administrative or judicial
determination of relief. At the administra-
tive level, the nonrequesting spouse may
submit information relevant to the determi-
nation to the IRS employee making the de-
termination. In addition, if the requesting
spouse files a petition with the Tax Court,
the nonrequesting spouse will be notified,
and have an opportunity to become a party
to the proceeding. See Interim Tax Court
Rule 325.
Nonetheless, the IRS and Treasury De-
partment recognize that some spouses may
be reluctant to apply for relief from joint
and several liability, or submit information
regarding the other spouse’s request for re-
lief, due to privacy concerns or for fear of
the other spouse’s reprisal. To address this
concern, the proposed regulations provide
that, at the request of one spouse, the Secre-
tary will omit from shared documents any
information (e.g., new name, address, em-
ployer) that would reasonably identify that
spouse’s location.
Special Analyses
It has been determined that these regula-
tions are not a significant regulatory action
as defined in Executive Order 12866.
Therefore, a regulatory assessment is not re-
quired. It has also been determined that sec-
tion 553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply to
the regulations, and because the regulations
do not impose a collection of information
on small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f), this notice of
proposed rulemaking will be submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small businesses.
Comments and Public Hearing
Before the regulations are adopted as
final regulations, consideration will be
given to any written and electronic com-
ments that are submitted timely to the
IRS. The IRS and Treasury Department
specifically request comments on the clar-
ity of the proposed regulations, on how
the proposed regulations can be made eas-
ier to understand, and on the highlighted
issues. All comments will be available
for public inspection and copying.
A public hearing has been scheduled
for May 30, 2001, at 10 a.m., in the IRS
Auditorium (7
th
Floor), Internal Revenue
Building, 1111 Constitution Avenue, NW.,
Washington, DC. Due to building secu-
rity procedures, visitors must enter at the
10
th
Street entrance, located between
Constitution and Pennsylvania Avenues,
NW. In addition, all visitors will not be
admitted beyond the immediate entrance
area more than 15 minutes before the
hearing starts. For information about
having your name placed on the building
access list to attend the hearing, see the
“FOR FURTHER INFORMATION
CONTACT” section of this preamble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons who wish to present oral com-
ments at the hearing must submit written
comments and an outline of the topics to
be discussed and the time to be devoted to
each topic (signed original and eight (8)
copies) by April 27, 2001.
2001–13 I.R.B.949March 26, 2001

A period of 10 minutes will be allotted
to each person for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal author of the regulations
is Bridget E. Finkenaur of the Office of
Associate Chief Counsel, Procedure and
Administration (Administrative Provi-
sions and Judicial Practice Division).
However, other personnel from the IRS
and Treasury Department participated in
the development of the regulations.
* * * * *
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding the following
entries in numerical order to read as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
§1.6015–1 also issued under 26 U.S.C.
6015(g).
§1.6015–2 also issued under 26 U.S.C.
6015(g).
§1.6015–3 also issued under 26 U.S.C.
6015(g).
§1.6015–4 also issued under 26 U.S.C.
6015(g).
§1.6015–5 also issued under 26 U.S.C.
6015(g).
§1.6015–6 also issued under 26 U.S.C.
6015(g).
§1.6015–7 also issued under 26 U.S.C.
6015(g).
§1.6015–8 also issued under 26 U.S.C.
6015(g).
§1.6015–9 also issued under 26 U.S.C.
6015(g). * * *
Par. 2. In §1.6013–4, paragraph (d) is
added to read as follows:
§1.6013–4 Applicable rules.
* * * * *
(d) Return signed under duress. If an
individual asserts and establishes that he
or she signed a return under legal duress,
the return is not a joint return. The indi-
vidual who signed such return under
duress is not jointly and severally liable
for the tax shown on the return or any de-
ficiency in tax with respect to the return.
The return is adjusted to reflect only the
tax liability of the individual who volun-
tarily signed the return, and the liability is
determined at the applicable rates in sec-
tion 1(d). Section 6212 applies to the as-
sessment of any deficiency in tax on such
return.
Par. 3. Sections 1.6015–0 through
1.6015–9 are added to read as follows:
§1.6015–0 Table of contents.
This section lists captions contained in
§§1.6015–1 through 1.6015–9.
§1.6015–1 Relief from joint and several
liability on a joint return.
(a) In general.
(b) Duress.
(c) Prior closing agreement or offer in
compromise.
(d) Fraudulent scheme.
(e) Res judicataand collateral estoppel.
(f) Community property laws.
(1) In general.
(2) Example.
(g) Definitions.
(1) Requesting spouse.
(2) Nonrequesting spouse.
(3) Item.
(4) Erroneous item.
(5) Election or request.
(h) Transferee liability.
(1) In general.
(2) Example.
§1.6015–2 Relief from liability
applicable to all qualifying joint filers.
(a) In general.
(b) Understatement.
(c) Knowledge or reason to know.
(d) Inequity.
(e) Partial relief.
(1) In general.
(2) Example.
§1.6015–3 Allocation of liability for
individuals who are no longer married,
are legally separated, or are not members
of the same household.
(a) Election to allocate liability.
(b) Definitions.
(1) Divorced.
(2) Legally separated.
(3) Not members of the same household.
(i) Temporary absences.
(ii) Separate dwellings.
(c) Limitations.
(1) No refunds.
(2) Actual knowledge.
(3) Disqualified asset transfers.
(i) In general.
(ii) Disqualified asset defined.
(iii) Presumption.
(4) Examples.
(d) Allocation.
(1) In general.
(2) Allocation of erroneous items.
(i) Benefit on the return.
(ii) Fraud.
(iii) Erroneous items of income.
(iv) Erroneous deduction items.
(3) Burden of proof.
(4) General allocation method.
(i) Proportionate allocation.
(ii) Separate treatment items.
(iii) Child’s liability.
(iv) Allocation of certain items.
(A) Alternative minimum tax.
(B) Accuracy-related and fraud penalties.
(5) Examples.
(6) Alternative allocation methods.
(i) Allocation based on applicable tax
rates.
(ii) Allocation methods provided in subse-
quent published guidance.
(iii) Example.
§1.6015–4 Equitable relief.
§1.6015–5 Time and manner for
requesting relief.
(a) Requesting relief.
(b) Time period for filing a request for re-
lief.
(1) In general.
(2) Definitions.
(i) Collection activity.
(ii) Date of levy or seizure.
(3) Requests for relief made before com-
mencement of collection activity.
(4) Examples.
(5) Premature requests for relief.
(c) Effect of a final administrative deter-
mination.
§1.6015–6 Nonrequesting spouse’s
notice and opportunity to participate in
administrative proceedings.
(a) In general.
(b) Information submitted.
(c) Effect of opportunity to participate.
March 26, 20019502001–13 I.R.B.

§1.6015–7 Tax Court review.
(a) In general.
(b) Time period for petitioning the Tax
Court.
(c) Restrictions on collection and suspen-
sion of the running of the period of limita-
tions.
(1) Restrictions on collection under
§1.6015–2 or 1.6015–3.
(2) Suspension of the running of the pe-
riod of limitations.
(i) Relief under §1.6015–2 or 1.6015–3.
(ii) Relief under §1.6015–4.
(3) Definitions.
(i) Levy.
(ii) Proceedings in court.
(iii) Assessment to which the election re-
lates.
§1.6015–8 Applicable liabilities.
(a) In general.
(b) Liabilities paid on or before July 22,
1998.
(c) Examples.
§1.6015–9 Effective date.
§1.6015–1 Relief from joint and several
liability on a joint return.
(a) In general. (1) An individual who
qualifies and elects under section 6013 to
file a joint Federal income tax return with
another individual is jointly and severally
liable for the joint Federal income tax lia-
bilities for that year. However, a spouse
or former spouse may be relieved of joint
and several liability for any Federal in-
come tax, self-employment tax, penalties,
additions to tax, and interest for that year
under the following three relief provi-
sions:
(i) Innocent spouse relief under
§1.6015–2.
(ii) Allocation of deficiency under
§1.6015–3.
(iii) Equitable relief under §1.6015–4.
(2) A requesting spouse may submit a
single claim electing relief under both or ei-
ther §§1.6015–2 and 1.6015–3, and re-
questing relief under §1.6015–4. However,
equitable relief under §1.6015–4 is avail-
able only to a requesting spouse who fails
to qualify for relief under §§1.6015–2 and
1.6015–3. If a requesting spouse elects the
application of either §1.6015–2 or
1.6015–3, the Secretary may consider
whether relief is appropriate under the other
elective provision and, to the extent relief is
unavailable under either, under §1.6015–4.
If a requesting spouse seeks relief only
under §1.6015–4, the Secretary may not
grant relief under §1.6015–2 or 1.6015–3.
A requesting spouse must affirmatively
elect the application of §1.6015–2 or
1.6015-3 in order for the Secretary to grant
relief under one of those sections.
(3) Relief is not available for liabilities
that are required to be reported on a joint
Federal income tax return but are not in-
come taxes imposed under Subtitle A of the
Internal Revenue Code (e.g., domestic ser-
vice employment taxes under section 3510).
(b) Duress. For rules relating to the
treatment of returns signed under duress,
see §1.6013–4(d).
(c) Prior closing agreement or offer in
compromise. A requesting spouse is not
entitled to relief from joint and several li-
ability under §1.6015–2, 1.6015–3, or
1.6015–4 for any tax year for which the
requesting spouse has entered into a clos-
ing agreement (other than an agreement
entered into pursuant to section 6224(c)
relating to partnership items) with the
Commissioner that disposes of the same
liability that is the subject of the claim for
relief. In addition, a requesting spouse is
not entitled to relief from joint and several
liability under §1.6015–2, 1.6015–3, or
1.6015–4 for any tax year for which the
requesting spouse has entered into an
offer in compromise with the Commis-
sioner. For rules relating to the effect of
closing agreements and offers in compro-
mise, see sections 7121 and 7122, and the
regulations thereunder.
(d) Fraudulent scheme. If the Secre-
tary establishes that a spouse transferred
assets to the other spouse as part of a
fraudulent scheme, relief is not available
under section 6015, and section
6013(d)(3) applies to the return.
(e) Res judicata and collateral estop-
pel. A requesting spouse is not entitled to
relief from joint and several liability
under §1.6015–2 or 1.6015–3 for any tax
year for which a court of competent juris-
diction has rendered a final determination
on the requesting spouse’s tax liability if
the requesting spouse materially partici-
pated in the proceeding. A requesting
spouse has not materially participated in a
prior proceeding if, due to the effective
date of section 6015, relief under section
6015 was not available in that proceeding.
However, any final determinations made
by a court of competent jurisdiction re-
garding issues relevant to §1.6015–2,
1.6015–3, or 1.6015–4 are conclusive and
may not be reconsidered, provided the re-
questing spouse materially participated in
the prior court proceeding.
(f) Community property laws—(1) In
general. In determining whether relief is
available under §1.6015–2, 1.6015–3, or
1.6015–4, items of income, credits, and
deductions are generally allocated to the
spouses without regard to the operation of
community property laws. An erroneous
item is attributed to the individual whose
activities gave rise to such item. See
§1.6015–3(d)(2).
(2) Example. The following example
illustrates the rule of this paragraph (f):
Example. (i) H and W are married and have lived
in State A (a community property state) since 1987.
On April 15, 2003, H and W file a joint Federal in-
come tax return for the 2002 taxable year. In August
2005, the Internal Revenue Service proposes a
$17,000 deficiency with respect to the 2002 joint re-
turn. A portion of the deficiency is attributable to
$20,000 of H’s unreported interest income from his
individual bank account, the remainder of the defi-
ciency is attributable to $30,000 of W’s disallowed
business expense deductions. Under the laws of
State A, H and W each own 1/2 of all income earned
and property acquired during the marriage.
(ii) In November 2005, H and W divorce and W
timely elects to allocate the deficiency. Even though
the laws of State A provide that 1/2 of the interest in-
come is W’s, for purposes of relief under this section,
the $20,000 unreported interest income is allocable to
H, and the $30,000 disallowed deduction is allocable
to W. The community property laws of State A are not
considered in allocating items for this purpose.
(g) Definitions—(1) Requesting
spouse. A requesting spouse is an indi-
vidual who filed a joint return and elects
relief from Federal income tax liability
arising from that return under §1.6015–2
or 1.6015–3, or requests relief from Fed-
eral income tax liability arising from that
return under §1.6015–4.
(2) Nonrequesting spouse. A nonre-
questing spouse is the individual with
whom the requesting spouse filed the
joint return for the year for which relief
from liability is sought.
(3) Item. An item is that which is re-
quired to be separately listed on an indi-
vidual income tax return or any required
attachments, subject to one exception:
Amounts received from investments that
are required to be separately reported on
an individual income tax return and that
are from the same source are aggregated
2001–13 I.R.B.951March 26, 2001

and treated as a single item. Items in-
clude, but are not limited to, gross in-
come, deductions, credits, and basis.
(4) Erroneous item. An erroneous item
is any item resulting in an understatement
or deficiency in tax to the extent that such
item is omitted from, or improperly re-
ported (including improperly character-
ized) on an individual income tax return.
For example, unreported income from an
investment asset resulting in an under-
statement or deficiency in tax is an erro-
neous item. Similarly, ordinary income
that is improperly reported as capital gain
resulting in an understatement or defi-
ciency in tax is also an erroneous item.
An erroneous item is also an improperly
reported item that affects the liability on
other returns (e.g., an improper net oper-
ating loss that is carried back to a prior
year’s return).
(5) Election or request. A qualifying
election under §1.6015–2 or 1.6015–3, or
request under §1.6015–4, is the first
timely claim for relief from joint and sev-
eral liability for the tax year for which re-
lief is sought. A qualifying election also
includes a requesting spouse’s second
election to seek relief from joint and sev-
eral liability for the same tax year under
§1.6015–3 when the additional qualifica-
tions of paragraph (g)(5)(i) and (ii) of this
section are met—
(i) The requesting spouse did not qual-
ify for relief under §1.6015–3 when the
Internal Revenue Service considered the
first election because the qualifications of
§1.6015–3(a) were not satisfied; and
(ii) At the time of the second election,
the qualifications for relief under
§1.6015–3(a) are satisfied.
(h) Transferee liability—(1) In general.
The relief provisions of section 6015 do
not negate liability that arises under the
operation of other laws. Therefore, a re-
questing spouse who is relieved of joint
and several liability under §1.6015–2,
1.6015–3, or 1.6015–4 may nevertheless
remain liable for the unpaid tax (including
additions to tax, penalties, and interest) to
the extent provided by Federal or state
transferee liability or property laws. For
the rules regarding the liability of trans-
ferees, see sections 6901 through 6904
and the regulations thereunder. In addi-
tion, the requesting spouse’s property
may be subject to collection under Fed-
eral or state property laws.
(2) Example. The following example
illustrates the rule of this paragraph (h):
Example. H and W timely file their 1998 joint in-
come tax return on April 15, 1999. H dies in March
2000, and the executor of H’s estate transfers all of
the estate’s assets to W. In July 2001, the Internal
Revenue Service assesses a deficiency for the 1998
return. The items giving rise to the deficiency are
attributable to H. W is relieved of the liability under
section 6015, and H’s estate remains solely liable.
The Internal Revenue Service may seek to collect
the deficiency from W to the extent permitted under
Federal or state transferee liability or property laws.
§1.6015–2 Relief from liability
applicable to all qualifying joint filers.
(a) In general. A requesting spouse
may be relieved of joint and several liabil-
ity for tax (including additions to tax,
penalties, and interest) from an under-
statement for a taxable year under this
section if the requesting spouse elects the
application of this section in accordance
with §§1.6015–1(g)(5) and 1.6015–5,
and—
(1) A joint return was filed for the tax-
able year;
(2) On the return there is an understate-
ment attributable to erroneous items of
the nonrequesting spouse;
(3) The requesting spouse establishes
that in signing the return he or she did not
know and had no reason to know of the
item giving rise to the understatement;
and
(4) It is inequitable to hold the request-
ing spouse liable for the deficiency attrib-
utable to the understatement.
(b) Understatement. The term under-
statementhas the meaning given to such
term by section 6662(d)(2)(A) and the
regulations thereunder.
(c) Knowledge or reason to know. A
requesting spouse has knowledge or rea-
son to know of an erroneous item if he or
she either actually knew of the item giv-
ing rise to the understatement, or if a rea-
sonable person in similar circumstances
would have known of the item giving rise
to the understatement. For rules relating
to a requesting spouse’s actual knowl-
edge, see §1.6015–3(c)(2). All of the
facts and circumstances are considered in
determining whether a requesting spouse
had reason to know of an erroneous item.
The facts and circumstances that are con-
sidered include, but are not limited to, the
nature of the item and the amount of the
item relative to other items; the couple’s
financial situation; the requesting
spouse’s educational background and
business experience; the extent of the re-
questing spouse’s participation in the ac-
tivity that resulted in the erroneous item;
whether the requesting spouse failed to
inquire, at or before the time the return
was signed, about items on the return or
omitted from the return that a reasonable
person would question; and whether the
erroneous item represented a departure
from a recurring pattern reflected in prior
years’ returns (e.g., omitted income from
an investment regularly reported on prior
years’ returns).
(d) Inequity.All of the facts and cir-
cumstances are considered in determining
whether it is inequitable to hold a request-
ing spouse jointly and severally liable for
an understatement. One relevant factor
for this purpose is whether the requesting
spouse significantly benefitted, directly or
indirectly, from the understatement. A
significant benefit is any benefit in excess
of normal support. Evidence of direct or
indirect benefit may consist of transfers of
property or rights to property, including
transfers that may be received several
years after the year of the understatement.
Thus, for example, if a requesting spouse
receives property (including life insur-
ance proceeds) from the nonrequesting
spouse that is traceable to items omitted
from gross income that are attributable to
the nonrequesting spouse, the requesting
spouse will be considered to have re-
ceived significant benefit from those
items. Other factors that may also be
taken into account include the fact that the
nonrequesting spouse has not fulfilled
support obligations to the requesting
spouse or the fact that the spouses have
been divorced, legally separated, or not
been members of the same household for
at least the 12 months directly preceding
the election. For more information on
factors relevant to determining whether it
is inequitable to hold a requesting spouse
liable, see Rev. Proc. 2000–15 (2000–5
I.R.B. 447), or guidance subsequently
published by the Secretary as described in
§1.6015–4(c).
(e) Partial relief—(1) In general. If a re-
questing spouse had no knowledge or rea-
son to know of only a portion of an erro-
neous item, the requesting spouse may be
relieved of the liability attributable to that
portion of that item, if all other require-
ments are met with respect to that portion.
March 26, 20019522001–13 I.R.B.

