Internal Revenue Bulletin 1998-8 (PDF rendition): IRS Notices

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

INCOME TAX
T.D. 8750, page 4.
REG–115795–97, page 33.
Temporary and proposed regulations provide guidance to a
passive foreign investment company (PFIC) shareholder that
makes the election under section 1295 of the Code to treat
the PFIC as a qualified electing fund. A public hearing on the
proposed regulations will be held on April 16, 1998.
Rev. Proc. 98–21, page 27.
Procedures concerning requests to the U.S. competent au-
thority for assistance in resolving cases under Article XIII(8)
of the U.S.—Canada Income Tax Convention are set forth.
EMPLOYEE PLANS
REG–209476–82, page 36.
Proposed regulations under section 72(p) of the Code relate
to loans made from a qualified employer plan to plan partici-
pants or beneficiaries.
EXEMPT ORGANIZATIONS
Announcement 98–11, page 42.
A list is given of organizations now classified as private foun-
dations.
EMPLOYMENT TAX
REG–209484–87; REG–209807–95, page 40.
Proposed regulations under sections 3121(v)(2) and
3306(r)(2) of the Code relate to when amounts deferred
under or paid from certain nonqualified deferred compensa-
tion plans are taken into account as “wages” for purposes of
the taxes imposed by FICA and FUTA.
EXCISE TAX
T.D. 8748, page 24.
Final regulations under section 4081 of the Code relate to the
application of the diesel fuel excise tax to fuel used in Alaska.
ADMINISTRATIVE
REG–100841–97, page 30.
Proposed regulations under section 6159 of the Code relate
to terminations of agreements for the payment of tax liabili-
ties in installments (installment agreements).
REG–105163–97, page 31.
Proposed regulations relate to the treatment of certain in-
vestment income under the qualifying income provisions of
section 7704(d) of the Code and the application of the pas-
sive activity loss rules to publicly traded partnerships. A pub-
lic hearing will be held on April 28, 1998.
Notice 98–14, page 27.
Failure to deposit federal tax; penalty abatement. An
interim procedure is provided for use by taxpayers to re-
quest abatement of the failure-to-deposit penalty when the
manner in which the Service applies deposits produces mul-
tiple failure-to-deposit penalties as a result of a single failure
to deposit.
Announcement 98–12, page 43.
This announcement provides guidance on how to complete
the worksheets for Form 8582, Passive Activity Loss Limita-
tions, if the filer has more than one passive activity with
Schedule D (Form 1040) transactions.
Announcement 98–13, page 43.
Form 3115, Application for Change in Accounting Method,
and its instructions have been revised.
Announcement 98–14, page 44.
Form 5305–R, Roth Individual Retirement Trust Account;
Form 5305–RA, Roth Individual Retirement Custodial Ac-
count; Form 5305–E, Education Individual Retirement Trust
Account; and Form 5305–EA, Education Individual Retire-
ment Custodial Account, are now available.
Internal Revenue
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Bulletin No. 1998–8
February 23, 1998
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page 48.
Announcement of Disbarments and Suspensions begins on page 45.

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

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

February 23, 199841998–8 I.R.B.
Section 1295.—Qualified
Electing Fund
26 CFR 1.1295–1T: Qualified electing funds
(temporary).
T.D. 8750
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
General Rules for Making and
Maintaining Qualified Electing
Fund Elections
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary and final regula-
tions.
SUMMARY: This document contains
temporary regulations that provide guid-
ance to a passive foreign investment com-
pany (PFIC) shareholder that makes the
election under section 1295 (section 1295
election) to treat the PFIC as a qualified
electing fund (QEF). This document also
contains temporary regulations that pro-
vide guidance for shareholders that wish
to make a section 1295 election that will
apply on a retroactive basis (retroactive
election). In addition, this document con-
tains a temporary regulation that provides
guidance under section 1291 to a PFIC
shareholder that is a tax-exempt organiza-
tion. Temporary regulations are needed to
provide taxpayers additional time to sat-
isfy certain requirements to make the sec-
tion 1295 election. The text of these tem-
porary regulations also serves as the text
of proposed regulations REG–115795–
97, page 33. In addition, this document
removes § 1.1291–9(i)(1) of the final reg-
ulations, and amends § 1.1297– 3T. Ref-
erences to sections 1296 and 1297 in this
document are references to sections 1296
and 1297 as in effect before the effective
date of section 1122(a) of the Tax Relief
Act of 1997.
DATES: These regulations are effective
January 2, 1998.
For dates of applicability, see
§§ 1.1291–1T(e)(2), 1.1293–1T(a)(2)(ii),
1.1293–1T(c)(3), 1.1295–1T(k), 1.1295–
3T(h), and § 1.1297–3T(c)(3) of these
regulations.
FOR FURTHER INFORMATION CON-
TACT: Gayle Novig, (202) 622-3840
(not a toll-free number).
SUPPLEMENTARYINFORMATION:
Paperwork Reduction Act
These regulations are being issued
without prior notice and public procedure
pursuant to the Administrative Procedure
Act (5 U.S.C. 553). For this reason, the
collections of information contained in
these regulations have been reviewed and,
pending receipt and evaluation of public
comments, approved by the Office of
Management and Budget under control
number 1545–1555. Responses to these
collections of information are mandatory.
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
control number.
For further information concerning
these collections of information, and
where to submit comments on the collec-
tions of information and the accuracy of
the estimated burden, and suggestions for
reducing this burden, please refer to the
preamble to REG–115795–97.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
This document contains amendments to
the Income Tax Regulations (26 CFR part
1) under sections 1291, 1293, 1295, and
1297 of the Internal Revenue Code. Sec-
tions 1291, 1293, 1295, and 1297 were
added by the Tax Reform Act of 1986, ef-
fective for taxable years of foreign corpo-
rations beginning after December 31,
1986. As originally enacted, the section
1295 election was an election made by the
PFIC. The Technical and Miscellaneous
Revenue Act of 1988 (TAMRA) amended
section 1295, effective for taxable years
of foreign corporations beginning after
December 31, 1986, to change the section
1295 election to a shareholder-by-share-
holder election. Sections 1291, 1293, and
1297 also were amended by TAMRA;
sections 1293 and 1297 were further
amended by the Omnibus Budget Recon-
ciliation Act of 1993. Section 1297 also
was amended by the Revenue Reconcilia-
tion Act of 1989 and the Small Business
Job Protection Act of 1996. In addition,
the Taxpayer Relief Act of 1997 (1997
TRA) amended section 1 to provide cate-
gories of long-term capital gain and the
maximum rates of tax to which the cate-
gories are subject. In certain cases, this
amendment affects the calculation of net
capital gain for purposes of section 1293.
Guidance for making the election under
section 1295 was first provided on March
2, 1988, in the
Federal Register(53 F.R.
6770), with the publication of temporary
regulations (T.D. 8178) relating to the
section 1295 election. These temporary
regulations provided guidance to PFICs
making the section 1295 election and
therefore became obsolete with the 1988
amendment to section 1295. The Internal
Revenue Service published Notice 88–
125, 1988–2 C.B. 535, to provide guid-
ance to shareholders making the section
1295 election under section 1295, as
amended. Notice 88–125 was an admin-
istrative pronouncement, as that term is
used in § 1.6661–3(b)(2) of the Income
Tax Regulations, and taxpayers could rely
on Notice 88–125 to the same extent as a
revenue ruling or a revenue procedure.
Notice 88–125 stated that taxpayers could
rely on the notice until regulations were
published, and that those regulations
would be effective for taxable years be-
ginning after December 31, 1986.
Proposed regulations published April 1,
1992 (57 F.R. 11024), provide a general
rule regarding the application of section
1291 to a PFIC shareholder that is an or-
ganization exempt from tax under chapter
1. In addition, these proposed regulations
provide general rules regarding the appli-
cation of section 1293 and special rules
regarding the application of section 1295,
including rules with respect to transfers of
PFIC stock subject to a section 1295 elec-
tion. Proposed regulation § 1.1295–2,
published December 24, 1996 (61 F.R.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

67752), permits certain shareholders to
make a special section 1295 election with
respect to certain preferred stock. Pro-
posed regulation § 1.1293–2, also pub-
lished December 24, 1996 (61 F.R.
67752), provides the special inclusion
rules applicable to shareholders that make
the special section 1295 election with re-
spect to their preferred stock.
Temporary regulations § 1.1297–3T,
published March 2, 1988 (53 F.R. 6770),
provides guidance for making the deemed
sale election under section 1297(b)(1) to
purge the PFIC taint from stock of a for-
eign corporation that is treated as stock of
a PFIC under section 1297(b)(1). Section
1.1291–9(i)(1) of the regulations, pub-
lished December 27, 1996 (61 F.R.
68149), provides that the deemed divi-
dend election rules of § 1.1291–9 do not
apply to elections made under section
1297(b)(1). Asimilar rule had been pro-
vided in temporary regulations published
April 1, 1992 (57 F.R. 10992). The tem-
porary regulations, which had been effec-
tive April 1, 1992, sunset April 1, 1995.
Treasury and the Service believe that
immediate guidance in the form of tempo-
rary regulations regarding the section
1295 election is necessary. First, the reg-
ulations provide significant new QEF
election procedures that are beneficial to
taxpayers. For example, the regulations
provide procedures for both retroactive
and protective elections. The benefits
provided by these changes may be jeopar-
dized, or simply unavailable (as a result
of closed taxable years), if taxpayers can-
not immediately rely on them. Second,
although the regulations embody guid-
ance already provided in Notice 88–125,
the regulations significantly reduce the
burden for making and maintaining the
election and clarify, most often in favor of
taxpayers, significant ambiguities left by
the Notice. Treasury and the Service be-
lieve that the benefits of immediate guid-
ance significantly outweigh any advan-
tage obtained by issuing the regulations in
proposed form only because these tempo-
rary regulations prevent prejudice to tax-
payers as a consequence of a further delay
in guidance and because they benefit tax-
payers by providing additional time to
make certain elections. Finally, the tem-
porary regulations provide guidance con-
cerning the manner in which section 1(h),
which was added to the Code by 1997
TRA, effective for taxable years ending
after May 6, 1997, applies to determine
the net capital gain of the PFIC and the
QEF shareholder’s pro rata share of the
net capital gain. Therefore, it would be
impractical and contrary to public interest
to issue this Treasury decision with prior
notice under section 553(b) of title 5 of
the United States Code.
Explanation of Provisions
Aforeign corporation is a passive for-
eign investment company (PFIC) for a
taxable year if the foreign corporation sat-
isfies either the income or asset test of
section 1296(a) for that year. Aforeign
corporation is a PFIC under the income
test if 75 percent or more of its gross in-
come for its taxable year is passive, or in-
vestment-type, income. Alternatively,
under the asset test, a foreign corporation
is a PFIC if 50 percent or more of the av-
erage fair market value of its assets during
its taxable year are assets that produce or
are held for the production of passive in-
come. Ashareholder of a foreign corpo-
ration that qualifies as a PFIC is subject to
the interest charge regime of section 1291
with respect to certain distributions by the
PFIC and certain dispositions of its stock.
Generally, a shareholder may avoid the
interest charge regime by making a timely
election under section 1295 to treat a
PFIC as a QEF, in which case the share-
holder will be taxable annually under sec-
tion 1293 on its pro rata shares of the or-
dinary earnings and net capital gain of the
PFIC. Under section 1295(a), a section
1295 election will apply with respect to
the PFIC if the PFIC complies with re-
quirements prescribed by the Secretary
for purposes of determining the ordinary
earnings and net capital gain of the PFIC
and otherwise carrying out the purposes
of the PFIC provisions.
Section 1295(b)(1) provides that a
shareholder may make a section 1295
election with respect to a PFIC for any
taxable year of the shareholder (share-
holder election year). Once made, the
election will apply to that year and to all
subsequent years of the shareholder un-
less revoked with the consent of the Sec-
retary. Section 1295(b)(2) prescribes the
time for making the election. In general,
for the section 1295 election to be applic-
able to a taxable year, the shareholder
must make the election by the due date, as
extended under section 6081, for the
shareholder’s return for that taxable year.
However, to the extent provided in regu-
lations, a section 1295 election may be
made for a taxable year after the time re-
quired if the shareholder failed to make a
timely election because the shareholder
reasonably believed that the foreign cor-
poration was not a PFIC.
This document provides temporary reg-
ulations that interpret sections 1291,
1293, 1295, and 1297. In particular, the
temporary regulations incorporate the
rules of Notice 88–125, with certain mod-
ifications. The temporary regulations also
clarify the rules of the notice and pro-
posed regulation § 1.1295–1(b) with re-
spect to the application of section 1295 to
options, lapse of PFIC status, cessation of
ownership of PFIC stock, transfer of
stock subject to a section 1295 election to
a pass through entity, and tax-exempt or-
ganizations. The temporary regulations
also provide rules regarding invalidation,
termination and revocation of a section
1295 election. In addition, the temporary
regulations introduce rules for making a
retroactive election. Finally, the tempo-
rary regulations provide guidance con-
cerning the application of the deemed div-
idend election rules to elections under
section 1297(b)(1).
1. Rules of Notice 88–125.
Temporary regulation § 1.1295–1T(c)
through (g) adopts the rules provided in
Notice 88–125, with certain modifica-
tions. These modifications reflect certain
comments received with respect to the no-
tice.
Notice 88–125 describes the require-
ments a shareholder must satisfy to make
and maintain a section 1295 election. In
particular, each year the shareholder must
file Form 8621 with its income tax return
and attach a PFIC Annual Information
Statement (described below). In the year
of election, the shareholder also must at-
tach a Shareholder Election Statement.
Notice 88–125 requires satisfaction of the
election and annual reporting require-
ments with respect to each PFIC for
which the shareholder makes the section
1295 election.
Commenters indicated that these elec-
tion and annual reporting requirements
1998–8 I.R.B5February 23, 1998

are burdensome, especially if the share-
holder is making the election with respect
to many foreign corporations. In response
to the comments, the temporary regula-
tions change these requirements to reduce
the burden on the electing shareholder.
First, the temporary regulations eliminate
the need to file a Shareholder Election
Statement. Second, the temporary regula-
tions eliminate the need to file a copy of
the PFIC Annual Information Statement
with Form 8621 and require instead that
the shareholder retain a copy of the PFIC
Annual Information Statement for produc-
tion upon examination by the Service.
Thus, to make and maintain a section 1295
election, the shareholder need only file
Form 8621 for each PFIC on an annual
basis and maintain records to support the
information entered on that form.
Notice 88–125 imposes certain require-
ments on PFICs and on intermediaries
through which shareholders own PFIC
stock. The notice requires a PFIC to pro-
vide its shareholders with a PFIC Annual
Information Statement containing infor-
mation necessary to determine each
shareholder’s yearly income inclusion. In
the case of indirect ownership of PFIC
stock, a nominee or shareholder of record
that has received a PFIC Annual Informa-
tion Statement may issue its own state-
ment to the shareholder containing the
relevant information in lieu of passing on
the PFIC Annual Information Statement.
The temporary regulations allow PFICs
and intermediaries more flexibility in ful-
filling these requirements. APFIC that
owns directly or indirectly any shares of
one or more PFICs may provide its share-
holders with a PFIC Annual Information
Statement in which it combines the re-
quired information and representations of
the PFIC and any lower tier PFICs. The
PFIC may use any format for a combined
PFIC Annual Information Statement pro-
vided the required information and repre-
sentations are clearly presented and iden-
tified with the respective corporations.
Similarly, an intermediary through which
a shareholder indirectly holds stock in
more than one PFIC may provide the
shareholder a combined statement based
on multiple PFIC Annual Information
Statements. Comments are requested
concerning alternative reporting methods
that could further reduce the burden on
electing shareholders.
As provided in Notice 88–125, the
PFIC Annual Information Statement must
include the shareholder’s pro rata shares
of the ordinary earnings and net capital
gain of the PFIC for the PFIC’s taxable
year or information that will enable the
shareholder to calculate its pro rata
shares. In addition, the PFIC Annual In-
formation Statement must contain infor-
mation about distributions to shareholders
and a statement that the PFIC will permit
the shareholder to inspect and copy its
permanent books of account, records, and
other documents of the PFIC necessary to
determine that the ordinary earnings and
net capital gain of the PFIC have been
calculated according to federal income
tax accounting principles. Commenters
indicated that it was unclear in the notice
whether a shareholder, rather than the
PFIC, could calculate the requisite federal
income tax information with respect to a
PFIC that did not keep its books and
records according to U.S. tax accounting
rules. In response to the comments, the
temporary regulations clarify that a share-
holder may obtain the books, records and
other documents of the foreign corpora-
tion necessary for the shareholder to de-
termine the correct earnings and profits
and net capital gain of the PFIC according
to federal income tax principles and cal-
culate the shareholder’s pro rata shares of
the PFIC’s ordinary earnings and net capi-
tal gain. The temporary regulations pro-
vide that, in that case, the PFIC must in-
clude a statement in its PFIC Annual
Information Statement that it has permit-
ted the shareholder to examine the PFIC’s
books of account, records, and other doc-
uments necessary for the shareholder to
calculate the amounts of ordinary earn-
ings and net capital gain.
Notice 88–125 provides that a domestic
partnership makes the section 1295 elec-
tion rather than each individual partner
that is an indirect shareholder of the PFIC
by reason of the partner’s interest in the
partnership. The notice also provides that
an S corporation makes the section 1295
election. This entity-level election in the
case of domestic partnerships and S cor-
porations reflects the view that multiple
elections by the partners or S corporation
shareholders would be more burdensome
than the single entity-level election. The
temporary regulations adopt the rules of
the notice with respect to elections by do-
mestic pass through entities, clarifying
that the section 1295 election with respect
to stock owned directly or indirectly by a
domestic trust or estate generally is also
made at the entity level. The temporary
regulations also adopt the rules of the no-
tice with respect to interests held by for-
eign pass through entities. Interest hold-
ers in foreign partnerships, trusts, and
estates must make the section 1295 elec-
tion with respect to their indirect interests
in PFICs held through those entities; for-
eign entities may not make the section
1295 election.
Partnerships, S corporations, trusts, and
estates are referred to as pass through en-
tities in the temporary regulations. The
regulations clarify that an election made
by a domestic pass through entity is made
in the pass through entity’s capacity as a
shareholder, as specially defined in tem-
porary regulation § 1.1295–1T(j) for pur-
poses of the section 1295 election provi-
sions. Thus, the domestic pass through
entity takes the section 1293 inclusion
into account in its return for the year in
which or with which the PFIC’s taxable
year ends, and the interest holders in the
pass through entity take the section 1293
inclusion into account under the rules ap-
plicable to inclusions of income from the
pass through entity. In addition, the tem-
porary regulations clarify that if an inter-
est holder in a domestic pass through en-
tity transfers stock of a PFIC subject to a
section 1295 election to the pass through
entity, the section 1295 election continues
to apply to the interest holder whether or
not the pass through entity makes the sec-
tion 1295 election.
Similarly, the temporary regulations
clarify the effect of the termination under
section 708(b) of a partnership on a sec-
tion 1295 election made by the partner-
ship. Section 1.1295–1T(b)(3)(iii) pro-
vides that, notwithstanding the
termination of a section 1295 election
when a partnership terminates, the part-
ners of the former partnership that are
partners of the new partnership are bound
by the section 1295 election made by the
former partnership whether or not the new
partnership makes a section 1295 election.
Notice 88–125 does not provide any
special rules concerning tax-exempt enti-
ties. As provided in proposed regulations
under section 1291 (see Regulation Pro-
ject INTL–656–87, published at 1992–1
February 23, 199861998–8 I.R.B.

C.B. 1124), section 1291 and the regula-
tions under section 1291 apply to a tax-
exempt organization that is a shareholder
of a PFIC that is not a pedigreed QEF,
within the meaning of §1.1291–9(j)(2)(ii),
only if a dividend from the PFIC would
be taxable to the organization under sub-
chapter F. Section 1.1291–1T(e) of these
temporary regulations provides the same
rule. To prevent such a tax-exempt orga-
nization from being subject to an unnec-
essary section 1295 election that may
have adverse consequences to the tax-ex-
empt entity (e.g.,an excise tax on gross
investment income of a private founda-
tion that arises as a consequence of a sec-
tion 1295 election), the temporary regula-
tions provide a rule that precludes a
tax-exempt entity that is not taxable with
respect to dividends from a PFIC from
making a section 1295 election with re-
spect to that PFIC or from being subject
to a pass through entity level election.
Commenters indicated that Notice
88–125 is unclear about which taxable
year of the PFIC is the first taxable year to
which the section 1295 election applies.
Temporary regulation § 1.1295–1T(c)(2)
clarifies that the section 1295 election is
effective with respect to the taxable year
of the foreign corporation that ends during
the shareholder’s election year. Because
certain shareholders may have misinter-
preted Notice 88–125, the Commissioner
will respect a section 1295 election made
prior to February 1, 1998, that was in-
tended to be effective for the taxable year
of the PFIC that began during the share-
holder’s election year provided that it is
clear from all the facts and circumstances
that the shareholder intended the election
to be effective for that taxable year of the
foreign corporation. For example, a calen-
dar year shareholder that made the section
1295 election in its 1995 return with re-
spect to a foreign corporation whose tax-
able year began in 1995 and ended in
1996, with the intention that the election
first apply to the foreign corporation’s tax-
able year ended in 1996, will be treated as
having made a valid section 1295 election
with respect to that year.
2. Additional Clarifications.
A. Options.
Options with respect to PFIC stock pre-
sent unique problems under section 1295.
Section 1297(a)(4) provides that, under
regulations, an option to acquire stock
may be treated as ownership of stock.
Proposed regulations under section
1291 (see Regulation Project INTL–656–
87, published in 1992–1 C.B. 1124) pro-
vide that options are treated like stock for
purposes of section 1291. Under proposed
regulation § 1.1291–1(d), an option is
considered to be stock of a PFIC that is
not a pedigreed QEF for purposes of ap-
plying section 1291 to a disposition of the
option, unless the holder of the actual
stock which is subject to the option is cur-
rently including income from the stock
under section 1293. Under proposed regu-
lation § 1.1291–1(h)(3), the holding pe-
riod of stock acquired upon exercise of an
option treated as stock under § 1.1291–
1(d) includes the period the option was
held. These rules recognize that the value
of an option is linked to the value of the
underlying stock and therefore such an op-
tion should be subject to the PFIC rules.
Because of the potential for application
of section 1291 to options or stock ac-
quired upon exercise of options, some op-
tion holders have requested that regula-
tions provide rules for making a section
1295 election with respect to an option.
Application of a section 1295 election and
the section 1293 current inclusion regime
to options would present serious compu-
tational issues and would be administra-
tively burdensome. Therefore, the tempo-
rary regulations continue the rule that any
shareholder’s section 1295 election with
respect to stock of a PFIC does not apply
to options to acquire stock of the PFIC
and that an option holder may not make a
section 1295 election with respect to the
optioned stock. Accordingly, if a share-
holder of stock subject to a section 1295
election exercises an option to purchase
additional shares of stock of that PFIC,
the stock received will be subject to the
section 1295 election made by the share-
holder, but, because of the rules of pro-
posed regulation § 1.1291–1(h)(3), the
stock may be treated as stock of an un-
pedigreed QEF.
Comments are requested concerning
the option rule. In particular, comments
are requested that identify any adminis-
tratively feasible mechanisms that would
permit a shareholder to make a section
1295 election that will apply to options.
B. Section 1295 Election Made in a
Joint Return.
Section 1.1295–1T(b)(4) of the tempo-
rary regulations clarifies the application
of a section 1295 election made in a joint
return within the meaning of section
6013. The temporary regulations provide
that a section 1295 election made in a
joint return will be treated as having been
made by both spouses that join in the fil-
ing of that return.
C. Lapse in PFIC Status or in
Ownership.
Section 1.1295–1T(c)(2) of the tempo-
rary regulations clarifies the status of a
shareholder’s section 1295 election with
respect to a foreign corporation after the
foreign corporation ceases to be a PFIC
and a QEF, or after the shareholder ceases
to be a shareholder of the PFIC. In gen-
eral, once a section 1295 election is made
with respect to a corporation, it remains in
effect, although not applicable, during
those years that the foreign corporation is
not a PFIC. Therefore, if the corporation
requalifies as a PFIC, the section 1295
election previously made is still valid, and
the shareholder is required to satisfy the
requirements of that election. Further-
more, as indicated in H.R. No. 795, 100th
Cong., 2d Sess., at 567 (1988), an election
remains in effect with respect to a share-
holder, although dormant, after a share-
holder disposes of its entire interest in the
PFIC. Upon the shareholder’s reacquisi-
tion of an interest in the PFIC, the section
1295 election will apply to the newly ac-
quired stock.
D. Invalidation, Termination, and
Revocation of Section 1295
Elections.
As provided in temporary regulation
§ 1.1295–1T(i)(1), the Commissioner has
discretion to invalidate or terminate a sec-
tion 1295 election if the shareholder or
the QEF fails to satisfy the section 1295
election requirements. However, inten-
tional failure to satisfy the section 1295
election requirements will not automati-
cally result in invalidation or termination.
If the Commissioner invalidates a section
1295 election, the shareholder will be
treated as if it never made a section 1295
election with respect to the PFIC. If the
Commissioner terminates a section 1295
election for a taxable year, the section
1998–8 I.R.B7February 23, 1998

1295 election will be valid for all taxable
years before that year, but inapplicable to
that year and all subsequent taxable years.
Once a shareholder makes a section
1295 election, the shareholder may re-
voke its section 1295 election only with
the consent of the Commissioner. Tempo-
rary regulation § 1.1295–1T(i)(2) pro-
vides the rules for requesting consent to
revoke an election.
The effects of an invalidation, termina-
tion, or revocation of a section 1295 elec-
tion are provided in § 1.1295–1T(i)(3) of
the temporary regulations. In the Com-
missioner’s discretion, stock of a foreign
corporation, with respect to which the sec-
tion 1295 election is invalidated, termi-
nated, or revoked will be treated as sold as
of the last day of the PFIC’s last taxable
year as a QEF. The Commissioner also
has the discretion to impose any other
terms and conditions that the Commis-
sioner deems necessary to ensure a share-
holder’s compliance with sections 1291
through 1297. In addition, revocation will
terminate all section 1294 elections.
Section 1.1295–1T(i)(4) of the tempo-
rary regulations permits a shareholder to
make another section 1295 election with
respect to the PFIC after the fifth taxable
year following the invalidation, termina-
tion, or revocation. However, the share-
holder may request consent to make the
section 1295 election for an earlier tax-
able year.
3. Section 1293.
The temporary regulations provide
guidance to PFICs concerning the appli-
cation of section 1(h) to section 1293 and
the calculation of net capital gain. Sec-
tion 1.1293–1T(a)(2) of the temporary
regulations provides three alternatives for
a QEF to calculate and report net capital
gain. First, the PFIC may calculate and
report to its shareholders the amount of
each category of long-term capital gain
provided in section 1(h). Alternatively,
the PFIC may determine and report a sin-
gle amount of net capital gain, stating that
that amount of long-term capital gain is
subject to the highest capital gain rate of
tax applicable to the shareholder. Under
the third option, the PFIC may treat the
total of its earnings and profits for the tax-
able year as ordinary earnings. The provi-
sion of these options is intended to sim-
plify compliance with the requirements of
sections 1293 and 1295. It is anticipated
that, without providing these options,
some PFICs would not be willing or able
to calculate the categories of net capital
gain required by section 1(h) and there-
fore would not provide the information
necessary for a QEF shareholder to main-
tain a valid section 1295 election. A
shareholder that has access to information
necessary to calculate its pro rata share of
the PFIC’s ordinary earnings and net capi-
tal gain may also use any of these options.
The Service requests comments about
how net capital gain should be calculated,
especially in light of the 1997 Act
changes to section 1.
The temporary regulations under sec-
tion 1293 also clarify the application of
the current inclusion rules of section 1293
to interests in a QEF held through a do-
mestic pass through entity. The tempo-
rary regulations provide generally that a
U.S. person that is a shareholder of the
QEF by reason of an interest in a domes-
tic pass through entity takes into account
its pro rata shares of the ordinary earnings
and net capital gain of the QEF attribut-
able to the QEF shares held by the pass
through entity according to the general
rules applicable to inclusions of income
from the pass through entity.
4. Exempt organizations subject to
section 1291.
As stated above, the temporary regula-
tions include the rule of proposed regula-
tion § 1.1291–1(e). Under temporary reg-
ulation § 1.1291–1T(e), if the shareholder
of a PFIC is an organization exempt from
tax under this chapter (including an Indi-
vidual Retirement Account (IRA)), sec-
tion 1291 and these regulations apply to
such shareholder only if a dividend from
the PFIC would be taxable to the organi-
zation under subchapter F.
5. Effective Dates of Temporary
Regulations §§ 1.1291–1T(e),
1.1293–1T(a)(2), 1.1293–1T(c) and
1.1295–1T.
As stated above, Notice 88–125 pro-
vides that the notice’s rules will be pro-
vided in regulations applicable to taxable
years beginning after 1986. However, be-
cause the temporary regulations do not
adopt the rules of Notice 88–125 in their
entirety, the temporary regulations will
not be retroactively applied. Therefore,
§ 1.1295–1T(c) through (j) will apply to
taxable years of shareholders beginning
after December 31, 1997. As provided in
§ 1.1295–1T(h), the Internal Revenue
Service will honor taxpayer reliance on
Notice 88–125 for taxable years begin-
ning after December 31, 1986, and before
January 1, 1998. Thus, if a person made a
valid section 1295 election under the rules
of Notice 88–125 for taxable years begin-
ning before January 1, 1998, and, for
those taxable years, complied with the
rules of the notice relating to maintaining
that election, the election remains in ef-
fect for taxable years beginning after De-
cember 31, 1997. However, elections
made under Notice 88–125, as well as
elections made under these temporary
regulations, must be maintained as pro-
vided in the temporary regulations.
Temporary regulation § 1.1291–1T(e)
will apply on and after April 1, 1992.
Section 1.1293–1T(a)(2) of the temporary
regulations will apply to sales by QEFs
during their taxable years ending on or
after May 7, 1997. Temporary regulation
§§ 1.1293–1T(c) and 1.1295–1T(b)(2)-
(iii), (b)(3), and (b)(4) will apply to tax-
able years of shareholders beginning after
December 31, 1997.
6. Retroactive Section 1295 Elections.
a. In General.
Section 1295(b)(2) provides that, to the
extent provided in regulations, a share-
holder may make a section 1295 election
with respect to a foreign corporation later
than the election due date if the share-
holder failed to make a timely section
1295 election because the shareholder
reasonably believed that the foreign cor-
poration was not a PFIC. In temporary
regulation § 1.1295–3T, Treasury and the
Service interpret section 1295(b)(2) to
permit a shareholder of a PFIC to make a
retroactive election in certain limited cir-
cumstances where the shareholder pos-
sessed reasonable belief that the corpora-
tion was not a PFIC or the shareholder
demonstrates that it reasonably relied on
the advice of a qualified tax professional.
As described below, the temporary reg-
ulations set forth two distinct sets of rules
for making a retroactive election. Under
the first set of rules, a shareholder of a
PFIC that meets certain conditions may
make a retroactive election without ob-
taining the consent of the Commissioner
February 23, 199881998–8 I.R.B.