(2) Example. The following example
illustrates the rules of this paragraph (e):
Example. H and W are married and file their
2004 joint income tax return in March 2005. In
April 2006, H is convicted of embezzling $2 million
from his employer during 2004. H kept all of his
embezzlement income in an individual bank ac-
count, and he used most of the funds to support his
gambling habit. However, each month during 2004,
H transferred $10,000 from the individual account to
H and W’s joint bank account. W paid the house-
hold expenses using this joint account, and regularly
received the bank statements relating to the account.
W had no knowledge or reason to know of H’s em-
bezzling activities. However, W did have knowl-
edge and reason to know of $120,000 of the $2 mil-
lion of H’s embezzlement income at the time she
signed the joint return because that amount passed
through the couple’s joint bank account. Therefore,
W may be relieved of the liability arising from
$1,880,000 of the unreported embezzlement income,
but she may not be relieved of the liability for the
deficiency arising from $120,000 of the unreported
embezzlement income of which she knew and had
reason to know.
§1.6015–3 Allocation of deficiency for
individuals who are no longer married,
are legally separated, or are not members
of the same household.
(a) Election to allocate deficiency. A re-
questing spouse may elect to allocate a de-
ficiency if, as defined in paragraph (b) of
this section, the requesting spouse is di-
vorced, widowed, or legally separated, or
has not been a member of the same house-
hold as the nonrequesting spouse at any
time during the 12-month period ending on
the date an election for relief is filed. Sub-
ject to the restrictions of paragraph (c) of
this section, an eligible requesting spouse
who elects the application of this section in
accordance with §§1.6015–1(g)(5) and
1.6015–5 generally may be relieved of joint
and several liability for the portion of any
deficiency that is allocated to the nonre-
questing spouse pursuant to the allocation
methods set forth in paragraph (d) of this
section. Relief may be available to both
spouses filing the joint return if each spouse
is eligible for and elects the application of
this section.
(b) Definitions—(1) Divorced. A re-
questing spouse is divorced if the request-
ing spouse has a divorce decree that is
recognized in the jurisdiction in which the
requesting spouse resides.
(2) Legally separated. A requesting
spouse is legally separated if the separa-
tion is recognized under the laws of the
jurisdiction in which the requesting
spouse resides.
(3) Not members of the same house-
hold—(i) Temporary absences. A re-
questing spouse and a nonrequesting
spouse are considered members of the
same household during either spouse’s
temporary absences from the household if
it is reasonable to assume that the absent
spouse will return to the household, and
the household or a substantially equiva-
lent household is maintained in anticipa-
tion of such return. Examples of tempo-
rary absences may include, but are not
limited to, absence due to incarceration,
hospitalization, business travel, vacation
travel, military service, or education away
from home.
(ii) Separate dwellings. A husband and
wife who reside in the same dwelling are
considered members of the same house-
hold. However, a husband and wife who
reside in two separate dwellings, whether
or not part of the same structure, are not
considered members of the same house-
hold unless one is temporarily absent
from the other’s household within the
meaning of paragraph (b)(3)(i) of this sec-
tion.
(c) Limitations—(1) No refunds. Relief
under this section is only available for un-
paid liabilities resulting from understate-
ments of liability. Refunds are not autho-
rized under this section.
(2) Actual knowledge. (i) If the Secre-
tary demonstrates that the requesting
spouse had actual knowledge at the time
the return was signed of an erroneous
item that is allocable to the nonrequesting
spouse, the election to allocate the defi-
ciency attributable to that item is invalid,
and the requesting spouse remains liable
for the portion of the deficiency attribut-
able to that item. For example, assume W
received $5,000 of dividend income from
her investment in X Co. but did not report
it on the joint return. H knew that W re-
ceived $5,000 of dividend income from X
Co. that year. H had actual knowledge of
the erroneous item (i.e., $5,000 of unre-
ported dividend income from X Co.), and
no relief is available under this section for
the deficiency attributable to the dividend
income from X Co. If a requesting
spouse had actual knowledge of only a
portion of an erroneous item, then relief is
not available for that portion of the erro-
neous item. For example, if H knew that
W received $1,000 of dividend income
and did not know that W received an ad-
ditional $4,000 of dividend income, relief
would not be available for the portion of
the deficiency attributable to the $1,000
of dividend income of which H had actual
knowledge. A requesting spouse’s actual
knowledge of the proper tax treatment of
an item is not relevant for purposes of
demonstrating that the requesting spouse
had actual knowledge of an erroneous
item. For example, assume H did not
know W’s dividend income from X Co.
was taxable, but knew that W received the
dividend income. Relief is not available
under this provision. In addition, a re-
questing spouse’s knowledge of how an
erroneous item was treated on the tax re-
turn is not relevant to a determination of
whether the requesting spouse had actual
knowledge of the item. For example, as-
sume that H knew of W’s dividend in-
come, but H failed to review the com-
pleted return and did not know that W
omitted the dividend income from the re-
turn. Relief is not available under this
provision.
(ii) Knowledge of the source of an erro-
neous item is not sufficient to establish
actual knowledge. For example, assume
H knew that W owned X Co. stock, but H
did not know that X Co. paid dividends to
W that year. H’s knowledge of W’s own-
ership in X Co. is not sufficient to estab-
lish that H had actual knowledge of the
dividend income from X Co. In addition,
a requesting spouse’s actual knowledge
may not be inferred when the requesting
spouse merely had reason to know of the
erroneous item. Even if H’s knowledge
of W’s ownership interest in X Co. indi-
cates a reason to know of the dividend in-
come, actual knowledge of such dividend
income cannot be inferred from H’s rea-
son to know.
(iii) To demonstrate that a requesting
spouse had actual knowledge of an erro-
neous item at the time the return was
signed, the Secretary may rely upon all of
the facts and circumstances. One factor
that may be relied upon in demonstrating
that a requesting spouse had actual
knowledge of an erroneous item is
whether the requesting spouse made a de-
liberate effort to avoid learning about the
item in order to be shielded from liability.
This factor, together with all other facts
and circumstances, may demonstrate that
the requesting spouse had actual knowl-
edge of the item. Another factor that may
2001–13 I.R.B.953March 26, 2001

be relied upon in demonstrating that a re-
questing spouse had actual knowledge of
an erroneous item is whether the request-
ing spouse and the nonrequesting spouse
jointly owned the property that resulted in
the erroneous item. Joint ownership is a
factor supporting a finding that the re-
questing spouse had actual knowledge of
an erroneous item. For purposes of this
paragraph, a requesting spouse will not be
considered to have had an ownership in-
terest in an item based solely on the oper-
ation of community property law. Rather,
a requesting spouse who resided in a com-
munity property state at the time the re-
turn was signed will be considered to
have had an ownership interest in an item
only if the requesting spouse’s name ap-
peared on the ownership documents, or
there otherwise is an indication that the
requesting spouse had a direct interest in
the item. For example, assume H and W
live in State A, a community property
state. After their marriage, H opens a
bank account in his name. Under the op-
eration of the community property laws of
State A, W owns 1/2 of the bank account.
However, W does not have an ownership
interest in the account for purposes of this
paragraph (c)(2)(iii) because the account
is not held in her name and there is no
other indication that she has a direct inter-
est in the item.
(3) Disqualified asset transfers-–(i) In
general. The portion of the deficiency for
which a requesting spouse is liable is in-
creased (up to the entire amount of the de-
ficiency) by the value of any disqualified
asset that was transferred to the request-
ing spouse. For purposes of this para-
graph (c)(3), the value of a disqualified
asset is the fair market value of the asset
on the date of the transfer.
(ii) Disqualified asset defined. A dis-
qualified asset is any property or right to
property that was transferred from the
nonrequesting spouse to the requesting
spouse if the principal purpose of the
transfer was the avoidance of tax or pay-
ment of tax (including additions to tax,
penalties, and interest).
(iii) Presumption. Any asset trans-
ferred from the nonrequesting spouse to
the requesting spouse during the 12-
month period before the mailing date of
the first letter of proposed deficiency
(e.g., a 30-day letter or, if no 30-day letter
is mailed, a notice of deficiency) is pre-
sumed to be a disqualified asset. The pre-
sumption also applies to any asset that is
transferred from the nonrequesting spouse
to the requesting spouse after the mailing
date of the first letter of proposed defi-
ciency. However, the presumption does
not apply if the requesting spouse estab-
lishes that the asset was transferred pur-
suant to a divorce decree or separate
maintenance agreement. In addition, a re-
questing spouse may rebut the presump-
tion by establishing that the principal pur-
pose of the transfer was not the avoidance
of tax or payment of tax.
(4) Examples. The following examples
illustrate the rules in this paragraph (c):
Example 1. Actual knowledge of an erroneous
item. (i) H and W file their 2001 joint Federal in-
come tax return on April 15, 2002. On the return, H
and W report W’s self-employment income, but they
do not report W’s self-employment tax on that in-
come. In August 2003, H and W receive a 30-day
letter from the Internal Revenue Service proposing a
deficiency with respect to W’s unreported self-em-
ployment tax on the 2001 return. On November 4,
2003, H, who otherwise qualifies under paragraph
(a) of this section, files an election to allocate the de-
ficiency to W. The erroneous item is the self-em-
ployment income, and it is allocable to W. H knows
that W earned income in 2001 as a self-employed
musician, but he does not know that self-employ-
ment tax must be reported on and paid with a joint
return.
(ii) H’s election to allocate the deficiency to W is
invalid because, at the time H signed the joint return,
H had actual knowledge of W’s self-employment in-
come. The fact that H was unaware of the tax conse-
quences of that income (i.e., that an individual is re-
quired to pay self-employment tax on that income)
is not relevant.
Example 2. Actual knowledge not inferred from a
requesting spouse’s reason to know. (i) H has long
been an avid gambler. H supports his gambling
habit and keeps all of his gambling winnings in an
individual bank account, held solely in his name. W
knows about H’s gambling habit and that he keeps a
separate bank account, but she does not know
whether he has any winnings because H does not tell
her, and she does not otherwise know of H’s bank
account transactions. H and W file their 2001 joint
Federal income tax return on April 15, 2002. On
October 31, 2003, H and W receive a 30-day letter
proposing a $100,000 deficiency relating to H’s un-
reported gambling income. In February 2003, H and
W divorce, and in March 2004, W files an election
under section 6015(c) to allocate the $100,000 defi-
ciency to H.
(ii) While W may have had reason to know of the
gambling income because she knew of H’s gambling
habit and separate account, W did not have actual
knowledge of the erroneous item (i.e., the gambling
winnings). The Internal Revenue Service may not
infer actual knowledge from W’s reason to know of
the income. Therefore, W’s election to allocate the
$100,000 deficiency to H is valid.
Example 3. Actual knowledge of return reporting
position. (i) H and W are legally separated. In Feb-
ruary 1999, W signs a blank joint Federal income
tax return for 1998 and gives it to H to fill out. The
return was timely filed on April 15, 1999. In Sep-
tember 2001, H and W receive a 30-day letter
proposing a deficiency relating to $100,000 of unre-
ported dividend income received by H with respect
to stock of ABC Co. owned by H. W knew that H
received the $100,000 dividend payment in August
1998, but she did not know whether H reported that
payment on the joint return.
(ii) On January 30, 2002, W files an election to
allocate the deficiency from the 1998 return to H. W
claims she did not review the completed joint return,
and therefore, she had no actual knowledge that
there was an understatement of the dividend income.
W’s election to allocate the deficiency to H is in-
valid because she had actual knowledge of the erro-
neous item (dividend income from ABC Co.) at the
time she signed the return. The fact that W signed a
blank return is irrelevant. The result would be the
same if W had not reviewed the completed return or
if W had reviewed the completed return and had not
noticed that the item was omitted.
(iii) Assume the same facts as in paragraph (i) of
this Example 3except that, instead of receiving
$100,000 of unreported dividend income, H re-
ceived $50,000 of interest income from ABC Co.
during the year (properly reported on the return) and
$25,000 of dividend income from ABC Co. (omitted
from the return). W knew that H received both divi-
dend and interest income from ABC Co. but did not
know the total was greater than $50,000. W’s elec-
tion to allocate to H the deficiency attributable to the
omitted dividend income is valid. Although interest
and dividend income are required to be separately
stated on a joint Federal income tax return, they are
one item in this case because the dividend and inter-
est income are investment income received from the
same source (ABC Co.). The erroneous item is the
total dividend and interest income from ABC Co. W
did not have actual knowledge of the erroneous item
(combined dividend and interest income from ABC
Co. greater than $50,000). Therefore, her election to
allocate to H the deficiency attributable to the erro-
neous item is valid.
Example 4. Actual knowledge of an erroneous
item of income. (i) H and W are legally separated.
In June 2004, a deficiency is proposed with respect
to H’s and W’s 2002 joint Federal income tax return
that is attributable to $30,000 of unreported income
from H’s plumbing business that should have been
reported on a Schedule C. No Schedule C was at-
tached to the return. At the time W signed the re-
turn, W knew that H had a plumbing business but
did not know whether H received any income from
the business. W’s election to allocate to H the defi-
ciency attributable to the $30,000 of unreported
plumbing income is valid.
(ii) Assume the same facts as in paragraph (i) of
this Example 4except that, at the time W signed the
return, W knew that H received $20,000 of plumb-
ing income. W’s election to allocate to H the defi-
ciency attributable to the $20,000 of unreported
plumbing income (of which W had actual knowl-
edge) is invalid. W’s election to allocate to H the
deficiency attributable to the $10,000 of unreported
plumbing income (of which W did not have actual
knowledge) is valid.
(iii) Assume the same facts as in paragraph (i) of
this Example 4except that, at the time W signed the
March 26, 20019542001–13 I.R.B.

return, W did not know the exact amount of H’s
plumbing income. W did know, however, that H re-
ceived at least $8,000 of plumbing income. W’s
election to allocate to H the deficiency attributable
to $8,000 of unreported plumbing income (of which
W had actual knowledge) is invalid. W’s election to
allocate to H the deficiency attributable to the re-
maining $22,000 of unreported plumbing income (of
which W did not have actual knowledge) is valid.
(iv) Assume the same facts as in paragraph (i) of
this Example 4except that H reported $26,000 of
plumbing income on the return and omitted $4,000
of plumbing income from the return. At the time W
signed the return, W knew that H was a plumber, but
she did not know that H earned more than $26,000
that year. W’s election to allocate to H the defi-
ciency attributable to the $4,000 of unreported
plumbing income is valid because she did not have
actual knowledge that H received plumbing income
in excess of $26,000.
(v) Assume the same facts as in paragraph (i) of
this Example 4except that H reported only $20,000
of plumbing income on the return and omitted
$10,000 of plumbing income from the return. At the
time W signed the return, W knew that H earned at
least $26,000 that year as a plumber. However, W
did not know that, in reality, H earned $30,000 that
year as a plumber. W’s election to allocate to H the
deficiency attributable to the $6,000 of unreported
plumbing income (of which W had actual knowl-
edge) is invalid. W’s election to allocate to H the
deficiency attributable to the $4,000 of unreported
plumbing income (of which W did not have actual
knowledge) is valid.
Example 5. Actual knowledge of a deduction that
is an erroneous item. (i) H and W are legally sepa-
rated. In February 2005, a deficiency is asserted
with respect to their 2002 joint Federal income tax
return. The deficiency is attributable to a disallowed
$1,000 deduction for medical expenses H claimed
he incurred. At the time W signed the return, W
knew that H had not incurred any medical expenses.
W’s election to allocate to H the deficiency attribut-
able to the disallowed medical expense deduction is
invalid because W had actual knowledge that H had
not incurred any medical expenses.
(ii) Assume the same facts as in paragraph (i) of
this Example 5except that, at the time W signed the
return, W did not know whether H had incurred any
medical expenses. W’s election to allocate to H the
deficiency attributable to the disallowed medical ex-
pense deduction is valid because she did not have
actual knowledge that H had not incurred any med-
ical expenses.
(iii) Assume the same facts as in paragraph (i) of
this Example 5except that the Internal Revenue Ser-
vice disallowed $400 of the $1,000 medical expense
deduction. At the time W signed the return, W knew
that H had incurred some medical expenses but did
not know the exact amount. W’s election to allocate
to H the deficiency attributable to the disallowed
medical expense deduction is valid because she did
not have actual knowledge that H had not incurred
medical expenses (in excess of the floor amount
under section 213(a)) of more than $600.
(iv) Assume the same facts as in paragraph (i) of
this Example 5except that H claims a medical ex-
pense deduction of $10,000 and the Internal Rev-
enue Service disallows $9,600. At the time W
signed the return, W knew H had incurred some
medical expenses but did not know the exact
amount. W also knew that H incurred medical ex-
penses (in excess of the floor amount under section
213(a)) of no more than $1,000. W’s election to al-
locate to H the deficiency attributable to the portion
of the overstated deduction of which she had actual
knowledge ($9,000) is invalid. W’s election to allo-
cate the deficiency attributable to the portion of the
overstated deduction of which she had no knowl-
edge ($600) is valid.
Example 6. Disqualified asset presumption. (i)
H and W are divorced. In May 1999, W transfers
$20,000 to H, and in April 2000, H and W receive a
30-day letter proposing a $40,000 deficiency on
their 1998 joint Federal income tax return. The lia-
bility remains unpaid, and in October 2000, H elects
to allocate the deficiency under this section. Sev-
enty-five percent of the net amount of erroneous
items are allocable to W, and 25% of the net amount
of erroneous items are allocable to H.
(ii) In accordance with the proportionate alloca-
tion method (see paragraph (d)(4) of this section), H
proposes that $30,000 of the deficiency be allocated
to W and $10,000 be allocated to himself. H sub-
mits a signed statement providing that the principal
purpose of the $20,000 transfer was not the avoid-
ance of tax or payment of tax, but he does not submit
any documentation indicating the reason for the
transfer. H has not overcome the presumption that
the $20,000 was a disqualified asset. Therefore, the
portion of the deficiency for which H is liable
($10,000) is increased by the value of the disquali-
fied asset ($20,000). H is relieved of liability for
$10,000 of the $30,000 deficiency allocated to W,
and remains jointly and severally liable for the re-
maining $30,000 of the deficiency (assuming that H
does not qualify for relief under any other provi-
sion).
Example 7. Disqualified asset presumption inap-
plicable. On May 1, 2001, H and W receive a 30-
day letter regarding a proposed deficiency on their
1999 joint Federal income tax return relating to un-
reported capital gain from H’s sale of his investment
in Z stock. W had no actual knowledge of the stock
sale. The deficiency is assessed in November 2001,
and in December 2001, H and W divorce. Accord-
ing to the divorce decree, H must transfer 1/2 of his
interest in mutual fund A to W. The transfer takes
place in February 2002. In August 2002, W elects to
allocate the deficiency to H. Although the transfer
of 1/2 of H’s interest in mutual fund A took place
after the 30-day letter was mailed, the mutual fund
interest is not presumed to be a disqualified asset be-
cause the transfer of H’s interest in the fund was
made pursuant to a divorce decree.
(d) Allocation—(1) In general. (i) An
election to allocate a deficiency limits the
requesting spouse’s liability to that por-
tion of the deficiency allocated to the re-
questing spouse pursuant to this section.
Unless relieved of liability under
§1.6015–2 or 1.6015–4, the requesting
spouse remains liable for that portion of
the deficiency allocated to the requesting
spouse pursuant to this section.
(ii) Only a requesting spouse may re-
ceive relief. A nonrequesting spouse who
does not also elect relief under this sec-
tion remains liable for the entire amount
of the deficiency, unless the nonrequest-
ing spouse is relieved of liability under
§1.6015–2 or 1.6015–4. If both spouses
elect to allocate a deficiency under this
section, there may be a portion of the de-
ficiency that is not allocable, for which
both spouses remain jointly and severally
liable.
(2) Allocation of erroneous items. For
purposes of allocating a deficiency under
this section, erroneous items are generally
allocated to the spouses as if separate re-
turns were filed, subject to the following
four exceptions:
(i) Benefit on the return. An erroneous
item that would otherwise be allocated to
the nonrequesting spouse is allocated to
the requesting spouse to the extent that
the requesting spouse received a tax bene-
fit on the joint return.
(ii) Fraud. The Secretary may allocate
any item appropriately between the
spouses if the Secretary establishes that
the allocation is appropriate due to fraud
by one or both spouses.
(iii) Erroneous items of income. Erro-
neous items of income are allocated to the
spouse who was the source of the income.
Wage income is allocated to the spouse
who performed the job producing such
wages. Items of business or investment
income are allocated to the spouse who
owned the business or investment. If both
spouses owned an interest in the business
or investment, the erroneous item of in-
come is generally allocated between the
spouses in proportion to each spouse’s
ownership interest in the business or in-
vestment, subject to the limitations of
paragraph (c) of this section. In the ab-
sence of clear and convincing evidence
supporting a different allocation, an erro-
neous income item relating to an asset
that the spouses owned jointly is gener-
ally allocated 50% to each spouse, subject
to the limitations in paragraph (c) of this
section and the exceptions in paragraph
(d)(4) of this section. For information re-
garding the effect of community property
laws, see §1.6015–1(f) and paragraph
(c)(2)(iii) of this section.
(iv) Erroneous deduction items. Erro-
neous deductions related to a business or
investment are allocated to the spouse
who owned the business or investment.
If both spouses owned an interest in the
2001–13 I.R.B.955March 26, 2001

business or investment, an erroneous de-
duction item is generally allocated be-
tween the spouses in proportion to each
spouse’s ownership interest in the busi-
ness or investment. In the absence of
clear and convincing evidence support-
ing a different allocation, an erroneous
deduction item relating to an asset that
the spouses owned jointly is generally
allocated 50% to each spouse, subject to
the limitations in paragraph (c) of this
section and the exceptions in paragraph
(d)(4) of this section. Personal deduc-
tion items are also generally allocated
50% to each spouse, unless the evidence
shows that a different allocation is ap-
propriate.
(3) Burden of proof. Except for estab-
lishing actual knowledge under paragraph
(c)(2) of this section, the requesting
spouse must prove that all of the qualifi-
cations for making an election under this
section are satisfied and that none of the
limitations (including the limitation relat-
ing to transfers of disqualified assets)
apply. The requesting spouse must also
establish the proper allocation of the erro-
neous items.
(4) General allocation method—(i)
Proportionate allocation.
(A) The portion of a deficiency alloca-
ble to a spouse is the amount that bears
the same ratio to the deficiency as the net
amount of erroneous items allocable to
the spouse bears to the net amount of all
erroneous items. This calculation may be
expressed as follows:
March 26, 20019562001–13 I.R.B.
net amount of erroneous items
X = allocable to the spouse
deficiencynet amount of all erroneous items
where X = the portion of the deficiency allocable to the spouse.
Thus,
net amount of erroneous items
X = (deficiency) * allocable to the spouse
net amount of all erroneous items
(B) The proportionate allocation ap-
plies to any portion of the deficiency
other than—
(1) Any portion of the deficiency attrib-
utable to erroneous items allocable to the
nonrequesting spouse of which the re-
questing spouse had actual knowledge;
(2) Any portion of the deficiency attrib-
utable to separate treatment items (as de-
fined in paragraph (d)(4)(ii) of this sec-
tion);
(3) Any portion of the deficiency relat-
ing to the liability of a child (as defined in
paragraph (d)(4)(iii) of this section) of the
requesting spouse or nonrequesting
spouse;
(4) Any portion of the deficiency attrib-
utable to alternative minimum tax under
section 55;
(5) Any portion of the deficiency attribut-
able to accuracy-related or fraud penalties;
(6) Any portion of the deficiency allo-
cated pursuant to alternative allocation
methods authorized under paragraph 6 of
this section.
(ii) Separate treatment items. Any por-
tion of a deficiency that is attributable to
an item allocable solely to one spouse and
that results from the disallowance of a
credit, or a tax or an addition to tax (other
than tax imposed by section 1 or section
55) that is required to be included with a
joint return (a separate treatment item) is
allocated separately to that spouse. Once
the proportionate allocation is made, the
liability for the requesting spouse’s sepa-
rate treatment items is added to the re-
questing spouse’s share of the liability.
(iii) Child’s liability. Any portion of a
deficiency relating to the liability of a
child of the requesting and nonrequesting
spouse is generally allocated jointly to
both spouses. However, if one of the
spouses had sole custody of the child for
the entire tax year for which the election
relates, such portion of the deficiency is
allocated solely to that spouse. For pur-
poses of this paragraph, a child does not
include the taxpayer’s stepson or step-
daughter, unless such child was legally
adopted by the taxpayer. If the child is
the child of only one of the spouses, and
the other spouse had not legally adopted
such child, any portion of a deficiency re-
lating to the liability of such child is allo-
cated solely to the parent spouse.
(iv) Allocation of certain items—(A)
Alternative minimum tax. Any portion of
the deficiency attributable to alternative
minimum tax under section 55 is allo-
cated between the spouses in the same
proportion as each spouse’s share of the
total alternative minimum taxable in-
come, as defined in section 55(b)(2).
(B) Accuracy-related and fraud penal-
ties. Any portion of the deficiency attrib-
utable to accuracy-related or fraud penal-
ties under section 6662 or 6663 is allo-
cated to the spouse whose item generated
the penalty.
(5) Examples. The following examples
illustrate the rules of this paragraph (d).
In each example, assume that the request-
ing spouse or spouses qualify to elect to
allocate the deficiency, that any election
is timely made, and that the deficiency re-
mains unpaid. In addition, unless other-
wise stated, assume that neither spouse
has actual knowledge of the erroneous
items allocable to the other spouse. The
examples are as follows:
Example 1. Allocation of erroneous items. (i) H
and W file a 2003 joint Federal income tax return on
April 15, 2004. On April 28, 2006, a deficiency is
assessed with respect to their 2003 return. Three er-
roneous items give rise to the deficiency—
(A) Unreported interest income, of which W had
actual knowledge, from H’s and W’s joint bank ac-
count;
(B) A disallowed business expense deduction on
H’s Schedule C; and
(C) A disallowed Lifetime Learning Credit for
W’s post-secondary education.
(ii) H and W divorce in May 2006, and in Sep-
tember 2006, W timely elects to allocate the defi-
ciency. The erroneous items are allocable as fol-
lows:
(A) The interest income would be allocated 1/2 to
H and 1/2 to W, except that W has actual knowledge of
it. Therefore, W’s election to allocate the portion of
the deficiency attributable to this item is invalid, and
W remains jointly and severally liable for it.

(B) The business expense deduction is allocable
to H.
(C) The Lifetime Learning Credit is allocable to
W.
Example 2. Proportionate allocation. (i) W and
H timely file their 2001 joint Federal income tax re-
turn on April 15, 2002. On August 16, 2004, a
$54,000 deficiency is assessed with respect to their
2001 joint return. H and W divorce on October 14,
2004, and W timely elects to allocate the deficiency.
Five erroneous items give rise to the deficiency—
(A) A disallowed $15,000 business deduction al-
locable to H;
(B) $20,000 of unreported income allocable to H;
(C) A disallowed $5,000 deduction for educa-
tional expense allocable to H;
(D) A disallowed $40,000 charitable contribution
deduction allocable to W; and
(E) A disallowed $40,000 interest deduction allo-
cable to W.
(ii) In total, there are $120,000 worth of erro-
neous items, of which $80,000 are attributable to W
and $40,000 are attributable to H.
2001–13 I.R.B.957March 26, 2001
W’s itemsH’s items
$40,000 charitable deduction$15,000 business deduction
$40,000interest deduction$20,000 unreported income
$ 5,000education deduction
$80,000$40,000
(iii) The ratio of erroneous items allocable to W to
the total erroneous items is 2/3 ($80,000/$120,000).
W’s liability is limited to $36,000 of the deficiency
(2/3 of $54,000). The Internal Revenue Service may
collect up to $36,000 from W and up to $54,000 from
H (the total amount collected, however, may not ex-
ceed $54,000). If H also made an election, there
would be no remaining joint and several liability, and
the Internal Revenue Service would collect $36,000
from W and $18,000 from H.
Example 3. Proportionate allocation with joint er-
roneous item. (i) On September 4, 2001, W elects to
allocate a $3,000 deficiency for the 1998 tax year to H.
Three erroneous items give rise to the deficiency—
(A) Unreported interest in the amount of $4,000
from a joint bank account;
(B) A disallowed deduction for business expenses
in the amount of $2,000 attributable to H’s business;
and
(C) Unreported wage income in the amount of
$6,000 attributable to W’s second job.
(ii) The erroneous items total $12,000. Generally,
income, deductions, or credits from jointly held prop-
erty that are erroneous items are allocable 50% to each
spouse. However, in this case, both spouses had actual
knowledge of the unreported interest income. There-
fore, W’s election to allocate the portion of the defi-
ciency attributable to this item is invalid, and W and H
remain jointly and severally liable for this portion. As-
sume that this portion is $1,000. W may allocate the
remaining $2,000 of the deficiency.
H’s itemsW’s items
$2,000 business deduction$6,000 wage income
Total allocable items: $8,000
(iii) The ratio of erroneous items allocable to W
to the total erroneous items is 3/4 ($6,000/$8,000).
W’s liability is limited to $1,500 of the deficiency
(3/4 of $2,000) allocated to her. The Internal Rev-
enue Service may collect up to $2,500 from W (3/4
of the total allocated deficiency plus $1,000 of the
deficiency attributable to the joint bank account in-
terest) and up to $3,000 from H (the total amount
collected, however, cannot exceed $3,000).
(iv) Assume H also elects to allocate the 1998 de-
ficiency. H is relieved of liability for 3/4 of the defi-
ciency, which is allocated to W. H’s relief totals
$1,500 (3/4 of $2,000). H remains liable for $1,500
of the deficiency (1/4 of the allocated deficiency
plus $1,000 of the deficiency attributable to the joint
bank account interest).
Example 4. Separate treatment items (STIs). (i)
On September 1, 2006, a $28,000 deficiency is as-
sessed with respect to H’s and W’s 2003 joint return.
The deficiency is the result of 4 erroneous items—
(A) A disallowed Lifetime Learning Credit of
$2,000 attributable to H;
(B) A disallowed business expense deduction of
$8,000 attributable to H;
(C) Unreported income of $24,000 attributable to
W; and
(D) Unreported self-employment tax of $14,000
attributable to W.
(ii) H and W both elect to allocate the deficiency.
(iii) The $2,000 Lifetime Learning Credit and the
$14,000 self-employment tax are STIs totaling
$16,000. The amount of erroneous items included in
computing the proportionate allocation ratio is
$32,000 ($24,000 unreported income and $8,000
disallowed business expense deduction). The
amount of the deficiency subject to proportionate al-
location is reduced by the amount of STIs ($28,000-
$16,000 = $12,000).
(iv) Of the $32,000 of proportionate allocation
items, $24,000 is allocable to W, and $8,000 is allo-
cable to H.
W’s share of allocable itemsH’s share of allocable items
3/4 ($24,000/$32,000)1/4 ($8,000/$32,000)
(v) W’s liability for the portion of the deficiency subject to proportionate allocation is limited to $9,000 (3/4 of $12,000) and H’s liability for such portion is lim-
ited to $3,000 (1/4 of $12,000).
(vi) After the proportionate allocation is completed, the amount of the STIs is added to each spouse’s allocated share of the deficiency.
W’s share of total deficiencyH’s share of total deficiency
$ 9,000 allocated deficiency$3,000 allocated deficiency
$14,000self-employment tax$2,000Lifetime Learning Credit
$23,000$5,000
(vii) Therefore, W’s liability is limited to $23,000
and H’s liability is limited to $5,000.
Example 5. Allocation of the alternative mini-
mum tax.
(i) H and W file their 2004 joint Federal income
tax return on April 15, 2005. During 2004, W’s total
alternative minimum taxable income was $120,000,
and H’s total alternative minimum taxable income
was $30,000. All of H’s income was from his busi-
ness and was reported on Schedule C. Everything
on the 2004 return was properly reported, and there
was no alternative minimum tax liability. In 2005,
H experienced a net operating loss of $25,000 for
regular tax purposes. H did not have a net operating
loss for alternative minimum tax purposes. In Feb-
ruary 2006, H and W file an amended return for
2004 claiming the net operating loss that was carried
back from 2005. The loss is a proper deduction, but
it results in an alternative minimum tax liability,
which H and W do not report on the amended return.
In December 2007, a $5,500 deficiency is assessed
on their 2004 joint Federal income tax return result-
ing from the unreported alternative minimum tax li-
ability.
(ii) W and H divorce in January 2008, and W
elects to allocate the deficiency.
W’s AMT income for 2004: $120,000
H’s AMT income for 2004: $ 30,000
Total AMT income for 2004: $150,000

W’s share of AMT income for 2004: 4/5
($120,000/$150,000)
H’s share of AMT income for 2004: 1/5
($30,000/$150,000)
(iii) W’s liability is limited to $4,400 (4/5 x $5,500).
H remains liable for the entire deficiency because he
did not make an election to allocate the deficiency.
Example 6. Requesting spouse receives a benefit
on the joint return from the nonrequesting spouse’s
erroneous item.(i) In 2001, H earns gross income of
$4,000 from his business, and W earns $50,000 of
wage income. On their 2001 joint Federal income
tax return, H deducts $20,000 of business expenses
resulting in a net loss from his business of $16,000.
H and W divorce in September 2002, and on May
22, 2003, a $5,200 deficiency is assessed with re-
spect to their 2001 joint return. W elects to allocate
the deficiency. The deficiency on the joint return re-
sults from a disallowance of all of H’s $20,000 of
deductions.
(ii) Since H used only $4,000 of the disallowed
deductions to offset gross income from his business,
W benefitted from the other $16,000 of the disal-
lowed deductions used to offset her wage income.
Therefore, $4,000 of the disallowed deductions are
allocable to H and $16,000 of the disallowed deduc-
tions are allocable to W. W’s liability is limited to
$4,160 (4/5 of $5,200). If H also elected to allocate
the deficiency, H’s election to allocate the $4,160 of
the deficiency to W would be invalid because H had
actual knowledge of the erroneous items.
Example 7. Calculation of requesting spouse’s
benefit on the joint return when the nonrequesting
spouse’s erroneous item is partially disallowed. As-
sume the same facts as in Example 6, except that H
deducts $18,000 for business expenses on the joint
return, of which $16,000 are disallowed. Since H
used only $2,000 of the $16,000 disallowed deduc-
tions to offset gross income from his business, W re-
ceived benefit on the return from the other $14,000
of the disallowed deductions used to offset her wage
income. Therefore, $2,000 of the disallowed deduc-
tions are allocable to H and $14,000 of the disal-
lowed deductions are allocable to W. W’s liability is
limited to $4,550 (7/8 of $5,200).
(6) Alternative allocation methods—(i)
Allocation based on applicable tax rates.
If a deficiency arises from two or more er-
roneous items that are subject to tax at
different rates (e.g., ordinary income and
capital gain items), the deficiency is allo-
cated after first separating the erroneous
items into categories according to their
applicable tax rate. After all erroneous
items are categorized, a separate alloca-
tion is made with respect to each tax rate
category using the proportionate alloca-
tion method of paragraph (d)(4) of this
section.
(ii) Allocation methods provided in
subsequent published guidance. The Sec-
retary may prescribe alternative methods
for allocating erroneous items under sec-
tion 6015(c) in subsequent revenue rul-
ings, revenue procedures, or other appro-
priate guidance.
(iii) Example. The following example
illustrates the rules of this paragraph
(d)(6):
Example. Allocation based on applicable tax
rates. H and W timely file their 1998 joint Federal
income tax return. H and W divorce in 1999. On
July 13, 2001, a $5,100 deficiency is assessed with
respect to H’s and W’s 1998 return. Of this defi-
ciency, $2,000 results from unreported capital gain
of $6,000 that is attributable to W and $4,000 of cap-
ital gain that is attributable to H (both gains being
subject to tax at the 20% marginal rate). The re-
maining $3,100 of the deficiency is attributable to
$10,000 of unreported dividend income of H that is
subject to tax at a marginal rate of 31%. H and W
both timely elect to allocate the deficiency, and qual-
ify under this section to do so. There are erroneous
items subject to different tax rates; thus, the alterna-
tive allocation method of this paragraph (d)(6) ap-
plies. The three erroneous items are first catego-
rized according to their applicable tax rates, then
allocated. Of the total amount of 20% tax rate items
($10,000), 60% is allocable to W and 40% is alloca-
ble to H. Therefore, 60% of the $2,000 deficiency
attributable to these items (or $1,200) is allocated to
W. The remaining 40% of this portion of the defi-
ciency ($800) is allocated to H. The only 31% tax
rate item is allocable to H. Accordingly, H is liable
for $3,900 of the deficiency ($800 + $3,100), and W
is liable for the remaining $1,200.
§1.6015–4 Equitable relief.
(a) A requesting spouse who files a
joint return for which a liability remains
unpaid and who does not qualify for full
relief under §1.6015–2 or 1.6015–3 may
request equitable relief under this section.
The Internal Revenue Service has the dis-
cretion to grant equitable relief from joint
and several liability to a requesting
spouse when, considering all of the facts
and circumstances, it would be in-
equitable to hold the requesting spouse
jointly and severally liable.
(b) This section may not be used to cir-
cumvent the limitation of §1.6015–3(c)(1)
(i.e., no refunds under §1.6015–3). There-
fore, relief is not available under this sec-
tion to refund liabilities already paid, for
which the requesting spouse would other-
wise qualify for relief under §1.6015–3.
(c) The Secretary will provide the crite-
ria to be used in determining whether it is
inequitable to hold a requesting spouse
jointly and severally liable under this sec-
tion in revenue rulings, revenue proce-
dures, or other published guidance.
§1.6015–5 Time and manner for
requesting relief.
(a) Requesting relief. To elect the ap-
plication of §1.6015–2 or 1.6015–3, or to
request equitable relief under §1.6015–4,
a requesting spouse must file Form 8857,
“Request for Innocent Spouse Relief
(And Separation of Liability and Equi-
table Relief)”; submit a written statement
containing the same information required
on Form 8857, which is signed under
penalties of perjury; or submit informa-
tion in the manner as may be prescribed
by the Secretary in relevant revenue rul-
ings, revenue procedures, or other pub-
lished guidance.
(b) Time period for filing a request for
relief—(1) In general. To elect the appli-
cation of §1.6015–2 or 1.6015–3, or to re-
quest equitable relief under §1.6015–4, a
requesting spouse must file Form 8857 or
other similar statement with the Internal
Revenue Service no later than two years
from the date of the first collection activ-
ity against the requesting spouse after
July 22, 1998, with respect to the joint tax
liability.
(2) Definitions—(i) Collection activity.
For purposes of this paragraph (b), collec-
tion activity means an administrative levy
or seizure described by section 6331 to
obtain property of the requesting spouse;
an offset of an overpayment of the re-
questing spouse against a liability under
section 6402; the filing of a suit by the
United States against the requesting
spouse for the collection of the joint tax
liability; or the filing of a claim by the
United States in a court proceeding in
which the requesting spouse is a party or
which involves property of the requesting
spouse. Collection activity does not in-
clude a notice of intent to levy under sec-
tions 6330 and 6331(d); the filing of a
Notice of Federal Tax Lien; or a demand
for payment of tax. The term property of
the requesting spouse, for purposes of this
paragraph, means property in which the
requesting spouse has an ownership inter-
est (other than solely through the opera-
tion of community property laws), includ-
ing property owned jointly with the
nonrequesting spouse.
(ii) Date of levy or seizure. For pur-
poses of this paragraph (b), if tangible
personal property or real property is
seized and is to be sold, a notice of
seizure is required under section 6335(a).
The date of levy or seizure is the date the
notice of seizure is given. For more infor-
mation on the rules regarding notice of
seizure, see section 6502(b) and the regu-
March 26, 20019582001–13 I.R.B.

lations thereunder. For purposes of this
paragraph (b), if a levy is made on cash or
intangible personal property that will not
be sold, the date of levy or seizure is the
date the notice of levy is made. For more
information on the rules regarding levy,
see section 6331 and the regulations
thereunder. For purposes of this para-
graph (b), if a notice of levy is served by
mail, the date of levy or seizure is the date
of delivery of the notice of levy to the per-
son on whom the levy is made. For more
information on notices of levy served by
mail, see §301.6331–1(c) of this chapter.
(3) Requests for relief made before
commencement of collection activity. An
election or request for relief may be made
before collection activity has com-
menced. For example, an election or re-
quest for relief may be made in connec-
tion with an audit or examination of the
joint return, or pursuant to the pre-levy
collection due process (CDP) hearing pro-
cedures pursuant to sections 6320 and
6330. For more information on the rules
regarding pre-levy collection due process,
see §§301.6320–1T(e)(1) and (2), and
301.6330–1T(e)(1) and (2) of this chapter.
However, no request for relief may be
made before the date specified in para-
graph (b)(5) of this section.
(4) Examples. The following exam-
ples illustrate the rules of this paragraph
(b):
Example 1. On January 11, 2000, a notice of in-
tent to levy is mailed to H and W regarding their
1997 joint Federal income tax liability. The Internal
Revenue Service levies on W’s employer on June 5,
2000. The Internal Revenue Service levies on H’s
employer on July 10, 2000. W must elect or request
relief by June 5, 2002, which is two years after the
Internal Revenue Service levied on her wages. H
must elect or request relief by July 10, 2002, which
is two years after the Internal Revenue Service
levied on his wages.
Example 2. The Internal Revenue Service levies
on W’s bank, in which W maintains a savings ac-
count, to collect a joint liability for 1995 on January
12, 1998. The bank complies with the levy, which
only partially satisfies the liability. The Internal
Revenue Service takes no other collection actions.
On July 24, 2000, W elects relief with respect to the
unpaid portion of the 1995 liability. W’s election is
timely because the Internal Revenue Service has not
taken any collection activity after July 22, 1998;
therefore, the two-year period has not commenced.
Example 3. Assume the same facts as in Example
2, except that the Internal Revenue Service delivers a
second levy on the bank on July 23, 1998. W’s elec-
tion is untimely because it is filed more than two years
after the first collection activity after July 22, 1998.
Example 4. H and W do not remit full payment
with their timely filed joint Federal income tax return
for the 1989 tax year. No collection activity is taken
after July 22, 1998, until the United States files a suit
against both H and W to reduce the tax assessment to
judgment and to foreclose the tax lien on their jointly
held residence on July 1, 1999. H elects relief on Oc-
tober 2, 2000. The election is timely because it is
made within two years of the filing of a collection suit
by the United States against H.
Example 5. W files a Chapter 7 bankruptcy peti-
tion on July 10, 2000. On September 5, 2000, the
United States files a proof of claim for her joint
1998 income tax liability. W elects relief with re-
spect to the 1998 liability on August 20, 2002. The
election is timely because it is made within two
years of the date the United States filed the claim in
W’s bankruptcy case.
(5) Premature requests for relief. The
Secretary will not consider premature
claims for relief under §1.6015–2,
1.6015–3, or 1.6015–4. A premature
claim is a claim for relief that is filed for a
tax year prior to the receipt of a notifica-
tion of an audit or a letter or notice from
the Secretary indicating that there may be
an outstanding liability with regard to that
year. Such notices or letters do not in-
clude notices issued pursuant to section
6223 relating to TEFRA partnership pro-
ceedings. A premature claim is not con-
sidered an election or request under
§1.6015–1(g)(5).
(c) Effect of a final administrative de-
termination—(1) In general. A request-
ing spouse is entitled to only one final ad-
ministrative determination of relief under
§1.6015–1 for a given assessment, unless
the requesting spouse properly submits a
second request for relief that is described
in §1.6015–1(g)(5).
(2) Example. The following example
illustrates the rule of this paragraph (c):
Example. In January 2001, W invests in tax shel-
ter P, and in February 2001, she starts her own busi-
ness selling crafts, from which she earns $100,000 of
net income for the year. H and W file a joint return
for tax year 2001, on which they claim $20,000 in
losses from their investment in P, and they omit W’s
self-employment tax. In March 2003, the Internal
Revenue Service opens an audit under the provisions
of subchapter C of chapter 63 of subtitle F of the In-
ternal Revenue Code (TEFRA partnership proceed-
ing) and sends H and W a notice under section
6223(a)(1). In September 2003, the Internal Rev-
enue Service audits H’s and W’s 2001 joint return re-
garding the omitted self-employment tax. H may file
a claim for relief from joint and several liability for
the self-employment tax liability because he has re-
ceived a notification of an audit indicating that there
may be an outstanding liability on the joint return.
However, his claim for relief regarding the TEFRA
partnership proceeding is premature under paragraph
(b)(5) of this section. H will have to wait until the In-
ternal Revenue Service sends him a notice of compu-
tational adjustment or assesses the liability from the
TEFRA partnership proceeding on H’s and W’s joint
return before he files a claim for relief with respect to
any such liability. The assessment relating to the
TEFRA partnership proceeding is separate from the
assessment for the self-employment tax; therefore,
H’s subsequent claim for relief for the liability from
the TEFRA partnership proceeding is not precluded
by his previous claim for relief from the self-employ-
ment tax liability under this paragraph (c).
§1.6015–6 Nonrequesting spouse’s
notice and opportunity to participate in
administrative proceedings.
(a) In general. (1) When the Secretary
receives an election under §1.6015–2 or
1.6015–3, or a request for relief under
§1.6015–4, the Secretary must send a no-
tice to the nonrequesting spouse’s last
known address that informs the nonre-
questing spouse of the requesting
spouse’s claim for relief. The notice must
provide the nonrequesting spouse with an
opportunity to submit any information
that should be considered in determining
whether the requesting spouse should be
granted relief from joint and several lia-
bility. A nonrequesting spouse is not re-
quired to submit information under this
section. The Secretary has the discretion
to share with one spouse any of the infor-
mation submitted by the other spouse. At
the request of one spouse, the Secretary
will omit from shared documents the
spouse’s new name, address, employer,
telephone number, and any other informa-
tion that would reasonably indicate the
other spouse’s location.
(2) The Secretary must notify the non-
requesting spouse of the Secretary’s final
determination with respect to the request-
ing spouse’s claim for relief under section
6015. However, the nonrequesting
spouse is not permitted to appeal such de-
termination.
(b) Information submitted. The Secre-
tary will consider all of the information
(as relevant to each particular relief provi-
sion) that the nonrequesting spouse sub-
mits in determining whether relief from
joint and several liability is appropriate,
including information relating to the fol-
lowing—
(1) The legal status of the requesting
and nonrequesting spouses’ marriage;
(2) The extent of the requesting
spouse’s knowledge of the erroneous
items or underpayment;
(3) The extent of the requesting
spouse’s knowledge or participation in the
family business or financial affairs;
2001–13 I.R.B.959March 26, 2001