(protective regime). Ashareholder may
make a retroactive election under the pro-
tective regime only if the shareholder pos-
sessed reasonable belief as of the election
due date that the foreign corporation was
not a PFIC. Ashareholder of a PFIC may
make a retroactive election under the pro-
tective regime even after the issue of
PFIC status has been raised in an audit by
the Service.
Under the second set of rules, a share-
holder may make a retroactive election
only after obtaining the Commissioner’s
consent (consent regime). To make a
retroactive election under the consent
regime, the shareholder must demon-
strate, to the satisfaction of the Commis-
sioner, that the shareholder’s failure to
make a timely section 1295 election re-
sulted from the shareholder’s reasonable
reliance on the advice of a qualified tax
professional. Ashareholder of a PFIC
may not make a retroactive election under
the consent regime unless the shareholder
files a request for consent before the issue
of PFIC status is raised on audit.
The temporary regulations provide the
exclusive rules for making a retroactive
election. Thus, a shareholder that does
not satisfy the requirements of the tempo-
rary regulations may not seek relief under
any other provision of the law, including
§ 301.9100 regulations. Although such a
shareholder may not make a retroactive
election, the shareholder may be able to
attain certain benefits associated with a
retroactive election by making a section
1295 election for the current year together
with a purging election under section
1291(d)(2).
b. Protective Regime.
Ashareholder that satisfies the require-
ments of the protective regime may make
a retroactive election under the rules of
temporary regulation § 1.1295–3T(c)
through (e) without obtaining the Com-
missioner’s consent. This regime requires
that the shareholder possess reasonable
belief, contemporaneous with the election
due date, that the foreign corporation was
not a PFIC.
The legislative history of section 1295
suggests that in certain circumstances a
shareholder that reasonably believed that
a foreign corporation was not a PFIC for a
taxable year (e.g.,based on a reasonable
valuation of the corporation’s assets) may
make a retroactive election if the Service
determines, upon examination, that the
corporation was in fact a PFIC for such
taxable year (e.g., based on the Service’s
valuation of the corporation’s assets for
the taxable year). Consistent with the leg-
islative history, temporary regulation
§ 1.1295–3T(c) through (e) permits a
shareholder to make a retroactive election
for a taxable year of the shareholder
(retroactive election year), even if the
Service raises the PFIC status of the cor-
poration upon audit. Although the share-
holder need not request the Service’s con-
sent to make a retroactive election under
this regime, the shareholder must satisfy
certain conditions to make a retroactive
election.
First, except for certain small share-
holders, the shareholder must be able to
establish that the shareholder reasonably
believed, within the meaning of tempo-
rary regulation § 1.1295–3T(d), as of the
election due date, that the foreign corpo-
ration was not a PFIC. Temporary regula-
tion § 1.1295–3T(d) interprets the reason-
able belief standard to require an actual
determination by the shareholder, based
on a good faith application of the law, that
a foreign corporation was not a PFIC.
Therefore, to satisfy the reasonable belief
requirement, the shareholder must know
and understand the PFIC provisions, and
must make a good faith effort to apply the
income and asset tests of section 1296 to
determine whether the foreign corpora-
tion is a PFIC.
Except for certain small shareholders, a
shareholder must file a single Protective
Statement pursuant to temporary regula-
tion § 1.1295–3T(c) that applies to a tax-
able year to preserve the shareholder’s
ability to make a retroactive election with
respect to such taxable year of the share-
holder and subsequent taxable years. The
Protective Statement must contain infor-
mation describing the basis for the share-
holder’s conclusion as of the election due
date that the foreign corporation was not a
PFIC for its taxable year that ended in the
first taxable year of the shareholder for
which the Protective Statement applies.
As part of the Protective Statement, the
shareholder must extend the periods of
limitations for the assessment of taxes de-
termined under sections 1291 through
1297 (PFIC related taxes) for all taxable
years to which the Protective Statement
will apply, as provided in § 1.1295–
3T(c)(4) of the temporary regulations.
The shareholder also must include certain
additional information in the Protective
Statement. Aspecial transition rule per-
mits shareholders to use the protective
regime for taxable years ending prior to
January 2, 1998, provided the periods of
limitations on the assessment of taxes for
such years have not expired.
Temporary regulation § 1.1295–3T(e)
provides special rules for certain small
shareholders. Ashareholder that qualifies
under § 1.1295–3T(e) for a taxable year
will not be required to satisfy the reason-
able belief requirement or file a Protective
Statement to preserve the shareholder’s
ability to make a retroactive election with
respect to such year (a qualified share-
holder).
Except as provided below, a share-
holder is a qualified shareholder only if
the shareholder owns, directly, indirectly
or constructively, less than two percent of
the vote and value of each class of stock
of the foreign corporation during such
year, and has not filed a Protective State-
ment that applies to an earlier year in-
cluded in the shareholder’s holding period
of stock of the foreign corporation. In
addition, for the special rule to apply to a
taxable year of the shareholder, the for-
eign corporation or its U.S. counsel must
have indicated in a corporate filing, share-
holder mailing or similar document that
the foreign corporation reasonably be-
lieved that it was not a PFIC for the tax-
able year of the foreign corporation that
ended with or within such taxable year of
the shareholder. However, no shareholder
will be a qualified shareholder if the
shareholder knew that the corporation
was in fact a PFIC or knew or had reason
to know that a corporate filing relating to
the corporation’s PFIC status was inaccu-
rate. For this purpose, a shareholder will
be treated as knowing that the corporation
was in fact a PFIC if the principal activity
of the foreign corporation is owning or
trading a diversified portfolio of stock, se-
curities, or other financial contracts. A
qualified shareholder that makes a valid
retroactive election in its earliest open
taxable year in which the foreign corpora-
tion is a PFIC may, subject to certain con-
ditions, be treated as a shareholder of a
pedigreed QEF even if the period of limi-
tations for the assessment of taxes for an
1998–8 I.R.B9February 23, 1998

earlier taxable year in which the corpora-
tion qualified as a PFIC has expired.
c. Consent Regime.
Certain taxpayers have urged the Ser-
vice to interpret the reasonable belief re-
quirement of section 1295(b)(2) to allow
a shareholder to make a retroactive elec-
tion if the shareholder or its tax adviser
did not know or properly apply the PFIC
rules. In particular, certain taxpayers
have recommended adoption of the rea-
sonable action and good faith standard of
§ 301.9100 regulations for demonstrating
reasonable belief.
Treasury and the Service recognize that
the PFIC rules are complex and, in some
cases, difficult for shareholders to apply.
Accordingly, the temporary regulations
provide that, in certain limited circum-
stances, a shareholder may obtain the
Commissioner’s consent to make a
retroactive election, even if the share-
holder failed to know or properly apply
the PFIC rules in the earlier year. Under
temporary regulation § 1.1295–3T(f), a
shareholder that reasonably relied on the
advice of a qualified tax professional may
request consent to make a retroactive
election.
In response to taxpayer comments,
Treasury and the Service have incorpo-
rated into the consent regime certain rules
set forth in § 301.9100 regulations. As
described below, temporary regulation
§ 1.1295–3T(f)(1) and (4), respectively,
require the shareholder to have reason-
ably relied on a qualified tax professional
and to document such reliance. The Ser-
vice will not grant consent under this
regime if doing so would prejudice the in-
terests of the government by placing the
shareholder in a position more favorable
than if the shareholder had made the sec-
tion 1295 election on a timely basis. The
temporary regulations provide that in cer-
tain cases the interests of the government
may be preserved by a closing agreement
between the Service and the shareholder
requiring the shareholder to make a pay-
ment to the government that compensates
the government for amounts that would
have been due in respect of closed years
affected by the retroactive election.
Under temporary regulation § 1.1295–
3T(f)(2), the Service will treat a share-
holder as having reasonably relied on a
qualified tax professional (including an
employee of the shareholder), within the
meaning of the § 301.9100 regulations, if
the qualified tax professional failed to
identify the corporation as a PFIC or
failed to advise the shareholder of the
consequences of making, or failing to
make, a section 1295 election. Therefore,
if a qualified tax professional, due to ig-
norance of the law or negligence, failed to
identify the corporation as a PFIC or
failed to advise the shareholder of the
consequences of making, or failing to
make, the section 1295 election, the Com-
missioner may consent to a retroactive
election. However, in no event will the
Commissioner consent to a retroactive
election if, prior to the application for
such consent, the Service has raised the
PFIC status of the foreign corporation in
an audit of the retroactive election year or
any subsequent year. Furthermore, a
shareholder may not disregard knowledge
that the corporation was a PFIC or advice
or knowledge relating to the tax conse-
quences of owning stock of a PFIC and
then request relief under this regime.
d. Who Makes a Retroactive Election
and Who Satisfies the Requirements
of the Protective or Consent
Regime.
Temporary regulation § 1.1295–3T
adopts the rules of temporary regulation
§ 1.1295–1T(d), relating to who may
make a section 1295 election, for purposes
of determining the appropriate person to
satisfy the requirements of the protective
or consent regime and to make a retroac-
tive election. Consistent with these rules,
temporary regulation § 1.1295–3T(c)(3)
provides that the person that executes and
files the Protective Statement under the
protective regime is the person that makes
the section 1295 election, as provided in
§ 1.1295–1T(d). Temporary regulation
§ 1.1295–3T(f)(4)(vi) sets forth a similar
rule for requests for consent under the
consent regime. In addition, temporary
regulation § 1.1295–3T(g)(3) provides for
an entity-level retroactive election in the
case of domestic partnerships, S corpora-
tions, domestic nongrantor trusts, and do-
mestic estates that own stock of a PFIC,
and a partner or beneficiary-level retroac-
tive election in the case of foreign part-
nerships, foreign trusts, domestic grantor
trusts, and foreign estates that own stock
of a PFIC.
The Service welcomes comments con-
cerning the benefits of requiring certain
entities, rather than their interest holders,
to satisfy the requirements under the pro-
tective and consent regimes. In particu-
lar, comments are requested concerning
whether requiring S corporations, domes-
tic nongrantor trusts, and domestic estates
to satisfy the requirements of the protec-
tive regime at the entity-level is inappro-
priate.
e. Making a Retroactive Election.
Ashareholder that has satisfied the re-
quirements of the protective regime or has
obtained the consent of the Commissioner
under the consent regime must comply
with the rules in temporary regulation
§ 1.1295–3T(g) for making a retroactive
election. In general, the shareholder must
file an amended return for the retroactive
election year in which the shareholder
complies with the requirements for mak-
ing a section 1295 election, report its pro
rata shares of the ordinary earnings and
net capital gain of the foreign corporation
for that year (section 1293 inclusion), if
any, and pay any taxes resulting from the
redetermination of its income and any ap-
plicable section 6621 interest. The share-
holder also must file amended returns for
the taxable years that follow the retroac-
tive election year in which the foreign
corporation is a PFIC and a QEF to report
the section 1293 inclusion for each of
these years, and pay the resulting tax and
section 6621 interest. If the shareholder’s
taxable year in which the corporation first
qualified as a PFIC, or the retroactive
election year or any subsequent taxable
years, are closed for the assessment of
PFIC related taxes (i.e.,in certain cases
where the shareholder is a qualified share-
holder or the shareholder has obtained the
consent of the Commissioner to file a
retroactive election), the shareholder must
file amended returns to report section
1293 inclusions in all open affected years
beginning with the first taxable year open
for the assessment of tax on such
amounts.
7. Removal of § 1.1291–9(i)(1).
Section 1121 of the 1997 TRAamends
section 1296, adding section 1296(e).
Section 1296(e) provides that after De-
cember 31, 1997, a controlled foreign cor-
poration (as defined in section 957(a))
February 23, 1998101998–8 I.R.B.

(CFC) will not be treated as a PFIC with
respect to a U.S. shareholder (as defined
in section 951(b)) of the CFC. After a
shareholder ceases to qualify for this ex-
ception, because the shareholder ceases to
be subject to subpart F, generally the
shareholder will have a new holding pe-
riod for purposes of the PFIC provisions
pursuant to section 1296(e)(3)(A). How-
ever, pursuant to section 1296(e)(3)(B), if
the foreign corporation was a nonquali-
fied fund before the shareholder qualified
for this exception, and the shareholder did
not make the section 1297(b)(1) election
to purge the stock of its PFIC taint, the
shareholder will not get a new holding pe-
riod when it ceases to qualify for the ex-
ception for U.S. shareholders of CFCs.
Congress, in the Conference Report to the
1997 TRA, H.R. Rept. 105–220, 105th
Congress, 1st session, at 625, stated that
“the stock held by such shareholder con-
tinues to be treated as PFIC stock unless
the shareholder makes an election to pay
tax and an interest charge with respect to
the unrealized appreciation in the stock or
the accumulated earnings of the corpora-
tion.” Congress thus indicated its intent
that a shareholder may apply the rules of
either section 1291(d)(2)(A), the deemed
sale election, or section 1291(d)(2)(B),
the deemed dividend election, when mak-
ing the section 1297(b)(1) election to
purge a former PFIC of its PFIC taint. In
order to give effect to that intent, Treasury
and the IRS have decided to remove
§ 1.1291–9(i)(1), which provides that the
rules of § 1.1291–9, the deemed dividend
election, do not apply to an election under
section 1297(b)(1). The removal of
§ 1.1291–9(i)(1) is effective as of January
2, 1998. Section 1.1291–9(i)(2) is not af-
fected by the removal of § 1.1291–9(i)(1).
8. Section 1297.
The temporary regulations amend
§ 1.1297–3Tto provide that a shareholder
of a former PFIC, within the meaning of
§ 1.1291–9(j)(2)(iv), that was a CFC dur-
ing its last taxable year as a PFIC under
section 1296(a), may apply the rules of
the deemed dividend election under sec-
tion 1291(d)(2)(B) and § 1.1291–9 to its
section 1297(b)(1) election made by the
time and in the manner provided in
§ 1.1297–3T(b). If the time for making a
section 1297(b)(1) election, provided in
§ 1.1297–3T(b), expired before January
2, 1998, a shareholder that applied the
rules of section 1291(d)(2)(A) and
§ 1.1291–10 to a section 1297(b)(1) elec-
tion, made with respect to a former PFIC
that was a CFC in its last taxable year as a
PFIC under section 1296(a), may file an
amended return for its taxable year that
includes the termination date, as defined
in § 1.1297–3T(a), and apply the rules of
the deemed dividend election to its sec-
tion 1297(b)(1) election at any time be-
fore the expiration of the period of limita-
tions for the assessment of taxes for that
taxable year. Section 1.1297–3T(c) is ef-
fective as of January 2, 1998.
Special Analyses
It has been determined that this Trea-
sury Decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assess-
ment is not required. Pursuant to section
7805(f) of the Internal Revenue Code,
these temporary regulations will be sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on their impact on small busi-
ness. An initial regulatory flexibility
analysis has been prepared for the pro-
posed regulations for which these tempo-
rary regulations serve as a text and which
is set forth in REG–115795–97.
Drafting Information
The principal authors of these regula-
tions are Gayle Novig and Judith Cavell
Cohen, of the Office of the Associate
Chief Counsel (International). Other per-
sonnel from the IRS and Treasury Depart-
ment also participated in the development
of these regulations.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART1—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 * * *
Section 1.1291–1Talso issued under
26 U.S.C. 1291.* * *
Section 1.1293–1Talso issued under
26 U.S.C. 1293.* * *
Section 1.1295–1Talso issued under
26 U.S.C. 1295(b).
Section 1.1295–3Talso issued under
26 U.S.C. 1295(b).* * *
§ 1.1291–0 [Amended]
Par. 2. Section 1.1291–0 is amended
by removing and reserving the entry for
§ 1.1291–9(i)(1).
Par. 3. The section heading and intro-
ductory text for § 1.1294–0 are added to
read as follows:
§ 1.1294–0 Table of contents.
This section contains a listing of the
headings for § 1.1294–1T.
Par. 4. The section heading and intro-
ductory text for § 1.1297–0 are added to
read as follows:
§ 1.1297–0 Table of contents.
This section contains a listing of the
headings for § 1.1297–3T.
§ 1.1291–0T[Amended]
Par. 5. Section 1.1291–0Tis amended
by:
1. Transferring the listing of the sec-
tion heading and entries for § 1.1294–1T
to new § 1.1294–0.
2. Transferring the listing of the sec-
tion heading and entries for § 1.1297–3T
to new § 1.1297–0.
3. Removing the section heading and
introductory text.
Par. 6. Section 1.1291–1Tis added to
read as follows.
§ 1.1291–1TTaxation of U.S. persons
that are shareholders of PFICs that re
not pedigreed QEFs (temporary).
(a) through (d) [Reserved].
(e) Exempt organization as share-
holder—(1) In general.If the share-
holder of a PFIC is an organization ex-
empt from tax under this chapter, section
1291 and these regulations apply to such
shareholder only if a dividend from the
PFIC would be taxable to the organization
under subchapter F.
(2) Effective date.Paragraph (e)(1) of
this section is applicable on and after
April 1, 1992.
1998–8 I.R.B11February 23, 1998

§ 1.1291–9 [Amended]
Par. 7. Section 1.1291–9 is amended
by removing and reserving paragraph
(i)(1).
Par. 8. Section 1.1293–0 is added to
read as follows.
§ 1.1293–0 Table of contents.
This section contains a listing of the
headings for § 1.1293–1T.
§ 1.1293–1TCurrent inclusion of income
of qualified electing funds (temporary).
(a)In general. [Reserved].
(1)Other rules. [Reserved].
(2)Net capital gain defined.
(i)In general.
(ii)Effective date.
(b)Other rules. [Reserved].
(c)Application of rules of inclusion
with respect to stock held by a
pass through entity.
(1)In general.
(2)QEF stock transferred to a pass
through entity.
(i)Pass through entity makes a sec-
tion 1295 election.
(ii)Pass through entity does not make
a section 1295 election.
(3)Effective date.
Par. 9. Section 1.1293–1Tis added to
read as follows:
§ 1.1293–1TCurrent taxation of income
from qualified electing funds
(temporary).
(a) In general.[Reserved].
(1) Other rules.[Reserved].
(2) Net capital gain defined—(i) In
general.This paragraph (a)(2) defines the
term net capital gain for purposes of sec-
tions 1293 and 1295 and the regulations
under those sections. The QEF, as de-
fined in § 1.1291–9(j)(2)(i), in determin-
ing its net capital gain for a taxable year,
may either—
(A) Calculate and report the amount of
each category of long-term capital gain
provided in section 1(h) that was recog-
nized by the PFIC in the taxable year;
(B) Calculate and report the amount of
net capital gain recognized by the PFIC in
the taxable year, stating that that amount
is subject to the highest capital gain rate
of tax applicable to the shareholder; or
(C) Calculate its earnings and profits
for the taxable year and report the entire
amount as ordinary earnings.
(ii) Effective date.Paragraph (a)(2)(i)
of this section is applicable to sales by
QEFs during their taxable years ending on
or after May 7, 1997.
(b) Other rules.[Reserved].
(c) Application of rules of inclusion
with respect to stock held by a pass
through entity—(1) In general.Adomes-
tic pass through entity takes into account
its pro rata shares of the ordinary earnings
and net capital gain attributable to the
QEF shares held by the pass through en-
tity. AU.S. person that indirectly owns
QEF shares through the domestic pass
through entity accounts for its pro rata
shares of ordinary earnings and net capital
gain attributable to the QEF shares ac-
cording to the general rules applicable to
inclusions of income from the domestic
pass through entity. For the definition of
pass through entity, see § 1.1295–1T(j).
(2) QEF stock transferred to a pass
through entity—(i) Pass through entity
makes a section 1295 election.If a share-
holder transfers stock subject to a section
1295 election to a domestic pass through
entity of which it is an interest holder and
the pass through entity makes a section
1295 election with respect to that stock,
as provided in § 1.1295–1T(d)(2), the
shareholder takes into account its pro rata
shares of the ordinary earnings and net
capital gain attributable to the QEF shares
under the rules applicable to inclusions of
income from the pass through entity.
(ii) Pass through entity does not make a
section 1295 election.If the pass through
entity does not make a section 1295 elec-
tion with respect to the PFIC, the shares of
which were transferred to the pass through
entity subject to the 1295 election of the
shareholder, the shareholder continues to
be subject, in its capacity as an indirect
shareholder, to the income inclusion rules
of section 1293 and reporting rules re-
quired of shareholders of QEFs. Proper
adjustments to reflect an inclusion in in-
come under section 1293 by the indirect
shareholder must be made, under the prin-
ciples of § 1.1291–9(f), to the basis of the
indirect shareholder’s interest in the pass
through entity.
(3) Effective date.Paragraph (c) of
this section is applicable to taxable years
of shareholders beginning after December
31, 1997.
Par. 10. Section 1.1295–0 is added to
read as follows:
§ 1.1295–0 Table of contents.
This section contains a listing of the
headings for §§ 1.1295–1Tand
1.1295–3T.
§ 1.1295–1TQualified electing funds
(temporary).
(a)In general. [Reserved].
(b)Application of section 1295 elec-
tion. [Reserved].
(1)Election personal to shareholder.
[Reserved].
(2)Election applicable to specific
corporation only.
(i)In general. [Reserved].
(ii)Stock of QEF received in a non-
recognition transfer. [Reserved].
(iii)Exception for options.
(3)Application of general rules to
stock held by a pass through en-
tity.
(i)Stock subject to a section 1295
election transferred to a pass
through entity.
(ii)Limitation on application of pass
through entity’s section 1295 elec-
tion.
(iii)Effect of partnership termination
on section 1295 election.
(iv)Characterization of stock held
through a pass through entity.
(4)Application of general rules to a
taxpayer filing a joint return under
section 6013.
(c)Effect of section 1295 election.
(1)In general.
(2)Years to which section 1295 elec-
tion applies.
(i)In general.
(ii)Effect of PFIC status on election.
(iii)Effect on election of complete ter-
mination of a shareholder’s inter-
est in the PFIC.
(iv)Effect on section 1295 election of
transfer of stock to a domestic
pass through entity.
(v)Examples.
(d)Who may make a section 1295
election.
(1) General rule.
(2) Application of general rule to pass
through entities.
(i) Partnerships.
(A) Domestic partnership.
(B) Foreign partnership.
(ii)S corporation.
(iii)Trust or estate.
February 23, 1998121998–8 I.R.B.