(4) The requesting spouse’s education
level;
(5) The extent to which the requesting
spouse benefitted from the erroneous
items;
(6) Any asset transfers between the
spouses;
(7) Any indication of fraud on the part
of either spouse;
(8) Whether it would be inequitable,
within the meaning of §§1.6015–2(d) and
1.6015–4(b), to hold the requesting
spouse jointly and severally liable for the
outstanding liability;
(9) The allocation or ownership of
items giving rise to the deficiency; and
(10) Anything else that may be relevant
to the determination of whether relief
from joint and several liability should be
granted.
(c) Effect of opportunity to participate.
The failure to submit information pur-
suant to paragraph (b) of this section does
not affect the nonrequesting spouse’s abil-
ity to seek relief from joint and several li-
ability for the same tax year. However,
information that the nonrequesting spouse
submits pursuant to paragraph (b) of this
section is relevant in determining whether
relief from joint and several liability is ap-
propriate for the nonrequesting spouse
should the nonrequesting spouse also sub-
mit an application for relief.
§1.6015–7 Tax Court review.
(a) In general. Requesting spouses
may petition the Tax Court to review the
denial of relief under §1.6015–1.
(b) Time period for petitioning the Tax
Court. Pursuant to section 6015(e), the
requesting spouse may petition the Tax
Court to review a denial of relief under
§1.6015–1 within the 90-day period be-
ginning on the date the final determina-
tion letter is mailed. If the Secretary does
not mail the requesting spouse a final de-
termination letter within 6 months of the
date the requesting spouse files an elec-
tion under §1.6015–2 or 1.6015–3, the re-
questing spouse may petition the Tax
Court to review the election at any time
after the expiration of the 6-month period,
and before the expiration of the 90-day
period beginning on the mailing date of
the final determination letter. The Tax
Court also may review a claim for relief if
Tax Court jurisdiction has been acquired
under section 6213(a) or 6330(d). For
rules regarding petitioning the Tax Court
under section 6213(a) or 6330(d), see
§§301.6213–1, 301.6330–1T(f), and
301.6330–1T(g) of this chapter.
(c) Restrictions on collection and sus-
pension of the running of the period of
limitations—(1) Restrictions on collection
under §1.6015–2 or 1.6015–3. Unless the
Secretary determines that collection will
be jeopardized by delay, no levy or pro-
ceeding in court shall be made, begun, or
prosecuted against a requesting spouse
electing the application of §1.6015–2 or
1.6015–3 for the collection of any assess-
ment to which the election relates until the
expiration of the 90-day period described
in paragraph (b) of this section, or if a pe-
tition is filed with the Tax Court, until the
decision of the Tax Court becomes final
under section 7481. Notwithstanding the
preceding sentence, if the requesting
spouse appeals the Tax Court’s determina-
tion, the Internal Revenue Service may re-
sume collection of the liability from the
requesting spouse on the date of the Tax
Court’s determination unless the request-
ing spouse files an appeal bond pursuant
to the rules of section 7485. For more in-
formation regarding the date on which a
decision of the Tax Court becomes final,
see section 7481 and the regulations there-
under. Jeopardy under this paragraph
(c)(1) means conditions exist that would
require an assessment under section 6851
or 6861 and the regulations thereunder.
(2) Suspension of the running of the pe-
riod of limitations—(i) Relief under
§1.6015–2 or 1.6015–3. The running of
the period of limitations in section 6502
on collection against the requesting
spouse of the assessment to which an
election under §1.6015–2 or 1.6015–3 re-
lates is suspended for the period during
which the Commissioner is prohibited by
paragraph (c)(1) of this section from col-
lecting by levy or a proceeding in court
and for 60 days thereafter.
(ii) Relief under §1.6015–4. If a re-
questing spouse seeks only equitable re-
lief under §1.6015–4, the restrictions on
collection of paragraph (c)(1) of this sec-
tion do not apply. The request for relief
does not suspend the running of the pe-
riod of limitations on collection.
(3) Definitions—(i) Levy. For purposes
of this paragraph (c), levy means an ad-
ministrative levy or seizure described by
section 6331.
(ii) Proceedings in court. For purposes
of this paragraph (c), proceedings in court
means suits filed by the United States for
the collection of Federal tax. Proceedings
in court does not refer to the filing of
pleadings and claims and other participa-
tion by the Commissioner or the United
States in suits not filed by the United
States, including Tax Court cases, refund
suits, and bankruptcy cases.
(iii) Assessment to which the election
relates. For purposes of this paragraph
(c), the assessment to which the election
relates is the entire assessment of the defi-
ciency to which the election relates, even
if the election is made with respect to only
part of that deficiency.
§1.6015–8 Applicable liabilities.
(a) In general. Sections 6015(b),
6015(c), and 6015(f) apply to liabilities
that arise after July 22, 1998, and to liabil-
ities that arose prior to July 22, 1998, that
were not paid on or before July 22, 1998.
(b) Liabilities paid on or before July
22, 1998. A requesting spouse seeking re-
lief from joint and several liability for
amounts paid on or before July 22, 1998,
must request relief under section 6013(e)
and the regulations thereunder.
(c) Examples. The following examples
illustrate the rules of this section:
Example 1. H and W file a joint income tax re-
turn for 1995 on April 15, 1996. There is an under-
statement on the return attributable to an omission of
H’s wage income. On October 15, 1998, H and W
receive a 30-day letter proposing a deficiency on the
1995 joint return. W pays the outstanding liability
in full on November 30, 1998. In March 1999, W
files Form 8857, requesting relief from joint and
several liability under section 6015(b). Although
W’s liability arose prior to July 22, 1998, it was un-
paid as of that date. Therefore, section 6015 is ap-
plicable.
Example 2. H and W file their 1995 joint income
tax return on April 15, 1996. On October 14, 1997,
a deficiency is assessed regarding a disallowed busi-
ness expense deduction attributable to H. On June
30, 1998, the Internal Revenue Service levies on
W’s bank account in full satisfaction of the outstand-
ing liability. On August 31, 1998, W files a request
for relief from joint and several liability. The liabil-
ity arose prior to July 22, 1998, and it was paid as of
July 22, 1998. Therefore, section 6015 is not applic-
able and section 6013(e) is applicable.
§1.6015–9 Effective date.
Sections 1.6015–0 through 1.6015–9
are applicable for all elections under
§1.6015–2 or 1.6015–3 or any requests
for relief under §1.6015–4 filed on or
March 26, 20019602001–13 I.R.B.

after the date final regulations are pub-
lished in theFederal Register.
Charles O. Rossotti,
Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on January
16, 2001, 8:45 a.m., and published in the issue of the
Federal Register for January 17, 2001, 66 F.R. 3888)
Notice of Proposed Rulemaking
Special Rules Under Section
417(a)(7) for Written
Explanations Provided by
Qualified Retirement Plans After
Annuity Starting Dates
REG–109481–99
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains pro-
posed regulations relating to the special
rule added by the Small Business Job Pro-
tection Act of 1996 which permits the re-
quired written explanations of certain annu-
ity benefits to be provided by qualified
retirement plans to plan participants after
the annuity starting date. These regulations
affect administrators of, participants in, and
beneficiaries of qualified retirement plans.
DATES: Written and electronic com-
ments and requests for a public hearing
must be received by April 17, 2001.
ADDRESSES: Send submissions to:
CC:M&SP:RU (REG–109481–99), room
5226, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand-de-
livered Monday through Friday between
the hours of 8 a.m. and 5 p.m. to:
CC:M&SP:RU (REG–109481–99),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Washing-
ton D.C. Alternatively, taxpayers may sub-
mit comments electronically via the Inter-
net by selecting the “Tax Regs” option on
the IRS Home Page, or by submitting com-
ments directly to the IRS Internet site at
http://www.irs.gov/tax_regs/regslist.html.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations,
Robert M. Walsh, (202) 622-6090; con-
cerning submissions and delivery of com-
ments, Sonya Cruse (202) 622-7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in this notice of proposed rulemak-
ing has been submitted to the Office of
Management and Budget for review in ac-
cordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)). Com-
ments on the collection of information
should be sent to the Office of Manage-
ment and Budget, Attn: Desk Officer for
the Department of the Treasury, Office of
Information and Regulatory Affairs,
Washington, DC 20503, with copies to
the Internal Revenue Service, Attn: IRS
Reports Clearance Officer,
W:CAR:MP:FP:S:O, Washington, DC
20224. Comments on the collection of in-
formation should be received by March
19, 2001. Comments are specifically re-
quested concerning:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the IRS, in-
cluding whether the information will have
practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collection of information may
be minimized, including through the ap-
plication of automated collection tech-
niques or other forms of information tech-
nology; and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of services to provide informa-
tion.
The collection of information in this pro-
posed regulation is in §1.417(e)–1(b)
(3)(iv)(B) and §1.417(e)–1(b)(3)(v)(A).
This collection of information is required by
the IRS to ensure that the participant and the
participant’s spouse consent to a form of dis-
tribution from a qualified retirement plan
that may result in reduced periodic pay-
ments. This information will be used by the
plan administrator to verify that the required
consent has been given. The collection of
information is required to obtain a benefit.
The respondents are individuals who are en-
titled to receive certain types of distributions
from a qualified retirement plan or who are
married to individuals entitled to receive cer-
tain types of distributions from a qualified
retirement plan.
Taxpayers provide the information to
administrators of qualified retirement
plans when a distribution with a retroac-
tive annuity starting date is elected.
Estimated total annual reporting bur-
den: 12,500 hours.
Estimated average annual burden hours
per respondent: 0.25 hours.
Estimated number of respondents:
50,000.
The estimated annual frequency of re-
sponses is on occasion.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
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 proposed
amendments to 26 CFR Part 1 under sec-
tion 417(a)(7) of the Internal Revenue
Code (Code). Section 401(a)(11) provides
that, subject to certain exceptions, all distri-
butions from a qualified plan must be made
in the form of a qualified joint and survivor
annuity (QJSA). One such exception is
provided in section 417, which allows a
participant to elect to waive the QJSA in
favor of another form of distribution. Sec-
tion 417(a)(2) provides that, for the waiver
to be valid, the participant’s spouse must
consent to the waiver. Section
417(a)(3)(A) requires a qualified plan to
provide to each participant, within a rea-
sonable period of time before the annuity
starting date, a written explanation (QJSA
explanation) that describes the QJSA, the
right to waive the QJSA and the rights of
the participant’s spouse. Under section
417(d), a participant’s spouse who has not
been married to the participant throughout
the 1-year period preceding the annuity
2001–13 I.R.B.961March 26, 2001

starting date is not required to be treated as
the spouse for purposes of entitlement to
the QJSA. Section 417(a)(2)(B) provides
that spousal consent is not required to
waive the QJSA if it is established to the
satisfaction of a plan representative that
such consent may not be obtained because
there is no spouse, because the spouse can-
not be located, or because of such other cir-
cumstances as the Secretary may by regula-
tions prescribe.
Section 417(a)(7), which was added to
the Code by section 1451(a) of the Small
Business Job Protection Act of 1996, Pub-
lic Law 104-188 (110 Stat. 1755) (SBJPA),
creates an exception to the rules of section
417(a)(3)(A), effective for plan years be-
ginning after December 31, 1996. Section
417(a)(7)(A) provides that, notwithstand-
ing any other provision of section 417(a), a
plan may furnish the QJSA explanation
after the annuity stating date, as long as the
applicable election period is extended for at
least 30 days after the date on which the ex-
planation is furnished. Thus, section
417(a)(7)(A) allows the annuity starting
date to be a date that is earlier than the date
the QJSA explanation is provided, thereby
allowing the retroactive payment of bene-
fits that are attributable to the period before
the QJSA explanation is provided. Section
417(a)(7)(A)(ii) provides that the Secretary
may limit the application of the provision
permitting the selection of a retroactive an-
nuity starting date by regulations, except
that the regulations may not limit the period
of time by which the annuity starting date
precedes the furnishing of the written ex-
planation other than by providing that the
retroactive annuity starting date may not be
earlier than termination of employment.
Section 205(c)(8) of the Employee Re-
tirement Income Security Act of 1974, Pub-
lic Law 93-406 (88 Stat. 829) (ERISA),
provides a parallel rule to section 417(a)(7)
of the Code that applies under Title I of
ERISA, and authorizes the Secretary of the
Treasury to issue regulations limiting the
application of the general rule. Thus, Trea-
sury regulations issued under section
417(a)(7) of the Code apply as well for pur-
poses of section 205(c)(8) of ERISA.
On December 18, 1998, final regulations
were published in the Federal Register(63
FR 70009) which amended §1.417(e)–
1(b)(3)(ii) of the Income Tax Regulations,
relating to the timing for the QJSA explana-
tion and the participant waiver of a QJSA
form of distribution. The regulations final-
ized an earlier set of proposed regulations
that were issued in 1995. The regulations
specified that the QJSA explanation must
be provided before the annuity starting
date, except as otherwise provided by sec-
tion 417(a)(7) for plan years beginning
after December 31, 1996, but the regula-
tions did not further address section
417(a)(7).
Explanation of Provisions
In accordance with section 417(a)(7)(A),
these proposed regulations would provide
that the QJSA explanation may be fur-
nished on or after the annuity starting date
under certain circumstances. The proposed
regulations refer to the annuity starting date
in such cases as the “retroactive annuity
starting date”, define how payments are
made in the case of a retroactive annuity
starting date, and set conditions for the use
of retroactive annuity starting dates.
Under the proposed regulations, a
retroactive annuity starting date could be
used only if the plan provides for it and the
participant elects to use the retroactive an-
nuity starting date. The election under the
proposed regulations would place the par-
ticipant in approximately the same situation
he or she would have been in had benefit
payments actually commenced on the
retroactive annuity starting date. Accord-
ingly, the proposed regulations would pro-
vide that future periodic payments for a
participant who elects a retroactive annuity
starting date must be the same as the peri-
odic payments that would have been paid to
the participant had payments actually com-
menced on the retroactive annuity starting
date and that the participant must also re-
ceive a make-up amount to reflect the
missed payments (with an appropriate ad-
justment for interest from the date the pay-
ments would have been made to the date of
actual payment).
In addition, because the purpose of a
retroactive annuity starting date is to place
the participant in approximately the same
situation that he or she would have been in
had benefits commenced on the retroactive
date, the retroactive benefit payments
would be required to be based upon the
terms of the plan in effect as of the retroac-
tive annuity starting date (taking into ac-
count plan amendments executed after the
retroactive annuity starting date, but made
effective on or before that date). Accord-
ingly, the retroactive annuity starting date
could not be earlier than the date the partic-
ipant could have started receiving benefits
if the payments had commenced at the ear-
liest date permitted under the terms of the
plan (e.g., the retroactive annuity starting
date could not be before the earlier of the
date of the participant’s termination of em-
ployment or attainment of normal retire-
ment age), and the amount of the benefit
must satisfy sections 415 and 417 as of the
retroactive annuity starting date.
These proposed regulations would not
require plans to provide for a retroactive
annuity starting date. Instead, plans could
continue to provide that the QJSA explana-
tion is to be provided before the annuity
starting date under the rules of section
417(a) without regard to section 417(a)
(7)(A). Moreover, if a plan is amended to
provide for a retroactive annuity starting
date, the plan could impose additional re-
strictions on availability not imposed under
these proposed regulations, provided that
the additional restrictions did not violate
any of the rules applicable to qualified
plans. For example, plans that generally
provide benefit options that include annu-
ities and lump sum payments could provide
that retroactive annuity starting dates are
available only for participants who elect an-
nuities.
These proposed regulations make it clear
that the notice, consent, and election rules
of section 417(a)(1), (2), and (3), and the
regulations thereunder, would apply to the
retroactive payment of benefits but with
several modifications. These modifications
generally reflect the fact that the existing
timing rules relating to notice and consent
are generally tied to an annuity starting date
that is after the furnishing of the QJSA ex-
planation.
1
Section 417(a)(7)(A) specifically per-
mits the QJSA explanation to be made
after the annuity starting date and modi-
March 26, 20019622001–13 I.R.B.
1
For example, section 417(a)(1) provides that a par-
ticipant may elect to waive the QJSA within the
“applicable election period” which is defined by sec-
tion 417(a)(6) as the 90-day period ending on the
annuity starting date. Similarly, §1.417(e)–
1(b)(3)(i) provides that the written consent of the
plan participant and the participant’s spouse must be
made no more than 90 days before the annuity start-
ing date. Also, §1.417(e)–1(b)(3)(ii) provides that
the QJSA explanation must generally be provided no
less than 30 days and no more than 90 days before
the annuity starting date.