(A) Domestic trust or estate.
(1) Nongrantor trust or estate.
(2) Grantor trust.
(B) Foreign trust or estate.
(1) Nongrantor trust or estate.
(2) Grantor trust.
(iv)Indirect ownership of the pass
through entity or the PFIC.
(3)Member of consolidated return
group as shareholder.
(4) Option holder.
(5) Exempt organization.
(e)Time for making a section 1295
election.
(f)Manner of making a section 1295
election and the annual election
requirements of the shareholder.
(1)Manner of making the election.
(2)Annual election requirements.
(i)In general.
(ii)Retention of documents.
(g)Annual election requirements of
the PFIC or intermediary.
(1)PFIC Annual Information State-
ment.
(2)Alternative documentation.
(3)Annual Intermediary Statement.
(4)Combined statements.
(i)PFIC Annual Information State-
ment.
(ii)Annual Intermediary Statement.
(h)Transition rules.
(i)Invalidation, termination or revo-
cation of section 1295 election.
(1)Invalidation or termination of
election at the discretion of the
Commissioner.
(i)In general.
(ii)Deferral of section 1293 inclu-
sion.
(iii)When effective.
(2)Shareholder revocation.
(i)In general.
(ii)Time for and manner of request-
ing consent to revoke.
(A)Time.
(B)Manner of making request.
(iii)When effective.
(3)Effect of invalidation, termina-
tion, or revocation.
(4)Election after invalidation, termi-
nation, or revocation.
(j)Definitions.
(k) Effective date.
§ 1.1295–3TRetroactive elections
(temporary).
(a)In general.
(b)General rule.
(c)Protective Statement.
(1)In general.
(2)Reasonable belief statement.
(3)Who executes and files the Protec-
tive Statement.
(4)Waiver of the periods of limita-
tions.
(i)Time for and manner of extending
periods of limitations.
(A)In general.
(B)Application of general rule to do-
mestic partnerships.
(1)In general.
(2)Special rules.
(i)Addition of partner to non-
TEFRApartnership.
(ii)Change in status from non-
TEFRApartnership to TEFRA
partnership.
(C)Application of general rule to do-
mestic nongrantor trusts and do-
mestic estates.
(D)Application of general rule to S
corporations.
(E)Effect on waiver of complete ter-
mination of a pass through entity
or pass through entity’s business.
(F)Application of general rule to for-
eign partnerships, foreign trusts,
domestic or foreign grantor trusts,
and foreign estates.
(ii)Terms of waiver.
(A)Scope of waiver.
(B)Period of waiver.
(5)Time for and manner of filing a
Protective Statement.
(i)In general.
(ii)Special rule for taxable years
ended before January 2, 1998.
(6)Applicability of the Protective
Statement.
(i)In general.
(ii)Invalidity of the Protective State-
ment.
(7)Retention of Protective Statement
and information demonstrating
reasonable belief.
(d)Reasonable belief.
(1)In general.
(2)Knowledge of law required.
(e)Special rules for qualified share-
holders.
(1)In general.
(2)Qualified shareholder.
(3)Exceptions.
(f)Special consent.
(1)In general.
(2)Reasonable reliance on a qualified
tax professional.
(i)In general.
(ii)Shareholder deemed to have not
reasonably relied on a qualified
tax professional.
(3)Prejudice to the interests of the
United States government.
(i)General rule.
(ii)Elimination of prejudice to the in-
terests of the United States gov-
ernment.
(4)Procedural requirements.
(i)Filing instructions.
(ii)Affidavit from shareholder.
(iii)Affidavits from other persons.
(iv)Other information.
(v)Notification of Internal Revenue
Service.
(vi)Who requests special consent
under this paragraph (f) and who
enters into a closing agreement.
(g)Time for and manner of making a
retroactive election.
(1)Time for making a retroactive
election.
(i)In general.
(ii)Transition rule.
(iii)Ownership not required at time
retroactive election is made.
(2)Manner of making a retroactive
election.
(3)Who makes the retroactive elec-
tion.
(4)Other elections.
(i)Section 1291(d)(2) election.
(ii)Section 1294 election.
(h)Effective date.
Par. 11. Section 1.1295–1Tis added to
read as follows:
§ 1.1295–1TQualified electing funds
(temporary).
(a) In general.[Reserved].
(b) Application of section 1295 elec-
tion.[Reserved].
(1) Election personal to shareholder.
[Reserved].
(2) Election applicable to specific cor-
poration only—
(i) In general.[Reserved].
(ii) Stock of QEF received in a non-
recognition transfer.[Reserved].
(iii) Exception for options.Ashare-
holder’s section 1295 election does not
apply to any option to buy stock of the
PFIC.
(3) Application of general rules to
stock held by a pass through entity—(i)
1998–8 I.R.B13February 23, 1998

Stock subject to a section 1295 election
transferred to a pass through entity.A
shareholder’s section 1295 election will
not apply to a domestic pass through en-
tity to which the shareholder transfers
stock subject to a section 1295 election,
or to any other U.S. person that is an in-
terest holder or beneficiary of the domes-
tic pass through entity. However, as pro-
vided in paragraph (c)(2)(iv) of this
section (relating to a transfer to a domes-
tic pass through entity of stock subject to
a section 1295 election), a shareholder
that transfers stock subject to a section
1295 election to a pass through entity will
continue to be subject to the section 1295
election with respect to the stock indi-
rectly owned through the pass through en-
tity and any other stock of that PFIC
owned by the shareholder.
(ii) Limitation on application of pass
through entity’s section 1295 election.
Except as provided in paragraph (c)(2)(iv)
of this section, a section 1295 election
made by a domestic pass through entity
does not apply to other stock of the PFIC
held directly or indirectly by the interest
holder or beneficiary.
(iii) Effect of partnership termination
on section 1295 election.Termination of
a section 1295 election made by a domes-
tic partnership by reason of the termina-
tion of the partnership under section
708(b) will not terminate the section 1295
election with respect to partners of the ter-
minated partnership that are partners of
the new partnership. Except as otherwise
provided, the stock of the PFIC of which
the new partners are indirect shareholders
will be treated as stock of a QEF only if
the new domestic partnership makes a
section 1295 election with respect to that
stock.
(iv) Characterization of stock held
through a pass through entity.Stock of a
PFIC held through a pass through entity
will be treated as stock of a pedigreed
QEF with respect to an interest holder or
beneficiary only if—
(A) In the case of PFIC stock acquired
(other than in a transaction in which gain
is not recognized pursuant to regulations
under section 1291(f) with respect to that
stock), and held by a domestic pass
through entity, the pass through entity
makes the section 1295 election and the
PFIC has been a QEF with respect to the
pass through entity for all taxable years
that are included wholly or partly in the
pass through entity’s holding period of the
PFIC stock and during which the foreign
corporation was a PFIC within the mean-
ing of § 1.1291–9(j)(1); or
(B) In the case of PFIC stock trans-
ferred by an interest holder or beneficiary
to a pass through entity in a transaction in
which gain is not recognized pursuant to
regulations under section 1291(f) with re-
spect to that stock and held by the pass
through entity, the PFIC stock transferred
to the pass through entity was treated as
stock of a pedigreed QEF with respect to
the interest holder or beneficiary at the
time of the transfer and the pass through
entity makes a section 1295 election.
(4) Application of general rules to a
taxpayer filing a joint return under sec-
tion 6013.Asection 1295 election made
by a taxpayer in a joint return, within the
meaning of section 6013, will be treated
as also made by the spouse that joins in
the filing of that return.
(c) Effect of section 1295 election—(1)
In general.Except as otherwise provided
in this paragraph (c), the effect of a share-
holder’s section 1295 election is to treat
the foreign corporation as a QEF with re-
spect to the shareholder for each taxable
year of the foreign corporation ending
with or within a taxable year of the share-
holder for which the election is effective.
Asection 1295 election is effective for the
shareholder’s election year and all subse-
quent taxable years of the shareholder un-
less invalidated, terminated or revoked as
provided in paragraph (i) of this section.
The terms shareholder and shareholder’s
election year are defined in paragraph (j)
of this section.
(2) Years to which section 1295 elec-
tion applies—(i) In general.Except as
otherwise provided in this paragraph (c),
a foreign corporation with respect to
which a section 1295 election is made
will be treated as a QEF for its taxable
year ending with or within the share-
holder’s election year and all subsequent
taxable years of the foreign corporation
that are included wholly or partly in the
shareholder’s holding period (or periods)
of stock of the foreign corporation.
(ii) Effect of PFIC status on election.
Aforeign corporation will not be treated
as a QEF for any taxable year of the for-
eign corporation that the foreign corpora-
tion is not a PFIC under section 1296(a)
and is not treated as a PFIC under section
1297(b)(1). However, cessation of a for-
eign corporation’s status as a PFIC will
not terminate a section 1295 election.
(iii) Effect on election of complete ter-
mination of a shareholder’s interest in the
PFIC.Complete termination of a share-
holder’s direct and indirect interest in stock
of a foreign corporation will not terminate
a shareholder’s section 1295 election with
respect to the foreign corporation.
(iv) Effect on section 1295 election of
transfer of stock to a domestic pass
through entity.The transfer of a share-
holder’s direct or indirect interest in stock
of a foreign corporation to a domestic
pass through entity (as defined in para-
graph (j) of this section) will not termi-
nate the shareholder’s section 1295
election with respect to the foreign corpo-
ration, whether or not the pass through
entity makes a section 1295 election. For
the rules concerning the application of
section 1293 to stock transferred to a do-
mestic pass through entity, see
§ 1.1293–1T(c).
(v) Examples.The following exam-
ples illustrate the rules of this paragraph
(c)(2).
Example 1.In 1998, C, a U.S. person, purchased
stock of FC, a foreign corporation that is a PFIC.
Both FC and C are calendar year taxpayers. C made
a timely section 1295 election to treat FC as a QEF
in C’s 1998 return, and FC was therefore a pedigreed
QEF. C included its shares of FC’s 1998 ordinary
earnings and net capital gain in C’s 1998 income and
did not make a section 1294 election to defer the
time for payment of tax on that income. In 1999,
2000, and 2001, FC did not satisfy either the income
or asset test of section 1296(a), and therefore was
neither a PFIC nor a QEF. C therefore did not have
to include its pro rata shares of the ordinary earnings
and net capital gain of FC pursuant to section 1293,
or satisfy the section 1295 annual reporting require-
ments for any of those years. FC qualified as a PFIC
again in 2002. Because C had made a section 1295
election in 1998, and the election had not been inval-
idated, terminated, or revoked, within the meaning
of paragraph (i) of this section, C’s section 1295
election remains in effect for 2002. C therefore is
subject in 2002 to the income inclusion and report-
ing rules required of shareholders of QEFs.
Example 2.The facts are the same as in Example
(1) except that FC did not lose PFIC status in any
year and C sold all the FC stock in 1999 and repur-
chased stock of FC in 2002. Because C had made a
section 1295 election in 1998 with respect to stock
of FC, and the election had not been invalidated, ter-
minated, or revoked, within the meaning of para-
graph (i) of this section, C’s section 1295 election
remained in effect and therefore applies to the stock
February 23, 1998141998–8 I.R.B.

of FC purchased by C in 2002. C therefore is sub-
ject in 2002 to the income inclusion and reporting
rules required of shareholders of QEFs.
Example 3.The facts are the same as in Example
(2) except that C is a partner in domestic partnership
Pand C transferred its FC stock to Pin 1999. Be-
cause C had made a section 1295 election in 1998
with respect to stock of FC, and the election had not
been invalidated, terminated, or revoked, within the
meaning of paragraph (i) of this section, C’s section
1295 election remains in effect with respect to its in-
direct interest in the stock of FC. If Pdoes not make
the section 1295 election with respect to the FC
stock, C will continue to be subject, in C’s capacity
as an indirect shareholder of FC, to the income in-
clusion and reporting rules required of shareholders
of QEFs in 1999 and subsequent years. If Pmakes
the section 1295 election, C will take into account its
pro rata shares of the ordinary earnings and net capi-
tal gain of the FC under the rules applicable to inclu-
sions of income from P.
(d) Who may make a section 1295
election—(1) General rule.Except as
otherwise provided in this paragraph (d),
any U.S. person that is a shareholder (as
defined in paragraph (j) of this section) of
a PFIC, including a shareholder that holds
stock of a PFIC in bearer form, may make
a section 1295 election with respect to
that PFIC. The shareholder need not own
directly or indirectly any stock of the
PFIC at the time the shareholder makes
the section 1295 election provided the
shareholder is a shareholder of the PFIC
during the taxable year of the PFIC that
ends with or within the taxable year of the
shareholder for which the section 1295
election is made. Except in the case of a
shareholder that is an exempt organiza-
tion that may not make a section 1295
election, as provided in paragraph (d)(5)
of this section, in a chain of ownership
only the first U.S. person that is a share-
holder of the PFIC may make the section
1295 election.
(2) Application of general rule to pass
through entities—(i) Partnerships—(A)
Domestic partnership.Adomestic part-
nership that holds an interest in stock of a
PFIC makes the section 1295 election
with respect to that PFIC. The partner-
ship election applies only to the stock of
the PFIC held directly or indirectly by the
partnership and not to any other stock
held directly or indirectly by any partner.
As provided in § 1.1293–1T(c)(1), share-
holders owning stock of a QEF by reason
of an interest in the partnership take into
account the section 1293 inclusions with
respect to the QEF shares owned by the
partnership under the rules applicable to
inclusions of income from the partner-
ship.
(B) Foreign partnership. AU.S. per-
son that holds an interest in a foreign part-
nership that, in turn, holds an interest in
stock of a PFIC makes the section 1295
election with respect to that PFIC. Apart-
ner’s election applies to the stock of the
PFIC owned directly or indirectly by the
foreign partnership and to any other stock
of the PFIC owned by that partner. Asec-
tion 1295 election by a partner applies
only to that partner.
(ii) S corporation.An S corporation
that holds an interest in stock of a PFIC
makes the section 1295 election with re-
spect to that PFIC. The S corporation elec-
tion applies only to the stock of the PFIC
held directly or indirectly by the S corpora-
tion and not to any other stock held directly
or indirectly by any S corporation share-
holder. As provided in § 1.1293–1T(c)(1),
shareholders owning stock of a QEF by
reason of an interest in the S corporation
take into account the section 1293 inclu-
sions with respect to the QEF shares
under the rules applicable to inclusions of
income from the S corporation.
(iii) Trust or estate—(A) Domestic
trust or estate—(1) Nongrantor trust or
estate. Adomestic nongrantor trust or a
domestic estate that holds an interest in
stock of a PFIC makes the section 1295
election with respect to that PFIC. The
trust or estate’s election applies only to the
stock of the PFIC held directly or indi-
rectly by the trust or estate and not to any
other stock held directly or indirectly by
any beneficiary. As provided in § 1.1293–
1T(c)(1), shareholders owning stock of a
QEF by reason of an interest in a domes-
tic trust or estate take into account the
section 1293 inclusions with respect to
the QEF shares under the rules applicable
to inclusions of income from the trust or
estate.
(2) Grantor trust.AU.S. person that is
treated under sections 671 through 678 as
the owner of the portion of a domestic
trust that owns an interest in stock of a
PFIC makes the section 1295 election
with respect to that PFIC. If that person
ceases to be treated as the owner of the
portion of the trust that owns an interest in
the PFIC stock and is a beneficiary of the
trust, that person’s section 1295 election
will continue to apply to the PFIC stock
indirectly owned by that person under the
rules of paragraph (c)(2)(iv) of this sec-
tion as if the person had transferred its in-
terest in the PFIC stock to the trust. How-
ever, the stock will be treated as stock of a
PFIC that is not a QEF with respect to
other beneficiaries of the trust, unless the
trust makes the section 1295 election as
provided in paragraph (d)(2)(iii)(A)(1) of
this section.
(B) Foreign trust or estate—(1) Non-
grantor trust or estate.AU.S. person that
is a beneficiary of a foreign nongrantor
trust or estate that holds an interest in
stock of a PFIC makes the section 1295
election with respect to that PFIC. Aben-
eficiary’s section 1295 election applies to
all the PFIC stock owned directly and in-
directly by the trust or estate and to the
other PFIC stock owned directly or indi-
rectly by the beneficiary. Asection 1295
election by a beneficiary applies only to
that beneficiary.
(2) Grantor trust.AU.S. person that is
treated under sections 671 through 679 as
the owner of the portion of a foreign trust
that owns an interest in stock of a PFIC
stock makes the section 1295 election
with respect to that PFIC. If that person
ceases to be treated as the owner of the
portion of the trust that owns an interest in
the PFIC stock and is a beneficiary of the
trust, that person’s section 1295 election
will continue to apply to the PFIC stock
indirectly owned by that person under the
rules of paragraph (c)(2)(iv) of this sec-
tion. However, as provided in paragraph
(d)(2)(iii)(B)(1) of this section, any other
shareholder that is a beneficiary of the
trust and that wishes to treat the PFIC as a
QEF must make the section 1295 election.
(iv) Indirect ownership of the pass
through entity or the PFIC.The rules of
this paragraph (d)(2) apply whether or not
the shareholder holds its interest in the
pass through entity directly or indirectly
and whether or not the pass through entity
holds its interest in the PFIC directly or
indirectly.
(3) Member of consolidated return
group as shareholder.Pursuant to
§ 1.1502–77(a), the common parent of an
affiliated group of corporations that join
in filing a consolidated income tax return
makes a section 1295 election for all
members of the affiliated group. An elec-
tion by a common parent will be effective
for all members of the affiliated group
with respect to interests in PFIC stock
1998–8 I.R.B15February 23, 1998

held at the time the election is made or at
any time thereafter. Aseparate election
must be made by the common parent for
each PFIC of which a member of the affil-
iated group is a shareholder.
(4) Option holder. Aholder of an op-
tion to acquire stock of a PFIC may not
make a section 1295 election that will
apply to the option or to the stock subject
to the option.
(5) Exempt organization.Atax-ex-
empt organization that is not taxable
under section 1291, pursuant to § 1.1291–
1T(e), with respect to a PFIC may not
make a section 1295 election with respect
to that PFIC. In addition, such an exempt
organization will not be subject to any
section 1295 election made by a domestic
pass through entity.
(e) Time for making a section 1295
election.Except as provided in § 1.1295–
3T, a shareholder making the section 1295
election must make the election on or be-
fore the due date, as extended under sec-
tion 6081 (election due date), for filing
the shareholder’s income tax return for
the first taxable year to which the election
will apply. The section 1295 election
must be made in the original return for
that year, or in an amended return, pro-
vided the amended return is filed on or
before the election due date.
(f) Manner of making a section 1295
election and the annual election require-
ments of the shareholder—(1) Manner of
making the election.Ashareholder must
make a section 1295 election by—
(i) Completing Form 8621 in the man-
ner required by that form and this section
for making the section 1295 election;
(ii) Attaching Form 8621 to its federal
income tax return filed by the election due
date for the shareholder’s election year;
(iii) Receiving and reflecting in Form
8621 the information provided in the
PFIC Annual Information Statement de-
scribed in paragraph (g)(1) of this section,
the Annual Intermediary Statement de-
scribed in paragraph (g)(3) of this section,
or the applicable combined statement de-
scribed in paragraph (g)(4) of this section,
for the taxable year of the PFIC ending
with or within the taxable year for which
Form 8621 is being filed. If the PFIC An-
nual Information Statement contains a
statement described in paragraph
(g)(1)(ii)(C) of this section, the share-
holder must attach a statement to Form
8621 that indicates that the shareholder
rather than the QEF calculated the QEF’s
ordinary earnings and net capital gain;
and
(iv) Filing a copy of Form 8621 with
the Philadelphia Service Center, P.O.
21086, Philadelphia, PA19114 by the
election due date.
(2) Annual election requirements—(i)
In general.Ashareholder that makes a
section 1295 election with respect to a
PFIC held directly or indirectly, for each
taxable year to which the section 1295
election applies, must—
(A) Complete Form 8621 in the man-
ner required by that form and this section;
(B) Attach Form 8621 to its federal in-
come tax return filed by the due date of
the return, as extended;
(C) Receive and reflect in Form 8621
the PFIC Annual Information Statement
described in paragraph (g)(1) of this sec-
tion, the Annual Intermediary Statement
described in paragraph (g)(3) of this sec-
tion, or the applicable combined state-
ment described in paragraph (g)(4) of this
section, for the taxable year of the PFIC
ending with or within the taxable year for
which Form 8621 is being filed. If the
PFIC Annual Information Statement con-
tains a statement described in paragraph
(g)(1)(ii)(C) of this section, the share-
holder must attach a statement to its Form
8621 that the shareholder rather than the
PFIC provided the calculations of the
PFIC’s ordinary earnings and net capital
gain; and
(D) File a copy of Form 8621 with the
Philadelphia Service Center, P.O. 21086,
Philadelphia, PA19114 by the election
due date.
(ii) Retention of documents.For all
taxable years subject to the section 1295
election, the shareholder must retain
copies of all Forms 8621, with their at-
tachments, and PFIC Annual Information
Statements or Annual Intermediary State-
ments. Failure to produce those docu-
ments at the request of the Commissioner
in connection with an examination may
result in invalidation or termination of the
shareholder’s section 1295 election.
(g) Annual election requirements of the
PFIC or intermediary—(1) PFIC Annual
Information Statement.For each year of
the PFIC ending in a taxable year of a
shareholder to which the shareholder’s
section 1295 election applies, the PFIC
must provide the shareholder with a PFIC
Annual Information Statement. The PFIC
Annual Information Statement is a state-
ment of the PFIC, signed by the PFIC or
an authorized representative of the PFIC,
that contains the following information
and representation—
(i) The first and last days of the taxable
year of the PFIC to which the PFIC An-
nual Information Statement applies;
(ii) Either—
(A) The shareholder’s pro rata shares
of the ordinary earnings and net capital
gain (as defined in § 1.1293–1T(a)(2)) of
the PFIC for the taxable year indicated in
paragraph (g)(1)(i) of this section; or
(B) Sufficient information to enable the
shareholder to calculate its pro rata shares
of the PFIC’s ordinary earnings and net
capital gain, for that taxable year; or
(C) Astatement that the foreign corpo-
ration has permitted the shareholder to ex-
amine the books of account, records, and
other documents of the foreign corpora-
tion for the shareholder to calculate the
amounts of the PFIC’s ordinary earnings
and the net capital gain according to fed-
eral income tax accounting principles and
to calculate the shareholder’s pro rata
shares of the PFIC’s ordinary earnings
and net capital gain;
(iii) The amount of cash and the fair
market value of other property distributed
or deemed distributed to the shareholder
during the taxable year of the PFIC to
which the PFIC Annual Information
Statement pertains; and
(iv) Either—
(A) Astatement that the PFIC will per-
mit the shareholder to inspect and copy
the PFIC’s permanent books of account,
records, and such other documents as may
be maintained by the PFIC to establish
that the PFIC’s ordinary earnings and net
capital gain are computed in accordance
with U.S. income tax principles, and to
verify these amounts and the share-
holder’s pro rata shares thereof; or
(B) In lieu of the statement required in
paragraph (g)(1)(iv)(A) of this section, a
description of the alternative documenta-
tion requirements approved by the Com-
missioner, with a copy of the private letter
ruling and the closing agreement entered
into by the Commissioner and the PFIC
pursuant to paragraph (g)(2) of this section.
(2) Alternative documentation.In rare
and unusual circumstances, the Commis-
February 23, 1998161998–8 I.R.B.

sioner will consider alternative documen-
tation requirements necessary to verify
the ordinary earnings and net capital gain
of a PFIC other than the documentation
requirements described in paragraph
(g)(1)(iv)(A) of this section. Alternative
documentation requirements will be al-
lowed only pursuant to a private letter rul-
ing and a closing agreement entered into
by the Commissioner and the PFIC de-
scribing an alternative method of verify-
ing the PFIC’s ordinary earnings and net
capital gain. If the PFIC has not obtained
a private letter ruling from the Commis-
sioner approving an alternative method of
verifying the PFIC’s ordinary earnings
and net capital gain by the time a share-
holder is required to make a section 1295
election, the shareholder may not use an
alternative method for that taxable year.
(3) Annual Intermediary Statement.In
the case of a U.S. person that is a share-
holder of a PFIC through an intermediary,
as defined in paragraph (j) of this section,
an Annual Intermediary Statement issued
by an intermediary containing the infor-
mation described in paragraph (g)(1) of
this section and reporting the indirect
owner’s pro rata shares of the ordinary
earnings and net capital gain of the QEF
as described in paragraph (g)(1)(ii)(A) of
this section, may be provided to the indi-
rect owner in lieu of the PFIC Annual In-
formation Statement if the following con-
ditions are satisfied—
(i) The intermediary receives a copy of
the PFIC Annual Information Statement
or the intermediary receives an annual in-
termediary statement from another inter-
mediary which contains a statement that
the other intermediary has received a
copy of the PFIC Annual Information
Statement and represents that the condi-
tions of paragraphs (g)(3)(ii) and
(g)(3)(iii) of this section are met;
(ii) The representations and informa-
tion contained in the Annual Intermediary
Statement reflect the representations and
information contained in the PFIC Annual
Information Statement; and
(iii) The PFIC Annual Information
Statement issued to the intermediary con-
tains either the representation set forth in
paragraph (g)(1)(iv)(A) of this section, or,
if alternative documentation requirements
were approved by the Commissioner pur-
suant to paragraph (g)(2) of this section, a
copy of the private letter ruling and clos-
ing agreement between the Commissioner
and the PFIC, agreeing to an alternative
method of verifying PFIC ordinary earn-
ings and net capital gain as described in
paragraph (g)(2) of this section;
(4) Combined statements—(i) PFIC
Annual Information Statement.APFIC
that owns directly or indirectly any stock
of one or more PFICs with respect to
which a shareholder may make the sec-
tion 1295 election may prepare a PFIC
Annual Information Statement that com-
bines with its own information and repre-
sentations the information and representa-
tions of all the PFICs. The PFIC may use
any format for a combined PFIC Annual
Information Statement provided the re-
quired information and representations
are separately stated and identified with
the respective corporations.
(ii) Annual Intermediary Statement.
An intermediary described in paragraph
(g)(3) of this section that owns directly or
indirectly stock of one or more PFICs
with respect to which an indirect share-
holder may make the section 1295 elec-
tion may prepare an Annual Intermediary
Statement that combines with its own in-
formation and representations the infor-
mation and representations with respect to
all the PFICs. The intermediary may use
any format for a combined Annual Inter-
mediary Statement provided the required
information and representations are sepa-
rately stated and identified with the inter-
mediary and the respective corporations.
(h) Transition rules.The rules of No-
tice 88–125, 1988–2 C.B. 535 (see
§ 601.601(d)(2)(ii)(b) of this chapter),
apply for making elections and maintain-
ing elections for taxable years beginning
after December 31, 1986, and before Jan-
uary 1, 1998. Elections made under No-
tice 88–125 must be maintained as pro-
vided in § 1.1295–1Tfor taxable years
beginning after December 31, 1997. A
section 1295 election made prior to Feb-
ruary 1, 1998, that was intended to be ef-
fective for the taxable year of the PFIC
that began during the shareholder’s elec-
tion year will be effective for that taxable
year of the foreign corporation provided
that it is clear from all the facts and cir-
cumstances that the shareholder intended
the election to be effective for that taxable
year of the foreign corporation.
(i) Invalidation, termination, or revo-
cation of section 1295 election—(1) In-
validation or termination of election at
the discretion of the Commissioner—(i)
In general.The Commissioner, in the
Commissioner’s discretion, may invali-
date or terminate a section 1295 election
applicable to a shareholder if the share-
holder, the PFIC, or any intermediary
fails to satisfy the requirements for mak-
ing a section 1295 election or the annual
election requirements of this section to
which the shareholder, PFIC, or interme-
diary is subject, including the requirement
to provide, on request, copies of the books
and records of the PFIC or other docu-
mentation substantiating the ordinary
earnings and net capital gain of the PFIC.
(ii) Deferral of section 1293 inclusion.
The Commissioner may invalidate any
pass through entity section 1295 election
with respect to an interest holder or bene-
ficiary if the section 1293 inclusion with
respect to that interest holder or benefi-
ciary is not included in the gross income
of either the pass through entity, an inter-
mediate pass through entity, or the inter-
est holder or beneficiary within two years
of the end of the PFIC’s taxable year due
to nonconforming taxable years of the in-
terest holder and the pass through entity
or any intermediate pass through entity.
(iii) When effective.Termination of a
shareholder’s section 1295 election will
be effective for the taxable year of the
PFIC determined by the Commissioner in
the Commissioner’s discretion. An inval-
idation of a shareholder’s section 1295
election will be effective for the first tax-
able year to which the section 1295 elec-
tion applied, and the shareholder whose
election is invalidated will be treated as if
the section 1295 election never was
made.
(2) Shareholder revocation—(i) In
general.In the Commissioner’s discre-
tion, upon a finding of a substantial
change in circumstances, the Commis-
sioner may consent to a shareholder’s re-
quest to revoke a section 1295 election.
Request for revocation must be made by
the shareholder that made the election and
at the time and in the manner provided in
paragraph (i)(2)(ii) of this section.
(ii) Time for and manner of requesting
consent to revoke—(A) Time.The share-
holder must request consent to revoke the
section 1295 election no later than 12 cal-
endar months after the discovery of the
substantial change of circumstances that
1998–8 I.R.B17February 23, 1998

forms the basis for the shareholder’s re-
quest to revoke the section 1295 election.
(B) Manner of making request.A
shareholder requests consent to revoke a
section 1295 election by filing a ruling re-
quest with the Office of the Associate
Chief Counsel (International). The ruling
request must satisfy the requirements, in-
cluding payment of the user fee, for filing
ruling requests with that office.
(iii) When effective.Unless otherwise
determined by the Commissioner, revoca-
tion of a section 1295 election will be ef-
fective for the first taxable year of the
PFIC beginning after the date the Com-
missioner consents to the revocation.
(3) Effect of invalidation, termination,
or revocation. An invalidation, termina-
tion, or revocation of a section 1295 elec-
tion—
(i) Terminates all section 1294 elec-
tions, as provided in § 1.1294–1T(e), and
the undistributed PFIC earnings tax liabil-
ity and interest thereon are due by the due
date, without regard to extensions, for the
return for the last taxable year of the
shareholder to which the section 1295
election applies;
(ii) In the Commissioner’s discretion,
results in a deemed sale of the QEF stock
on the last day of the PFIC’s last taxable
year as a QEF, in which gain, but not loss,
will be recognized and with respect to
which appropriate basis and holding pe-
riod adjustments will be made; and
(iii) Subjects the shareholder to any
other terms and conditions that the Com-
missioner determines are necessary to en-
sure the shareholder’s compliance with
sections 1291 through 1297 or any other
provisions of the Code.
(4) Election after invalidation, termi-
nation, or revocation.Without the Com-
missioner’s consent a shareholder whose
section 1295 election was invalidated, ter-
minated, or revoked under this paragraph
(i) may not make the section 1295 elec-
tion with respect to the PFIC before the
sixth taxable year ending after the taxable
year in which the invalidation, termina-
tion, or revocation became effective.
(j) Definitions.For purposes of this
section—
Intermediaryis a nominee or share-
holder of record that holds stock on behalf
of the shareholder or on behalf of another
person in a chain of ownership between
the shareholder and the PFIC, and any di-
rect or indirect beneficial owner of PFIC
stock (including a beneficial owner that is
a pass through entity) in the chain of own-
ership between the shareholder and the
PFIC.
Pass through entityis a partnership, S
corporation, trust, or estate.
Shareholderhas the same meaning as
the term shareholder in § 1.1291–9(j)(3),
except that for purposes of this section, a
partnership and an S corporation also are
treated as shareholders. Furthermore, un-
less otherwise provided, an interest holder
of a pass through entity, which is treated
as a shareholder of a PFIC, also will be
treated as a shareholder of the PFIC.
Shareholder’s election yearis the tax-
able year of the shareholder for which it
made the section 1295 election.
(k) Effective date.Section 1.1295–
1T(b)(2)(iii), (b)(3), (b)(4), and (c)
through (j) is applicable to taxable years
of shareholders beginning after December
31, 1997.
Par. 12. Section 1.1295–3Tis added to
read as follows:
§ 1.1295–3TRetroactive elections
(temporary).
(a) In general.This section prescribes
the exclusive rules under which a share-
holder, as defined in § 1.1295–1T(j), may
make a section 1295 election for a taxable
year after the election due date, as defined
in § 1.1295–1T(e) (retroactive election).
Therefore, a shareholder may not seek
such relief under any other provision of
the law, including § 301.9100 of this
chapter. Paragraph (b) of this section de-
scribes the general rules for a shareholder
to preserve the ability to make a retroac-
tive election. These rules require that the
shareholder possess reasonable belief as
of the election due date that the foreign
corporation was not a PFIC for its taxable
year that ended in the shareholder’s tax-
able year to which the election due date
pertains, and that the shareholder file a
Protective Statement to preserve its abil-
ity to make a retroactive election. Para-
graph (c) of this section establishes the
terms, conditions and other requirements
with respect to a Protective Statement re-
quired to be filed under the general rules.
Paragraph (d) of this section sets forth
factors that establish a shareholder’s rea-
sonable belief that a foreign corporation
was not a PFIC. Paragraph (e) of this sec-
tion prescribes special rules for certain
shareholders that are deemed to satisfy the
reasonable belief requirement and there-
fore are not required to file a Protective
Statement. Paragraph (f) of this section
describes the limited circumstances under
which the Commissioner may permit a
shareholder that lacked the requisite rea-
sonable belief or failed to satisfy the re-
quirements of paragraph (b) or (e) of this
section to make a retroactive election.
Paragraph (g) of this section provides the
time for and manner of making a retroac-
tive election. Paragraph (h) of this section
provides the effective date of this section.
(b) General rule.Except as provided
in paragraphs (e) and (f) of this section, a
shareholder may make a retroactive elec-
tion for a taxable year of the shareholder
(retroactive election year) only if the
shareholder—
(1) Reasonably believed, within the
meaning of paragraph (d) of this section,
as of the election due date that the foreign
corporation was not a PFIC for its taxable
year that ended during the retroactive
election year;
(2) Filed a Protective Statement with
respect to the foreign corporation, applic-
able to the retroactive election year, in
which the shareholder described the basis
for its reasonable belief and extended, in
the manner provided in paragraph (c)(4)
of this section, the periods of limitations
on the assessment of taxes determined
under sections 1291 through 1297 with
respect to the foreign corporation (PFIC
related taxes) for all taxable years of the
shareholder to which the Protective State-
ment applies; and
(3) Complied with the other terms and
conditions of the Protective Statement.
(c) Protective Statement—(1) In gen-
eral.AProtective Statement is a state-
ment executed under penalties of perjury
by the shareholder, or a person authorized
to sign a federal income tax return on be-
half of the shareholder, that preserves the
shareholder’s ability to make a retroactive
election. To file a Protective Statement
that applies to a taxable year of the share-
holder, the shareholder must reasonably
believe as of the election due date that the
foreign corporation was not a PFIC for
the foreign corporation’s taxable year that
ended during the retroactive election year.
The Protective Statement must contain—
February 23, 1998181998–8 I.R.B.

(i) The shareholder’s reasonable belief
statement, as described in paragraph
(c)(2) of this section;
(ii) The shareholder’s agreement ex-
tending the periods of limitations on the
assessment of PFIC related taxes for all
taxable years to which the Protective
Statement applies, as provided in para-
graph (c)(4) of this section; and
(iii) The following information and
representations—
(A) The shareholder’s name, address,
taxpayer identification number, and the
shareholder’s first taxable year to which
the Protective Statement applies;
(B) The foreign corporation’s name,
address, and taxpayer identification num-
ber, if any; and
(C) The highest percentage of shares
of each class of stock of the foreign cor-
poration held directly or indirectly by the
shareholder during the shareholder’s first
taxable year to which the Protective State-
ment applies.
(2) Reasonable belief statement.The
Protective Statement must contain a rea-
sonable belief statement, as described in
paragraph (c)(1) of this section. The rea-
sonable belief statement is a description
of the shareholder’s basis for its reason-
able belief that the foreign corporation
was not a PFIC for its taxable year that
ended with or within the shareholder’s
first taxable year to which the Protective
Statement applies. If the Protective State-
ment applies to a taxable year or years de-
scribed in paragraph (c)(5)(ii) of this sec-
tion, the reasonable belief statement must
describe the shareholder’s basis for its
reasonable belief that the foreign corpora-
tion was not a PFIC for the foreign corpo-
ration’s taxable year or years that ended in
such taxable year or years of the share-
holder. The reasonable belief statement
must discuss the application of the in-
come and asset tests to the foreign corpo-
ration and the factors, including those
stated in paragraph (d) of this section, that
affect the results of those tests.
(3) Who executes and files the Protec-
tive Statement.The person that executes
and files the Protective Statement is the
person that makes the section 1295 elec-
tion, as provided in § 1.1295–1T(d).
(4) Waiver of the periods of limita-
tions—(i) Time for and manner of extend-
ing periods of limitations.(A) In general.
Ashareholder that files the Protective
Statement with the Commissioner must
extend the periods of limitations on the as-
sessment of all PFIC related taxes for all
of the shareholder’s taxable years to which
the Protective Statement applies, as pro-
vided in this paragraph (c)(4). The share-
holder is required to execute the waiver on
such form as the Commissioner may pre-
scribe for purposes of this paragraph
(c)(4). Until that form is published, the
shareholder must execute a statement in
which the shareholder agrees to extend the
periods of limitations on the assessment of
taxes for all the shareholder’s taxable
years to which the Protective Statement
applies, as provided in this paragraph
(c)(4), and agrees to the restrictions in
paragraph (c)(4)(ii)(A) of this section.
The shareholder or a person authorized to
sign the shareholder’s federal income tax
return must sign the form or statement. A
properly executed form or statement au-
thorized by this paragraph (c)(4) will be
deemed consented to and signed by a Ser-
vice Center Director or the Assistant Com-
missioner (International) for purposes of
§ 301.6501(c)–1(d) of this chapter.
(B) Application of general rule to do-
mestic partnerships—(1) In general.A
domestic partnership that holds an interest
in stock of a PFIC satisfies the waiver re-
quirement of paragraph (c)(4) of this sec-
tion pursuant to the rules of this paragraph
(c)(4)(i)(B)(1). The partnership must file
one or more waivers obtained or arranged
under this paragraph (c)(4)(i)(B) as part
of the Protective Statement, as provided
in paragraph (c)(1) of this section. The
partnership must either—
(i) Obtain from each partner the part-
ner’s waiver of the periods of limitations;
(ii) Obtain from each partner a duly
executed power of attorney under §
601.501 of this chapter authorizing the
partnership to extend that partner’s peri-
ods of limitations, and execute a waiver
on behalf of the partners; or
(iii) In the case of a domestic partner-
ship governed by the unified audit and liti-
gation procedures of sections 6221 through
6233 (TEFRApartnership), arrange for the
tax matters partner (or any other person au-
thorized to enter into an agreement to ex-
tend the periods of limitations), as pro-
vided in section 6229(b), to execute a
waiver on behalf of all the partners.
(2) Special rules—(i) Addition of
partner to non-TEFRApartnership.In
the case of any individual who becomes a
partner in a domestic partnership other
than a TEFRApartnership (non-TEFRA
partnership) in a taxable year subsequent
to the year in which the partnership filed a
Protective Statement, the partner and the
partnership must comply with the rules
applicable to non-TEFRApartnerships, as
provided in paragraph (c)(4)(i)(B)(1) of
this section, by the due date, as extended,
for the federal income tax return of the
partnership for the taxable year during
which the individual became a partner.
Failure to so comply will render the Pro-
tective Statement invalid with respect to
the partnership and partners.
(ii) Change in status from non-TEFRA
partnership to TEFRApartnership.If a
partnership is a non-TEFRApartnership
in one taxable year but becomes a TEFRA
partnership in a subsequent taxable year,
the partnership must file one or more
waivers obtained or arranged under this
paragraph (c)(4)(i)(B)(2)(ii), as part of the
Protective Statement, as provided in para-
graph (c)(1) of this section. The partner-
ship must either obtain from any new
partner the partner’s waiver described in
this paragraph (c)(4); obtain from the new
partner a duly executed power of attorney
under § 601.501 of this chapter authoriz-
ing the partnership to extend the partner’s
periods of limitations, and execute a
waiver on behalf of the new partner; or
arrange for the tax matters partner (or any
other person authorized to enter into an
agreement to extend the periods of limita-
tions) to execute a waiver on behalf of all
the partners. In each case, the partnership
must attach any new waiver of a partner’s
periods of limitations, and a copy of the
Protective Statement to its federal income
tax return for that taxable year.
(C) Application of general rule to do-
mestic nongrantor trusts and domestic es-
tates.Adomestic nongrantor trust or a
domestic estate that holds an interest in
stock of a PFIC satisfies the waiver re-
quirement of this paragraph (c)(4) at the
entity level. For this purpose, such entity
must comply with rules similar to those
applicable to non-TEFRApartnerships, as
provided in paragraph (c)(4)(i)(B)(1) of
this section.
(D) Application of general rule to S
corporations.An S corporation that holds
an interest in stock of a PFIC satisfies the
waiver requirement of this paragraph
1998–8 I.R.B19February 23, 1998

(c)(4) at the S corporation level. For this
purpose, the S corporation must comply
with rules similar to those applicable to
non-TEFRApartnerships, as provided in
paragraph (c)(4)(i)(B)(1) of this section.
However, in the case of an S corporation
that was governed by the unified audit
corporate proceedings of sections 6241
through 6245 for any taxable year to
which a Protective Statement applies (for-
mer TEFRAS corporation), the tax mat-
ters person (or any other person autho-
rized to enter into such an agreement), as
was provided in sections 6241 through
6245, may execute a waiver described in
this paragraph (c)(4) that applies to such
taxable year; for any other taxable year,
the former TEFRAS corporation must
comply with rules similar to those applic-
able to non-TEFRApartnerships.
(E) Effect on waiver of complete termi-
nation of a pass through entity or pass
through entity’s business.The complete
termination of a pass through entity de-
scribed in paragraphs (c)(4)(i)(B) through
(D) of this section, or a pass through en-
tity’s trade or business, will not terminate
a waiver that applies to a partner, share-
holder, or beneficiary.
(F) Application of general rule to for-
eign partnerships, foreign trusts, domes-
tic or foreign grantor trusts, and foreign
estates.AU.S. person that is a partner or
beneficiary of a foreign partnership, for-
eign trust, or foreign estate that holds an
interest in stock of a PFIC satisfies the
waiver requirement of this paragraph
(c)(4) at the partner or beneficiary level.
AU.S. person that is treated under sec-
tions 671 through 679 as the owner of the
portion of a domestic or foreign trust that
owns an interest in PFIC stock also satis-
fies the waiver requirement at the owner
level. Awaiver by a partner or benefi-
ciary applies only to that partner or bene-
ficiary, and is not affected by a complete
termination of the entity or the entity’s
trade or business.
(ii) Terms of waiver—(A) Scope of
waiver.The waiver of the periods of limi-
tations is limited to the assessment of
PFIC related taxes. If the period of limi-
tations for a taxable year affected by a
retroactive election has expired with re-
spect to the assessment of other non-PFIC
related taxes, no adjustments, other than
consequential changes, may be made by
the Internal Revenue Service or by the
shareholder to any other items of income,
deduction, or credit for that year. If the
period of limitations for refunds or credits
for a taxable year affected bya retroactive
election is open only by virtue of the as-
sessment period extension and section
6511(c), no refund or credit is allowable
on grounds other than adjustments to
PFIC related taxes and consequential
changes.
(B) Period of waiver. The extension of
the periods of limitations on the assess-
ment of PFIC related taxes will be effec-
tive for all of the shareholder’s taxable
years to which the Protective Statement
applies. In addition, the waiver, to the ex-
tent it applies to the period of limitations
for a particular year, will terminate with
respect to that year no sooner than three
years from the date on which the share-
holder files an amended return, as pro-
vided in paragraph (g) of this section, for
that year. For the suspension of the run-
ning of the period of limitations for the
collection of taxes for which a share-
holder has elected under section 1294 to
extend the time for payment, as provided
in paragraph (g)(3)(ii) of this section, see
sections 6503(i) and 6229(h).
(5) Time for and manner of filing a
Protective Statement—(i) In general.
Except as provided in paragraph (c)(5)(ii)
of this section, a Protective Statement
must be attached to the shareholder’s fed-
eral income tax return for the share-
holder’s first taxable year to which the
Protective Statement will apply. The
shareholder also must file a copy of the
Protective Statement with the Philadel-
phia Service Center, P.O. 21086, Philadel-
phia, PA19114. The shareholder must
file its return and the copy of the Protec-
tive Statement by the due date, as ex-
tended, for the return.
(ii) Special rule for taxable years
ended before January 2, 1998.Ashare-
holder may file a Protective Statement that
applies to the shareholder’s taxable year or
years that ended before January 2, 1998,
provided the period of limitations on the
assessment of taxes for any such year has
not expired (open year). The shareholder
must file the Protective Statement applica-
ble to such open year or years, as provided
in paragraph (c)(5)(i) of this section, by
the due date, as extended, for the share-
holder’s return for the first taxable year
ending after January 2, 1998.
(6) Applicability of the Protective
Statement—(i) In general.Except as
otherwise provided in this paragraph
(c)(6), a Protective Statement applies to
the shareholder’s first taxable year for
which the Protective Statement was filed
and to each subsequent taxable year. The
Protective Statement will not apply to any
taxable year of the shareholder during
which the shareholder does not own any
stock of the foreign corporation or to any
taxable year thereafter. Accordingly, if
the shareholder has not made a retroactive
election with respect to the previously
owned stock by the time the shareholder
reacquires stock of the foreign corpora-
tion, the shareholder must file another
Protective Statement to preserve its right
to make a retroactive election with respect
to the later acquired stock. For the rule
that provides that a section 1295 election
made with respect to a foreign corpora-
tion applies to stock of that corporation
acquired after a lapse in ownership, see
§ 1.1295–1T(c)(2)(iii).
(ii) Invalidity of the Protective State-
ment.Ashareholder will be treated as if it
never filed a Protective Statement if—
(A) The shareholder failed to make a
retroactive election by the date prescribed
for making the retroactive election in
paragraph (g)(1) of this section; or
(B) The waiver of the periods of limi-
tations terminates (by reason of a court
decision or other determination) with re-
spect to any taxable year before the expi-
ration of three years from the date of fil-
ing of an amended return for that year
pursuant to paragraph (g) of this section.
(7) Retention of Protective Statement
and information demonstrating reason-
able belief.Ashareholder that files a Pro-
tective Statement must retain a copy of
the Protective Statement and its attach-
ments and must, for each taxable year of
the shareholder to which the Protective
Statement applies, retain information suf-
ficient to demonstrate the shareholder’s
reasonable belief that the foreign corpora-
tion was not a PFIC for the taxable year of
the foreign corporation ending during
each such taxable year of the shareholder.
(d) Reasonable belief—(1) In general.
Aforeign corporation is a PFIC for a tax-
able year if the foreign corporation satis-
fies either the income or asset test of sec-
tion 1296(a). To determine whether a
shareholder had reasonable belief that the
February 23, 1998201998–8 I.R.B.

foreign corporation is not a PFIC under
section 1296(a), the shareholder must
consider all relevant facts and circum-
stances. Reasonable belief may be based
on a variety of factors, including reason-
able asset valuations as well as reasonable
interpretations of the applicable provi-
sions of the Code, regulations, and admin-
istrative guidance regarding the direct or
indirect ownership of the income or assets
of the foreign corporation, the proper
character of that income or those assets,
and similar issues. Reasonable belief
may be based on reasonable predictions
regarding income to be earned and assets
to be owned in subsequent years where
qualification of the foreign corporation as
a PFIC for the current taxable year will
depend on the qualification of the corpo-
ration as a PFIC in a subsequent year.
Reasonable belief may be based on an
analysis of generally available financial
information of the foreign corporation.
To determine whether a shareholder had
reasonable belief that the foreign corpora-
tion was not a PFIC, the Commissioner
may consider the size of the shareholder’s
interest in the foreign corporation.
(2) Knowledge of law required.Rea-
sonable belief must be based on a good
faith effort to apply the Code, regulations,
and related administrative guidance. Any
person’s failure to know or apply these
provisions will not form the basis of rea-
sonable belief.
(e) Special rules for qualified share-
holders—(1) In general.Ashareholder
that is a qualified shareholder, as defined
in paragraph (e)(2) of this section, for a
taxable year of the shareholder is not re-
quired to satisfy the reasonable belief re-
quirement of paragraph (b)(1) of this sec-
tion or file a Protective Statement to
preserve its ability to make a retroactive
election with respect to such taxable year.
Accordingly, a qualified shareholder may
make a retroactive election for any open
taxable year in the shareholder’s holding
period. The retroactive election will be
treated as made in the earliest taxable year
of the shareholder during which the for-
eign corporation qualified as a PFIC (in-
cluding a taxable year ending prior Janu-
ary 2, 1998) and the shareholder will be
treated as a shareholder of a pedigreed
QEF, as defined in § 1.1291–9(j)(2)(ii),
provided the shareholder—
(i) Has been a qualified shareholder
with respect to the foreign corporation for
all taxable years of the shareholder in-
cluded in the shareholder’s holding period
during which the foreign corporation was
a PFIC, or in the case of taxable years
ending before January 2, 1998, the share-
holder satisfies the criteria of a qualified
shareholder, for all such years; or
(ii) Has been a qualified shareholder,
or in the case of taxable years ending be-
fore January 2, 1998, satisfies the criteria
of a qualified shareholder, for all taxable
years in its holding period before it filed a
Protective Statement, which Protective
Statement is applicable to all subsequent
years, beginning with the first taxable
year in which the shareholder is not a
qualified shareholder.
(2) Qualified shareholder.Ashare-
holder will be treated as a qualified share-
holder for a taxable year if the share-
holder did not file a Protective Statement
applicable to an earlier taxable year in-
cluded in the shareholder’s holding period
of the stock of the foreign corporation
currently held and—
(i) At all times during the taxable year
the shareholder owned, within the mean-
ing of section 958, directly, indirectly, or
constructively, less than two percent of
the vote and value of each class of stock
of the foreign corporation; and
(ii) With respect to the taxable year of
the foreign corporation ending within the
shareholder’s taxable year, the foreign
corporation or U.S. counsel for the for-
eign corporation indicated in a public fil-
ing, disclosure statement or other notice
provided to U.S. persons that are share-
holders of the foreign corporation (corpo-
rate filing) that the foreign corporation—
(A) Reasonably believes that it is not
or should not constitute a PFIC for the
corporation’s taxable year; or
(B) Is unable to conclude that it is not
or should not be a PFIC (due to certain
asset valuation or interpretation issues, or
because PFIC status will depend on the
income or assets of the foreign corpora-
tion in the corporation’s subsequent tax-
able years) but reasonably believes that,
more likely than not, it ultimately will not
be a PFIC.
(3) Exceptions. Notwithstanding para-
graph (e)(2)(ii) of this section, a share-
holder will not be treated as a qualified
shareholder for a taxable year of the
shareholder if the shareholder knew or
had reason to know that a corporate filing
regarding the foreign corporation’s PFIC
status was inaccurate, or knew that the
foreign corporation was a PFIC for the
taxable year of the foreign corporation
ending with or within such taxable year of
the shareholder. For purposes of this
paragraph, a shareholder will be treated as
knowing that a foreign corporation was a
PFIC if the principal activity of the for-
eign corporation, directly or indirectly, is
owning or trading a diversified portfolio
of stock, securities, or other financial con-
tracts.
(f) Special consent—(1) In general.A
shareholder that has not satisfied the re-
quirements of paragraph (b) or (e) of this
section may request the consent of the
Commissioner to make a retroactive elec-
tion for a taxable year of the shareholder
provided the shareholder satisfies the re-
quirements set forth in this paragraph (f).
The Commissioner will grant relief under
this paragraph (f) only if—
(i) The shareholder reasonably relied on
a qualified tax professional, within the
meaning of paragraph (f)(2) of this section;
(ii) Granting consent will not prejudice
the interests of the United States govern-
ment, as provided in paragraph (f)(3) of
this section;
(iii) The shareholder requests consent
under paragraph (f) of this section before
a representative of the Internal Revenue
Service raises upon audit the PFIC status
of the corporation for any taxable year of
the shareholder; and
(iv) The shareholder satisfies the pro-
cedural requirements set forth in para-
graph (f)(4) of this section.
(2) Reasonable reliance on a qualified
tax professional—(i) In general.Except
as provided in paragraph (f)(2)(ii) of this
section, a shareholder is deemed to have
reasonably relied on a qualified tax pro-
fessional only if the shareholder reason-
ably relied on a qualified tax professional
(including a tax professional employed by
the shareholder) who failed to identify the
foreign corporation as a PFIC or failed to
advise the shareholder of the conse-
quences of making, or failing to make, the
section 1295 election. Ashareholder will
not be considered to have reasonably re-
lied on a qualified tax professional if the
1998–8 I.R.B21February 23, 1998

shareholder knew, or reasonably should
have known, that the foreign corporation
was a PFIC and the availability of a sec-
tion 1295 election, or knew or reasonably
should have known that the qualified tax
professional—
(A) Was not competent to render tax
advice with respect to the ownership of
shares of a foreign corporation; or
(B) Did not have access to all relevant
facts and circumstances.
(ii) Shareholder deemed to have not
reasonably relied on a qualified tax pro-
fessional. For purposes of this paragraph
(f)(2), a shareholder is deemed to have
not reasonably relied on a qualified tax
professional if the shareholder was in-
formed by the qualified tax professional
that the foreign corporation was a PFIC
and of the availability of the section 1295
election and related tax consequences, but
either chose not to make the section 1295
election or was unable to make a valid
section 1295 election.
(3) Prejudice to the interests of the
United States government—(i) General
rule.Except as otherwise provided in
paragraph (f)(3)(ii) of this section, the
Commissioner will not grant consent
under paragraph (f) of this section if
doing so would prejudice the interests of
the United States government. The inter-
ests of the United States government are
prejudiced if granting relief would result
in the shareholder having a lower tax lia-
bility, taking into account applicable in-
terest charges, in the aggregate for all
years affected by the retroactive election
(other than by a de minimis amount) than
the shareholder would have had if the
shareholder had made the section 1295
election by the election due date. The
time value of money is taken into account
for purposes of this computation.
(ii) Elimination of prejudice to the in-
terests of the United States government.
Notwithstanding the general rule of para-
graph (f)(3)(i) of this section, if granting
relief would prejudice the interests of the
United States government, the Commis-
sioner may, in the Commissioner’s sole
discretion, grant consent to make the elec-
tion provided the shareholder enters into a
closing agreement with the Commissioner
that requires the shareholder to pay an
amount sufficient to eliminate any preju-
dice to the United States government as a
consequence of the shareholder’s inability
to file amended returns for closed taxable
years.
(4) Procedural requirements—(i) Fil-
ing instructions.Ashareholder requests
consent under paragraph (f) of this section
to make a retroactive election by filing
with the Office of the Associate Chief
Counsel (International) a ruling request
that includes the affidavits required by
this paragraph (f)(4). The ruling request
must satisfy the requirements, including
payment of the user fee, for ruling re-
quests filed with that office.
(ii) Affidavit from shareholder.The
shareholder, or a person authorized to
sign a federal income tax return on behalf
of the shareholder, must submit a detailed
affidavit describing the events that led to
the failure to make a section 1295 election
by the election due date, and to the dis-
covery thereof. The shareholder’s affi-
davit must describe the engagement and
responsibilities of the qualified tax pro-
fessional as well as the extent to which
the shareholder relied on the tax profes-
sional. The shareholder must sign the af-
fidavit under penalties of perjury. An in-
dividual who signs for an entity must
have personal knowledge of the facts and
circumstances at issue.
(iii) Affidavits from other persons. The
shareholder must submit detailed affi-
davits from individuals having knowledge
or information about the events that led to
the failure to make a section 1295 election
by the election due date, and to the dis-
covery thereof. These individuals must
include the qualified tax professional
upon whose advice the shareholder relied,
as well as any individual (including an
employee of the shareholder) who made a
substantial contribution to the return’s
preparation, and any accountant or attor-
ney, knowledgeable in tax matters, who
advised the shareholder with regard to its
ownership of the stock of the foreign cor-
poration. Each affidavit must describe the
individual’s engagement and responsibili-
ties as well as the advice concerning the
tax treatment of the foreign corporation
that the individual provided to the share-
holder. Each affidavit also must include
the individual’s name, address, and tax-
payer identification number, and must be
signed by the individual under penalties
of perjury.
(iv) Other information.In connection
with a request for consent under this para-
graph (f), a shareholder must provide any
additional information requested by the
Commissioner.
(v) Notification of Internal Revenue
Service.The shareholder must notify the
branch of the Associate Chief Counsel
(International) considering the request for
relief under this paragraph (f) if, while the
shareholder’s request for consent is pend-
ing, the Internal Revenue Service begins
an examination ofthe shareholder’s return
for the retroactive election year or for any
subsequent taxable year during which the
shareholder holds stock of the foreign
corporation.
(vi) Who requests special consent
under this paragraph (f) and who enters
into a closing agreement. The person that
requests consent under this paragraph (f)
is the person that makes the section 1295
election, as provided in § 1.1295–1T(d).
If a shareholder is required to enter into a
closing agreement with the Commis-
sioner, as described in paragraph (f)(3)(ii)
of this section, rules similar to those
under paragraphs (c)(4)(i)(B) through (E)
of this section apply for purposes of deter-
mining the person that enters into the
closing agreement.
(g) Time for and manner of making a
retroactive election—(1) Time for mak-
ing a retroactive election—(i) In general.
Except as otherwise provided in para-
graph (g)(1)(ii) of this section, a share-
holder must make a retroactive election,
in the manner provided in paragraph
(g)(2) of this section, on or before the due
date, as extended, for the shareholder’s
return—
(A) In the case of a shareholder that
makes a retroactive election pursuant to
paragraph (b) or (e) of this section, for the
taxable year in which the shareholder de-
termines or reasonably should have deter-
mined that the foreign corporation was a
PFIC; or
(B) In the case of a shareholder that
obtains the consent of the Commissioner
pursuant to paragraph (f) of this
section,for the taxable year in which such
consent is granted.
(ii) Transition rule.Ashareholder that
files a Protective Statement for a taxable
year described in paragraph (c)(5)(ii) of
this section may make a retroactive elec-
tion by the due date, as extended, for the
return for the first taxable year ended after
January 2, 1998, even if the shareholder
February 23, 1998221998–8 I.R.B.