fies the participant election period in
these situations. These regulations would
make a comparable adjustment for the
timing rules applicable to spousal consent
by providing generally that, for retroac-
tive payments under section 417(a)(7),
the first date of actual payment is substi-
tuted for the annuity starting date in ap-
plying the timing rules for notice and con-
sent. These modifications are intended to
ensure that the notice and election are
generally contemporaneous with the com-
mencement of benefits, but the modifica-
tions recognize the need for flexibility in
the timing to take into account adminis-
trative delays. In furtherance of that goal,
these proposed regulations would modify
the general timing rule applicable to the
furnishing of notices, and to participant
elections and spousal consent. The pro-
posed regulations would provide that the
participant’s election to waive the QJSA
under section 417(a)(1)(A)(i) and the
spouse’s consent under section 417(a)(2)
must generally be made before the annu-
ity starting date, but permits a later elec-
tion if the distribution commences no
more than 90 days after the QJSA expla-
nation required by section 417(a)(3)(A) is
furnished to the participant. This modifi-
cation would apply without regard to the
retroactivity of annuity starting dates, but
would include an exception for reason-
able administrative delay in the distribu-
tion of benefits.
Pursuant to the regulatory authority
provided in section 417(a)(7)(A)(ii), these
proposed regulations include a special
spousal consent rule in addition to those
rules applicable under section 417(a).
Under this special rule, if the spouse’s
survivor annuity under a QJSA with an
annuity starting date after the date the
QJSA explanation was provided would be
greater than the spouse’s survivor annuity
pursuant to the participant’s election of a
retroactive annuity starting date, the par-
ticipant could not elect a retroactive annu-
ity starting date unless the participant’s
spouse (determined at the time distribu-
tions actually commence) consents to the
distribution. This special rule applies
even if the form of benefit that the partici-
pant elects as of the retroactive annuity
starting date is a QJSA. Thus, for exam-
ple, where a QJSA that begins after the
QJSA explanation is furnished would pro-
vide $1,000 monthly to the participant
with a survivor annuity of $500 monthly
to the spouse, and a QJSA with a retroac-
tive annuity starting date would provide
$900 monthly to the participant with a
survivor annuity of $450 monthly to the
spouse, together with a $20,000 make-up
payment to the participant, the spouse
would be required to consent in order for
the participant to elect the retroactive an-
nuity starting date. Spousal consent
under this special rule would not be re-
quired in this example if the spouse’s sur-
vivor annuity under the retroactive annu-
ity starting date election is at least $500
per month.
These proposed regulations would also
provide that, pursuant to section
417(a)(2)(B), the consent of the partici-
pant’s spouse as of the retroactive annuity
starting date would not be required if that
spouse is not the participant’s spouse as of
the date distributions commence, unless
otherwise provided in a qualified domes-
tic relations order (as defined in section
414(p)).
The proposed regulations would im-
pose an additional condition on the avail-
ability of a retroactive annuity starting
date, regarding the permissible amount of
the distribution under sections 417(e)(3)
(if applicable) and 415. To satisfy this
condition, the distribution would be re-
quired to be adjusted, if necessary, to sat-
isfy the requirements of sections
417(e)(3) (if applicable) and 415 if the
date the distribution commences is substi-
tuted for the annuity starting date.
Proposed Effective Date
These regulations are proposed to be
applicable for plan years beginning on or
after January 1, 2002.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. It is
hereby certified that 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 regulations require the collection of
plan participants’ written elections re-
questing qualified retirement plan distrib-
utions, and written spousal consent to
these distributions, under limited circum-
stances. It is anticipated that most small
businesses affected by these regulations
will be sponsors of qualified retirement
plans. Since these written participant
elections and written spousal consents are
required to be collected only for certain
distributions, and since, in the case of a
small plan, there will be relatively few
distributions per year (and even fewer that
are subject to these requirements), small
plans that provide distributions for which
this collection of information is required
will only have to collect a small number
of participant elections and spousal con-
sents as a result of these regulations. Ac-
cordingly, a Regulatory Flexibility Analy-
sis is not required. Pursuant to section
7805(f) of the Code, this notice of pro-
posed rulemaking will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments (a
signed original and 8 copies) or electronic
comments that are submitted timely to the
IRS. The IRS and Treasury request com-
ments on the clarity of the proposed rules
and how they can be made easier to under-
stand. All comments will be available for
public inspection and copying. A public
hearing may be scheduled if requested in
writing by any person that timely submits
written comments. If a public hearing is
scheduled, notice of the date, time, and
place for the public hearing will be pub-
lished in the Federal Register.
Drafting Information
The principal authors of these regula-
tions are Robert M. Walsh and Linda S. F.
Marshall, Office of Division Counsel/As-
sociate Chief Counsel (Tax Exempt and
Government Entities). However, other
personnel from the IRS and Treasury par-
ticipated in their development.
* * * * *
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
2001–13 I.R.B.963March 26, 2001

PART 1 — INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.417(e)–1 is amended
by:
1. Revising paragraph (b)(3)(i).
2. Revising paragraph (b)(3)(ii) intro-
ductory text.
3. Revising paragraph (b)(3)(ii)(C).
4. Redesignating paragraphs (b)(3)(iii)
and (b)(3)(iv) as paragraphs (b)(3)(viii)
and (b)(3)(ix), respectively.
5. Adding new paragraphs (b)(3)(iii)
through (b)(3)(vii).
The additions and revisions read as fol-
lows:
§1.417(e)–1 Restrictions and valuations
of distributions from plans subject to
sections 401(a)(11) and 417.
* * * * *
(b)* * *
(3)* * *
(i) Written consent of the participant
and the participant’s spouse to the distrib-
ution must be made not more than 90 days
before the annuity starting date, and, ex-
cept as otherwise provided in paragraphs
(b)(3)(iii) and (b)(3)(iv) of this section, no
later than the annuity starting date.
(ii) A plan must provide participants
with the written explanation of the QJSA
required by section 417(a)(3) no less than
30 days and no more than 90 days before
the annuity starting date, except as pro-
vided in paragraph (b)(3)(iv) of this sec-
tion regarding retroactive annuity starting
dates. However, if the participant, after
having received the written explanation of
the QJSA, affirmatively elects a form of
distribution and the spouse consents to
that form of distribution (if necessary), a
plan will not fail to satisfy the require-
ments of section 417(a) merely because
the written explanation was provided to
the participant less than 30 days before
the annuity starting date, provided that the
following conditions are met:
* * * * *
(C) The annuity starting date is after
the date that the explanation of the QJSA
is provided to the participant.
* * * * *
(iii) The plan may permit the annuity
starting date to be before the date that any
affirmative distribution election is made
by the participant (and before the date that
distribution is permitted to commence
under paragraph (b)(3)(ii)(D) of this sec-
tion), provided that, except as otherwise
provided in paragraph (b)(3)(vii) of this
section regarding administrative delay,
distributions commence not more than 90
days after the explanation of the QJSA is
provided.
(iv) Retroactive annuity starting dates.
(A) Notwithstanding the requirements of
paragraphs (b)(3)(i) and (ii) of this sec-
tion, pursuant to section 417(a)(7), a de-
fined benefit plan is permitted to provide
benefits based on a retroactive annuity
starting date if the requirements described
in paragraph (b)(3)(v) of this section are
satisfied. A defined benefit plan is not re-
quired to provide for retroactive annuity
starting dates. If a plan does provide for a
retroactive annuity starting date, it may
impose conditions on the availability of a
retroactive annuity starting date in addi-
tion to those imposed by paragraph
(b)(3)(v) of this section, provided that im-
position of those additional conditions
does not violate any of the rules applica-
ble to qualified plans. For example, a
plan that includes a single sum payment
as a benefit option may limit the election
of a retroactive annuity starting date to
those participants who do not elect the
single sum payment. A defined contribu-
tion plan is not permitted to have a
retroactive annuity starting date.
(B) For purposes of this section, a
“retroactive annuity starting date” is an
annuity starting date affirmatively elected
by a participant that occurs on or before
the date the written explanation required
by section 417(a)(3) is provided to the
participant. In order for a plan to treat a
participant as having elected a retroactive
annuity starting date, future periodic pay-
ments with respect to a participant who
elects a retroactive annuity starting date
must be the same as the future periodic
payments, if any, that would have been
paid with respect to the participant had
payments actually commenced on the
retroactive annuity starting date. The par-
ticipant must receive a make-up payment
to reflect any missed payment or pay-
ments for the period from the retroactive
annuity starting date to the date of the ac-
tual make-up payment (with an appropri-
ate adjustment for interest from the date
the missed payment or payments would
have been made to the date of the actual
make-up payment). Thus, the benefit de-
termined as of the retroactive annuity
starting date must satisfy the requirements
of sections 417(e)(3), if applicable, and
section 415 with the applicable interest
rate and applicable mortality table deter-
mined as of that date. Similarly, a partici-
pant is not permitted to elect a retroactive
annuity starting date that precedes the
date upon which the participant could
have otherwise started receiving benefits
(e.g., the earlier of the participant’s termi-
nation of employment or the participant’s
normal retirement age) under the terms of
the plan in effect as of the retroactive an-
nuity starting date. A plan does not fail to
treat a participant as having elected a
retroactive annuity starting date as de-
scribed in this paragraph (b)(3)(iv)(B)
merely because the distributions are ad-
justed to the extent necessary to satisfy
the requirements of paragraph
(b)(3)(v)(B) of this section relating to sec-
tions 415 and 417(e)(3).
(C) If the participant’s spouse as of the
retroactive annuity starting date would
not be the participant’s spouse determined
as if the date distributions commence
were the participant’s annuity starting
date, consent of that former spouse is not
needed to waive the QJSA with respect to
the retroactive annuity starting date, un-
less otherwise provided under a qualified
domestic relations order (as defined in
section 414(p)).
(D) A distribution payable pursuant to a
retroactive annuity starting date election
is treated as excepted from the present
value requirements of paragraph (d) of
this section under paragraph (d)(6) of this
section if the distribution form would
have been described in paragraph (d)(6)
of this section had the distribution actu-
ally commenced on the retroactive annu-
ity starting date.
(v) Requirements applicable to retroac-
tive annuity starting dates. A distribution
is permitted to have a retroactive annuity
starting date with respect to a participant’s
benefit only if the following requirements
are met:
(A) The participant’s spouse (including
an alternate payee who is treated as the
spouse under a qualified domestic rela-
tions order (QDRO), as defined in section
414(p)), determined as if the date distrib-
March 26, 20019642001–13 I.R.B.

utions commence were the participant’s
annuity starting date, consents to the dis-
tribution in a manner that would satisfy
the requirements of section 417(a)(2).
The spousal consent requirement of this
paragraph (b)(3)(v)(A) is satisfied if such
spouse consents to the distribution under
paragraph (b)(2)(i) of this section. The
spousal consent requirement of this para-
graph (b)(3)(v)(A) does not apply if the
amount of such spouse’s survivor annuity
payments under the retroactive annuity
starting date election is no less than the
amount that the payments to such spouse
would have been under a QJSA with an
annuity starting date after the date that the
explanation was provided.
(B) The distribution (including appro-
priate interest adjustments) provided
based on the retroactive annuity starting
date would satisfy the requirements of sec-
tion 417(e)(3), if applicable, and section
415 if the date the distribution commences
is substituted for the annuity starting date
for all purposes, including for purposes of
determining the applicable interest rate
and the applicable mortality table.
(vi) Timing of notice and consent re-
quirements in the case of retroactive an-
nuity starting dates.In the case of a
retroactive annuity starting date, the date
of the first actual payment of benefits
based on the retroactive annuity starting
date is substituted for the annuity starting
date for purposes of satisfying the timing
requirements for giving consent and pro-
viding an explanation of the QJSA pro-
vided in paragraphs (b)(3)(i) and (ii) of
this section, except that the substitution
does not apply for purposes of paragraph
(b)(3)(iii) of this section. Thus, the writ-
ten explanation required by section
417(a)(3)(A) must generally be provided
no less than 30 days and no more than 90
days before the date of the first payment
of benefits and the election to receive the
distribution must be made after the writ-
ten explanation is provided and on or be-
fore the date of the first payment. Simi-
larly, the written explanation may also be
provided less than 30 days prior to the
first payment of benefits if the require-
ments of paragraph (b)(3)(ii) of this sec-
tion would be satisfied if the date of the
first payment is substituted for the annuity
starting date.
(vii) Administrative delay. A plan will
not fail to satisfy the 90-day timing re-
quirements of paragraphs (b)(3)(iii) and
(vi) of this section merely because, due
solely to administrative delay, a distribu-
tion commences more than 90 days after
the written explanation of the QJSA is
provided to the participant.
* * * * *
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
(Filed by the Office of the Federal Register on January
16, 2001, 8:45 a.m., and published in the issue of the
Federal Register for January 17, 2001, 66 F.R. 3916)
Notice of Proposed Rulemaking
and Notice of Public Hearing
Capitalization of Interest and
Carrying Charges Properly
Allocable to Straddles
REG–105801–00
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations that clarify the ap-
plication of the straddle rules to a variety
of financial instruments. The proposed
regulations clarify what constitutes inter-
est and carrying charges and when inter-
est and carrying charges are properly allo-
cable to personal property that is part of a
straddle. The proposed regulations also
clarify that a taxpayer’s obligation under
a debt instrument can be a position in per-
sonal property that is part of a straddle.
The proposed regulations provide guid-
ance to taxpayers that enter into straddle
transactions. This document provides no-
tice of a public hearing on these proposed
regulations.
DATES: Written and electronic com-
ments and requests to appear and outlines
of topics to be discussed at the public
hearing scheduled for May 22, 2001, at 10
a.m., must be submitted by May 1, 2001.
ADDRESSES: Send submissions to:
CC:M&SP:RU (REG–105801–00), room
5226, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand
delivered between the hours of 8 a.m. and 5
p.m. to: CC:M&SP:RU (REG–105801–
00), Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue NW.,
Washington, DC. Alternatively, taxpayers
may submit comments electronically via
the Internet by submitting comments di-
rectly to the IRS Internet site at
http://www.irs.gov/tax_regs/regslist.html.
The public hearing will be held in the Audi-
torium, Internal Revenue Building, 1111
Constitution Avenue, NW., Washington,
DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regula-
tions, Kenneth Christman (202) 622-
3950; concerning submission and
delivery of comments and the public hear-
ing, Treena Garrett, (202) 622-7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
Sections 501 and 502 of the Economic
Recovery Tax Act of 1981 (Public Law
97-34, 95 Stat. 172) added sections 1092
and 263(g), respectively, to the Internal
Revenue Code to address certain deferral
and conversion strategies involving eco-
nomically offsetting positions in actively
traded personal property. These economi-
cally offsetting positions are called strad-
dles. Section 1092(c)(1).
In general, under section 1092, a tax-
payer that realizes a loss on a position in
actively traded personal property must
defer the recognition of the loss to the ex-
tent the taxpayer has unrecognized gain
on an economically offsetting position in
the property. This deferral rule matches
the recognition of loss with the recogni-
tion of the economically offsetting in-
come. Section 263(g) addresses interest
and carrying charges properly allocable to
personal property that is part of a straddle.
Under this section, these otherwise de-
ductible expenses are not currently de-
ductible. Instead, they must be capital-
ized into the basis of the property. By
requiring capitalization, section 263(g)
prevents: (1) a taxpayer from gaining a
timing advantage by accruing deductions
associated with carrying the straddle
transaction before recognizing income
from a position in personal property that
is part of the straddle; and (2) the deduc-
2001–13 I.R.B.965March 26, 2001

tions from having a character different
from that of the income.
These proposed regulations provide
certain rules with respect to the applica-
tion of section 263(g) and section 1092.
Explanation of Provisions
The proposed regulations consist of
§1.263(g)–1, which provides a general in-
troduction, and §§1.263(g)–2, 1.263
(g)–3, 1.263(g)–4, and 1.263(g)–5, de-
scribed below. The proposed regulations
also include a new paragraph
1.1092(d)–1(d).
The proposed regulations generally ad-
dress four issues: (1) the definition of
personal propertyas such term is used in
section 263(g) (in §1.263(g)–2); (2) the
type of payments that are subject to the
capitalization rules of section 263(g) (in
§1.263(g)–3); (3) the operation of the
capitalization rules of section 263(g) (in
§1.263(g)–4); and (4) the circumstances
under which an issuer’s obligation under
a debt instrument can be a position in ac-
tively traded personal property and, there-
fore, part of a straddle (in §1.1092
(d)–1(d)). These issues are discussed in
more detail below.
Definition of the Term Personal Property
for Purposes of Section 263(g)
Section 263(g)(1) requires capitaliza-
tion of interest and carrying charges prop-
erly allocable to personal property that is
part of a straddle (as defined in section
1092(c)). Section 1092(d)(1) defines
personal property for purposes of section
1092, as personal property of a type that
is actively traded. Commentators have
suggested that because sections 263(g)
and 1092 were enacted at the same time,
the term personal propertyas used in sec-
tion 263(g) should be given the same def-
inition as under section 1092(d)(1). This
would limit the definition of personal
property in section 263(g) to personal
property of a type that is actively traded.
Despite this suggestion, the proposed
regulations provide that personal property
has its common law meaning in section
263(g) for two reasons. First, the defini-
tion in section 1092(d)(1) by its terms ap-
plies only for purposes of section 1092.
Second, the broader, common law inter-
pretation of personal property more
closely accords with the purposes of sec-
tion 263(g). Application of the limited
definition in section 1092(d)(1) for pur-
poses of section 263(g) could result in
dissimilar tax treatment of economically
similar transactions. For example, adop-
tion of the narrower definition would
cause section 263(g) to apply to a transac-
tion in which a taxpayer borrows to pur-
chase actively traded personal property
that is a part of a straddle but not to a sim-
ilar transaction in which the taxpayer bor-
rows to purchase a derivative instrument
that is not itself actively traded but is a
position in actively traded property.
Consequently, proposed §1.263(g)–2
defines personal property as a property
right, whether or not actively traded, other
than a right in real property. This defini-
tion includes both financial positions that
provide substantial rights but do not im-
pose substantial obligations on the holder
(e.g., common stock or a purchased op-
tion) and executory contracts that impose
both rights and obligations on the holder
(e.g., notional principal contracts (NPCs)
and forward transactions). However, the
definition excludes straddles comprised
only of financial positions that impose
only obligations on the holder (e.g., the
obligor’s position in a debt instrument or
a writer’s position in an option).
Payments That Are Subject to the
Capitalization Rules of Section 263(g)
Section 263(g)(1) provides for the capi-
talization of interest and carrying charges.
For this purpose, interest and carrying
chargesare collectively defined in section
263(g)(2) as “interest incurred or contin-
ued to purchase or carry the personal
property” and “all other amounts (includ-
ing charges to insure, store, or transport)
paid or incurred to carry the personal
property,” less certain types of income
from the personal property.
The phrase “incurred or continued to
purchase or carry” also appears in section
265(a)(2), which disallows interest ex-
pense on indebtedness incurred or contin-
ued to purchase or carry tax-exempt debt.
Rev. Proc. 72–18 (1972–1 C.B. 740) sets
out rules for determining when this stan-
dard is met for purposes of section
265(a)(2). Under that revenue procedure,
indebtedness issued by a taxpayer that is
not a dealer in tax-exempt obligations
meets this standard if (1) the proceeds of
the indebtedness are directly traceable to
the purchase of the tax-exempt obliga-
tions, (2) the tax-exempt obligations are
used as collateral for the borrowing, or (3)
the totality of the facts and circumstances
supports a reasonable inference that the
purpose of the borrowing was to purchase
or carry tax-exempt obligations. In gen-
eral, the facts-and-circumstances test is
met if there is a “sufficiently direct rela-
tionship” between the borrowing and the
investment in the tax-exempt obligations.
Similarly, the proposed regulations pro-
vide that a sufficiently direct relationship
between indebtedness or other financing
and personal property that is part of a
straddle exists if payments on the indebt-
edness or other financing are determined
by reference to the value or change in
value of the personal property. See
§1.263(g)–3(c).
Section 263(g) also applies to “all other
amounts (including charges to insure,
store or transport the personal property)”
paid or incurred to carry personal prop-
erty that is part of a straddle. As noted by
one commentator, “taxpayers should not
be permitted to deduct items incurred in
connection with protecting or preserving
the value of assets” that are part of a
straddle. Therefore, the term, to carryin
the context of section 263(g) includes the
reduction of the risk of holding an asset.
Because straddles necessarily involve po-
sitions that offset each other, the positions
“carry” each other.
Accordingly, under §1.263(g)–3(b) of
the proposed regulations, interest and car-
rying charges subject to capitalization
under section 263(g) include: (1) other-
wise deductible payments or accruals (in-
cluding interest and original issue dis-
count) on indebtedness or other financing
issued or continued to purchase or carry
personal property that is part of a straddle;
(2) otherwise deductible fees or expenses
paid or incurred in connection with the
taxpayer’s acquiring or holding personal
property that is part of a straddle, includ-
ing, but not limited to, fees or expenses
incurred to purchase, insure, store, main-
tain, or transport the personal property;
and (3) other otherwise deductible pay-
ments or accruals on financial instruments
that are part of a straddle or that carry part
of a straddle.
Section 263(g) requires capitalization
of interest and carrying charges that ex-
March 26, 20019662001–13 I.R.B.