determined or should have determined
that the foreign corporation was a PFIC
for a year described in paragraph (c)(5)(ii)
of this section at any time on or before
January 2, 1998.
(iii) Ownership not required at time
retroactive election is made.The share-
holder need not own shares of the foreign
corporation at the time the shareholder
makes a retroactive election with respect
to the foreign corporation.
(2) Manner of making a retroactive
election.Ashareholder that has satisfied
the requirements of paragraph (b) or (e) of
this section, or a shareholder that has been
granted consent under paragraph (f) of this
section, must make a retroactive election
in the manner provided in Form 8621 for
making a section 1295 election, and must
attach Form 8621 to an amended return for
the later of the retroactive election year or
the earliest open taxable year of the share-
holder. The shareholder also must file an
amended return for each of its subsequent
taxable years affected by the retroactive
election. In each amended return the
shareholder must redetermine its income
tax liability for that year to take into ac-
count the assessment of PFIC related
taxes. If the period of limitations for the
assessment of taxes for a taxable year af-
fected by the retroactive election has ex-
pired except to the extent the waiver of
limitations, described in paragraph (c)(4)
of this section, has extended such period,
no adjustments, other than consequential
changes, may be made to any other items
of income, deduction, or credit in that year.
In addition, the shareholder must pay all
taxes and interest owing by reason of the
PFIC and QEF status of the foreign corpo-
ration in those years (except to the extent a
section 1294 election extends the time to
pay the taxes and interest). Ashareholder
that filed a Protective Statement must at-
tach to Form 8621 filed with each
amended return a representation that the
shareholder, until the taxable year in which
it determined or reasonably should have
determined that the foreign corporation
was a PFIC, reasonably believed, within
the meaning of paragraph (d) of this sec-
tion, that the foreign corporation was not a
PFIC in the taxable year for which the
amended return is filed, and in all other
taxable years to which the Protective State-
ment applies. Ashareholder that entered
into a closing agreement must comply with
the terms of that agreement, as provided in
paragraph (f)(3)(ii) of this section, to elim-
inate any prejudice to the United States
government’s interests, as described in
paragraph (f)(3) of this section.
(3) Who makes the retroactive election.
The person that makes the retroactive
election is the person that makes the sec-
tion 1295 election, as provided in
§ 1.1295–1T(d). Apartner, shareholder,
or beneficiary for which a pass through
entity, as described in paragraphs
(c)(4)(i)(B) through (D) of this section,
filed a Protective Statement may make a
retroactive election, if the pass through
entity completely terminates its business
or otherwise ceases to exist.
(4) Other elections—(i) Section
1291(d)(2) election.If the foreign corpo-
ration for which the shareholder makes a
retroactive election will be treated as an
unpedigreed QEF, as defined in § 1.1291–
9(j)(2)(iii), with respect to the share-
holder, the shareholder may make an elec-
tion under section 1291(d)(2) to purge its
holding period of the years or parts of
years before the effective date of the
retroactive election. If the qualification
date, within the meaning of § 1.1291–9(e)
or 1.1291–10(e), falls in a taxable year for
which the period of limitations has ex-
pired, the shareholder may treat the first
day of the retroactive election year as the
qualification date. The shareholder may
make a section 1291(d)(2) election at the
time that it makes the retroactive election,
but no later than two years after the date
that the amended return in which the
retroactive election is made is filed. For
the requirements for making a section
1291(d)(2) election, see §§ 1.1291–9 and
1.1291–10.
(ii) Section 1294 election.Ashare-
holder may make an election under sec-
tion 1294 to extend the time for payment
of tax on the shareholder’s pro rata shares
of the ordinary earnings and net capital
gain of the foreign corporation reported in
the shareholder’s amended return, and
section 6621 interest attributable to such
tax, but only to the extent the tax and in-
terest are attributable to earnings that
have not been distributed to the share-
holder. The shareholder must make a sec-
tion 1294 election for a taxable year at the
time that it files its amended return for
that year, as provided in paragraph (g)(1)
of this section. For the requirements for
making a section 1294 election, see
§ 1.1294–1T.
(h) Effective date.The rules of this
section are effective as of January 2,
1998.
Par. 13. Section 1.1297–3T(c) is added
to read as follows:
§ 1.1297–3TDeemed sale election by a
United States person that is a
shareholder of a passive foreign
investment company (temporary).
* * * * *
(c) Application of deemed dividend
election rules—(1) In general.Ashare-
holder of a former PFIC, within the mean-
ing of § 1.1291–9(j)(2)(iv), that was a con-
trolled foreign corporation, within the
meaning of section 957(a) (CFC), during
its last taxable year as a PFIC under section
1296(a), may apply the rules of section
1291(d)(2)(B) and § 1.1291–9 to an elec-
tion under section 1297(b)(1) and this sec-
tion made by the time and in the manner
provided in paragraph (b) of this section.
(2) Transition rule.If the time for
making an election under this section, as
provided in paragraph (b) of this section,
expired before January 2, 1998, a share-
holder that applied rules similar to the
rules of section 1291(d)(2)(A) and
§ 1.1291–10 to an election under this sec-
tion made with respect to a corporation
that was a CFC during its last taxable year
as a PFIC under section 1296(a) may file
an amended return for the taxable year
that includes the termination date, as de-
fined in paragraph (a) of this section, and
apply the rules of section 1291(d)(2)(B)
and § 1.1291–9 at any time before the ex-
piration of the period of limitations for the
assessment of taxes for that taxable year.
(3) Effective date. The rules of this para-
graph are effective as of January 2, 1998.
PART602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 14. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
§602.101 [Amended]
Par. 15. In § 602.101, paragraph (c) is
amended by adding entries in numerical
order to the table to read as follows:
1998–8 I.R.B23February 23, 1998

§ 602.101 OMB Control numbers.
* * * * *
(c) * * *
CFR part or section Current OMB
where identified Control No.
and described
* * * * *
1.1295–1T . . . . . . . . . . . . . . .1545–1555
1.1295–3T . . . . . . . . . . . . . . .1545–1555
* * * * *
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved December 15, 1997.
Donald C. Lubick,
Acting Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
December 31, 1997, 8:45 a.m., and published in the
issue of the Federal Register for January 2, 1998, 63
F.R. 6)
Section 4081.—Imposition of
Tax
26 CFR 48.4081–1: Taxable fuel; definitions.
T.D. 8748
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 40 and 48
Gasoline and Diesel Fuel Excise
Tax; Special Rules for Alaska;
Definitions
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations relating to the applica-
tion of the diesel fuel excise tax to fuel
used in Alaska. This document also con-
tains final regulations relating to the gaso-
line and diesel fuel excise tax definitions.
The regulations implement certain
changes made by the Omnibus Budget
Reconciliation Act of 1993 and the Small
Business Job Protection Act of 1996.
They affect certain enterers, refiners, re-
tailers, terminal operators, throughputters,
wholesale distributors, and users.
DATES: These regulations are effective
January 2, 1998. For dates of applicabil-
ity of these regulations, see §§48.4082–5
(h) and 48.6715–1(a)(3).
FOR FURTHER INFORMATION CON-
TACT: Frank Boland (202) 622–3130
(not a toll-free call).
SUPPLEMENTARYINFORMATION:
Background
Section 4081 imposes a tax on certain
removals, entries, and sales of diesel fuel.
However, under section 4082, tax is not
imposed if, among other conditions, the
diesel fuel is indelibly dyed in accordance
with Treasury regulations. Section 1801
of the Small Business Job Protection Act
of 1996 amends section 4082 to create an
exception to the dyeing requirement that
effectively applies only to diesel fuel that
is removed, entered, or sold in Alaska.
Temporary regulations (T.D. 8693
[1997–1 C.B. 192]) relating to this change
were published in the Federal Register on
December 17, 1996 (61 F.R. 66215) along
with a notice of proposed rulemaking
(REG–247678–96 [1997–1 C.B. 787])
cross-referencing the temporary regula-
tions (61 F.R. 66246). The notice of pro-
posed rulemaking also proposed other
changes to the gasoline and diesel fuel ex-
cise tax regulations that were not con-
tained in the temporary regulations.
Apublic hearing was neither requested
nor held. After consideration of written
comments, the proposed regulations are
adopted as revised by this Treasury deci-
sion. Comments and revisions are dis-
cussed below.
Explanation of Provisions
The proposed regulations provide a de-
finition of kerosene for purposes of the
diesel fuel tax. Several commentators
questioned this proposal. Because the
IRS is continuing its review of this issue,
the final regulations do not define
kerosene. However, a definition may be
included in a future Treasury decision.
The proposed regulations also include
changes to the effective date of other pro-
posed regulations that were published in
the Federal Registeron March 14, 1996
(61 F.R. 10490). Those regulations pro-
pose requirements relating to dye injec-
tion equipment and are not being finalized
at this time. However, the IRS appreci-
ates the concern expressed by several
commentators that, as revised, the pro-
posed effective dates still would not give
taxpayers sufficient time to comply with
the proposed requirements. Thus, the
final dye injection regulations will pro-
vide a longer period of time between the
publication date and the effective date
than was proposed.
In response to comments, these final
regulations modify the definition of ter-
minal to exclude an otherwise qualifying
facility that stores only taxed gasoline and
taxed, undyed diesel fuel. As a result of
this modification, tax will not be imposed
again when the fuel is removed from this
type of facility.
The final regulations generally adopt as
proposed the provisions dealing with
diesel fuel that is removed, entered, or
sold in Alaska. However, several com-
ments suggested that the definition of
qualified dealer in the proposed regula-
tions was too narrow and prevented unli-
censed vendors from selling diesel fuel
for exempt uses. In response, the final
regulations expand the definition of quali-
fied dealer to include unlicensed diesel
fuel retailers that are registered by the IRS
under specified conditions. As a result of
this modification, many retailers that
serve remote communities in Alaska will
be able to buy diesel fuel tax free for re-
sale for nontaxable uses.
The final regulations also make minor
modifications to existing gasoline and
diesel fuel regulations. For example, ex-
isting regulations generally require gaso-
line and diesel fuel refund claims to be
filed with the same service center where
the claimant’s income tax return is filed.
Because all excise tax refund claims are
now processed at the Cincinnati Service
Center, this regulatory provision is re-
moved.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
February 23, 1998241998–8 I.R.B.

tory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It also has been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations and, because
these regulations do not impose a collec-
tion of information on small entities, the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Therefore, a
Regulatory Flexibility Analysis is not re-
quired. Pursuant to section 7805(f) of the
Internal Revenue Code, the notice of pro-
posed rulemaking preceding these regula-
tions was submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on its impact on
small business.
Drafting Information
The principal author of these regula-
tions is Frank Boland, Office of Assistant
Chief Counsel (Passthroughs and Special
Industries). However, other personnel
from the IRS and Treasury Department
participated in their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 40 and 48
are amended as follows:
PART40—EXCISE TAX
PROCEDURALREGULATIONS
Paragraph 1. The authority citation for
part 40 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
§40.6011(a)–1 [Amended]
Par. 2. Section 40.6011(a)–1(b)(2)(vi)
is amended by removing the language “a
taxable fuel registrant” and adding “regis-
tered under section 4101” in its place.
PART48—MANUFACTURERS AND
RETAILERS EXCISE TAXES
Par. 3. The authority citation for part
48 is amended by removing the entry for
§48.4082–5Tand adding an entry in nu-
merical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 48.4082–5 also issued under 26
U.S.C. 4082. * * *
Par. 4. Section 48.4081–1 is amended
as follows:
1. Paragraph (b) is amended by:
a. Adding a definition in alphabetical
order; and
b. Revising the definition of terminal.
2. Paragraph (c)(1)(i) is amended by
removing the language “any mixture” and
adding “any taxable fuel” in its place and
by removing the language “and that con-
sists of” and adding “by mixing” in its
place.
3. Paragraph (d) is revised.
The addition and revisions read as fol-
lows:
§48.4081–1 Taxable fuel; definitions.
* * * * *
(b) * * *
Aviation gasolinemeans all special
grades of gasoline that are suitable for use
in aviation reciprocating engines, as de-
scribed in ASTM Specification D 910 and
Military Specification MIL–G–5572. The
ASTM specification may be obtained
from the American Society for Testing
and Materials and the military specifica-
tion from the Standardization Document
Order Desk at the addresses provided in
paragraph (c)(2)(i) of this section.
* * * * *
Terminalmeans a taxable fuel storage
and distribution facility that is supplied by
pipeline or vessel and from which taxable
fuel may be removed at a rack. However,
the term does not include any facility at
which gasoline blendstocks are used in
the manufacture of products other than
finished gasoline and from which no
gasoline is removed. Also, effective Jan-
uary 2, 1998, the term does not include
any facility operated by a taxable fuel reg-
istrant if all of the finished gasoline and
diesel fuel (other than diesel fuel dyed in
accordance with §48.4082–1(b)) stored at
the facility has been previously taxed
under section 4081 upon removal from a
refinery or terminal.
* * * * *
(d) Effective date.This section is ap-
plicable January 1, 1994, except that in
paragraph (b) of this section the definition
of aviation gasoline and the third sentence
in the definition of terminal are effective
January 2, 1998.
§48.4082–5T[Redesignated as
§48.4082–5]
Par. 5. Section 48.4082–5Tis redesig-
nated as §48.4082–5 and the language
“(temporary)” is removed from the sec-
tion heading.
Par. 6. Section 48.4082–5, as redesig-
nated, is amended as follows:
1. Paragraph (b) is amended by revis-
ing the definition of qualified dealer.
2. Paragraphs (f) and (g) are redesig-
nated as paragraphs (g) and (h), respec-
tively.
3. Anew paragraph (f) is added.
4. Paragraph (h), as redesignated, is re-
vised.
The addition and revisions read as fol-
lows:
§48.4082–5 Diesel fuel; Alaska
* * * * *
(b) * * *
Qualified dealermeans any person that
holds a qualified dealer license from the
state of Alaska or has been registered by
the district director as a qualified retailer.
The district director will register a person
as a qualified retailer only if the district
director—
(1) Determines that the person, in the
course of its trade or business, regularly
sells diesel fuel for use by its buyer in a
nontaxable use; and
(2) Is satisfied with the filing, deposit,
payment, and claim history for all federal
taxes of the person and any related person.
* * * * *
(f) Registration.With respect to each
person that has been registered as a quali-
fied retailer by the district director, the
rules of §48.4101–1(g), (h), and (i) apply.
* * * * *
(h) Effective date.This section is applic-
able with respect to diesel fuel removed or
entered after December 31, 1996. Aperson
registered by the district director as a quali-
fied retailer before April 2, 1998, may be
treated, to the extent the district director de-
termines appropriate, as a qualified dealer
for the period before that date.
§48.6416(b)(4)–1 [Removed]
Par. 7. Section 48.6416(b)(4)–1 is re-
moved.
1998–8 I.R.B25February 23, 1998

§48.6421–3 [Amended]
Par. 8. In §48.6421–3, paragraph (d)(2)
is amended by removing the last sentence.
§48.6427–3 [Amended]
Par. 9. In §48.6427–3, paragraph (d)(2)
is amended by removing the last sentence.
Par. 10. In §48.6715–1, paragraph
(a)(3) is revised to read as follows:
§48.6715–1 Penalty formisuse of dyed
diesel fuel.
(a) * * *
(3) The alteration or attempted alter-
ation occurs in an exempt area of Alaska
after September 30, 1996.
* * * * *
§48.6715–2T[Removed]
Par. 11. Section 48.6715–2Tis re-
moved.
Michael P. Dolan,
Acting Commissioner of
Internal Revenue.
Approved November 6, 1997.
Donald C. Lubick,
Acting Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
December 31, 1997, 8:45 a.m., and published in the
issue of the Federal Register for January 2, 1998, 63
F.R. 24)
February 23, 1998261998–8 I.R.B.

1998–8 I.R.B27February 23, 1998
Order of Applying Federal Tax
Deposits
Notice 98–14
PURPOSE
This notice provides an interim proce-
dure that taxpayers may use to request
abatement of the failure-to-deposit
penalty imposed by § 6656 of the Internal
Revenue Code when the manner in which
the Internal Revenue Service applies de-
posits, as set forth in Rev. Proc. 90–58,
1990–2 C.B. 642, produces multiple fail-
ure-to-deposit penalties as a result of a
single failure to deposit.
BACKGROUND
Section 6656 provides that in the case
of any failure by any person to deposit (as
required by the Code or regulations) on
the date prescribed therefor any amount
of tax in a government depository, unless
it is shown that such failure is due to rea-
sonable cause and not due to willful ne-
glect, there shall be imposed upon such
person a penalty equal to the applicable
percentage of the amount of the under-
payment. The penalty ranges from 2 to
15 percent depending upon the lateness of
the deposit.
Rev. Proc. 90–58, effective for deposit
liability periods beginning after March
31, 1991, provides that deposits will be
applied in date-made order against de-
posit liabilities in due-date order. Thus, a
deposit will be applied first to satisfy the
oldest past due underdeposits within the
same return period. Other credits to the
taxpayer’s account, such as an overpay-
ment from the previous return period, will
be similarly applied.
Rev. Proc. 90–58 was issued as a result
of changes made to the failure-to-deposit
penalty under § 6656 by the Revenue
Reconciliation Act of 1989, Pub. L. No.
101–239, 1990–1 C.B. 210, under which
the penalty changed from a flat-rate 10
percent penalty to a time-sensitive
penalty.
The rationale underlying Rev. Proc.
90–58 is that it is generally in the best in-
terests of depositors that strive to be com-
pliant to have the oldest deposit liability
in the return period satisfied first, thus
preventing the penalty rate on that under-
deposit from escalating. However, if a
depositor inadvertently misses a deposit
early in a return period but makes all suc-
ceeding deposits on a timely basis, the re-
sult can be multiple failure-to-deposit
penalties.
INTERIM RELIEF PROCEDURE
Any taxpayer that receives multiple
failure-to-deposit penalty notices as a re-
sult of a single failure to deposit, may call
the toll-free number shown on the penalty
notice. The Service will, if it deems ap-
propriate, reduce the multiple penalty to
the penalty amount due on the missed de-
posit with respect to return periods begin-
ning after December 31, 1997.
COMMENTS INVITED
The Service intends to provide more
specific published guidance on this mat-
ter, and requests comments on the
methodology this guidance should set
forth. Comments should be submitted by
April 30, 1998 to: Internal Revenue Ser-
vice, P.O. Box 7604, Ben Franklin Sta-
tion, Washington, DC 20044, Attn:
CC:DOM:CORP:R (IT&ABranch 4),
Room 5226. Submissions may be hand-
delivered between the hours of 8 a.m. and
5 p.m. to: Courier’s Desk, Internal Rev-
enue Service, 1111 Constitution Ave, NW,
Washington, DC, Attn: CC:DOM:CORP:R
(IT&ABranch 4), Room 5226. Alterna-
tively, taxpayers may submit comments
electronically at
http://www.irs.ustreas.gov/prod/tax_
regs/comments.html
(the Service’s internet site). All com-
ments submitted will be available for pub-
lic inspection and copying.
DRAFTING INFORMATION
The principal author of this notice is
Vincent G. Surabian of the Office of the
Assistant Chief Counsel (Income Tax and
Accounting). For further information re-
garding this notice, contact Mr. Surabian
at (202) 622-4940 (not a toll-free call).
26 CFR 601.201: Rulings and determination
letters.
Rev. Proc. 98–21
SECTION 1. PURPOSE
This revenue procedure sets forth the
procedures concerning requests to the
U.S. competent authority for assistance in
resolving cases under Article XIII(8) of
the Convention Between the United
States of America and Canada with re-
spect to Taxes on Income and Capital,
dated September 26, 1980, as amended by
the Protocols dated June 14, 1983, March
28, 1984, March 17, 1995, and July 29,
1997 (“the Treaty”), 1986–2 C.B. 258.
Article XIII(8) of the Treaty permits tax-
payers to request the competent authority
to defer the recognition of profit, gain, or
income with respect to property alienated
in the course of a corporate or other orga-
nization, reorganization, or similar trans-
action. See also Rev. Proc. 96–13, 1996–
1 C.B. 616, for an updated discussion of
the general procedures concerning re-
quests by taxpayers for assistance of the
U.S. competent authority under the provi-
sions of an income, estate, or gift tax
treaty to which the United States is a
party.
SEC. 2. SCOPE
.01 General. The U.S. competent au-
thority assists taxpayers concerning mat-
ters covered in the mutual agreement pro-
visions of tax treaties in the manner
specified in those provisions. Atax treaty
generally permits taxpayers to request
competent authority assistance when they
consider that the actions of the United
States, a treaty partner, or both, result, or
will result, in taxation that is contrary to
the provisions of the treaty. Competent
authority matters are a government-to-
government activity that does not include
the taxpayer’s participation.
.02 Requests for Assistance.In gen-
eral, all requests for competent authority
assistance must be in accordance with
Rev. Proc. 96–13. However, to the extent
that this revenue procedure provides addi-
tional or inconsistent procedures from
those set forth in Rev. Proc. 96–13, the
Part III. Administrative, Procedural, and Miscellaneous

February 23, 1998281998–8 I.R.B.
procedures set forth in this revenue proce-
dure must be followed when requesting
competent authority assistance under Ar-
ticle XIII(8) of the Treaty.
.03 U.S. Competent Authority. The
Assistant Commissioner (International)
acts as the U.S. competent authority in ad-
ministering the operative provisions of
tax treaties (including Article XIII(8) of
the Treaty) and in interpreting and apply-
ing these treaties. In interpreting or ap-
plying these tax treaties, the Assistant
Commissioner (International) acts only
with the concurrence of the Associate
Chief Counsel (International). See Dele-
gation Order No. 114 (Rev. 10), Effective
date: June 2, 1994.
SEC. 3. BACKGROUND
.01 General.Article XIII(8) of the
Treaty, as revised by the Protocol of
March 17, 1995, provides that:
“Where a resident of a Contracting
State alienates property in the course of a
corporate or other organization, reorgani-
zation, amalgamation, division or similar
transaction and profit, gain, or income
with respect to such alienation is not rec-
ognized for the purpose of taxation in that
State, if requested to do so by the person
who acquires the property, the competent
authority of the other Contracting State
may agree, in order to avoid double taxa-
tion and subject to terms and conditions
satisfactory to such competent authority,
to defer the recognition of the profit, gain,
or income with respect to such property
for the purpose of taxation in that other
State until such time and in such manner
as may be stipulated in the agreement.”
.02 Purpose of this Provision.The
purpose of Article XIII(8) of the Treaty is
to coordinate the U.S. and Canadian non-
recognition rules concerning corporate
and other organizations, reorganizations,
amalgamations, divisions, and similar
transactions in order to avoid double taxa-
tion of gain from the alienation of prop-
erty in the United States and Canada.
SEC. 4. GENERALCONDITIONS
UNDER WHICH THIS PROCEDURE
APPLIES
.01 General.The assistance of the com-
petent authority is entirely discretionary.
.02 Types of Assistance.In connection
with Article XIII(8) of the Treaty, the U.S.
competent authority handles two types of
requests for relief:
(a) requests by Canadian transferees of
property for relief from U.S. taxation, and
(b) requests by Revenue Canada for ver-
ification of the U.S. tax treatment of trans-
actions of U.S. transferees of property.
.03 Transactions Subject to U.S. Taxa-
tion but not Subject to Canadian Taxa-
tion. Where a transaction is subject to
taxation within the United States but qual-
ifies for nonrecognition treatment in
Canada, the transferee may request that
the U.S. competent authority defer taxa-
tion until the time that Canada would im-
pose taxation. In these cases, the U.S.
competent authority will contact the
Canadian competent authority for verifi-
cation of the nonrecognition treatment
under Canadian law. If nonrecognition
treatment in Canada is verified, the U.S.
competent authority will consider the
facts and circumstances supporting the re-
quest in deciding whether to defer the
recognition of profit, gain, or income
under Article XIII(8) of the Treaty. The
taxpayer(s) may be required to enter into
a closing agreement in order to obtain the
relief. See section 5 of this revenue pro-
cedure for guidance in requesting relief
from U.S. taxation.
.04 Transaction Subject to Canadian
Taxation but not Subject to U.S. Taxation.
Where Canada would impose tax on a
transaction receiving nonrecognition
treatment in the United States, the U.S.
competent authority will provide verifica-
tion of nonrecognition treatment by the
United States when requested to do so by
the Canadian competent authority. To fa-
cilitate this process, the taxpayer may
wish to request a private letter ruling from
the Office of Chief Counsel to substanti-
ate the claim of nonrecognition treatment.
Even if the taxpayer does not do so, the
U.S. competent authority may require that
the taxpayer obtain such a private letter
ruling. See section 7 of this revenue pro-
cedure for guidance in requesting assis-
tance from the Canadian competent au-
thority under Article XIII(8) of the Treaty.
SEC. 5. PROCEDURES TO BE
FOLLOWED FOR RELIEF REQUESTS
TO THE UNITED STATES
COMPETENTAUTHORITY
.01 General.Atransferee requesting
U.S. competent authority assistance under
Article XIII(8) of the Treaty should fol-
low the procedures in Rev. Proc. 96–13.
.02 Information Required.The request
for assistance must contain a statement
that U.S. competent authority assistance
is being requested. In addition, it must
provide the following information:
(a) a statement that the request is made
pursuant to Article XIII(8) of the Treaty
and a demonstration that relief is neces-
sary to avoid double taxation;
(b) a statement that the taxpayer seek-
ing benefits from the United States under
the Treaty is a “qualified person” within
the meaning of Article XXIX Aof the
Treaty;
(c) the names, addresses, U.S. taxpayer
identification number and foreign tax-
payer identification number, if any, of the
taxpayer and, if applicable, all related per-
sons involved in the matter;
(d) the taxable year(s) at issue;
(e) the Internal Revenue Service Center
where the taxpayer (and, if applicable, the
related person or persons) filed federal in-
come tax returns (including amended re-
turns) for the taxable years in issue, or if
no return was filed, a statement to that ef-
fect;
(f) a statement whether the federal in-
come tax returns of the taxpayer (and, if
applicable, of any related person or per-
sons) for the taxable years in issue were
examined or are under examination;
(g) a full description of the type and
amount of income (in both U.S. and
Canadian dollars) or property involved; a
full description of the relevant transaction
and any related transactions, whether the
transactions have already been consum-
mated or, if proposed, when they are
likely to be effected; a full description of
the respective positions taken or proposed
by Canada, the taxpayers, and any rele-
vant related person on the issues raised;
and, if applicable, a description of the
control and business relationships be-
tween the taxpayer and any relevant re-
lated person for the years in issue, includ-
ing any changes in such relationship to
the date of the request or any changes
thereafter;
(h) an explanation of the treatment for
U.S. tax purposes in the absence of relief
under the Treaty together with a statement
of legal authorities;
(i) an explanation of the treatment of
the transaction for Canadian tax purposes.

1998–8 I.R.B29February 23, 1998
If the taxpayer is relying on a prior ruling
given by the Canadian taxing authorities,
the taxpayer should attach a copy of that
ruling and either provide a statement to
the effect that the facts upon which the
ruling was based have not changed, or ex-
plain exactly how the facts underlying the
ruling have changed. The taxpayer
should also identify any subsequent
change in the law, statute, or regulations
upon which the ruling is based;
(j) a statement whether there has been a
prior request made to the U.S. competent
authority by the taxpayer or a predecessor
in interest on the same or related issue, in-
cluding copies of pertinent correspon-
dence, and a statement of actions requested
of, proposed by, or taken by the Assistant
Commissioner (International); and
(k) U.S. powers of attorney with re-
spect to the taxpayers.
.03 Penalties of Perjury Statement.In
addition, the taxpayer must provide a
penalties of perjury statement in the fol-
lowing form: “Under penalties of perjury,
I declare that I have examined this re-
quest, including accompanying docu-
ments, and, to the best of my knowledge
and belief, the facts presented in support
of the request for competent authority as-
sistance are true, correct, and complete.”
This declaration must be signed by the
person or persons making the request and
not by such person’s or persons’represen-
tative. The person signing for a corporate
taxpayer must be an authorized officer of
the taxpayer who has personal knowledge
of the facts. The person signing for a
trust, an estate, or a partnership must be,
respectively, a trustee, an executor, or a
partner who has personal knowledge of
the facts.
.04 No deletion statement required.
No deletions statement under section
6110 of the Code is necessary.
.05 Updates.It shall be the responsi-
bility of the taxpayer to keep the U.S.
competent authority informed of all mate-
rial changes in the information or docu-
mentation previously submitted as part of,
or in connection with, the request for
competent authority assistance, as well as
any new information (including English
translations where necessary) or docu-
mentation relevant to the resolution of the
issues under consideration as it becomes
known or available.
SEC. 6. ACTION BYTHE U.S.
COMPETENTAUTHORITY
.01 Notification of Taxpayer. Upon re-
ceiving a request for relief pursuant to this
revenue procedure, the U.S. competent
authority will consider whether the facts
provide a basis for assistance.
.02 Extending Period of Limitations for
Assessment.If the U.S. competent author-
ity accepts a request for assistance, the
taxpayer may be requested to execute a
consent extending the period of limitations
for assessment of tax for the taxable peri-
ods in issue. Failure to comply with the
provisions of this subsection can result in
denial of assistance by the U.S. competent
authority with respect to the request.
.03 Determination regarding relief.
The decision whether to grant relief will
be made based upon all of the facts and
circumstances.
.04 No Review of Denial of Request for
Assistance.The U.S. competent author-
ity’s denial of a taxpayer’s request for as-
sistance or dismissal of a matter previ-
ously accepted for consideration pursuant
to this revenue procedure is final and not
subject to administrative review.
SEC. 7. PROCEDURES TO BE
FOLLOWED FOR REQUESTS FOR
RELIEF TO THE CANADIAN
COMPETENTAUTHORITY
This revenue procedure is intended to
coordinate requests for competent author-
ity assistance made to the United States
and Canada under Article XIII(8) of the
Treaty. Taxpayers who wish to request re-
lief under Article XIII(8) of the Treaty
from the Canadian competent authority
should follow the procedures outlined in
Revenue Canada Information Circular
71–17R4. Information regarding such re-
quests may be obtained from: Revenue
Canada, Director General, International
Tax Programs Directorate, Ottawa ON
K1A0L8.
SEC. 8. FEES
No user fees are required for a request
for competent authority assistance pur-
suant to this revenue procedure. Section
15 of Rev. Proc. 97–1, 1997–1 I.R.B. 11,
at page 46, requires the payment of user
fees for requests to the Service for rul-
ings, opinion letters, determination let-
ters, and similar requests.
SEC. 9. EFFECTON OTHER
DOCUMENTS
Rev. Proc. 96–13 is amplified.
SEC. 10. EFFECTIVE DATE
This revenue procedure is effective for
requests for U.S. competent authority as-
sistance pursuant to Article XIII(8) of the
Treaty that are filed after February 23,
1998.
DRAFTING INFORMATION
The principal author of this revenue
procedure is David Bergkuist of the Of-
fice of Associate Chief Counsel (Interna-
tional). For further information regarding
this revenue procedure, contact the Office
of the Assistant Commissioner (Interna-
tional), Tax Treaty Division, on (202)
874-1550 (not a toll-free call).