ceed certain specified income inclusions
(allowable offsets) listed in section
263(g)(2)(B). Section 1.263(g)–3(e) sets
forth the allowable offsets, including
amounts that are receipts or accruals on
financial instruments that are part of a
straddle or carry part of a straddle. The
Treasury Department and the IRS solicit
comments regarding whether other
amounts should be treated as allowable
offsets for purposes of section 263(g).
Operation of the Capitalization Rules of
Section 263(g)
Generally, section 263(g) coordinates the
character and timing of items of income
and loss attributable to a taxpayer’s posi-
tion in a straddle by allocating interest and
carrying charges to the capital account of a
position in personal property that is part of
the straddle. Proposed regulation
§1.263(g)–4 provides a set of allocation
rules governing the “capitalization” of in-
terest and carrying charges.
In many cases, certain allocation rules
readily suggest themselves.
Congress was aware of “cash and carry”
transactions in adopting section 263(g).
See H.R. Rep. No. 201, 97th Cong. 1st
Sess. 203–04 (1981). In a typical transac-
tion, a taxpayer borrows to purchase per-
sonal property and sells the property for-
ward. The debt instrument generates
ordinary deductions (interest expense) that
precede predictable (and approximately
equal) capital gains on the sale of the per-
sonal property. Coordination of the amount
and timing of income and loss in a cash and
carry transaction is achieved under the pro-
posed regulation by allocating the interest
expense to the capital account of the per-
sonal property. This rule applies to all
transactions in which a taxpayer has bor-
rowed to purchase personal property that is
part of a straddle.
If the proceeds of a borrowing are not
used to purchase personal property, a sec-
ond allocation rule allocates interest ex-
pense to personal property when the per-
sonal property collateralizes the borrowing.
See Rev. Proc. 72–18, §3.03 (disallowing
interest deduction for debt secured by tax-
exempt obligations); Rev. Rul. 78–348
(1978–2 C.B. 95) (applying yield restric-
tions to investments pledged by person ben-
efitting from tax-exempt bond financing).
A third allocation rule of the proposed
regulations allocates interest on indebted-
ness to personal property when payments
on the indebtedness are determined by ref-
erence to the value, or change in value, of
the personal property that is part of a strad-
dle.
Fees and charges related to the mainte-
nance of the personal property, such as
charges to insure, store, or transport the
personal property, are allocated to the capi-
tal account of that personal property. See
S. Rep. No. 144, 97th Cong. 1st Sess. 154
(1981).
In other cases, the appropriate method
for allocating capitalized interest and carry-
ing charges is less obvious. This may be
true of payments or accruals on a financial
instrument, such as a NPC, described in
proposed §1.263(g)–3(d). For example, the
proposed rules would apply to a taxpayer
that holds stock and enters into an equity
swap that is a short position with respect to
the stock. In such a case, both the stock and
the equity swap may be personal property
that is part of a straddle, and payments on
the equity swap could be capitalized with
respect to the capital account of either the
stock or the equity swap. However, it may
not be clear how a capitalization rule would
apply in conjunction with the rules under
§1.446–3 with respect to payments on
NPCs. Accordingly, the proposed rules
provide that, in cases to which a specific al-
location rule is not applicable, interest and
carrying charges will be allocated to per-
sonal property that is part of a straddle in
the manner that is most appropriate under
all the facts and circumstances. Proposed
regulations §1.263(g)–4(c) Example 7(re-
lating to a straddle consisting of stock and
an equity swap) illustrate one application of
this facts and circumstances rule. The
Treasury Department and the IRS invite
comments and suggestions regarding both
the proposed specific allocation rules and
the general facts and circumstances alloca-
tion rule.
The regulations under section 263(g) are
proposed to be effective for expenses paid,
incurred, or accrued after the date the regu-
lations are adopted as final for straddles es-
tablished on or after January 17, 2001. See
§1.263(g)–5.
Obligation Under a Debt Instrument as a
Position in Personal Property
If a taxpayer is the obligor under a debt
instrument that provides for one or more
payments linked to the value of actively
traded personal property, the value of the
taxpayer’s obligation under the debt in-
strument changes as the value of the refer-
enced property changes. For this reason,
the taxpayer’s position as obligor under
the debt instrument functions as a position
in the referenced property.
Some commentators have suggested
that a debt instrument (other than one de-
nominated in an actively traded foreign
currency) cannot be a position of the
obligor in personal property that is part of
a straddle. Section 1092(d)(7) provides
that an obligor’s interest in a nonfunc-
tional-currency-denominated debt instru-
ment is treated under section 1092(d)(2)
as a position in the nonfunctional cur-
rency. From this, the commentators infer
that an obligor’s interest in a debt instru-
ment may never be treated as an interest
in personal property other than a nonfunc-
tional currency.
However, neither the legislative history
nor the express language of section
1092(d)(7) indicates that Congress in-
tended to exclude interests in personal
property from the definition ofpositionin
section 1092(d)(2). A rule that a debt in-
strument can be a position in currency
does not establish that a debt instrument is
a position only in currency. This inter-
pretation of section 1092(d)(7) has al-
ready been rejected by the IRS and Trea-
sury in §1.1275–4(b)(9)(vi), which
provides that increased interest expense
on a contingent payment debt instrument
issued by a taxpayer may be a straddle
loss subject to section 1092 deferral.
To clarify the definition of positionunder
section 1092(d)(2), §1.1092(d)–1(d) of the
proposed regulations explicitly provides
that an obligation under a debt instrument
may be a position in personal property that
is part of a straddle. This provision is pro-
posed to be effective for straddles estab-
lished on or after January 17, 2001. How-
ever, no inference is intended with respect
to straddles established prior to January 17,
2001. Thus, in appropriate cases, the IRS
may take the position under section
1092(d)(2) that, even in the absence of a
regulation, an obligation under a debt in-
strument was part of a straddle prior to the
effective date of §1.1092(d)–1(d) if the debt
instrument functioned economically as an
interest in actively traded personal property.
In 1995, the IRS published proposed
regulation §1.1092(d)–2. See 60 F.R.
2001–13 I.R.B.967March 26, 2001

21482; FI–21–95, 1995–1 C.B. 935. The
proposed regulations clarify the circum-
stances in which common stock may be
personal property for the purposes of sec-
tion 1092. Because proposed regulation
§§1.1092(d)–2 and 1.1092(d)–1(d) ad-
dress similar issues, the IRS proposes to
finalize both regulations simultaneously.
The Treasury Department and the IRS,
therefore, invite additional comment on
proposed §1.1092(d)–2.
In addition, in 1985, the Treasury De-
partment and the IRS adopted Temporary
Regulation §1.1092(d)–5T(d), which de-
fines the term lossfor purposes of
§§1.1092(b)–1T through 1.1092(b)–4T as
a loss otherwise allowable under section
165(a). The Treasury Department and the
IRS request comments on whether that
definition should be expanded to include
expenses such as interest and carrying
charges or payments on notional principal
contracts. If so, how should such a
change be coordinated with the proposed
regulations in this document?
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. It also
has been determined that section 553(b)
of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these
regulations, and because the regulation
does not impose a collection of informa-
tion on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does
not apply. Pursuant to section 7805(f) of
the Internal Revenue Code, this notice of
proposed rulemaking will be submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written or elec-
tronic comments (a signed original and
eight (8) copies, if written) that are sub-
mitted timely (in the manner described in
the ADDRESSES portion of this pream-
ble) to the IRS. The IRS and Treasury re-
quest comments on the clarity of the pro-
posed regulations and how they may be
made easier to understand. All comments
will be available for public inspection and
copying.
A public hearing has been scheduled
for May 22, 2001, at 10 a.m. in the Audi-
torium, Internal Revenue Building, 1111
Constitution Avenue NW., Washington
DC. Due to building security procedures,
visitors must enter at the 10th Street en-
trance located between Constitution and
Pennsylvania Avenues, NW. In addition,
all visitors must present photo identifica-
tions to enter the building. Because of ac-
cess restrictions, visitors will not be ad-
mitted beyond the immediate entrance
area more than 15 minutes before the
hearing starts. For information about
having your name placed on the building
access list to attend the hearing, see the
“FOR FURTHER INFORMATION
CONTACT” section of this preamble.
The rules of 26 CFR 601.601(a)(3) apply
to the hearing. Persons who wish to present
oral comments at the hearing must submit
electronic or written comments and an out-
line of the topics to be discussed and the
time to be devoted to each topic (signed
original and eight (8) copies) by May 1,
2001. A period of 10 minutes will be allot-
ted to each person for making comments.
An agenda showing the scheduling of the
speakers will be prepared after the deadline
for receiving outlines has passed. Copies
of the agenda will be available free of
charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Kenneth Christman, Office of As-
sociate Chief Counsel (Financial Institu-
tions and Products). However, other
personnel from the IRS and Treasury De-
partment participated in their develop-
ment.
* * * * *
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in nu-
merical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.263(g)–1 also issued under
26 U.S.C. 1092(b)(1).
Section 1.263(g)–2 also issued under
26 U.S.C. 1092(b)(1).
Section 1.263(g)–3 also issued under
26 U.S.C. 1092(b)(1).
Section 1.263(g)–4 also issued under
26 U.S.C. 1092(b)(1).
Section 1.263(g)–5 also issued under
26 U.S.C. 1092(b)(1). * * *
Section 1.1092(d)–1 also issued under
26 U.S.C. 1092(b)(1).
Par. 2. Sections 1.263(g)–1,
1.263(g)–2, 1.263(g)–3, 1.263(g)–4, and
1.263(g)–5 are added to read as follows:
§1.263(g)–1 Treatment of interest and
carrying charges in the case of straddles;
in general.
(a) Under section 263(g), no deduction is
allowed for interest and carrying charges
allocable to personal property that is part of
a straddle (as defined in section 1092(c)).
The purpose of section 263(g) is to coordi-
nate the character and the timing of items of
income and loss attributable to a taxpayer’s
positions that are part of a straddle. In
order to prevent payments or accruals re-
lated to a straddle transaction from giving
rise to recognition of deductions or losses
before related income is recognized and to
prevent the items of loss and income from
having different character, no deduction is
allowed for interest and carrying charges
properly allocable to personal property that
is part of a straddle. Rather, such amounts
are chargeable to the capital account of the
personal property to which the interest and
carrying charges are properly allocable.
(b) Section 263(g) does not apply if
none of the taxpayer’s positions that are
part of the straddle are personal property.
Section 263(g) also does not apply to
hedging transactions as defined in section
1256(e) (see section 263(g)(3)) or to secu-
rities to which the mark-to-market ac-
counting method provided by section 475
applies (see section 475(d)(1)).
(C) Section 1.263(g)–2 provides a defi-
nition of personal property for purposes
of section 263(g) and §§1.263(g)–1
through 1.263(g)–5. Section 1.263(g)–3
provides a definition of interest and carry-
ing charges for purposes of section
263(g), section 1092, §§1.263(g)–1
through 1.263(g)–5, and §1.1092(b)–4T.
Section 1.263(g)–4 provides a set of allo-
cation rules governing the capitalization
of amounts to which section 263(g) ap-
plies.
March 26, 20019682001–13 I.R.B.

§1.263(g)–2 Personal property to which
interest and carrying charges may
properly be allocable.
(a) Definition of personal property.
For purposes of section 263(g) and of
§§1.263(g)–1 through 1.263(g)–5, per-
sonal propertymeans property, whether
or not actively traded, that is not real
property. For purposes of the preceding
sentence, a position in personal property
may itself be property. In general, how-
ever, a position in personal property is not
property of a taxpayer unless the position
confers or may confer substantial rights
on the taxpayer.
(1) Application to certain financial in-
struments. Personal property includes a
stockholder’s ownership of common
stock, a holder’s ownership of a debt in-
strument, and either party’s position in a
forward contract or in a conventional
swap agreement. Personal property does
not include a position that imposes oblig-
ations but does not confer substantial
rights on the taxpayer. Therefore, the
obligor’s position in a debt instrument
generally is not personal property, even
though the obligor may have typical
rights of a debtor, such as the right to pre-
pay the debt. However, the obligor on a
debt instrument has a position in any per-
sonal property underlying the debt instru-
ment. See §1.1092(d)–1(d).
(2) Options. For the purposes of apply-
ing this section, a put option or call option
imposes obligations but does not confer
substantial rights on the grantor, whether
or not the option is cash-settled.
(b) Example. The following example il-
lustrates the rules stated in paragraph (a)
of this section:
Example. (i) Facts. Apurchases 100 ounces of
gold at a cost of $x. Atransfers the 100 ounces of
gold to a trust that issues multiple classes of trust
certificates and is treated as a partnership for tax
purposes. In return, Areceives two trust certificates
that are not personal property of a type that is ac-
tively traded within the meaning of section
1092(d)(1). One certificate entitles Ato a payment
on termination of the trust at the end of four years
equal to the value of the 100 ounces of gold up to a
maximum value of $(x+ y). The other certificate
entitles Ato a payment equal to the amount by
which the value of 100 ounces of gold exceeds $(x+
y) on termination of the trust. Asells the second cer-
tificate and keeps the first certificate.
(ii) Analysis. The trust certificate retained by Ais
property that is not real property. In addition, own-
ership of the trust certificate confers certain substan-
tial rights on A. Therefore, although the trust certifi-
cate is not personal property of a type that is actively
traded, A’s interest in the trust certificate is personal
property for purposes of section 263(g).
§1.263(g)–3 Interest and carrying
charges properly allocable to personal
property that is part of a straddle.
(a) In general. For purposes of section
263(g), section 1092, §§1.263(g)–1
through 1.263(g)–5, and §1.1092(b)–4T,
interest and carrying charges properly al-
locable to personal property that is part
of a straddlemeans the excess of interest
and carrying charges (as defined in para-
graph (b) of this section) over the allow-
able income offsets (as defined in para-
graph (e) of this section).
(b) Interest and carrying charges. In-
terest and carrying charges are otherwise
deductible amounts paid or accrued with
respect to indebtedness or other financing
incurred or continued to purchase or carry
personal property that is part of a straddle
and otherwise deductible amounts paid or
incurred to carry personal property that is
part of a straddle. As provided in section
263(g)(2), interest includes any amount
paid or incurred in connection with per-
sonal property used in a short sale. Inter-
est and carrying charges include—
(1) Otherwise deductible payments or
accruals (including interest and original
issue discount) on indebtedness or other
financing issued or continued to purchase
or carry personal property that is part of a
straddle;
(2) Otherwise deductible fees or ex-
penses paid or incurred in connection with
acquiring or holding personal property that
is part of a straddle including, but not lim-
ited to, fees or expenses incurred to pur-
chase, insure, store, maintain, or transport
the personal property; and
(3) Other otherwise deductible pay-
ments or accruals on financial instruments
that are part of a straddle or that carry part
of a straddle.
(c) Indebtedness or other financing in-
curred or continued to purchase or carry
personal property that is part of a strad-
dle. For purposes of paragraph (b)(1) of
this section, indebtedness or other financ-
ing that is incurred or continued to pur-
chase or carry personal property that is
part of a straddle includes —
(1) Indebtedness or other financing the
proceeds of which are used directly or in-
directly to purchase or carry personal
property that is part of the straddle;
(2) Indebtedness or other financing that
is secured directly or indirectly by per-
sonal property that is part of the straddle;
and
(3) Indebtedness or other financing the
payments on which are determined by ref-
erence to payments with respect to the
personal property or the value of, or
change in value of, the personal property.
(d) Financial instruments that are part of
a straddle or that carry part of a straddle.
For purposes of paragraph (b)(3), financial
instruments that are part of a straddle or
that carry part of a straddle include —
(1) A financial instrument that is part of
the straddle;
(2) A financial instrument that is issued
in connection with the creation or acquisi-
tion of a position in personal property if
that position is part of the straddle;
(3) A financial instrument that is sold or
marketed as part of an arrangement that
involves a taxpayer’s position in personal
property that is part of the straddle and
that is purported to result in either eco-
nomic realization of all or part of the ap-
preciation in an asset without simultane-
ous recognition of taxable income or a
current tax deduction (for interest, carry-
ing charges, payments on a notional prin-
cipal contract, or otherwise) reflecting a
payment or expense that is economically
offset by an increase in value that is not
concurrently recognized for tax purposes
or has a different tax character (for exam-
ple, an interest payment that is economi-
cally offset by an increase in value that
may result in a capital gain in a later tax
period); and
(4) Any other financial instrument if
the totality of the facts and circumstances
support a reasonable inference that the is-
suance, purchase, or continuation of the
financial instrument by the taxpayer was
intended to purchase or carry personal
property that is part of the straddle.
(e) Allowable income offsets. The al-
lowable income offsets are:
(1) The amount of interest (including
original issue discount) includible in
gross income for the taxable year with re-
spect to such personal property;
(2) Any amount treated as ordinary in-
come under section 1271(a)(3)(A), 1278,
or 1281(a) with respect to such personal
property for the taxable year;
(3) The excess of any dividends in-
cludible in gross income with respect to
2001–13 I.R.B.969March 26, 2001

such property for the taxable year over the
amount of any deductions allowable with
respect to such dividends under section
243, 244, or 245;
(4) Any amount that is a payment with
respect to a security loan (within the
meaning of section 512(a)(5)) includible
in income with respect to the personal
property for the taxable year; and
(5) Any amount that is a receipt or ac-
crual includible in income for the taxable
year with respect to a financial instrument
described in §1.263(g)–3(d) to the extent
the financial instrument is entered into to
purchase or carry the personal property.
§1.263(g)–4 Rules for allocating
amounts to personal property that is part
of a straddle.
(a) Allocation rules. (1) Interest and
carrying charges paid or accrued on in-
debtedness or other financing issued or
continued to purchase or carry personal
property that is part of a straddle are allo-
cated, in the order listed —
(i) To personal property that is part of
the straddle purchased, directly or indi-
rectly, with the proceeds of the indebted-
ness or other financing;
(ii) To personal property that is part of
the straddle and directly or indirectly se-
cures the indebtedness or other financing;
or
(iii) If all or a portion of such interest
and carrying charges are determined by
reference to the value or change in value
of personal property, to such personal
property.
(2) Fees and expenses described in
§1.263(g)–3(b)(2) are allocated to the
personal property, the acquisition or hold-
ing of which resulted in the fees and ex-
penses being paid or incurred.
(3) In all other cases, interest and carry-
ing charges are allocated to personal
property that is part of a straddle in the
manner that under all the facts and cir-
cumstances is most appropriate.
(b) Coordination with other provisions.
In the case of a short sale, section 263(g)
applies after section 263(h). See sections
263(g)(4)(A) and (h)(6). In case of an
obligation to which section 1277 (dealing
with deferral of interest deduction alloca-
ble to accrued market discount) or 1282
(dealing with deferral of interest deduc-
tion allocable to certain accruals on short-
term indebtedness) applies, section
263(g) applies after section 1277 and sec-
tion 1282. See section 263(g)(4)(B). Cap-
italization under section 263(g) applies
before loss deferral under section 1092.
(c) Examples. The following examples
illustrate the rules stated in §§1.263(g)–2,
1.263(g)–3, and 1.263(g)–4.
Example 1. Cash and Carry Silver.
(i) Facts. On January 1, 2002, Aborrows $xat
6% interest and uses the proceeds to purchase y
ounces of silver from B. At approximately the same
time, Aenters into a forward contract with Cto de-
liver younces of silver to Cin one year.
(ii) Analysis. The younces of silver and the for-
ward contract to deliver younces of silver in one
year are offsetting positions with respect to the same
personal property and therefore constitute a straddle.
See sections 1092(c)(1), (c)(3)(A)(i). The proceeds
of the debt instrument were used to purchase per-
sonal property that is part of the straddle. Conse-
quently, A’s interest payments are interest and carry-
ing charges properly allocable to personal property
that is part of a straddle. See §1.263(g)–3(b)(1) &
(c)(1). Under §1.263(g)–4(a)(1)(i), the interest pay-
ments must be charged to the capital account for the
younces of silver purchased by Awith the proceeds
of the borrowing.
Example 2. Additional indebtedness issued to
carry personal property.
(i) Facts. The facts are the same as for Example
1 except that during the year 2002, the market price
of silver increases and Ais required to post variation
margin as security for its obligation to deliver y
ounces of silver to C. Aincurs additional indebted-
ness to obtain funds necessary to meet A’s variation
margin requirement.
(ii) Analysis. The additional indebtedness is in-
curred to continue to carry A’s holding of younces
of silver. Consequently, A’s interest payments on
the additional indebtedness are interest and carrying
charges properly allocable to personal property that
is part of a straddle and must be charged to the capi-
tal account for the younces of silver.
Example 3. Contingent payment debt instrument.
(i) Facts. On January 1, 2002, Denters into a
contract to deliver xbarrels of fuel oil to Eon July 1,
2004, at an aggregate price equal to $y. Soon after-
ward, Dissues a contingent payment debt instru-
ment to Fwith a principal amount of $zand a 2-year
term that pays interest quarterly at a rate determined
at the beginning of each quarter equal to the greater
of zero and the London Interbank Offered Rate
(LIBOR) adjusted by an index that varies inversely
with changes in the price of fuel oil (so that the in-
terest rate increases as the price of fuel oil decreases
and vice versa). The change in the aggregate
amount of interest paid on the $zof debt due to the
functioning of the index approximates the concur-
rent aggregate change in value of xbarrels of fuel oil
and, thus, the value of D’s interest in the forward
contract.
(ii) Analysis. The debt instrument and the for-
ward contract are offsetting positions with respect to
the same personal property and constitute a straddle.
See section 1092(c)(1), (c)(3)(A)(i). When issued,
the debt instrument is a position in personal property
that is part of a straddle. See §1.1092(d)–1(d). Con-
sequently, D’s interest payments are interest and car-
rying charges properly allocable to personal prop-
erty that is part of a straddle and must be allocated to
the capital account for the forward contract for the
delivery of xbarrels of fuel oil to E. See
§§1.263(g)–3(b)(1), (b)(3), (c)(3), and (d)(1) and
–4(a)(1)(iii).
Example 4. Financial instrument issued to carry
personal property that is part of a straddle.
(i) Facts. The facts are the same as for Example
3 except that Dalso enters into a two-year interest
rate swap under which Dreceives LIBOR times a
notional principal amount equal to $zand pays 7%
times $z.
(ii) Analysis. Because of the relationship be-
tween the two-year debt instrument issued by Dand
the interest rate swap, the interest rate swap is a fi-
nancial instrument that carries personal property that
is part of a straddle. See §1.263(g)–3(d)(4). Net
payments made by Dunder the interest rate swap are
chargeable to the capital account for the forward
contract for the delivery of xbarrels of fuel oil to E.
Similarly, net payments received by Dunder the in-
terest rate swap are allowable offsets. See
§1.263(g)–3(e)(5).
Example 5. Contingent payment debt instrument
with embedded short position.
(i) Facts. On January 1, 1998, Gpurchases
100,000 shares of the common stock ofXYZcorpo-
ration (which is publicly traded). On January 1,
2002, the 100,000 shares of XYZcorporation com-
mon stock were worth $xper share. On that date, G
issued a contingent payment debt instrument for
$100,000x. The terms of the debt instrument pro-
vided that the holders would receive an annual pay-
ment of $2,000xon December 31 of each year up to
and including the maturity date of December 31,
2007. On the maturity date, the holders would also
receive a payment of $100,000xplus an additional
amount, if the price of an XYZshare exceeded $1.2x
on such date, equal to 100,000 times three-quarters
of the amount of such excess per share. Thus, G’s
aggregate payments on the debt instrument varied
directly with the increase in value in the XYZ shares.
(ii) Analysis. The debt instrument is a position
in XYZstock. See §1.1092(d)–1(d). The XYZ stock
is personal property within the meaning of section
1092(d)(3)(B) because the debt instrument is a posi-
tion with respect to substantially similar or related
property (other than stock) within the meaning of
section 1092(d)(3)(B)(i)(II). See §1.1092(d)–2(c).
The debt instrument and the XYZshares are offset-
ting positions with respect to the same personal
property and constitute a straddle. See sections
1092(c)(1), (c)(3)(A)(i). Consequently, G’s interest
payments are interest and carrying charges properly
allocable to personal property that is part of a strad-
dle, see §§1.263(g)–3(b)(1), (b)(3), (c)(3), and
(d)(1), and must be allocated to the capital account
for the XYZcommon stock, see §1.263
(g)–4(a)(1)(iii) and (a)(3).
Example 6. Straddle including partnership inter-
est.
(i) Facts. Hborrows money from Ito purchase
100 ounces of gold at a cost of $u. Htransfers the 100
ounces of gold and $vto a newly created trust that is-
sues multiple classes of trust certificates and is treated
as a partnership for tax purposes. In return, H receives
two trust certificates. One certificate entitles the
holder to a payment on termination of the trust at the
end of four years equal to the value of the 100 ounces
of gold up to a maximum value of $(u+ w). The other
March 26, 20019702001–13 I.R.B.