February 23, 1998301998–8 I.R.B.
Notice of Proposed Rulemaking
Agreements for Payment of Tax
Liability in Installments
REG–100841–97
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains
proposed regulations relating to termina-
tions of agreements for the payment of tax
liabilities in installments (installment
agreements). The proposed regulations
reflect changes made to section 6159 of
the Internal Revenue Code of 1986 (Code)
by the Taxpayer Bill of Rights 2. The pro-
posed regulations provide a procedure for
requesting an independent administrative
review of an alteration, modification, or
termination of an installment agreement.
DATES: Written comments and requests
for a public hearing must be received by
March 31, 1998.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–100841–97),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered between the hours of 8
a.m. and 5 p.m.: CC:DOM:CORP:R
(REG–100841–97), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue NW, Washington, DC. Alterna-
tively, taxpayers may submit comments
electronically via the Internet by selecting
the “Tax Regs” option on the IRS Home
Page, or by submitting comments directly
to the IRS Internet site at http://www.irs.
ustreas.gov/prod/tax_regs/comments.html.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations,
Kevin B. Connelly, (202) 622-3640 (not a
toll-free number).
SUPPLEMENTARYINFORMATION:
Background
This document contains proposed
amendments to the Procedure and Admin-
istration Regulations (26 CFR part 301)
relating to installment agreements under
section 6159 of the Code. Section 201 of
the Taxpayer Bill of Rights 2 (TBOR2),
Pub. L. No. 104–168, 110 Stat. 1452
(1996), amended section 6159 to provide
that the Secretary may not alter, modify,
or terminate an installment agreement un-
less notice of such action is given not later
than 30 days before the date of the action.
The notice must explain why the Secre-
tary intends to take the proposed action.
Section 202 of TBOR2 provides that the
Secretary shall provide an independent
administrative review of the termination
of an installment agreement upon request
of the taxpayer. These proposed regula-
tions reflect the change made by Section
202 of TBOR2. In addition, although the
IRS rarely alters or modifies an install-
ment agreement, the proposed regulations
give taxpayers the right to an independent
administrative review of alterations or
modifications.
Explanation of Provisions
Sections 201 and 202 of TBOR2
amended section 6159 of the Code with
respect to installment agreements. Section
201 provides that the Secretary may not
alter, modify, or terminate an installment
agreement unless notice of such action is
given to the taxpayer at least 30 days be-
fore the action. The notice must explain
why the Secretary intends to take the pro-
posed action. Notice is not necessary if
collection of the tax to which the install-
ment agreement relates is in jeopardy.
Prior to the enactment of TBOR2, Sec-
tion 6159 of the Code required notice
only if the Internal Revenue Service in-
tended to alter, modify, or terminate an in-
stallment agreement because of a change
in the taxpayer’s financial condition. Sec-
tion 301.6159–1(c)(4) of the regulations
that are being amended by this notice of
proposed rulemaking, however, already
requires 30 days notice whenever the IRS
intends to alter, modify, or terminate any
agreement, regardless of the reason for
the action. The only exception to this rule
is that no notice is required if collection of
the tax to which the installment agree-
ment relates is in jeopardy. In addition,
existing paragraph (c)(4) requires the no-
tice to explain the reason for the intended
action. In light of existing paragraph
(c)(4), the regulations do not have to be
amended to reflect section 201 of
TBOR2.
Section 202 of TBOR2 provides that,
upon request by a taxpayer, the Secretary
shall provide an independent administra-
tive review of the termination of an in-
stallment agreement. In addition, al-
though the IRS rarely alters or modifies
an installment agreement, the proposed
regulations grant taxpayers the right to re-
quest an independent administrative re-
view of alterations or modifications. Pro-
cedures for requesting an independent
administrative review are contained in the
proposed regulations.
When the Internal Revenue Service in-
tends to terminate an installment agree-
ment, it currently sends the taxpayer a
written notice of its intent. The notice (1)
informs the taxpayer why the Internal
Revenue Service intends to terminate the
agreement, (2) notifies the taxpayer that
the Internal Revenue Service intends to
levy the taxpayer’s property, (3) explains
that the taxpayer has a right to request an
independent review of the Internal Rev-
enue Service’s decision, and (4) tells the
taxpayer to call the telephone number
listed on the notice within 30 days of the
date of the notice if the taxpayer wishes to
stay collection and request the Internal
Revenue Service to review its decision. If
the taxpayer timely calls the telephone
number listed on the notice, the employee
attempts to resolve the case with the tax-
payer. If the taxpayer and the employee
are not able to resolve the case to the tax-
payer’s satisfaction, a conference is set up
with a manager. If the manager and the
taxpayer are unable to resolve the case,
the manager forwards the case to Appeals
for an independent administrative review.
Absent jeopardy, collection action is
stayed until the appeals officer has in-
formed the taxpayer of a decision.
The proposed regulations provide that,
if a taxpayer disagrees with a determina-
tion to alter, modify, or terminate an in-
stallment agreement, the taxpayer may ini-
tiate an independent administrative review
of the determination by calling the tele-
phone number listed on the notice within
Part IV. Items of General Interest

1998–8 I.R.B31February 23, 1998
30 days of the date of the notice. This will
set the review process in motion.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It also has 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, and because the regulation does 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) of the Internal
Revenue Code, 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.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written com-
ments that are submitted timely (a signed
original and eight (8) copies) to the IRS.
All comments will be available for public
inspection and copying. Apublic hearing
may be scheduled if requested in writing
by a person that timely submits written
comments. If a public hearing is sched-
uled, notice of the date, time, and place
for the hearing will be published in the
Federal Register.
Drafting Information
The principal author of these regula-
tions is Kevin B. Connelly, Office of As-
sistant Chief Counsel (General Litigation)
CC:EL:GL, IRS. However, other person-
nel from the IRS and Treasury Depart-
ment participated in their development.
* * * * *
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 301 is pro-
posed to be amended as follows:
PART301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6159–1 is amended
by revising paragraphs (c)(4) and (g) to
read as follows:
§301.6159–1 Agreements for payment of
tax liability in installments.
* * * * *
(c) * * *
(4) Notice.Unless the director deter-
mines that collection of the tax is in jeop-
ardy, the director will notify the taxpayer
in writing at least 30 days before altering,
modifying, or terminating an installment
agreement pursuant to paragraph (c)(1) or
(2) of this section. Anotice provided pur-
suant to this paragraph must briefly de-
scribe the reason for the intended alter-
ation, modification, or termination. If the
taxpayer disagrees with the director’s de-
cision to terminate, alter, or modify the
installment agreement, the taxpayer has
the right to an independent administrative
review. The taxpayer may initiate an in-
dependent administrative review by call-
ing the telephone number listed on the
notice within 30 days of the date of the
notice. If, upon calling the telephone
number listed on the notice, the dispute is
not resolved to the taxpayer’s satisfac-
tion, the taxpayer must speak with a man-
ager. If, after speaking with a manager,
the dispute still is not resolved to the tax-
payer’s satisfaction, the taxpayer may re-
quest the Office of Appeals to indepen-
dently review the decision. The Office of
Appeals shall conduct a review to deter-
mine whether the facts and circumstances
warrant the alteration, modification, or
termination of the taxpayer’s installment
agreement.
* * * * *
(g) Effective date.This section is ap-
plicable December 23, 1994, except that
paragraph (c)(4) of this section is applica-
ble on the date final regulations are pub-
lished in the Federal Register.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
December 30, 1997, 8:45 a.m., and published in the
issue of the Federal Register for December 31, 1997,
62 F.R. 68241)
Notice of Proposed Rulemaking
and Notice of Public Hearing
Certain Investment Income
REG–105163–97
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations relating to the treat-
ment of certain investment income under
the qualifying income provisions of sec-
tion 7704(d) and the application of the
passive activity loss rules to publicly
traded partnerships. The regulations
would affect the classification of certain
partnerships for federal tax purposes and
would also affect the passive activity loss
limitations with respect to items attribut-
able to publicly traded partnerships. This
document also contains a notice of public
hearing on these proposed regulations.
DATES: Written comments must be re-
ceived by March 19, 1998. Requests to
speak (with outlines of oral comments) at
a public hearing scheduled for April 28,
1998, at 10 a.m., must be received by
April 7, 1998.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG-105163-97),
room 5228, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. In the alternative, sub-
missions may be hand delivered between
the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (REG–105163–97),
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 Regs”
option of the IRS Home Page, or by sub-
mitting comments directly to the IRS In-
ternet site at: http://www.irs.ustreas.gov/
prod/tax_regs/comments.html. The pub-
lic hearing will be held in Room 2615, In-
ternal Revenue Building, 1111 Constitu-
tion Avenue, NW, Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations,
Christopher Kelley, (202) 622-3080; con-
cerning submissions and the hearing,

Evangelista Lee, (202) 622-7190 (not
toll-free numbers).
SUPPLEMENTARYINFORMATION:
Introduction
This document proposes to add
§1.7704–3 to the Income Tax Regulations
(26 CFR part 1) relating to the definition
of qualifying income for publicly traded
partnerships under section 7704(d) of the
Internal Revenue Code (Code). This doc-
ument also proposes to amend §1.469–10
of the Income Tax Regulations relating to
the application of section 469 of the Code
to publicly traded partnerships.
Explanation of Provisions
Qualifying Income
Section 7704 of the Code provides that
a publicly traded partnership is generally
treated as a corporation for federal tax
purposes unless 90 percent or more of the
gross income of the partnership consists
of qualifying income. Section 7704(d)
defines qualifying income to include cer-
tain types of passive investment income,
such as interest, dividends, real property
rents, and income that would qualify
under the regulated investment company
provisions in section 851(b)(2) or the real
estate investment trust provisions in sec-
tion 856(c)(2). Since section 7704 was
enacted, however, several new types of fi-
nancial instruments have been developed
that generate passive-type investment in-
come similar to interest and dividends.
The preamble to the regulations under
§1.7704–1, issued December 4, 1995, (re-
garding the definition of public trading)
requested comments from the public on
the definition of qualifying income for in-
vestment partnerships and other partner-
ships engaged in various types of securi-
ties transactions.
In response to comments received, the
proposed regulations provide that qualify-
ing income for purposes of section
7704(c) includes income from holding an-
nuities, income from notional principal
contracts (as defined in §1.446–3), and
other substantially similar income from
ordinary and routine investments to the
extent determined by the Commissioner.
Qualifying income, however, includes in-
come from a notional principal contract
only if the property, income, or cash flow
that measures the amounts to which the
partnership is entitled under the contract
would give rise to qualifying income if
held or received directly by the partner-
ship. The proposed regulations also con-
firm that capital gain from the sale of
stock is qualifying income, regardless of
whether the stock pays dividends. The
proposed regulations also provide that
qualifying income (as defined in the pro-
posed regulations) does not include in-
come derived in the ordinary course of a
trade or business by a broker, dealer, or
market maker. Income derived by traders
and investors can be qualifying income
under the proposed regulations. The pro-
posed regulations, including the trade or
business restriction, are consistent with
the legislative history of section 7704,
which indicates that the exception for pas-
sive investment income was intended to
distinguish between partnerships engaged
in investment activities and those partner-
ships engaged in active business activities
that are more typically conducted in cor-
porate form. See H.R. Rep. No. 391 (Part
2), 100th Cong., 1st Sess. 1066–69 (House
Report). The IRS also requests comments
on the appropriate way to determine how
gains should be measured for purposes of
determining whether 90 percent or more
of the partnership’s gross income is quali-
fying income when a partnership makes a
mixed straddle account election under
§1.1092(b)–4T. The IRS believes that use
of the daily mark-to-market method pro-
vided for by §1.1092(b)–4Twould be in-
consistent with the congressional purpose
behind section 7704.
Passive Activity Loss Rules
Section 469(a) generally provides that
if for any taxable year the taxpayer is an
individual, estate, trust, closely held C
corporation, or personal service corpora-
tion, neither the passive activity loss nor
the passive activity credit for the taxable
year is allowed. Section 469(k) provides
that section 469 applies separately with
respect to items attributable to each pub-
licly traded partnership. Section 469(k)(2)
defines a publicly traded partnership in
the same manner as section 7704(b). The
legislative history of section 469(k) indi-
cates that the term publicly traded part-
nership has the same meaning for pur-
poses of section 469(k) as it does for
purposes of section 7704. See H.R. Rep.
No. 495, 100th Cong., 1st Sess. 952–53
(1987) (Conference Report). In addition,
Notice 88–75 (1988–2 C.B. 386) pro-
vided the same guidance on the definition
of a publicly traded partnership for pur-
poses of both sections 469(k) and 7704.
The recently issued regulations under
§1.7704–1, however, define a publicly
traded partnership only for purposes of
section 7704. The proposed regulations
implement the legislative history of sec-
tion 469(k) by providing that the defini-
tion of a publicly traded partnership for
purposes of section 469(k) is the same as
the definition of publicly traded partner-
ship under section 7704.
Proposed Effective Date
These regulations are proposed to
apply for taxable years of a partnership
beginning on or after the date the final
regulations are published in the Federal
Register.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It also has 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, and because the regulations do not
impose a collection of information on
small entities, a Regulatory Flexibility
Analysis is not required. Pursuant to sec-
tion 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 Admin-
istration 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 written com-
ments (preferably a signed original and
eight (8) copies) that are submitted timely
to the IRS. All comments will be avail-
able for public inspection and copying.
Apublic hearing has been scheduled
for Tuesday, April 28, 1998, at 10 a.m., in
Room 2615, Internal Revenue Building,
1111 Constitution Avenue NW, Washing-
ton, DC. Because of access restrictions,
February 23, 1998321998–8 I.R.B.

visitors will not be admitted beyond the
Internal Revenue Building lobby more
than 15 minutes before the hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral com-
ments at the hearing must submit timely
written comments (preferably a signed
original and eight (8) copies) by March
19, 1998 and submit an outline of the top-
ics to be discussed and the time to be de-
voted to each topic by April 7, 1998.
Aperiod 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 these regula-
tions is Christopher Kelley, Office of
Chief Counsel (Passthroughs and Special
Industries). However, other personnel
from the IRS and Treasury Department
participated in their development.
* * * * *
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *.
Par. 2. Section 1.469-10 is revised to
read as follows:
§1.469–10 Application of section 469 to
publicly traded partnerships.
(a) [Reserved].
(b) Publicly traded partnership—(1) In
general.For purposes of section 469(k), a
partnership is a publicly traded partnership
only if the partnership is a publicly traded
partnership as defined in §1.7704–1.
(2) Effective date. This section applies
for taxable years of a partnership begin-
ning on or after the date final regulations
are published in the Federal Register.
Par. 3. Section 1.7704-3 is added to
read as follows:
§1.7704–3 Qualifying income.
(a) Certain investment income—(1) In
general.For purposes of section 7704(d)-
(1), qualifying income includes capital gain
from the sale of stock, income from hold-
ing annuities, income from notional princi-
pal contracts (as defined in §1.446–3), and
other substantially similar income from or-
dinary and routine investments to the extent
determined by the Commissioner. Income
from a notional principal contract is in-
cluded in qualifying income only if the
property, income, or cash flow that mea-
sures the amounts to which the partnership
is entitled under the contract would give
rise to qualifying income if held or received
directly by the partnership.
(2) Limitations. Qualifying income as
defined in paragraph (a)(1) of this section
does not include income derived in the or-
dinary course of a trade or business. For
purposes of the preceding sentence, income
derived from an asset with respect to which
the partnership is a broker, market maker,
or dealer is treated as income derived in the
ordinary course of a trade or business; in-
come derived from an asset with respect to
which the taxpayer is a trader or investor is
not treated as income derived in the ordi-
nary course of a trade or business.
(b) Effective date.This section applies
for taxable years of a partnership begin-
ning on or after the date final regulations
are published in the Federal Register.
Michael P. Dolan,
Acting Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
December 18, 1997, 8:45 a.m., and published in the
issue of the Federal Register for December 19, 1997,
62 F.R. 66575)
Notice of Proposed Rulemaking
and Notice of Public Hearing
General Rules for Making and
Maintaining Qualified Electing
Fund Elections
REG–115795–97
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: In *** T.D. 8750, page 4 of
this Bulletin, the IRS is issuing temporary
regulations that provide guidance to a
passive foreign investment company
(PFIC) shareholder that makes the elec-
tion under section 1295 (section 1295
election) to treat the PFIC as a qualified
electing fund (QEF). The temporary reg-
ulations also provide guidance for share-
holders that wish to make a section 1295
election that will apply on a retroactive
basis (retroactive election). The tempo-
rary regulations also include a rule con-
cerning the taxation under section 1291 of
an exempt organization that is a share-
holder of a PFIC that is not a pedigreed
QEF. This rule was originally proposed
in 1992. The text of the temporary regu-
lations also serves as the text of these pro-
posed regulations. In addition, this docu-
ment proposes amendments to proposed
regulation § 1.1296–4(e), concerning the
treatment of interbank deposits as loans
for purposes of the exception to passive
income characterization of income de-
rived in the active conduct of a banking
business. This document also provides
notice of a public hearing on these pro-
posed regulations.
DATES: Written comments must be re-
ceived by April 2, 1998. Requests to
speak and outlines of oral comments to be
discussed at the public hearing scheduled
for April 16, 1998, must be received by
March 26, 1998.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–115795–97),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered between the hours of 8
a.m. and 5 p.m. to: CC:DOM:CORP:R
(REG–115795–97), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC. Alterna-
tively, taxpayers may submit comments
electronically via the Internet by selecting
the “Tax Regs” option on the IRS Home
Page, or by submitting comments directly
to the IRS Internet site at http://www.irs.
ustreas.gov/prod/tax_regs/comments.html.
The public hearing will be held in Room
3313, Internal Revenue Service, 1111
Constitution Avenue, NW, Washington,
DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Gayle
Novig, (202) 622-3840; concerning sub-
1998–8 I.R.B33February 23, 1998

missions and the hearing, Evangelista Lee,
(202) 622-7190 (not toll-free numbers).
SUPPLEMENTARYINFORMATION:
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)).
Comments on the collection of infor-
mation should be sent to the Office of
Management and Budget,Attn: Desk
Officer for the Department of the Trea-
sury, Office of Information and Regula-
tory Affairs, Washington, DC 20503,
with copies to the Internal Revenue Ser-
vice,Attn: IRS Reports Clearance Offi-
cer, T:FP, Washington, DC 20224. Com-
ments on the collection of information
should be received by March 3, 1998.
Comments are specifically requested con-
cerning:
Whether the proposed collection of infor-
mation is necessary for the proper perfor-
mance of the functions of the Internal
Revenue Service, including whether the
information will have practical utility;
The accuracy of the estimated burden as-
sociated 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 pur-
chase of services to provide information.
The collection of information in this
proposed regulation is in proposed regula-
tion §§ 1.1295–1(f), 1.1295–1(g), 1.1295–
3(c), and 1.1295–3(g). The information
required in § 1.1295–1(f) and (g) will no-
tify the Internal Revenue Service that cer-
tain shareholders have made the section
1295 election, and will enable the Internal
Revenue Service to determine if a share-
holder is satisfying the election and annual
reporting requirements and is reporting in-
come as required under section 1293.
The information required in proposed
regulation § 1.1295–3(c) will notify the
IRS that certain shareholders of foreign
corporations have filed a Protective State-
ment to preserve their ability to make a
retroactive section 1295 election, and that
those shareholders have extended the pe-
riods of limitations for their taxable years
to which the Protective Statement will
apply. The information will enable the
IRS to verify that the shareholders filing
the Protective Statement had the requisite
reasonable belief at the time they filed the
statement. The information required in
proposed regulation § 1.1295–3(g) will
notify the IRS that a shareholder has
made the retroactive election and, in the
case of a shareholder that filed a Protec-
tive Statement, that the shareholder’s
waiver of the periods of limitations will
terminate within three years of making
the election. The information will enable
the Service to verify that the requirements
for making a retroactive election have
been satisfied.
The collection of information and re-
sponses to these collections of informa-
tion are mandatory. The likely respon-
dents are individuals, businesses, and
other for-profit organizations.
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
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.
Estimated total annual reporting/record-
keeping burden: 623 hours. The esti-
mated annual burden per respondent
varies from 15 minutes to three hours, de-
pending on individual circumstances,
with an estimated average of 29 minutes.
Estimated number of respondents: 1,290.
Estimated annual frequency of responses:
Annually or one time only.
Background
Sections 1291, 1293, 1295, and 1297.
Temporary regulations in T.D. 8750
amend the Income Tax Regulations (26
CFR part 1) relating to sections 1291,
1293, 1295, and 1297. The temporary
regulations contain rules concerning the
taxation of exempt organizations under
section 1291, elections under section
1295 to treat passive foreign investment
companies as qualified electing funds
(QEFs), the calculation of net capital gain
for purposes of section 1293, and the in-
clusion of the pro rata shares of the earn-
ings and profits of QEFs held through
pass through entities. The temporary reg-
ulations amend § 1.1297–3T, permitting
in certain cases the application of the
rules of section 1291(d)(2)(B) to an elec-
tion made under section 1297(b)(1).
The text of those temporary regulations
also serves as the text of these proposed
regulations. The preamble to the tempo-
rary regulations explains the temporary
regulations.
Section 1296.
On April 28, 1995, proposed regula-
tions were published providing guidance
for the exceptions to passive income char-
acterization of certain income derived by
active foreign banks and foreign security
dealers provided in section 1296(b)(2)(A)
and (b)(3), respectively. The proposed
section 1296 regulations reflect com-
ments received with respect to Notice 89–
81, 1989–2 C.B. 399. That notice estab-
lished tests for determining whether a for-
eign corporation qualified for the active
foreign bank exception. The notice
specifically stated that interbank deposits
would not be treated as loans made in the
ordinary course of a banking business.
After consideration of the comments re-
ceived with respect to the Notice, the IRS
and Treasury determined that interbank de-
posits were made and accepted in the ordi-
nary course of a banking business, and
therefore should be treated as such for pur-
poses of section 1296(b)(2)(A). Accord-
ingly, proposed regulation § 1.1296–
4(d)(3) specifically includes interbank de-
posits with other deposits for purposes of
determining whether the foreign corpora-
tion satisfies the deposit-taking require-
ments of § 1.1296–4(d). Also in response
to comments, proposed regulation
§ 1.1296–4(e) is clarified to specifically
provide that interbank deposits made with
banks in the ordinary course of business
constitute loans for purposes of § 1.1296–
4. This clarification is favorable to taxpay-
February 23, 1998341998–8 I.R.B.

ers, and is proposed to be effective for tax-
able years beginning after December 31,
1994. It is also proposed that taxpayers
may apply it to a taxable year beginning
after December 31, 1986, provided it is
consistently applied to that taxable year
and all subsequent taxable years. The
dates for applying proposed regulation
§ 1.1296–4(e) coincide with the dates for
which § 1.1296–4 is proposed to be effec-
tive. See proposed regulation § 1.1296–
4(k).
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Execu-
tive Order 12866. Therefore, a regulatory
assessment is not required. 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 Adminis-
tration for comment on its impact on small
business. It has been determined that an
initial regulatory flexibility analysis is re-
quired for the collection of information in
this notice of proposed rulemaking under
5 U.S.C. § 603. This analysis is set forth
below under the heading ‘Initial Regula-
tory Flexibility Analysis.’
Initial Regulatory Flexibility Analysis.
This initial analysis is provided pursuant
to the Regulatory Flexibility Act (5
U.S.C. chapter 6). The major objective of
the proposed regulations is to provide
guidance to PFIC shareholders that wish
to elect under section 1295 to treat their
PFICs as QEFs, and provide guidance to
those PFICs about the requirements im-
posed on them. The legal basis for these
requirements is contained in sections
1293, 1294, and 1295. The IRS and Trea-
sury are not aware of any federal rules
that duplicate, overlap, or conflict with
the proposed regulations.
The recordkeeping and reporting re-
quirements of the proposed regulations
enable the Internal Revenue Service to
identify those taxpayers that are treating
their PFICs as QEFs; to verify that those
U.S. taxpayers are currently including
their shares of QEF earnings in income,
as required in section 1293 of the Internal
Revenue Code; to be informed of those
QEF shareholders that are not paying
their section 1293 tax liability because
they made the section 1294 election to
defer the time for payment; to identify
those shareholders of foreign corporations
that are preserving their right to make a
retroactive section 1295 election; to iden-
tify those shareholders making retroactive
elections and verify that they are satisfy-
ing the requirements of a retroactive elec-
tion; and, in the case of shareholders that
have filed Protective Statements, the dates
by which the shareholders’extensions of
periods of limitations will terminate.
These proposed regulations will affect
those small entities that are PFICs, at least
one shareholder of which makes the sec-
tion 1295 election. The proposed regula-
tions also will affect those small entities
that are PFIC shareholders that make the
section 1295 election. The IRS and Trea-
sury believe that affected small entities
generally will be small businesses, as
local governments are not likely to invest
in PFICs. Also, few, if any, affected small
entities likely will be tax exempt organi-
zations, because only a tax exempt entity
that is taxable under subchapter F on divi-
dends received from the PFIC generally
would need to consider making the sec-
tion 1295 election.
The collections of information in these
proposed regulations would impact a
small entity that is treated as a QEF prin-
cipally by requiring the entity to calculate
annually its ordinary earnings and net
capital gain according to federal income
tax accounting principles, as required by
section 1293, and report that information
to its shareholders that are U.S. persons.
With the enactment of section 1(h), the
QEF also must calculate each type of long
term capital gain that it derived and the
applicable rates of tax for proper inclu-
sion of the QEF’s net capital gain by the
QEF shareholders. Alternatively, the reg-
ulations permit the QEF to provide its
shareholders with its books, records and
other documents necessary for the share-
holders to calculate the ordinary earnings
and net capital gain amounts. This alter-
native will enable a small entity that is a
QEF to avoid the burden of calculating its
net capital gain by providing its share-
holders with information with which the
shareholders can make the calculations.
The economic impact of other collec-
tions of information contained in these
proposed regulations would fall on a
small entity that is a shareholder of a
PFIC for which it has made the section
1295 election or that is a pass through en-
tity to which an interest holder transferred
stock subject to a section 1295 election.
The economic impact would result pri-
marily from the reporting and recordkeep-
ing requirements pertaining to (1) the
manner for making the section 1295 elec-
tion and the annual election requirements;
(2) the calculation by the shareholder
(rather than the QEF) of the QEF’s ordi-
nary earnings and net capital gain accord-
ing to federal income tax principles, and
its pro rata shares thereof; (3) a request
for consent to revoke a section 1295 elec-
tion; (4) the preservation of the right to
make a retroactive election under section
1295; (5) a request for consent to make a
retroactive election; (6) making a retroac-
tive election, including filing amended re-
turns for the affected taxable years; and
(7) providing interest holders with PFIC
statements and other information received
by an intermediary shareholder.
The proposed regulations reduce the
burden under existing rules for making the
section 1295 election for all taxpayers, in-
cluding small businesses and other small
entities. Unlike the current requirements
provided in Notice 88–125, the proposed
regulations only require electing share-
holders to file Form 8621 to make the sec-
tion 1295 election, thereby eliminating the
shareholder election statement as well as
the requirement to file a copy of the PFIC
Annual Information Statement. The pro-
posed regulations only require sharehold-
ers to retain the PFIC Annual Information
Statement or the Annual Intermediary
Statement received as well as a copy of
their filings for each year to which the sec-
tion 1295 election applies. In addition, the
proposed regulations impose a lesser bur-
den on small shareholders, typically indi-
viduals and small entities, to preserve their
right to make a retroactive election and a
lesser burden of making a retroactive elec-
tion. Asmall entity that owns less than
five percent of each class of stock of a for-
eign corporation and satisfies other re-
quirements is not required to file a Protec-
tive Statement to preserve its right to make
a retroactive election with respect to the
foreign corporation. Similarly, a small en-
tity potentially has fewer amended returns
to file to make a retroactive election than a
shareholder that filed a Protective State-
ment. These changes in election require-
ments are illustrative of IRS efforts to
1998–8 I.R.B35February 23, 1998

minimize burden, particularly with respect
to small entities.
An estimate of the number of small en-
tities that would be affected by these reg-
ulations is unavailable. In any event, the
enactment in 1997 of the mark-to-market
election for PFIC shareholders and the
elimination of the overlap in certain cases
of subpart F and the PFIC provisions, will
reduce the number of small entities that
would be affected by these regulations.
None of the significant alternatives
considered in drafting these regulations
would have significantly altered the eco-
nomic impact of the collections of infor-
mation on small entities. In considering
the significant alternatives that would be
permissible under the Code and would en-
able the IRS to ensure compliance with
the Code, the IRS and Treasury concluded
that the alternatives generally would im-
pose equal or greater burdens.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written com-
ments (a signed original and eight (8)
copies) that are submitted timely to the
IRS. All comments will be available for
public inspection and copying.
Apublic hearing has been scheduled
for April 16, 1998, at 10 a.m., in room
2615, Internal Revenue Building, 1111
Constitution Avenue, NW, Washington,
DC. Because of access restrictions, visi-
tors will not be admitted beyond the Inter-
nal Revenue lobby more than 15 minutes
before the hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral com-
ments at the hearing must submit written
comments by April 2, 1998, and submit
an outline of the topics to be discussed
and the time to be devoted to each topic
(signed original and eight (8) copies) by
March 26, 1998.
Aperiod of 10 minutes will be allotted
to each person for making comments.
An agenda showing the schedule of
speakers will be prepared after the dead-
line for receiving outlines has passed.
Copies of the agenda will be available
free of charge at the hearing.
Drafting Information
The principal authors of the proposed
regulations are Gayle Novig and Judith
Cavell Cohen, of the Office of the Associ-
ate Chief Counsel (International). Other
personnel from the IRS and Treasury De-
partment also participated in the develop-
ment of these regulations.
* * * * *
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1291–1 is added to
read as follows:
[The text of this proposed section is the
same as the text of § 1.1291–1Tpublished
in T.D. 8750.]
Par. 3. Section 1.1293–1 is added to
read as follows:
§ 1.1293–1 Current taxation of income
from qualified electing funds.
[The text of this proposed section is the
same as the text of § 1.1293–1Tpublished
in T.D. 8750.]
Par. 4. Section 1.1295–1 is added to
read as follows:
§ 1.1295–1 Qualified electing funds.
[The text of this proposed section is the
same as the text of § 1.1295–1Tpublished
in T.D. 8750.]
Par. 5. Section 1.1295–3 is added to
read as follows:
§ 1.1295–3 Retroactive elections.
[The text of this proposed section is the
same as the text of § 1.1295–3Tpublished
in T.D. 8750.]
Par. 6. In § 1.1297–3, paragraph (c) is
added to read as follows:
§ 1.1297–3 Deemed sale election by
a United States person that is a
shareholder of a passive foreign
investment company.
[The text of this proposed paragraph (c)
is the same as the text of § 1.1297–3T(c)
published in T.D. 8750.]
Par. 7. Section 1.1296–4(e), as pro-
posed at 60 F.R. 20922 (April 28, 1995),
is amended by adding a sentence at the
end of the paragraph to read as follows:
§ 1.1296-4 Characterization of certain
banking income of foreign banks as
passive.
* * * * *
(e) Lending activities test.*** An in-
terbank deposit made in the ordinary
course of a corporation’s banking busi-
ness will be treated as a loan for purposes
of this section. For the effective date of
this paragraph (e), see paragraph (k) of
this section.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
December 31, 1997, 8:45 a.m., and published in the
issue of the Federal Register for January 2, 1998, 63
F.R. 35)
Notice of Proposed Rulemaking
Loans to Plan Participants
REG–209476–82
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document amends pro-
posed Income Tax Regulations under sec-
tion 72(p) of the Internal Revenue Code
relating to loans made from a qualified
employer plan to plan participants or ben-
eficiaries. Section 72(p) was added by
section 236 of the Tax Equity and Fiscal
Responsibility Act of 1982, and amended
by the Technical Corrections Act of 1982,
the Deficit Reduction Act of 1984, the
Tax Reform Act of 1986 and the Techni-
cal and Miscellaneous Revenue Act of
1988. These regulations provide guid-
ance to the public with respect to section
72(p), and affect administrators of, partic-
ipants in, and beneficiaries of qualified
employer plans that permit participants or
beneficiaries to receive loans from the
plan (including loans from section 403(b)
contracts and other contracts issued under
qualified employer plans).
DATES: Written comments and requests
for a public hearing must be received by
April 2, 1998.
February 23, 1998361998–8 I.R.B.

ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–209476–82),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered between the hours 8 a.m.
and 5 p.m. to: CC:DOM:CORP:R (REG–
209476–82), Courier’s Desk, Internal
Revenue Service, 1111 Constitution Av-
enue NW, Washington, DC. Alterna-
tively, taxpayers may submit comments
electronically via the Internet by selecting
the “Tax Regs” option on the IRS Home
Page, or by submitting comments directly
to the IRS Internet site at http://www.irs.
ustreas.gov/prod/tax_regs/comments.html.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Ver-
non S. Carter, (202) 622-6070; concern-
ing submissions or requests to speak at
the hearing, La Nita VanDyke, (202) 622-
7190 (not toll-free numbers).
SUPPLEMENTARYINFORMATION:
Background
This document contains proposed
amendments to the Proposed Income Tax
Regulations (26 CFR Part 1) under sec-
tion 72 of the Internal Revenue Code of
1986 (Code). These amendments provide
additional guidance concerning the tax
treatment of loans that are deemed to be
distributed under section 72(p).
Explanation of Provisions
Section 72(p)(1)(A) provides that a
loan from a qualified employer plan (in-
cluding a contract purchased under a
qualified employer plan) to a participant
or beneficiary is treated as received as a
distribution from the plan for purposes of
section 72 (a deemed distribution). Sec-
tion 72(p)(1)(B) provides that an assign-
ment or pledge of (or an agreement to as-
sign or pledge) any portion of a
participant’s or beneficiary’s interest in a
qualified employer plan is treated as a
loan from the plan.
Section 72(p)(2) provides that section
72(p)(1) does not apply to the extent cer-
tain conditions are satisfied. Specifically,
under section 72(p)(2), a loan from a
qualified employer plan to a participant or
beneficiary is not treated as a distribution
from the plan if the loan satisfies require-
ments relating to the term of the loan and
the repayment schedule, and to the extent
the loan satisfies certain limitations on the
amount loaned.
Regulations were proposed in 1995
1
with respect to many of the issues arising
under section 72(p)(2). The preamble to
the 1995 proposed regulations requested
comments on whether further guidance
should be provided on certain issues that
were not addressed. Following publica-
tion of the 1995 proposed regulations,
comments were received and a public
hearing was held on June 28, 1996. One
of the issues on which comments were re-
quested and received was the effect of a
deemed distribution on the tax treatment
of subsequent distributions from a plan
(such as whether a participant has tax
basis as a result of a deemed distribution).
After reviewing the written comments
and comments made at the public hearing,
these new proposed regulations address
this issue.
These new proposed regulations pro-
vide that once a loan is deemed distrib-
uted under section 72(p), the interest that
accrues thereafter on that loan is not in-
cluded in income.
2
Further, because the
loan amount is treated as distributed for
purposes of section 72, neither the income
that resulted from the deemed distribution
nor the interest that accrues thereafter in-
creases the participant’s investment in the
contract (tax basis) for purposes of sec-
tion 72.
For example, assume that, after a loan
has been made from a defined contribu-
tion plan to a participant, a deemed distri-
bution occurs as a result of failure to
make timely loan repayments (e.g., the re-
payments were not to be made by payroll
withholding
3
). The participant’s total ac-
count then consists of non-loan assets and
a receivable for the loan balance. At sep-
aration from employment, the partici-
pant’s vested account balance is reduced
(offset) by the loan amount and the re-
maining account balance is distributed in
a lump sum to the participant. In this
case, in addition to the income that previ-
ously arose as a result of the deemed dis-
tribution due to the failure to make timely
payments on the loan, the participant
would have a taxable distribution at sepa-
ration from employment for the remain-
ing account balance reflecting the non-
loan assets that are distributed in a lump
sum (with no tax basis as a result of the
prior deemed distribution of the loan
amount). The offset of the loan balance
(i.e., the offset of the loan receivable by
the loan amount) would be disregarded
for purposes of section 72 because the
loan had previously been deemed distrib-
uted as a result of the failure to make
timely payments on the loan.
Aloan that is deemed distributed under
section 72 is nevertheless outstanding for
other purposes until the loan obligation is
satisfied (e.g., by cash repayment or by
offset against the participant’s accrued
benefit). Q&A–13 of the 1995 proposed
regulations lists other differences between
a deemed distribution and a loan offset.
In addition, for purposes of calculating
the maximum permitted amount of any
subsequent loan, a loan that has been
deemed distributed is considered out-
standing until the loan obligation has been
satisfied.
The proposed regulations also provide
that if a participant makes any cash repay-
ments on a loan after the loan is deemed
distributed, the repayments increase the
participant’s tax basis in the plan in the
same manner as if the repayments were
1998–8 I.R.B37February 23, 1998
1
Proposed §1.72(p)–1 (EE–106–82) was pub-
lished in the Federal Register (60 F.R. 66233) on
December 21, 1995.
2
This treatment applies for purposes of determin-
ing the amount taxable under section 72 (including
application of return of tax basis). However, as dis-
cussed below, the loan is still considered outstanding
for purposes of determining the maximum amount
of any subsequent loan to the participant under sec-
tion 72(p)(2)(A). Even though interest continues to
accrue on the outstanding loan and is taken into ac-
count for purposes of determining the maximum
amount of any subsequent loan, this additional inter-
est is not treated as a additional loan that results in a
further deemed distribution for purposes of section
72(p).
3
With respect to coverage under Title I of the
Employee Retirement Income Security Act of 1974,
the Department of Labor has advised the Service
that an employer’s tax-sheltered annuity program
would not necessarily fail to satisfy the Depart-
ment’s regulation at 29 CFR 2510.3–2(f) merely be-
cause the employer permits employees to make re-
payments of laons made in connection with the
tax-sheltered annuity program through payroll de-
ductions as part of the employer’s payroll deduction
system, if the program operates within the limita-
tions set by that regulation.

after-tax contributions. However, such
repayments are not treated as after-tax
contributions for purposes of section
401(m) or 415(c)(2)(B).
These regulations are proposed to be-
come effective for loans made on or after
the first January 1 that is at least 6 months
after the date the regulations are pub-
lished as final regulations in the Federal
Register (the regulatory effective date).
These regulations also revise the pro-
posed effective date for the 1995 pro-
posed regulations, so that the same pro-
posed effective date would apply to the
1995 proposed regulations and these pro-
posed regulations.
Generally, a plan is permitted to apply
the new proposed regulations to loans
made before the regulatory effective date.
However, the regulations include a spe-
cial consistency rule applicable if there
has been any deemed distribution of the
loan before the date the plan switches to
the new proposed regulations for the loan.
In this event, a plan is not permitted to
apply the new proposed regulations to the
loan unless the plan reported, in Box 1 of
Form 1099–R, a gross distribution with
respect to the loan that is at least equal to
the amount required by the 1995 proposed
regulations (referred to as the initial de-
fault amount in the new proposed regula-
tions) for a taxable year that is not later
than the latest year that would be permit-
ted under the 1995 proposed regulations.
In such a case, the plan may apply the
new proposed regulations to the loan even
though, in the past, the plan reported
deemed distributions with respect to the
loan in a manner that is not consistent
with the new proposed regulations.
If a plan does apply the new proposed
regulations to a pre-regulatory effective
date loan that has been deemed distrib-
uted, then the plan, in its subsequent re-
porting and withholding, must not at-
tribute investment in the contract (tax
basis) to the participant based upon the
initial default amount. For example, a
plan that reported income for the initial
default amount plus all interest accruing
thereafter as a result of the default and
made corresponding increases in the par-
ticipant’s tax basis would comply with
this consistency rule by reducing the par-
ticipant’s tax basis by an amount equal to
the initial default amount. In addition, a
special rule applies if a plan had increased
a participant’s tax basis by the initial de-
fault amount and, just before the first ac-
tual distribution made after the plan
switches to applying the new proposed
regulations to the loan, the sum of the par-
ticipant’s tax basis immediately before the
switch plus any increase in basis there-
after (e.g., from after-tax contributions) is
less than the initial default amount (as a
result of intervening distributions). In
this case, a loan transition amount equal
to the amount by which the initial default
amount exceeds the participant’s tax basis
is treated as remaining outstanding and
that amount is includible in the partici-
pant’s income at the time of the next ac-
tual distribution from the plan to the par-
ticipant. The proposed regulations
include examples illustrating the applica-
tion of the consistency rule.
Comments are requested on whether
the final regulations should include fur-
ther guidance relating to plan loans made
to participants before the regulatory effec-
tive date.
Taxpayers may rely on these proposed
regulations for guidance pending the is-
suance of final regulations. If, and to the
extent, future guidance is more restrictive
than the guidance in these proposed regu-
lations, the future guidance will be ap-
plied without retroactive effect.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
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, and because the regulation does 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) of the Internal
Revenue Code, 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.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written com-
ments that are submitted timely (prefer-
able a signed original and eight copies) to
the IRS. All comments will be available
for public inspection and copying. Apub-
lic hearing will be scheduled if requested
in writing by a person that timely submits
written comments. If a public hearing is
scheduled, notice of the date, time and
place for the hearing will be published in
the Federal Register.
Drafting Information
The principal author of these regula-
tions is Vernon S. Carter, Office of Asso-
ciate Chief Counsel (Employee Benefits
and Exempt Organizations). However,
other personnel from the IRS and Trea-
sury Department participated in their de-
velopment.
* * * * *
Amendments to the Previously Proposed
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART1—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 1.72(p)–1 of the pro-
posed regulations published December
21, 1995, (60 FR 66233) is amended as
follows:
1. Q&A–19 is redesignated as Q&A–
21.
2. New Q&A–19 and Q&A–20 are
added.
3. Q&A–21, as redesignated, is revised.
The additions and revision read as fol-
lows:
§ 1.72(p)–1 Loans treated as
distributions.
* * * * *
Q–19: If there is a deemed distribution
under section 72(p), is the interest that ac-
crues thereafter on the amount of the
deemed distribution an indirect loan for
income tax purposes?
A–19: (a) General rule.Except as
provided in paragraph (b) of this Q&A–
19, a deemed distribution of a loan is
February 23, 1998381998–8 I.R.B.

treated as a distribution for purposes of
section 72. Therefore, a loan that is
deemed to be distributed under section
72(p) ceases to be an outstanding loan for
purposes of section 72, and the interest
that accrues thereafter under the plan on
the amount deemed distributed is disre-
garded in applying section 72 to the par-
ticipant or beneficiary. Even though in-
terest continues to accrue on the
outstanding loan (and is taken into ac-
count for purposes of determining the tax
treatment of any subsequent loan in ac-
cordance with paragraph (b) of this
Q&A–19), this additional interest is not
treated as an additional loan (and, thus,
does not result in an additional deemed
distribution) for purposes of section
72(p). However, a loan that is deemed
distributed under section 72(p) is not con-
sidered distributed for all purposes of the
Internal Revenue Code. See Q&A–11
through Q&A–16 of this section.
(b) Exception for purposes of applying
section 72(p)(2)(A) to a subsequent loan.
Aloan that is deemed distributed under
section 72(p) (including interest accruing
thereafter) and that has not been repaid
(such as by a plan loan offset) is consid-
ered outstanding for purposes of applying
section 72(p)(2)(A) to determine the max-
imum amount of any subsequent loan to
the participant or beneficiary.
Q–20: Is a participant’s tax basis in the
plan increased if the participant repays the
loan after a deemed distribution?
A–20: (a) Repayments after deemed
distribution.Yes, if the participant or
beneficiary repays the loan after a deemed
distribution of the loan under section
72(p), then, for purposes of section 72(e),
the participant’s or beneficiary’s invest-
ment in the contract (tax basis) under the
plan increases by the amount of the cash
repayments that the participant or benefi-
ciary makes on the loan after the deemed
distribution. However, loan repayments
are not treated as after-tax contributions
for other purposes, including sections
401(m) and 415(c)(2)(B).
(b) Example.The following example
illustrates the rules in paragraph (a) of this
Q&A-20 and is based on the assumptions
described in ASSUMPTIONS FOR EX-
AMPLES:
Example.(a) Aparticipant receives a $20,000
loan on January 1, 1999, to be repaid in 20 quarterly
installments of $1,245 each. On December 31,
1999, the outstanding loan balance ($19,179) is
deemed distributed as a result of a failure to make
quarterly installment payments that were due on
September 30, 1999 and December 31, 1999. On
June 30, 2000, the participant repays $5,147 (which
is the sum of the three installment payments that
were due on September 30, 1999, December 31,
1999, and March 31, 2000, with interest thereon to
June 30, 2000, plus the installment payment that was
due on June 30, 2000). Thereafter, the participant
resumes making the installment payments of $1,245
from September 30, 2000 through December 31,
2003. The loan repayments made after December
31, 1999 through December 31, 2003 total $22,577.
(b) Because the participant repaid $22,577 after
the deemed distribution that occurred on December
31, 1999, the participant has investment in the con-
tract (tax basis) equal to $22,577 as of December 31,
2003.
Q–21: When is the effective date of
section 72(p) and these regulations?
A–21: (a) Statutory effective date.
Section 72(p) generally applies to assign-
ments, pledges, and loans made after Au-
gust 13, 1982.
(b) Regulatory effective date.This
section applies to assignments, pledges,
and loans made on or after the first Janu-
ary 1 that is at least 6 months after the
date of publication of the final regulations
in the Federal Register (the regulatory ef-
fective date).
(c) Loans made before the regulatory
effective date — (1) General rule.Aplan
is permitted to apply Q&A–19 and Q&A–
20 of this section to a loan made before
the regulatory effective date (and after the
statutory effective date in paragraph (a) of
this Q&A–21) if there has not been any
deemed distribution of the loan before the
transition date or if the conditions of para-
graph (c)(2) of this Q&A–21 are satisfied
with respect to the loan.
(2) Consistency transition rule for cer-
tain loans deemed distributed before the
regulatory effective date. (i) The rules in
this paragraph (c)(2) apply to a loan made
before the regulatory effective date (and
after the statutory effective date in para-
graph (a) of this Q&A–21) if there has
been any deemed distribution of the loan
before the transition date.
(ii) The plan is permitted to apply
Q&A–19 and Q&A–20 of this section to
the loan beginning on any January 1, but
only if the plan reported, in Box 1 of
Form 1099–R, for a taxable year no later
than the latest taxable year that would be
permitted under this section, a gross dis-
tribution of an amount at least equal to the
initial default amount. For purposes of
this section, the initial default amount is
the amount that would be reported as a
gross distribution under Q&A–4 and
Q&A–10 of this section and the transition
date is the January 1 on which a plan be-
gins applying Q&A–19 and Q&A–20 of
this section to a loan.
(iii) If a plan applies Q&A–19 and
Q&A–20 of this section to such a loan,
then the plan, in its reporting and with-
holding on or after the transition date,
must not attribute investment in the con-
tract (tax basis) to the participant or bene-
ficiary based upon the initial default
amount.
(iv) This paragraph (c)(2)(iv) applies
if—
(A) The plan attributed investment in
the contract (tax basis) to the participant
or beneficiary based on the deemed distri-
bution of the loan;
(B) The plan subsequently made an ac-
tual distribution to the participant or bene-
ficiary before the transition date; and
(C) Immediately before the first actual
distribution made on or after the transition
date, the initial default amount (or, if less,
the amount of the investment in the con-
tract so attributed) exceeds the sum of the
participant’s or beneficiary’s investment
in the contract (tax basis) immediately be-
fore the transition date plus any increase
in the participant’s or beneficiary’s invest-
ment in the contract (tax basis) on or after
the transition date. If this paragraph
(c)(2)(iv) applies, the plan must treat the
excess (the loan transition amount) as a
loan amount that remains outstanding and
must include the excess in the partici-
pant’s or beneficiary’s income at the time
of the actual distribution.
(3) Examples. The rules in paragraph
(c)(2) of this Q&A-21 are illustrated by
the following examples, which are based
on the assumptions described in AS-
SUMPTIONS FOR EXAMPLES (and,
except as specifically provided in the ex-
amples, also assume that no distributions
are made to the participant and that the
participant has no investment in the con-
tract with respect to the plan). Example 1,
Example 2,and Example 4illustrate the
application of these rules to a plan that,
before the transition date, did not treat in-
terest accruing after the initial deemed
distribution as resulting in additional
deemed distributions under section 72(p).
Example 3illustrates the application of
1998–8 I.R.B39February 23, 1998

these rules to a plan that, before the tran-
sition date, treated interest accruing after
the initial deemed distribution as resulting
in additional deemed distributions under
section 72(p).
Example 1.(a) In 1995, when a participant’s ac-
count balance under a plan is $50,000, the partici-
pant receives a loan from the plan. The participant
makes the required repayments until 1996 when
there is a deemed distribution of $20,000 as a result
of a failure to repay the loan. For 1996, as a result of
the deemed distribution, the plan reports, in Box 1 of
Form 1099–R, a gross distribution of $20,000
(which is the initial default amount in accordance
with paragraph (c)(2)(ii) of Q&A–21 of this section)
and, in Box 2 of Form 1099–R, a taxable amount of
$20,000. The plan then records an increase in the
participant’s tax basis for the same amount
($20,000). Thereafter, the plan disregards, for pur-
poses of section 72, the interest that accrues on the
loan after the 1996 deemed distribution. Thus, as of
December 31, 1998, the total taxable amount re-
ported by the plan as a result of the deemed distribu-
tion is $20,000 and the plan’s records show that the
participant’s tax basis is the same amount ($20,000).
As of January 1, 1999, the plan decides to apply
Q&A–19 of this section to the loan. Accordingly, it
reduces the participant’s tax basis by the initial de-
fault amount of $20,000, so that the participant’s re-
maining tax basis in the plan is zero. Thereafter, the
amount of the outstanding loan is not treated as part
of the account balance for purposes of section 72.
The participant attains age 59-1/2 in the year 2000
and receives a distribution of the full account bal-
ance under the plan consisting of $60,000 in cash
and the loan receivable. At that time, the plan’s
records reflect an offset of the loan amount against
the loan receivable in the participant’s account and a
distribution of $60,000 in cash.
(b) For the year 2000, the plan must report a
gross distribution of $60,000 on Box 1 of Form
1099–R and a taxable amount of $60,000 in Box 2
of Form 1099–R.
Example 2.The facts are the same as in Example
1,except that in 1996, immediately prior to the
deemed distribution, the participant’s account bal-
ance under the plan totals $50,000 and the partici-
pant’s tax basis is $10,000. For 1996, the plan re-
ports, in Box 1 of Form 1099–R, a gross distribution
of $20,000 (which is the initial default amount in ac-
cordance with paragraph (c)(2)(ii) of Q&A–21 of
this section) and reports, in Box 2 of Form 1099-R, a
taxable amount of $16,000 (the $20,000 deemed dis-
tribution minus $4,000 of tax basis ($10,000 times
($20,000/$50,000)) allocated to the deemed distrib-
ution). The plan then records an increase in tax
basis equal to the $20,000 deemed distribution, so
that the participant’s remaining tax basis as of De-
cember 31, 1996 totals $26,000 ($10,000 minus
$4,000 plus $20,000). Thereafter, the plan disre-
gards, for purposes of section 72, the interest that ac-
crues on the loan after the 1996 deemed distribution.
Thus, as of December 31, 1998, the total taxable
amount reported by the plan as a result of the
deemed distribution is $16,000 and the plan’s
records show that the participant’s tax basis is
$26,000. As of January 1, 1999, the plan decides to
apply Q&A–19 of this section to the loan. Accord-
ingly, it reduces the participant’s tax basis by the ini-
tial default amount of $20,000, so that the partici-
pant’s remaining tax basis in the plan is $6,000.
Thereafter, the amount of the outstanding loan is not
treated as part of the account balance for purposes of
section 72. The participant attains age 59-1/2 in the
year 2000 and receives a distribution of the full ac-
count balance under the plan consisting of $60,000
in cash and the loan receivable. At that time, the
plan’s records reflect an offset of the loan amount
against the loan receivable in the participant’s ac-
count and a distribution of $60,000 in cash.
(b) For the year 2000, the plan must report a
gross distribution of $60,000 on Box 1 of Form
1099–R and a taxable amount of $54,000 in Box 2
of Form 1099–R.
Example 3.(a) In 1990, when a participant’s ac-
count balance in a plan is $100,000, the participant
receives a loan of $50,000 from the plan. The par-
ticipant makes the required loan repayments until
1992 when there is a deemed distribution of $28,919
as a result of a failure to repay the loan. For 1992, as
a result of the deemed distribution, the plan reports,
in Box 1 of Form 1099–R, a gross distribution of
$28,919 (which is the initial default amount in ac-
cordance with paragraph (c)(2)(ii) of Q&A–21 of
this section) and, in Box 2 of Form 1099–R, a tax-
able amount of $28,919. For 1992, the plan also
records an increase in the participant’s tax basis for
the same amount ($28,919). Each year thereafter
through 1998, the plan reports a gross distribution
equal to the interest accruing that year on the loan
balance, reports a taxable amount equal to the inter-
est accruing that year on the loan balance reduced by
the participant’s tax basis allocated to the gross dis-
tribution, and records a net increase in the partici-
pant’s tax basis equal to that taxable amount. As of
December 31, 1998, the taxable amount reported by
the plan as a result of the loan totals $44,329 and the
plan’s records for purposes of section 72 show that
the participant’s tax basis totals the same amount
($44,329). As of January 1, 1999, the plan decides to
apply Q&A–19 of this section. Accordingly, it re-
duces the participant’s tax basis by the initial default
amount of $28,919, so that the participant’s remain-
ing tax basis in the plan is $15,410 ($44,329 minus
$28,919) as of December 31, 1999. Thereafter, the
amount of the outstanding loan is not treated as part
of the account balance for purposes of section 72.
The participant attains age 59-1/2 in the year 2000
and receives a distribution of the full account balance
under the plan consisting of $180,000 in cash and the
loan receivable equal to the $28,919 outstanding loan
amount in 1992 plus interest accrued thereafter to the
payment date in 2000. At that time, the plan’s
records reflect an offset of the loan amount against
the loan receivable in the participant’s account and a
distribution of $180,000 in cash.
(b) For the year 2000, the plan must report a
gross distribution of $180,000 in Box 1 of Form
1099-R and a taxable amount of $164,590 in Box 2
of Form 1099–R ($180,000 minus the remaining tax
basis of $15,410).
Example 4.(a) The facts are the same as in Ex-
ample 1, except that in 1997, after the deemed distri-
bution, the participant receives a $10,000 hardship
distribution. At the time of the hardship distribution,
the participant’s account balance under the plan to-
tals $50,000. For 1997, the plan reports, in Box 1 of
Form 1099-R, a gross distribution of $10,000 and,
in Box 2 of Form 1099–R, a taxable amount of
$6,000 (the $10,000 actual distribution minus
$4,000 of tax basis ($10,000 times ($20,000/
$50,000)) allocated to this actual distribution). The
plan then records a decrease in tax basis equal to
$4,000, so that the participant’s remaining tax basis
as of December 31, 1997 totals $16,000 ($20,000
minus $4,000). After 1996, the plan disregards, for
purposes of section 72, the interest that accrues on
the loan after the 1996 deemed distribution. Thus,
as of December 31, 1998, the total taxable amount
reported by the plan as a result of the deemed distri-
bution plus the 1997 actual distribution is $26,000
and the plan’s records show that the participant’s tax
basis is $16,000. As of January 1, 1999, the plan de-
cides to apply Q&A–19 of this section to the loan.
Accordingly, it reduces the participant’s tax basis by
the initial default amount of $20,000, so that the
participant’s remaining tax basis in the plan is re-
duced from $16,000 to zero. However, because the
$20,000 initial default amount exceeds $16,000, the
plan records a loan transition amount of $4,000
($20,000 minus $16,000). Thereafter, the amount of
the outstanding loan, other than the $4,000 loan
transition amount, is not treated as part of the ac-
count balance for purposes of section 72. The par-
ticipant attains age 59-1/2 in the year 2000 and re-
ceives a distribution of the full account balance
under the plan consisting of $60,000 in cash and the
loan receivable. At that time, the plan’s records re-
flect an offset of the loan amount against the loan
receivable in the participant’s account and a distrib-
ution of $60,000 in cash.
(b) In accordance with paragraph (c)(2)(iv) of
Q&A–21 of this section, the plan must report in Box
1 of Form 1099–R a gross distribution of $64,000
and in Box 2 of Form 1099–R a taxable amount for
the participant for the year 2000 equal to $64,000
(the sum of the $60,000 paid in the year 2000 plus
$4,000 as the loan transition amount).
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
December 31, 1997, 8:45 a.m., and published in the
issue of the Federal Register for January 2, 1998, 63
F.R. 42)
Notice of Proposed Rulemaking
FICA and FUTA Taxation of
Amounts Under Employee
Benefit Plans
REG–209484–87;
REG–209807–95
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
February 23, 1998401998–8 I.R.B.