certificate entitles the holder to a payment equal to the
amount by which the value of 100 ounces of gold ex-
ceeds $(u+ w) on termination of the trust. Hsells the
second certificate and keeps the first certificate. H
also enters into a forward contract to sell 100 ounces
of gold for $1.12uper ounce on a date two years after
creation of the trust. The trust uses part of the $vand
similar cash contributions from other investors to pay
costs of storing the gold held by the trust and allocates
H’s share of the expenses to H.
(ii) Analysis. The trust certificate retained by H
and the forward contract entered into by Hare per-
sonal property for the purposes of section 263(g). See
§1.263(g)–2(a). They are also offsetting positions and
constitute a straddle. Section 1092(c)(1). The bor-
rowing fromIis an indebtedness incurred to purchase
personal property that is part of a straddle. See
§§1.263(g)–3(b)(1) and (c)(1). Similarly, the gold
storage expenses are expenses incurred due to the tax-
payer’s holding personal property that is part of a
straddle. See §1.263(g)–3(b)(2). Therefore both the
interest on the borrowing and the gold storage ex-
penses must be allocated to the capital account for the
partnership interest represented by the retained trust
certificate. See §1.263(g)–4(a)(1)(i) and (a)(2).
Example 7. Equity Swap.
(i) Facts. On January 1, 1998, Jpurchases
100,000 shares of the common stock of XYZcorpo-
ration (which is publicly traded). On December 31,
2001, the 100,000 shares of XYZcorporation com-
mon stock were worth $xper share. On that date, J
entered into a NPC with K. The terms of the NPC
provided that Kwould receive an annual payment on
December 31 of each year equal to 100,000 times
any appreciation in the value of a share of XYZcor-
poration stock above its price at the end of trading
on December 31 of the preceding year and 100,000
times the dividends paid during the year on each
share of XYZcorporation stock. In return, on De-
cember 31 of each year, Jwould receive an amount
equal to LIBOR times the value of 100,000 XYZ
shares at the end of trading on December 31 of the
preceding year plus 100,000 times the amount of
any decrease in the value of a share of XYZcorpora-
tion stock below its price at the end of trading on
December 31 of the preceding year. Payments be-
tween Jand Kwould be netted and continue up to
and including the maturity date of the NPC on De-
cember 31, 2008. Thus, J’s aggregate payments on
the NPC varied directly with the increase in value in
the XYZshares.
(ii) Analysis. The NPC is a position in XYZ
stock. See §1.1092(d)–2(c). The XYZstock is per-
sonal property within the meaning of section
1092(d)(3)(B) because the NPC is a position with
respect to substantially similar or related property
(other than stock) within the meaning of section
1092(b)(3)(B)(i)(II). See §1.1092(d)–2(a)(1)(ii).
The NPC and the XYZshares are offsetting positions
with respect to the same personal property and con-
stitute a straddle. See sections 1092(c)(1),
(c)(3)(A)(i). Consequently, J’s payments are interest
and carrying charges properly allocable to personal
property that is part of a straddle. See
§§1.263(g)–3(b)(3) and (d)(1). Therefore, they
should be allocated to the personal property that is
part of the straddle in the manner that is most appro-
priate under all the facts and circumstances. In this
case, because these payments are incurred to carry
the XYZshares, they should be allocated to the capi-
tal account for the XYZcommon stock. See
§1.263(g)–4(a)(3).
§1.263(g)–5 Effective dates.
Sections 1.263(g)–1, 1.263(g)–2,
1.263(g)–3, and 1.263(g)–4 apply to in-
terest and carrying charges properly allo-
cable to personal property that are paid,
incurred, or accrued after the date these
regulations are adopted as final regula-
tions by publication in the Federal Regis-
terfor a straddle established on or after
January 17, 2001.
Par. 3. Section 1.1092(d)–1 is amended
by revising paragraph (d) and adding
paragraph (e), to read as follows:
§1.1092(d)–1 Definitions and special
rules.
* * * * *
(d) Debt instrument linked to the value
of personal property. If a taxpayer is the
obligor under a debt instrument one or
more payments on which are linked to the
value of personal property or a position
with respect to personal property, then the
taxpayer’s obligation under the debt in-
strument is a position with respect to per-
sonal property and may be part of a strad-
dle.
(e) Effective dates. Paragraph
(b)(1)(vii) of this section applies to posi-
tions entered into on or after October 14,
1993. Paragraph (c) of this section ap-
plies to positions entered into on or after
July 8, 1991. Paragraph (d) of this section
is effective for straddles established on or
after January 17, 2001.
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
(Filed by the Office of the Federal Register on January
17, 2001, 8:45 a.m., and published in the issue of the
Federal Register for January 18, 2001, 66 F.R. 4746)
Notice of Proposed Rulemaking
and Notice of Public Hearing
Definition of Disqualified Person
REG–107175–00
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations to narrow the defini-
tion of the term disqualified person for
section 1031 like-kind exchanges. The
regulations are in response to recent
changes in the federal banking law, espe-
cially the repeal of section 20 of the
Glass-Steagall Act of 1933. The regula-
tions will affect the eligibility of certain
persons to serve as escrow holders of
qualified escrow accounts, trustees of
qualified trusts, or as qualified intermedi-
aries. This document also provides notice
of a public hearing on these proposed reg-
ulations.
DATES: Written or electronic comments
must be received by April 17, 2001. Re-
quests to speak and outlines of topics to
be discussed at the public hearing sched-
uled for June 5, 2001, at 10 a.m. must be
received by May 15, 2001.
ADDRESSES: Send submissions to:
CC:M&SP:RU (REG–107175–00), room
5226, Internal Revenue Service, Post Of-
fice Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions
may be hand delivered Monday through
Friday between the hours of 8 a.m. and 5
p.m. to: CC:M&SP:RU (REG–107175–
00), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue, NW.,
Washington, DC. Alternatively, taxpayers
may submit comments electronically via
the Internet by selecting the “Tax Regs”
option on the IRS Home Page, or by sub-
mitting comments directly to the IRS In-
ternet site at http://www.irs.gov/
tax_regs/regslist.html. The public hear-
ing will be held in room 4718, Internal
Revenue Building, 1111 Constitution Av-
enue, NW., Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regula-
tions, J. Peter Baumgarten, at (202) 622-
4950; concerning submissions of
comments, the hearing, or to be placed on
the building access list to attend the hear-
ing, Treena Garrett, at (202) 622-7190
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
This document contains proposed
amendments to the Income Tax Regula-
tions (26 CFR part 1) for the definition of
2001–13 I.R.B.971March 26, 2001

disqualified person under section
1.1031(k)–1(k).
An exchange of property, like a sale,
usually results in the current recognition
of gain or loss. Section 1031(a) provides
an exception to the general rule. Under
section 1031(a), no gain or loss is recog-
nized if property held for productive use
in a trade or business or for investment is
exchanged solely for property of a like
kind that is to be held either for produc-
tive use in a trade or business or for in-
vestment.
Taxpayers may use a qualified escrow
account, qualified trust, or qualified inter-
mediary (or any combination of the three)
to facilitate a like-kind exchange. A re-
quirement common to qualified escrow
accounts, qualified trusts, and qualified
intermediaries is that the escrow holder,
trustee, or intermediary may not be the
taxpayer or a disqualified person.
Section 1.1031(k)–1(k) defines a dis-
qualified person to include a person that is
an agent of the taxpayer at the time of the
transaction. An agent includes a person
that has acted as the taxpayer’s employee,
attorney, accountant, investment banker
or broker, or real estate agent or broker
within two years of the taxpayer’s transfer
of relinquished property. However, in de-
termining whether a person is a disquali-
fied person, services provided by such
person for the taxpayer with respect to
section 1031 exchanges of property and
routine financial, title insurance, escrow,
or trust services provided to the taxpayer
by a financial institution, title insurance
company, or escrow company are not
taken into account. A person that is re-
lated to a disqualified person, determined
by using the attribution rules of sections
267(b) and 707(b) but substituting 10 per-
cent for 50 percent, is also considered a
disqualified person.
Under section 20 of the Banking Act of
1933 (12 U.S.C. 377) (the Glass-Steagall
Act), banks generally were proscribed
from affiliation with any corporation, as-
sociation, business trust, or other similar
organization engaged principally in the
issue, flotation, underwriting, public sale,
or distribution at wholesale or retail or
through syndicate participation of stocks,
bonds, debentures, notes, or other securi-
ties. However, last year Congress en-
acted the Gramm-Leach-Bliley Act, Pub-
lic Law 106-102 (November 12, 1999),
113 Stat.1341 (the GLB Act). Section
101 of the GLB Act repeals section 20 of
the Glass-Steagall Act. In addition, sec-
tion 103 of the GLB Act amends section
4 of the Bank Holding Company Act of
1956 (12 U.S.C. 1843) by adding new
subsection (k). Subsection (k) specifi-
cally authorizes qualifying financial in-
stitutions to engage in activities that are
financial in nature, such as (1) providing
financial, investment, or economic advi-
sory services, including advising an in-
vestment company (as defined in section
3 of the Investment Company Act of
1940 (15 U.S.C. 80a–3)); (2) issuing and
selling instruments representing interests
in pools of assets permissible for a bank
to hold directly; and (3) underwriting,
dealing in, and making a market in secu-
rities.
As a consequence of the GLB Act (and
other changes in policy by the Federal Re-
serve System in recent years), many
banks and bank holding companies are, or
are in the process of becoming, members
of controlled groups that include invest-
ment banking and brokerage firms. This,
in turn, may cause the banks, bank hold-
ing companies, and their subsidiaries to
be disqualified persons for purposes of
section 1031 by virtue of the related party
rule of §1.1031(k)–1(k)(4).
Treasury and the Service believe that,
in general, banks should be permitted to
serve as qualified intermediaries, escrow
holders, or trustees. Banks, as regulated
institutions, have historically acted in this
role as neutral or independent holders of
funds. These regulations permit banks to
continue in this role despite recent legisla-
tive and regulatory changes.
In order to account for changes in the
banking industry, the proposed regula-
tions generally provide that a bank that is
a member of a controlled group that in-
cludes an investment banking or broker-
age firm as a member will not be a dis-
qualified person merely because the
investment banking or brokerage firm has
provided services to an exchange cus-
tomer within a two-year period ending on
the date of the transfer of the relinquished
property by that customer.
Proposed Effective Date
The regulations are applicable for
transfers of property made by a taxpayer
on or after January 17, 2001.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. It has
also been determined that section 553(b)
of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these
regulations, and, because the regulations
do not impose a collection of information
on small entities, the Regulatory Flexibil-
ity Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the
Internal Revenue Code, this notice of pro-
posed rulemaking will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any electronic or
written comments that are submitted
timely to the IRS. The IRS and the Trea-
sury Department request comments on the
merits of the proposed regulations and
how the proposed regulations can be
made clearer and easier to understand.
All comments will be available for public
inspection and copying.
A public hearing has been scheduled
for June 5, 2001, beginning at 10 a.m. in
room 4718 of the Internal Revenue Build-
ing, 1111 Constitution Avenue, NW.,
Washington, DC. Due to building secu-
rity procedures, visitors must enter at the
main Constitution Avenue entrance be-
tween 10th and 12th Streets, NW. In ad-
dition, all visitors must present photo
identification to enter the building. Be-
cause of access restrictions, visitors will
not be admitted beyond the immediate en-
trance area more than 15 minutes before
the hearing starts. For information about
having your name placed on the building
access list to attend the hearing, see the
“FOR FURTHER INFORMATION
CONTACT” section of this preamble.
The rules of 26 CFR 601.601(a)(3) apply
to the hearing. Persons who wish to present
oral comments at the hearing must submit
electronic or written comments and an out-
line of the topics to be discussed and the
time to be devoted to each topic by May 15,
2001. A period of ten (10) minutes will be
March 26, 20019722001–13 I.R.B.

allotted to each person for making com-
ments. An agenda showing the scheduling
of the speakers will be prepared after the
deadline for receiving the outlines has
passed. Copies of the agenda will be avail-
able free of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is J. Peter Baumgarten of the Office
of Associate Chief Counsel (Income Tax
& Accounting). However, other person-
nel from the IRS and Treasury Depart-
ment participated in their development.
* * * * *
Proposed Amendment to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
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 * * *
Par. 2. Section 1.1031(k)–1 is
amended by adding a sentence to the end
of paragraph (k)(4) to read as follows:
§1.1031(k)–1 Treatment of deferred
exchanges.
* * * * *
(k) * * *
(4) * * * However, with respect to trans-
fers of relinquished property made by a tax-
payer on or after the date on which these
regulations are published as final regula-
tions, this paragraph (k)(4) does not apply
to a bank (as defined in section 581) that is
a member of a controlled group (as deter-
mined under section 267(f)(1), substituting
“10 percent” for “50 percent” where it ap-
pears), where a person described in para-
graph (k)(2) of this section is an investment
banker or broker that has provided invest-
ment banking or brokerage services to the
taxpayer within the 2-year period and also
is a member of the controlled group.
* * * * *
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
(Filed by the Office of the Federal Register on January
16, 2001, 8:45 a.m., and published in the issue of the
Federal Register for January 17, 2001, 66 F.R. 3924)
Notice of Proposed Rulemaking
By Cross Reference to
Temporary Regulations and
Notice of Public Hearing
Electronic Payee Statements
REG–107186–00
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing by cross reference to temporary regu-
lations and notice of public hearing.
SUMMARY: The IRS is issuing proposed
regulations under sections 6041 and 6051
relating to the voluntary electronic fur-
nishing of payee statements on Forms
W-2. The proposed regulations also pro-
vide rules under section 6050S relating to
the voluntary electronic furnishing of
statements to individuals for whom Forms
1098-T, “Tuition Payments Statement,”
and Forms 1098-E, “Student Loan Inter-
est Statement,” are filed. The proposed
regulations will affect persons required by
the foregoing Internal Revenue Code sec-
tions to furnish these statements (furnish-
ers) who wish to furnish these statements
electronically. The proposed regulations
will also affect individuals, principally
employees, students, and borrowers (re-
cipients), who consent to receive these
statements electronically. The text of the
temporary regulations also serves as the
text of these proposed regulations. These
proposed regulations do not affect the re-
quirement to file copy A of Forms W-2
with the Social Security Administration or
the requirement to file Forms 1098-T or
Forms 1098-E with the IRS.
DATES: Written or electronic comments
and requests to speak (with outlines of
oral comments) at a public hearing sched-
uled for June 4, 2001, at 10 a.m. must be
submitted by May 14, 2001.
ADDRESSES: Send submissions to:
CC:M&SP:RU (REG–107186–00), room
5226, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand de-
livered Monday through Friday between
the hours of 8 a.m. and 5 p.m. to:
CC:M&SP:RU (REG–107186–00),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW.,
Washington, DC. Alternatively, taxpayers
may submit comments electronically via
the Internet by selecting the “Tax Regula-
tions” option on the IRS Home Page, or
by submitting comments directly to the
IRS Internet site at http://www.
irs.gov/tax_regs/regslist.html. The public
hearing will be held in the IRS Audito-
rium, Seventh Floor, Internal Revenue
Service Building, 1111 Constitution Av-
enue, NW., Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Laura
C. Nash (202) 622-4910; concerning sub-
mission of comments, the hearing, and/or
to be placed on the building access list to
attend the hearing, Sonya Cruse (202)
622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained
in this notice of proposed rulemaking has
been submitted to the Office of Manage-
ment and Budget for review in accordance
with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)). Comments on the
collection of information should be sent to
the Office of Management and Budget,
Attn: Desk Officer for the Department of
the Treasury, Office of Information and
Regulatory Affairs, Washington, DC
20503, with copies to the Internal Rev-
enue Service, Attn: IRS Reports Clearance
Officer, W:CAR:MP:FP:S:O, Washington,
DC 20224. Comments on the collection of
information should be received by April 16,
2001. Comments are specifically requested
concerning:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the Internal
Revenue Service, including whether the
information will have practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collection of information may
be minimized, including through the ap-
plication of automated collection tech-
niques or other forms of information tech-
nology; and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
2001–13 I.R.B.973March 26, 2001

purchase of services to provide informa-
tion.
The collections of information in these
proposed regulations are in §§1.6041–
2(a)(5), 1.6050S–1(a), 1.6050S–2(a), and
31.6051–1(i). These temporary regulations
state that furnishers may provide the writ-
ten statements required by sections
6041(d), 6050S(d), and 6051 in an elec-
tronic format in lieu of a paper format. In
addition, the proposed regulations provide
furnishers with a method to furnish a state-
ment in connection with a Form 1098-T or
Form 1098-E under section 6050S(d), or a
Form W-2 under section 6041(d) or 6051,
electronically using website technology. In
general, a furnisher may furnish the state-
ment electronically using the method de-
scribed in the proposed regulations if the
recipient consents to receive the statement
electronically, and if the furnisher makes
certain disclosures to the recipient, annu-
ally notifies the recipient that the statement
is available on a website, and provides ac-
cess to the statement on that website for a
prescribed period of time. This collection
of information is required only for persons
who wish to furnish the statements elec-
tronically using the method described in the
proposed regulations. The likely respon-
dents are businesses, other for-profit insti-
tutions, and eligible educational institu-
tions.
Estimated total annual reporting/
recordkeeping burden: 2,844,950 hours.
Estimated average annual burden hours
per response: 6 minutes.
Estimated number of responses:
28,449,495.
Estimated annual frequency of re-
sponses: Once.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
OMB control number assigned by the Of-
fice of Management and Budget.
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
Temporary regulations (T.D. 8942) on
page 929 of this Bulletin amend the Regu-
lations on Income Taxes (26 CFR part 1)
relating to sections 6041 and 6050S(d),
the Regulations on Employment Taxes
and Collection of Income Tax at Source
(26 CFR part 31) relating to section 6051,
and the Regulations on Procedure and Ad-
ministration (26 CFR part 301) relating to
section 6724. The text of those temporary
regulations also serves as the text of these
proposed regulations. The preamble to
the temporary regulations explains the
regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. It has
also been determined that section 553(b)
of the Administrative Procedure Act (5
U.S.C. Chapter 5) does not apply to these
regulations. An initial regulatory flexibil-
ity analysis has been prepared for this no-
tice of proposed rulemaking under 5
U.S.C. 603 and is set forth under the
heading “Initial Regulatory Flexibility
Act Analysis” in this preamble. Pursuant
to section 7805(f), this notice of proposed
rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Initial Regulatory Flexibility Act
Analysis
This initial analysis is required under
the Regulatory Flexibility Act. (5 U.S.C.
chapter 6). The collection of information
contained in §§1.6041–2(a)(5),
1.6050S–1(a), 1.6050S–2(a), and
31.6051–1(i) is required if a furnisher im-
plements the method described in the pro-
posed regulations to furnish statements
electronically.
The types of small entities to which the
proposed regulations may apply are small
eligible educational institutions (such as
colleges and universities), certain payees
of interest on qualified education loans,
and small employers. It is estimated that
furnishers will seek consents from ap-
proximately 28,449,495 individuals to re-
ceive these statements electronically.
There are no known Federal rules that du-
plicate, overlap, or conflict with these
proposed regulations. The regulations
proposed are considered to have the least
economic effect on small entities of all al-
ternatives considered.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any electronic or
written comments (a signed original and
eight (8) copies) that are submitted timely
to the IRS. The IRS and Treasury Depart-
ment request comments on the clarity of
the proposed rules and how they can be
made easier to understand. All comments
will be available for public inspection and
copying.
A public hearing has been scheduled for
June 4, 2001, beginning at 10 a.m., in the
IRS Auditorium of the Internal Revenue
Building, 1111 Constitution Avenue, NW.,
Washington, DC. Due to building security
procedures, visitors must enter at the 10th
Street entrance, located between Constitu-
tion and Pennsylvania Avenues, NW. In
addition, all visitors must present photo
identification to enter the building. Be-
cause of access restrictions, visitors will
not be admitted beyond the immediate en-
trance area more than 15 minutes before
the hearing starts. For information about
having your name placed on the building
access list to attend the hearing, see the
“FOR FURTHER INFORMATION CON-
TACT” section of this preamble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written comments and an outline
of the topics to be discussed and the time
to be devoted to each topic (signed origi-
nal and eight (8) copies) by May 14,
2001. A period of ten minutes will be al-
lotted to each person for making com-
ments. An agenda showing the schedul-
ing of speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal author of these proposed
regulations is Eric Lucas, formerly of the
Office of Associate Chief Counsel (Proce-
dure and Administration). However,
other personnel from the IRS and Trea-
sury Department participated in their de-
velopment.
* * * * *
March 26, 20019742001–13 I.R.B.