SUMMARY: This document contains a
revision to the proposed regulations under
section 3121(v)(2) of the Internal Rev-
enue Code of 1986, relating to when
amounts deferred under or paid from cer-
tain nonqualified deferred compensation
plans are taken into account as “wages”
for purposes of the taxes imposed by the
Federal Insurance Contributions Act
(FICA). This document extends the pro-
posed general effective date of the regula-
tions to January 1, 1998. The extension
also applies to the proposed regulations
under section 3306(r)(2), relating to when
amounts deferred under or paid from cer-
tain nonqualified deferred compensation
plans are taken into account as “wages”
for purposes of the taxes imposed by the
Federal Unemployment Tax Act (FUTA),
due to the cross-reference therein to the
provisions of the proposed regulations
under section 3121(v)(2).
DATES: Written comments and requests
for a public hearing must be received by
March 24, 1998.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (EE–142–87), room
5228, Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washington,
DC 20044. In the alternative, submis-
sions may be hand delivered between the
hours of 8 a.m. and 5 p.m. to: CC:DOM:
CORP:R (REG–209484–87), 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 of the
IRS Home Page, or by submitting com-
ments directly to the IRS Internet site at:
http://www.irs.ustreas.gov/prod/tax_regs/
comments.html.
FOR FURTHER INFORMATION CON-
TACT: Janine Cook, (202) 622-6040 (not
a toll-free number), concerning the regu-
lations, and Michael Slaughter, (202)
622-7190 (not a toll-free number), con-
cerning submissions.
SUPPLEMENTARYINFORMATION:
Background
This document contains a revision to
the proposed amendments to the Employ-
ment Tax Regulations (26 CFR part 31)
under section 3121(v)(2) of the Internal
Revenue Code of 1986 (Code), relating to
the Federal Insurance Contributions Act
(FICA) tax treatment of amounts deferred
under or paid from certain nonqualified
deferred compensation plans. The pro-
posed regulations were published in the
Federal Register on January 25, 1996 (61
F.R. 2194), with a proposed general effec-
tive date of January 1, 1997. This docu-
ment extends the proposed general effec-
tive date to January 1, 1998. The same
issue of the Federal Register contained
proposed amendments to the Employment
Tax Regulations under section 3306(r)(2)
of the Code, relating to the Federal Un-
employment Tax Act (FUTA) tax treat-
ment of amounts deferred under or paid
from certain nonqualified deferred com-
pensation plans (61 F.R. 2214). The pro-
posed regulations under section 3306(r)-
(2) cross-reference the provisions of the
proposed regulations under section
3121(v)(2), including the proposed gen-
eral effective date. Consequently, the ex-
tension of the effective date under the
proposed regulations under section
3121(v)(2) automatically applies to the
proposed regulations under section
3306(r)(2).
The project numbers assigned to the
notices of proposed rulemaking setting
forth the proposed regulations under sec-
tion 3121(v)(2) and section 3306(r)(2)
were EE–142–87 and EE–55–95, respec-
tively. Due to changes in the Internal
Revenue Service’s regulations numbering
system, the project numbers for this no-
tice of proposed rulemaking have been
changed to REG–209484–87 and REG–
209807–95, respectively, as reflected at
the beginning of this document.
Explanation of Provisions
Section 31.3121(v)(2)–1(g)(1)(i) of the
proposed regulations provides that the
proposed general effective date of the reg-
ulations is January 1, 1997. Because the
final regulations have not been issued,
this document contains an amendment to
the proposed regulations to extend the
proposed general effective date to January
1, 1998. This extension of the proposed
general effective date also applies to
§ 31.3306(r)(2)–1 of the proposed regula-
tions due to the cross-reference therein to
the provisions in the proposed regulations
under section 3121(v)(2).
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It also has 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, and because these regulations do not
impose on small entities a collection of in-
formation requirement, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does
not apply. Therefore, a Regulatory Flexi-
bility Analysis is not required. Pursuant to
section 7805(f) of the 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 Requests for a Public
Hearing
Before this revision to the proposed reg-
ulations is adopted as part of the final reg-
ulations, consideration will be given to any
written comments (preferably a signed
original and eight (8) copies) that are sub-
mitted timely to the IRS. All comments
will be available for public inspection and
copying. Apublic hearing may be sched-
uled if requested in writing by a person
that timely submits written comments. If a
public hearing is scheduled, notice of the
date, time, and place for the hearing will
be published in the Federal Register.
Drafting Information
The principal author of this revision to
the proposed regulations is Janine Cook,
Office of the Associate Chief Counsel
(Employee Benefits and Exempt Organi-
zations), IRS. However, other personnel
from the IRS and Treasury Department
participated in its development.
* * * * *
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 31 is pro-
posed to be amended as follows:
PART31—EMPLOYMENTTAXES
AND COLLECTION OF INCOME TAX
ATSOURCE
Paragraph 1. The authority citation for
part 31 continues to read in part as follows:
1998–8 I.R.B41February 23, 1998

Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 31.3121(v)(2)–1 as pro-
posed to be added at 61 FR 2199, January
25, 1996, is amended by revising para-
graph (g)(1)(i) to read as follows:
§ 31.3121(v)(2)–1 Treatment of amounts
deferred under certain nonqualified
deferred compensation plans.
* * * * *
(g) Effective date and transition rules—
(1) General effective date—(i) Effective
date.Except as otherwise provided in this
paragraph (g) or in §31.3121(v)–2, this sec-
tion is effective for amounts deferred and
benefits paid on or after January 1, 1998.
* * * * *
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
December 23, 1997, 8:45 a.m., and published in the
issue of the Federal Register for December 24, 1997,
62 F.R. 67304)
Foundations Status of Certain
Organizations
Announcement 98–11
The following organizations have
failed to establish or have been unable to
maintain their status as public charities or
as operating foundations. Accordingly,
grantors and contributors may not, after
this date, rely on previous rulings or des-
ignations in the Cumulative List of Orga-
nizations (Publication 78), or on the pre-
sumption arising from the filing of notices
under section 508(b) of the Code. This
listing does notindicate that the organiza-
tions have lost their status as organiza-
tions described in section 501(c)(3), eligi-
ble to receive deductible contributions.
Former Public Charities.The following
organizations (which have been treated as
organizations that are not private founda-
tions described in section 509(a) of the
Code) are now classified as private foun-
dations:
Childrens Resource Center Inc., East
Point, GA
Coal Creek-Rock Creek Trails
Foundation, Louisville, CO
Coal Plasma Energy Conversion Inc.,
Alexandria, VA
Coalition Advancing Universal Social
Equality Cause Inc., Jackson, MS
Coalition for Citizens With Disabilities,
Incorporated, Jackson, MS
Coalition for a Free America LTD,
Peoria, IL
Coalition for Human Priorities of New
Jersey, East Orange, NJ
Coalition for Progress Foundation, Inc.,
Miami, FL
Coalition for the Earths Environment of
Dallas, Dallas, TX
Community Organization for Puerto
Rican Affairs, Inc., Fort Launderdale,
FL
Community Program of Our Fathers
House Inc., Houston, TX
Community Reconstruction Institute Inc.,
Plantation, FL
County of Dixon School District 24,
Newcastle, NE
Dwayne S. Brown Foundation Inc.,
Washington, DC
East Russell Childcare and Development
Center Inc., Louisville, KY
E & J Nichols Inc., Baytown, TX
E.C. Reems Womens International
Ministries, Dayton, OH
E.C. Wood Foundation, Austin, TX
Emma Inman Williams Scholarship Fund,
Jackson, TN
Emmanuel Housing Center, Dothan, AL
Emmas Clinic Inc. Center for Counseling
and Learning, Colorado Springs, CO
Flint Fast Track, Flint, MI
Flora T. Benshoof Foundation,
Westminster, CO
Florence Community Band Inc.,
Florence, KY
Florence Community Chorus Inc.,
Richwood, KY
Florence Interfaith Outreach, Florence,
SC
Florida Association of Teachers of
English to Speakers of Other
Languages Inc., Miami, FL
Florida Community Housing Assistant
Corp, Fort Lauderdale, FL
Florida Health Care Utilities Inc.,
Hialeah, FL
Florida Indigent Medical Program Inc.,
Miami, FL
Greater Corktown Economic
Development Corporation, Detroit, MI
Greater Des Moines Sports Authority,
Des Moines, IA
Greater Sugar Land Pony Colt League
Inc., Sugar Land, TX
Greater Tampa Youth Hockey Inc.,
Oldsmar, FL
Greenbrier Music Festival Inc.,
Charleston, WV
Greater Warner Friends of the Library
Inc., Warner, OK
Historic Preservation of Porter County,
Valparaiso, IN
Historic Watertown Inc., Watertown, TN
Historical Society of the American
Memorial Park, Saipan, MP
Hmong National Development Inc.,
Omaha, NE
Ho-Ho-Kus Education Foundation Inc.,
Ho Ho Kus, NJ
Joint SIU Conference, Tallahassee, FL
Jomar Health Services Inc., Lake
Charles, LA
Jones City Park Development Inc., Jones,
OK
Jonesboro Area Athletic Assoc.
Government Cir., Jonesboro, GA
Josephs Journeys Inc., Charlotte, NC
Joy in Learning Educational Center
Incorporated, Gary, IN
Joy International Ministries Inc.,
Oklahoma City, OK
Joy Outdoor Ministries, Glendale, AZ
Joyful Toyful Fiesta Inc., Baytown, TX
Khmer Society & Association, Houston,
TX
Kids & Kicks Soccer Club, Columbia, IL
Kids at Hart Inc., Hart, MI
Kids Express, Clancy, MT
Kids Express Daycare Service Inc.,
Jackson, MS
Kids First Charitable Trust, Carrollton, TX
Laredo Medical Foundation, Laredo, TX
Larry Laoretti Kids Classic Inc., Winter
Park, FL
Las Cruces Aquatic Team Incorporated,
Las Cruces, NM
Lincoln Economic Area Development
Association, Roselawn, IN
Link Up Broward Inc., Ft. Lauderdale, FL
Lions Arms II Inc., Louisville, KY
Little Falls Main Street Inc., Little Falls,
MN
Little Hill House Inc., Grandbury, TX
Little Ones Inc., Poydras, LA
Louisiana School for the Deaf
Foundation, Baton Rouge, LA
Louisville East Community Development
Corporation, Louisville, KY
Louisville Scottish Country Dance
Society Inc., Louisville, KY
Mesa Centennial Campus for Girls Inc.,
Pueblo, CO
February 23, 1998421998–8 I.R.B.

Metanoia Inc., Belle Rose, LA
Metro Charitable Auctions Inc.,
Louisville, KY
Micaiah Ministries Inc., Tahlequah, OK
Mid-Michigan Canine Search and Rescue
Team, Farmington Hills, MI
Mid-Ohio Psychological Services Inc.,
Lancaster, OH
Millennium Foundation, Ridgewood, NJ
Millfield Community Organization,
Millfield, OH
Milwaukee Area Recovery Center Inc.,
Milwaukee, WI
Milwaukee Center for Cultural Dance
and Awareness, Inc., Milwaukee, WI
Milwaukee Women in the Trades Inc.,
Shorewood, WI
Morehouse DAREInc., Bastrop, LA
Motorcycle-Dial-a-Ride Inc.,
Chanhassen, MN
Moultrie Sculpture Committee Inc.,
Washington, DC
Mount Auburn Community Council of
Cincinnati, Inc., Cincinnati, OH
Mount Carmel International Breaking
Chain Prison Ministry, Inc., Jersey
City, NJ
National Longevity Foundation, West
Palm Beach, FL
National Organization of Single Mothers
Incorporated, Midland, NC
National Pastoral Center for Vietnamese
Apostolate, Inc., New Orleans, LA
National Pet Disaster Fund, Harrisburg,
PA
Newarks Coalition of Small Business
Development Corporation, Inc.,
Newark, NJ
Newport Campus-Arkansas State
University Beebe Charitable
Foundation, Inc., Newport, AR
Newton County Housing Council, Jasper,
AR
Nigerian Cultural Association, St. Louis,
MO
Nightcare at the Bear Minimum-APM
Childcare Service, Inc., Cleveland,
OH
Nikki Childrens Home, Houston, TX
Nims Neighborhood Association,
Muskegon, MI
Nizhoni Smiles, Shiprock, NM
Noble Hill Wheeler Memorial
Association, Inc., Cartersville, GA
Noblesville Babe Ruth Bambino League,
Inc., Noblesville, IN
Nomad Boosters Inc., Davidson, NC
Nordstrom Foundation, Red Lodge, MT
If an organization listed above submits
information that warrants the renewal of its
classification as a public charity or as a pri-
vate operating foundation, the Internal
Revenue Service will issue a ruling or de-
termination letter with the revised classifi-
cation as to foundation status. Grantors and
contributors may thereafter rely upon such
ruling or determination letter as provided
in section 1.509(a)–7 of the Income Tax
Regulations. It is not the practice of the
Service to announce such revised classifi-
cation of foundation status in the Internal
Revenue Bulletin.
Completing Form 8582
Worksheets for More Than One
Passive Activity With Schedule D
(Form 1040) Transactions
Announcement 98–12
The 1997 instructions for Form 8582,
Passive Activity Loss Limitations, in-
cluded an example of how to complete the
worksheets for Form 8582 when the filer
has one passive activity with Schedule D
(Form 1040) transactions.
In response to requests for clarification
on how to complete the worksheets if the
filer has more than one passive activity
with Schedule D (Form 1040) transac-
tions, we have developed the following
example:
Example of Schedule D (Form 1040)
Transactions
The taxpayer had the following Schedule
D (Form 1040) transactions from two ac-
tivities in 1997.
Activity I
Apassive activity prior year unallowed
long-term capital loss (a 28% rate loss) of
($1,000), and a loss on a May 8, 1997,
sale of an asset held more than 12 months
(a 20% rate loss) of ($3,000).
Activity II
Aloss on a July 30, 1997, sale of an asset
held more than 12 months but not more
than 18 months (a 28% rate loss) of
($230), and net income of $1,100 from
Schedule E (Form 1040).
Worksheet 2
The activities were reported separately on
Worksheet 2. Activity I had an overall
loss of ($4,000) (current year net loss of
($3,000) and a prior year unallowed loss
of ($1,000)). Activity II had an overall
gain of $870 (current year net income of
$1,100 less current year net loss of
($230)). Line 11 of Form 8582 shows a
loss allowed of ($1,100).
Worksheet 4
Activity I has an unallowed loss of
($3,130). (Line 3 of Form 8582 ($3,130)
less line 9 of Form 8582 (–0–)
3100%).
All of the ($230) loss is allowed for Ac-
tivity II.
Worksheet 6
Use Worksheet 6 to figure the portion of
the unallowed loss attributable to the 28%
rate loss and the portion to the 20% rate
loss.
Enter the loss attributable to the 28% rate
loss ($1,000) and the loss attributable to
the 20% rate loss ($3,000) as separate en-
tries in Worksheet 6 (i.e., as if they were
going to be reported on a different form or
schedule). Then figure the ratio of each
loss to the total of the two losses as fol-
lows. $1,000/$4,000 = .25. $3,000/$4,000
= .75. Multiply each of these ratios by the
unallowed loss for Activity I shown in
column (c) of Worksheet 4 ($3,130).
Unallowed losses for Activity I:
28% rate loss: .25 3$3,130=$782.50
20% rate loss: .75 3$3,130=$2,347.50
Allowed losses for Activity I:
28% rate loss: $1,000 – $782.50 = $217.50
20% rate loss: $3,000 – $2,347.50 = $652.50
The total loss allowed for Activity I
($870.00) is entered in column (f), Part II,
Schedule D (Form 1040) and the 28% rate
loss ($217.50) is entered in column (g).
Keep a record of the unallowed 28% and
20% rate losses to figure the passive ac-
tivity loss for these transactions next year.
Revision of Form 3115
Announcement 98–13
Form 3115,Application for Change in
Accounting Method, and the Instructions
1998–8 I.R.B43February 23, 1998

for Form 3115 have been revised. This
November 1997 revision is the current
Form 3115 and replaces the February
1996 version of Form 3115. Copies of the
revised form and instructions are avail-
able at most IRS offices.
Applicants may order Form 3115 by
telephone or they may use other IRS elec-
tronic information services to get copies.
February 23, 1998441998–8 I.R.B.
Request by—Number or Address
Telephone1-800-TAX-FORM
(1-800-829-3676)
Personal computer:
World Wide Webwww.irs.ustreas.gov
File Transfer
Protocolftp.irs.ustreas.gov
Telnetiris.irs.ustreas.gov
Direct Dial 703-321-8020
(by modem)
Request by—Number or Address
Telephone1-800-TAX-FORM
(1-800-829-3676)
Personal computer:
World Wide Webwww.irs.ustreas.gov
File Transfer
Protocolftp.irs.ustreas.gov
Telnetiris.irs.ustreas.gov
Direct Dial 703-321-8020
(by modem)
New Forms 5305–R, 5305–RA,
5305–E, and 5305–EA Now
Available
Announcement 98–14
Form 5305–R,Roth Individual Retire-
ment Trust Account, and Form 5305–RA,
Roth Individual Retirement Custodial Ac-
count, are two new model trust and custo-
dial account agreements. Section 302 of
the Taxpayer Relief Act of 1997 (the
“Act”) created the Roth individual retire-
ment account (Roth IRA). ARoth IRAis
established after Form 5305–R or 5305–
RAis executed by both the grantor and
the trustee (for Form 5305–R) or the de-
positor and the custodian (for Form 5305–
RA). The forms meet the requirements of
section 408Aof the Internal Revenue
Code (the “Code”).
Form 5305–E,Education Individual
Retirement Trust Account, and Form
5305–EA,Education Individual Retire-
ment Custodial Account, are also two new
model trust and custodial account agree-
ments. The education individual retire-
ment account (Ed IRA) is established
under section 213 of the Act. An Ed IRA
is established after Form 5305–E or
5305–EAis executed by both the grantor
and the trustee (for Form 5305–E) or the
depositor and the custodian (for Form
5305–EA). The forms meet the require-
ments of Code section 530.
Copies of Forms 5305–R, 5305–RA,
5305–E, and 5305–EAare available at
most IRS offices. Applicants may order
the forms by telephone or they may use
other IRS electronic information services
to get copies.

1998–8 I.R.B45February 23, 1998
NameAddressDesignationDate of Suspension
Trempus Jr., JosephCabot, PACPAOctober 1, 1997 to February 28, 1998
Tyler, Delbert D.Monroeville, PACPAOctober 23, 1997 to April 22, 2000
Gillmore, George P.Hampton, NJCPAIndefinite from October 10, 1997
Kamin, James C.Chicago, ILCPADecember 1, 1997 to May 31, 1999
Hubbard, EdwardChicago, ILAttorneyIndefinite from December 1, 1997
Retzlaff, GeneHortonville, WIEnrolled AgentDecember 1, 1997 to May 31, 1998
Conklin, Dennis M.Arlington Hghts, ILCPADecember 3, 1997 to December 2, 1998
Bowen, Roger H.Lake Bluff, ILCPADecember 4, 1997 to December 3, 1999
Ciconte, WilliamWilmington, DEEnrolled AgentDecember 10, 1997 to December 9, 2000
Lopin, Paul I.Chicago, ILCPAIndefinite from December 11, 1997
Goldstein, BenjaminDes Plaines, ILCPADecember 12, 1997 to June 11, 1998
Olsen Jr., BurtonRancho Cordova, CACPADecember 15, 1997 to June 14, 1998
Hickman, MichaelLawrence, KSCPADecember 16, 1997 to April 15, 1998
Grant, Arthur J.Morris Plains, NJCPAJanuary 1, 1998 to December 31, 2000
Zielinski, HenryWoodstock, ILCPAJanuary 1, 1998 to June 30, 1999
Rosales, JohnBatavia, ILCPAJanuary 1, 1998 to April 30, 1998
Reinstein, MaxwellPotomac, MDCPAJanuary 1, 1998 to March 31, 1998
Payne, CharlotteBreckenridge, COCPAJanuary 1, 1998 to December 31, 1999
Ibrahim, MongyRaleigh, NCCPAJanuary 1, 1998 to December 31, 1998
Koutek, Paul J.Westchester, ILCPAJanuary 1, 1998 to August 31, 1998
Doherty, StevenChicago, ILCPAJanuary 1, 1998 to December 31, 1999
Deren, PatriciaLackawanna, NYAttorneyJanuary 1, 1998 to December 31, 1998
Calhoun, SandraLouisville, KYCPAJanuary 1, 1998 to March 31, 1998
Thurman, StephenArcadia, CACPAJanuary 1, 1998 to December 31, 1998
Davidson, MarkTulsa, OKCPAJanuary 15, 1998 to October 14, 1999
Hequembourg, DonaldGlencoe, MOCPAJanuary 20, 1998 to July 19, 1998
Announcement of the Consent Voluntary Suspension of Attorneys,
Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries
From Practice Beforethe Internal Revenue Service
Under 31 Code of Federal Regulations,
Part 10, an attorney, certified public ac-
countant, enrolled agent, or enrolled ac-
tuary, in order to avoid the institution or
conclusion of a proceeding for his disbar-
ment or suspension from practice before
the Internal Revenue Service, may offer
his consent to suspension from such prac-
tice. The Director of Practice, in his dis-
cretion, may suspend an attorney, certi-
fied public accountant, enrolled agent, or
enrolled actuary in accordance with the
consent offered.
Attorneys, certified public accountants,
enrolled agents, and enrolled actuaries are
prohibited in any Internal Revenue Ser-
vice matter from directly or indirectly em-
ploying, accepting assistance from, being
employed by, or sharing fees with any
practitioner disbarred or suspended from
practice before the Internal Revenue Ser-
vice.
To enable attorneys, certified public ac-
countants, enrolled agents, and enrolled
actuaries to identify practitioners under
consent suspension from practice before the
Internal Revenue Service, the Director
of Practice will announce in the Internal
Revenue Bulletin the names and ad-
dresses of practitioners who have been
suspended from such practice, their desig-
nation as attorney, certified public ac-
countant, enrolled agent, or enrolled actu-
ary, and date or period of suspension. This
announcement will appear in the weekly
Bulletin at the earliest practicable date
after such action and will continue to ap-
pear in the weekly Bulletins for five suc-
cessive weeks or for as many weeks as is
practicable for each attorney, certified
public accountant, enrolled agent, or en-
rolled actuary so suspended and will be
consolidated and published in the Cumu-
lative Bulletin.
The following individuals have been
placed under consent suspension from
practice before the Internal Revenue Ser-
vice:

February 23, 1998461998–8 I.R.B.
Under title 31 of the Code of Federal
Regulations, section 10.76, the Director
of Practice is authorized to immediately
suspend from practice before the Internal
Revenue Service any practitioner who,
within five years from the date the expe-
dited proceeding is instituted, (1) has had
a license to practice as an attorney, certi-
fied public accountant, or actuary sus-
pended or revoked for cause; or (2) has
been convicted of any crime under title 26
of the United States Code or, of a felony
under title 18 of the United States Code
involving dishonesty or breach of trust.
Attorneys, certified public accountants,
enrolled agents, and enrolled actuaries are
prohibited in any Internal Revenue Service
matter from directly or indirectly employ-
ing, accepting assistance from, being em-
ployed by, or sharing fees with, any practi-
tioner disbarred or suspended from practice
before the Internal Revenue Service.
To enable attorneys, certified public ac-
countants, enrolled agents, and enrolled ac-
tuaries to identify practitioners under expe-
dited suspension from practice before the
Internal Revenue Service, the Director of
Practice will announce in the Internal Rev-
enue Bulletin the names and addresses of
practitioners who have been suspended
from such practice, their designation as at-
torney, certified public accountant, en-
rolled agent, or enrolled actuary, and date
or period of suspension. This announce-
ment will appear in the weekly Bulletin at
the earliest practicable date after such ac-
tion and will continue to appear in the
weekly Bulletins for five successive weeks
or for as many weeks as is practicable for
each attorney, certified public accountant,
enrolled agent, or enrolled actuary so sus-
pended and will be consolidated and pub-
lished in the Cumulative Bulletin.
The following individual has been
placed under suspension from practice be-
fore the Internal Revenue Service by virtue
of the expedited proceeding provisions of
the applicable regulations:
Announcement of the Expedited Suspension of Attorneys, Certified Public
Accountants, Enrolled Agents, and Enrolled Actuaries From Practice
Beforethe Internal Revenue Service
NameAddressDesignationDate of Suspension
Christensen, Reed K.Roseville, CAEnrolled AgentIndefinite from December 16, 1997

1998–8 I.R.B47February 23, 1998
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to Abut not
to B, and the new ruling holds that it ap-
plies to both Aand B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified 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. Aruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Proc..—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

February 23, 1998481998–8 I.R.B.
1
Acumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1997–27 through
1997–52 will be found in Internal Revenue Bulletin
1998–1, dated January 5, 1998.
Numerical Finding List
1
Bulletins 1998–1 through 1998–7
Announcements:
98–1, 1998–2 I.R.B. 38
98–2, 1998–2 I.R.B.38
98–3, 1998–2 I.R.B.38
98–4, 1998–4 I.R.B.31
98–5, 1998–5 I.R.B. 25
98–6, 1998–5 I.R.B. 25
98–7, 1998–5 I.R.B. 26
98–8, 1998–6 I.R.B. 96
98–9, 1998–7 I.R.B. 35
98–10, 1998–7 I.R.B. 35
Notices:
98–1, 1998–3 I.R.B. 42
98–2, 1998–2 I.R.B. 22
98–3, 1998–3 I.R.B. 48
98–4, 1998–2 I.R.B. 25
98–5, 1998–3 I.B.R.49
98–6, 1998–3 I.R.B. 52
98–7, 1998–3 I.R.B. 54
98–8, 1998–4 I.R.B. 6
98–9, 1998–4 I.R.B. 8
98–10, 1998–6 I.R.B.9
98–11, 1998–6 I.R.B. 18
98–12, 1998–5 I.R.B.12
98–13, 1998–6 I.R.B.19
Proposed Regulations:
REG–102894–97, 1998–3 I.R.B. 59
REG–109704–97, 1998–3 I.R.B. 60
REG–209463–82, 1998–4 I.R.B. 27
Revenue Procedures:
98–1, 1998–1 I.R.B. 7
98–2, 1998–1 I.R.B. 74
98–3, 1998–1 I.R.B. 100
98–4, 1998–1 I.R.B. 113
98–5, 1998–1 I.R.B. 155
98–6, 1998–1 I.R.B. 183
98–7, 1998–1 I.R.B. 222
98–8, 1998–1 I.R.B. 225
98–9, 1998–3 I.R.B. 56
98–10, 1998–2 I.R.B. 35
98–11, 1998–4 I.R.B.9
98–12, 1998–4 I.R.B. 18
98–13, 1998–4 I.R.B. 21
98–14, 1998–4 I.R.B. 22
98–15, 1998–4 I.R.B. 25
98–16, 1998–5 I.R.B. 19
98–17, 1998–5 I.R.B. 21
98–18, 1998–6 I.R.B. 20
98–19, 1998–7 I.R.B. 30
98–20, 1998–7 I.R.B. 32
Revenue Rulings:
98–1, 1998–2 I.R.B. 5
98–2, 1998–2 I.R.B. 15
98–3, 1998–2 I.R.B. 4
98–4, 1998–2 I.R.B. 18
98–5, 1998–2 I.R.B. 20
98–6, 1998–4 I.R.B. 4
98–7, 1998–6 I.R.B.6
98–8, 1998–7 I.R.B. 24
98–9, 1998–6 I.R.B. 5
Treasury Decisions:
8740, 1998–3 I.R.B. 4
8741, 1998–3 I.R.B. 6
8742, 1998–5 I.R.B.4
8743, 1998–7 I.R.B. 26
8744, 1998–7 I.R.B. 20
8745, 1998–7 I.R.B. 15
8746, 1998–7 I.R.B. 4
8747, 1998–7 I.R.B. 18
8749, 1998–7 I.R.B. 16

1998–8 I.R.B49February 23, 1998
Finding List of Current Action on
Previously Published Items
1
Bulletins 1998–1 through 1998–7
Revenue Procedures:
95–35
95–35A
Superseded by
98–19, 1998–7 I.R.B. 30
97–1
Superseded by
98–1, 1998–1 I.R.B. 7
97–2
Superseded by
98–2, 1998–1 I.R.B. 74
97–3
Superseded by
98–3, 1998–1 I.R.B. 100
97–4
Superseded by
98–4, 1998–1 I.R.B. 113
97–5
Superseded by
98–5, 1998–1 I.R.B. 155
97–6
Superseded by
98–6, 1998–1 I.R.B. 183
97–7
Superseded by
98–7, 1998–1 I.R.B. 222
97–8
Superseded by
98–8, 1998–1 I.R.B. 225
97–21
Superseded by
98–2, 1998–1 I.R.B. 74
97–53
Superseded by
98–3, 1998–1 I.R.B. 100
Revenue Rulings:
75–17
Supplemented and superseded by
98–5, 1998–2 I.R.B. 20
92–19
Supplemented in part by
98–2, 1998–2 I.R.B. 15
1
Acumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1997–27 through 1997–52 will be found in Internal
Revenue Bulletin 1998–1, dated January 5, 1998.