Proposed Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 31, and
301 are proposed to be amended as fol-
lows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in nu-
merical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6041–2 also issued under 26
U.S.C. 6041(d). * * *
Section 1.6050S–1 also issued under 26
U.S.C. 6050S(g).
Section 1.6050S–2 also issued under 26
U.S.C. 6050S(g). * * *
Par. 2. Section 1.6041–2 is amended
by adding a new paragraph (a)(5) to read
as follows:
§1.6041–2 Return of information as to
payments to employees.
(a) * * *
(5) [The text of proposed paragraph
(a)(5) is the same as the text of
§1.6041–2T(a)(5) published in T.D.
8942].
* * * * *
Par. 3. Sections 1.6050S–1 and
1.6050S–2 are added to read as follows:
§1.6050S–1 Information reporting for
payments and reimbursements or refunds
of qualified tuition and related expenses.
[The text of these proposed regulations
is the same as the text of §1.6050S–1T
published in T.D. 8942].
§1.6050S–2 Information reporting for
payments of interest on qualified
education loans.
[The text of these proposed regulations
is the same as the text of §1.6050S–2T
published in T.D. 8942].
PART 31—EMPLOYMENT TAXES
AND COLLECTION OF INCOME TAX
AT SOURCE
Par. 4. The authority citation continues
to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 5. Section 31.6051–1 is amended
by:
1. Redesignating paragraph (i) as para-
graph (j).
2. Adding a new paragraph (i).
The addition reads as follows:
§31.6051–1 Statements for employees.
* * * * *
(i) [The text of proposed paragraph (i)
is the same as the text of §31.6051–1T(j)
published in T.D. 8942].
* * * * *
PART 301 - - PROCEDURE AND
ADMINISTRATION
Par. 6. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 5. Section 301.6724–1 is amended
by adding a new paragraph (d)(3) to read
as follows:
§301.6724–1 Reasonable cause.
* * * * *
(d) * * *
(3) [The text of proposed paragraph
(d)(3) is the same as the text of
§301.6724–1T(d)(3) published in T.D.
8942].
* * * * *
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
(Filed by the Office of the Federal Register on Feb-
ruary 13, 2001, 8:45 a.m., and published in the issue
of the Federal Register for February 14, 2001, 66
F.R. 10247)
Determination of Basis of
Partner’s Interest; Special Rules;
Correction
Announcement 2001–28
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correction to notice of pro-
posed rulemaking and notice of public
hearing.
SUMMARY: This document contains
corrections to REG–106702–00 (2001–4
I.R.B. 424) which was published in the
Federal Registeron Wednesday, January
3, 2001 (66 FR 315). These regulations
relate to special rules on determination of
basis of partner’s interest under section
705 of the Internal Revenue Code.
FOR FURTHER INFORMATION
CONTACT: Barbara MacMillan, (202)
622-3050 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The notice of proposed rulemaking
that is the subject of these corrections is
under section 705 of the Internal Rev-
enue Code.
Need for Correction
As published, REG–106702–00 con-
tains errors which may prove to be mis-
leading and are in need of clarification.
Correction of Publication
Accordingly, the publication of the
notice of proposed rulemaking (REG–
106702–00), which is the subject of FR
Doc. 01–32189, is corrected as follows:
1. On page 315, column 2, in the pre-
amble, under the caption “DATES:”,
last line, the language “must be re-
ceived by April 3, 2001” is corrected to
read “must be received by April 12,
2001”.
2. On page 316, column 3, in the pre-
amble under the paragraph heading
“Comments and Public Hearing”, first
full paragraph in the column, last line,
the language “April 3, 2001.” is cor-
rected to read April 12, 2001.”.
§1.705–2 [Corrected]
3. On page 317, column 2, §1.705–2
(b)(2), paragraph (ii) of the Example,
line 1 the language “Normally, X would
be entitled to a $40” is corrected to read
“Normally, X would be entitled to a
$40,000”.
4. On page 318, column 3, §1.705–2
(c)(2), paragraph (vi) of Example 2, line
19 the language “The amount of UTP’s
gain” is corrected to read “The amount
of LTP’s gain”.
Cynthia Grigsby,
Chief, Regulations Unit,
Office of Special Counsel
(Modernization & Strategic Planning).
(Filed by the Office of the Federal Register on Feb-
ruary 26, 2001, 8:45 a.m., and published in the issue
of the Federal Register for February 27, 2001, 66
F.R. 12448)
2001–13 I.R.B.975March 26, 2001

Section 7428(c) Validation of
Certain Contributions Made
During Pendency of Declaratory
Judgment Proceedings
This announcement serves notice to po-
tential donors that the organizations listed
below have recently filed timely declara-
tory judgment suits under section 7428 of
the Code, challenging revocation of their
status as eligible donees under section
170(c)(2).
Protection under section 7428(c) of the
Code begins on the date that the notice of
revocation is published in the Internal
Revenue Bulletin and ends on the date on
which a court first determines that an or-
ganization is not described in section
170(c)(2), as more particularly set forth in
section 7428(c)(1). In the case of individ-
ual contributors, the maximum amount of
contributions protected during this period
is limited to $1,000.00, with a husband
and wife being treated as one contributor.
This protection is not extended to any in-
dividual who was responsible, in whole or
in part, for the acts or omissions of the or-
ganization that were the basis for the re-
vocation. This protection also applies
(but without limitation as to amount) to
organizations described in section
170(c)(2) which are exempt from tax
under section 501(a). If the organization
ultimately prevails in its declaratory judg-
ment suit, deductibility of contributions
would be subject to the normal limitations
set forth under section 170.
St David’s Health Care System, Inc.
Austin, TX
Watts 13 Foundation
Los Angeles, CA
March 26, 20019762001–13 I.R.B.

2001–13 I.R.B.iMarch 26, 2001
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:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security
Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions 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.
Definition of Terms

March 26, 2001ii2001–13 I.R.B.
Numerical Finding List
1
Bulletins 2001–1 through 2001–12
Announcements:
2001–1, 2001–2 I.R.B. 277
2001–2, 2001–2 I.R.B. 277
2001–3, 2001–2 I.R.B. 278
2001–4, 2001–2 I.R.B. 286
2001–5, 2001–2 I.R.B. 286
2001–6, 2001–3 I.R.B. 357
2001–7, 2001–3 I.R.B. 357
2001–8, 2001–3 I.R.B. 357
2001–9, 2001–3 I.R.B. 357
2001–10, 2001–4 I.R.B. 431
2001–11, 2001–4 I.R.B. 432
2001–12, 2001–6 I.R.B. 526
2001–13, 2001–96 I.R.B. 752
2001–14, 2001–7 I.R.B. 648
2001–15, 2001–8 I.R.B. 715
2001–16, 2001–8 I.R.B. 715
2001–17, 2001–8 I.R.B. 716
2001–18, 2001–10 I.R.B. 791
2001–19, 2001–10 I.R.B. 791
2001–20, 2001–8 I.R.B. 716
2001–21, 2001–9 I.R.B. 752
2001–22, 2001–11 I.R.B. 895
2001–23, 2001–10 I.R.B. 791
2001–24, 2001–10 I.R.B. 793
2001–25, 2001–11 I.R.B. 895
2001–26, 2001–11 I.R.B. 896
2001–27, 2001–11 I.R.B. 897
Notices:
2001–1, 2001–2 I.R.B. 261
2001–2, 2001–2 I.R.B. 265
2001–3, 2001–2 I.R.B. 267
2001–4, 2001–2 I.R.B. 267
2001–5, 2001–3 I.R.B. 327
2001–6, 2001–3 I.R.B. 327
2001–7, 2001–4 I.R.B. 374
2001–8, 2001–4 I.R.B. 374
2001–9, 2001–4 I.R.B. 375
2001–10, 2001–5 I.R.B. 459
2001–11, 2001–5 I.R.B. 464
2001–12, 2001–3 I.R.B. 328
2001–13, 2001–6 I.R.B. 514
2001–14, 2001–6 I.R.B. 516
2001–15, 2001–7 I.R.B. 589
2001–16, 2001–9 I.R.B. 730
2001–17, 2001–9 I.R.B. 730
2001–18, 2001–9 I.R.B. 731
2001–19, 2001–10 I.R.B. 784
2001–20, 2001–11 I.R.B. 818
2001–21, 2001–11 I.R.B. 818
2001–22, 2001–12 I.R.B. 911
2001–23, 2001–12 I.R.B. 911
2001–24, 2001–12 I.R.B. 912
Proposed Regulations:
REG–209461–79, 2001–8, I.R.B. 712
REG–246256–96, 2001–8, I.R.B. 713
REG–251701–96, 2001–4, I.R.B. 396
REG–106030–98, 2001–11, I.R.B. 820
REG–106542–98, 2001–5, I.R.B. 473
REG–121928–98, 2001–6, I.R.B. 520
REG–111835–99, 2001–11, I.R.B. 834
REG–103320–00, 2001–8, I.R.B. 714
REG–104683–00, 2001–4, I.R.B. 407
Proposed Regulations—Continued:
REG–106702–00, 2001–4, I.R.B. 424
REG–106791–00, 2001–6, I.R.B. 521
REG–107176–00, 2001–4, I.R.B. 428
REG–107566–00, 2001–3, I.R.B. 346
REG–110374–00, 2001–12, I.R.B. 915
REG–110659–00, 2001–12, I.R.B. 917
REG–114082–00, 2001–7, I.R.B. 629
REG–114083–00, 2001–7, I.R.B. 630
REG–114084–00, 2001–7, I.R.B. 633
REG–116468–00, 2001–6, I.R.B. 522
REG–119352–00, 2001–6, I.R.B. 525
REG–125237–00, 2001–12, I.R.B. 919
REG–126100–00, 2001–11, I.R.B. 862
REG–130477–00, 2001–11, I.R.B. 865
REG–130481–00, 2001–11, I.R.B. 865
Railroad Retirement Quarterly Rates:
2001–2, I.R.B. 258
Revenue Procedures:
2001–1, 2001–1 I.R.B. 1
2001–2, 2001–1 I.R.B. 79
2001–3, 2001–1 I.R.B. 111
2001–4, 2001–1 I.R.B. 121
2001–5, 2001–1 I.R.B. 164
2001–6, 2001–1 I.R.B. 194
2001–7, 2001–1 I.R.B. 236
2001–8, 2001–1 I.R.B. 239
2001–9, 2001–3 I.R.B. 328
2001–10, 2001–2 I.R.B. 272
2001–11, 2001–2 I.R.B. 275
2001–12, 2001–3 I.R.B. 335
2001–13, 2001–3 I.R.B. 337
2001–14, 2001–3 I.R.B. 343
2001–15, 2001–5 I.R.B. 465
2001–16, 2001–4 I.R.B. 376
2001–17, 2001–7 I.R.B. 589
2001–18, 2001–8 I.R.B. 708
2001–19, 2001–9 I.R.B. 732
2001–20, 2001–9 I.R.B. 738
2001–21, 2001–9 I.R.B. 742
2001–22, 2001–9 I.R.B. 745
2001–23, 2001–10 I.R.B. 784
2001–24, 2001–10 I.R.B. 788
2001–25, 2001–12 I.R.B. 913
Revenue Rulings:
2001–1, 2001–9 I.R.B. 726
2001–2, 2001–2 I.R.B. 255
2001–3, 2001–3 I.R.B. 319
2001–4, 2001–3 I.R.B. 295
2001–5, 2001–5 I.R.B. 451
2001–6, 2001–6 I.R.B. 491
2001–7, 2001–7 I.R.B. 541
2001–8, 2001–9 I.R.B. 726
2001–9, 2001–8 I.R.B. 652
2001–10, 2001–10 I.R.B. 755
2001–11, 2001–10 I.R.B. 780
2001–12, 2001–11 I.R.B. 811
2001–13, 2001–12 I.R.B. 898
2001–14, 2001–12 I.R.B. 898
Treasury Decisions:
8910, 2001–2 I.R.B. 258
8911, 2001–3 I.R.B. 321
8912, 2001–5 I.R.B. 452
8913, 2001–3 I.R.B. 300
8914, 2001–8 I.R.B. 653
Treasury Decisions—Continued:
8915, 2001–4 I.R.B. 359
8916, 2001–4 I.R.B. 360
8917, 2001–7 I.R.B. 538
8918, 2001–4 I.R.B. 372
8919, 2001–6 I.R.B. 505
8920, 2001–8 I.R.B. 654
8921, 2001–7 I.R.B. 532
8922, 2001–6 I.R.B. 508
8923, 2001–6 I.R.B. 485
8924, 2001–6 I.R.B. 489
8925, 2001–6 I.R.B. 496
8926, 2001–6 I.R.B. 492
8927, 2001–11 I.R.B. 807
8928, 2001–8 I.R.B. 685
8929, 2001–10 I.R.B. 756
8930, 2001–5 I.R.B. 433
8931, 2001–7 I.R.B. 542
8932, 2001–11 I.R.B. 813
8933, 2001–11 I.R.B. 794
8934, 2001–12 I.R.B. 904
8935, 2001–8 I.R.B. 702
8937, 2001–11 I.R.B. 806
8939, 2001–12 I.R.B. 899
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2000–27 through
2000–52 is in Internal Revenue Bulletin 2001–1,
dated January 2, 2001.

2001–13 I.R.B.iiiMarch 26, 2001
Finding List of Current Actions on
Previously Published Items
1
Bulletins 2001–1 through 2001–12
Announcement:
98–99
Modified by
Ann. 2001–9, 2001–3 I.R.B. 357
99–79
Superseded by
Ann. 2001–3, 2001–2 I.R.B. 278
2000–78
Obsoleted by
T.D. 8933, 2001–11 I.R.B. 794
2000–97
Corrected by
Ann. 2001–7, 2001–3 I.R.B. 357
Cumulative Bulletin:
1998–2
Corrected by
Ann. 2001–5, 2001–2 I.R.B. 286
Notices:
94–3
Modified by
T.D. 8933, 2001–11 I.R.B. 794
98–39
Modified by
Notice 2001–9, 2001–4 I.R.B. 375
98–40
Modified by
Notice 2001–9, 2001–4 I.R.B. 375
99–53
Modified and superseded by
Notice 2001–7, 2001–4 I.R.B. 374
2000–21
Superseded by
Notice 2001–1, 2001–2 I.R.B. 261
2000–22
Modified and superseded by
Notice 2001–8, 2001–4 I.R.B. 374
2000–26
Modified by
Notice 2001–22, 2001–12 I.R.B. 911
2000–43
Extended by
Notice 2001–13, 2001–6 I.R.B. 514
Proposed Regulations:
EE–130–86
Partially withdrawn by
REG–209461–79, 2001–8 I.R.B. 712
REG–116733–98
Withdrawn by
Ann. 2001–11, 2001–4 I.R.B. 432
REG–116048–99
Withdrawn by
Ann. 2001–27, 2001–11 I.R.B. 897
Revenue Procedures:
83–87
Superseded by
Rev. Proc. 2001–15, 2001–5 I.R.B. 465
90–18
Amplified and superseded by
Rev. Proc. 2001–18, 2001–8 I.R.B. 708
92–19
Superseded by
Rev. Proc. 2001–15, 2001–5 I.R.B. 465
96–15
Modified by
Ann. 2001–22, 2001–11 I.R.B. 895
96–17
Modified by
Rev. Proc. 2001–9, 2001–3 I.R.B. 328
99–18
Modified and superseded by
Rev. Proc. 2001–21, 2001–9 I.R.B. 742
99–47
Superseded by
Rev. Proc. 2001–16, 2001–4 I.R.B. 376
99–49
Modified and amplified by
Notice 2001–23, 2001–12 I.R.B. 911
Rev. Proc. 2001–10, 2001–2 I.R.B. 272
Rev. Proc. 2001–23, 2001–10 I.R.B. 784
Rev. Proc. 2001–24, 2001–10 I.R.B. 788
Rev. Proc. 2001–25, 2001–12 I.R.B. 913
Rev. Rul. 2001–8, 2001–9 I.R.B. 762
2000–1
Superseded by
Rev. Proc. 2001–1, 2001–1 I.R.B. 1
2000–2
Superseded by
Rev. Proc. 2001–2, 2001–1 I.R.B. 79
2000–3
Superseded by
Rev. Proc. 2001–3, 2001–1 I.R.B. 111
2000–4
Superseded by
Rev. Proc. 2001–4, 2001–1 I.R.B. 121
2000–5
Superseded by
Rev. Proc. 2001–5, 2001–1 I.R.B. 164
2000–6
Superseded by
Rev. Proc. 2001–6, 2001–1 I.R.B. 194
2000–7
Superseded by
Rev. Proc. 2001–7, 2001–1 I.R.B. 236
2000–8
Superseded by
Rev. Proc. 2001–8, 2001–1 I.R.B. 239
2000–16
Modified and superseded by
Rev. Proc. 2001–17, 2001–7 I.R.B. 589
2000–22
Modified and superseded by
Rev. Proc. 2001–10, 2001–2 I.R.B. 272
Revenue Procedures—Continued:
2001–3
Corrected by
Ann. 2001–25, 2001–11 I.R.B. 895
2001–13
Clarified by
Notice 2001–12, 2001–3 I.R.B. 328
Revenue Rulings:
64–328
Modified by
Notice 2001–10, 2001–5 I.R.B. 459
66–110
Modified by
Notice 2001–10, 2001–5 I.R.B. 459
85–30
Clarified by
Rev. Rul. 2001–8, 2001–9 I.R.B. 762
88–95
Clarified by
Rev. Rul. 2001–8, 2001–9 I.R.B. 762
92–19
Supplemented in part by
Rev. Rul. 2001–11, 2001–10 I.R.B. 780
2000–56
Corrected by
Ann. 2001–19, 2001–10 I.R.B. 791
2001–4
Modified by
Notice 2001–23, 2001–12 I.R.B. 911
Treasury Decisions:
8889
Corrected by
Ann. 2001–14, 2001–2 I.R.B. 286
8913
Corrected by
Ann. 2001–26, 2001–11 I.R.B. 896
1
A cumulative list of current actions on previously
published items in Internal Revenue Bulletins
2000–27 through 2000–52 is in Internal Revenue
Bulletin 2001–1, dated January 2, 2001.

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