Internal Revenue Bulletin 2001-29 (PDF rendition): IRS Revenue Rulings

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

INCOME TAX
Rev. Rul. 2001–35, page 59.
LIFO; price indexes; department stores. The May 2001
Bureau of Labor Statistics price indexes are accepted for
use by department stores employing the retail inventory and
last-in, first-out inventory methods for valuing inventories for
tax years ended on, or with reference to, May 31, 2001.
T.D. 8951, page 63.
Final regulations under section 6323 of the Code set forth
limited circumstances under which the Service may withdraw
a notice of federal tax lien. The regulations provide proce-
dures for requesting the withdrawal of a notice and the noti-
fication of credit agencies, financial institutions, and credi-
tors.
T.D. 8953, page 44.
Final regulations under section 32 of the Code provide guid-
ance to taxpayers who have been denied the earned income
credit (EIC) as a result of the deficiency procedures and who
wish to claim the EIC in a subsequent year.
REG–100548–01, page 67.
This document withdraws proposed regulations (LR–
107–84, 1984–2 C.B. 902) under section 341 of the Code
that relate to collapsible corporations and proposed regula-
tions (LR–97–79, 1984–2 C.B. 821) under section 1502 of
the Code that relate to corporations filing consolidated
income tax returns.
EMPLOYEE PLANS
Rev. Rul. 2001–30, page 46.
Nondiscrimination; cross-testing. This ruling describes
specific conditions that a defined contribution plan allocation
must meet to be treated as a defined benefit replacement
allocation under section 1.401(a)(4)–8(b) of the regulations.
T.D. 8954, page 47.
Final regulations under section 401(a)(4) of the Code prescribe
conditions under which certain defined contribution retirement
plans (sometimes referred to as “new comparability” plans) can
comply with applicable nondiscrimination requirements based
on plan benefits rather than plan contributions.
EXEMPT ORGANIZATIONS
Announcement 2001–76, page 67.
A list is provided of organizations now classified as private
foundations.
ADMINISTRATIVE
T.D. 8952, page 60.
Final regulations under section 6302 of the Code perma-
nently remove as authorized depositaries the twelve Federal
Reserve banks and their approximately two dozen branches.
Internal Revenue
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Bulletin No. 2001–29
July 16, 2001
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page ii.Finding Lists begin on page ii.

July 16, 20012001–29 I.R.B.
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents are consolidated semiannually into
Cumulative Bulletins, which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying pub-
lished rulings and procedures, the effect of subsequent leg-
islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
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Provide America’s taxpayers top quality service by help-
ing them understand and meet their tax responsibilities
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Introduction
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

Section 32.—Earned Income
26 CFR 1.32–3: Eligibility requirements after
denial of the earned income credit.
T.D. 8953
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Eligibility Requirements After
Denial of the Earned Income
Credit
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains
final regulations that provide guidance to
taxpayers who have been denied the
earned income credit (EIC) as a result of
the deficiency procedures and wish to
claim the EIC in a subsequent year. The
temporary regulations apply to taxpayers
claiming the EIC for taxable years begin-
ning after December 31, 1997, where the
taxpayer’s EIC claim was denied for a
taxable year beginning after December
31, 1996.
DATES: Effective date: These regula-
tions are effective June 25, 2001.
Applicability dates: For dates of ap-
plicability, see §1.32–3(f) of these regula-
tions.
FOR FURTHER INFORMATION CON-
TACT: Karin Loverud at 202-622-6080
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under control number
1545–1575. Responses to this collection
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 assigned by the Office of
Management and Budget.
The burden is reflected in the burden of
Form 8862.
Comments and suggestions for reduc-
ing the burden imposed by this regulation
should be sent to the Internal Revenue
Service, Attn: IRS Reports Clearance Of-
ficer, W:CAR:MP:FP, Washington, DC
20224, and to theOffice of Management
and Budget, Attn: Desk Officer for the
Department of the Treasury, Office of In-
formation and Regulatory Affairs, Wash-
ington, DC 20503.
Books or records relating to this collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
Section 32(k) was added by the Tax-
payer Relief Act of 1997. Section
32(k)(2) provides that, in the case of a
taxpayer who is denied the EIC as a result
of the deficiency procedures, no EIC is al-
lowed for any subsequent taxable year un-
less the taxpayer provides such informa-
tion as the Secretary may require to
demonstrate eligibility for the credit. On
June 25, 1998, temporary regulations
(T.D. 8773, 1998–2 C.B. 70) relating to
earned income credit eligibility require-
ments under section 32(k)(2) were pub-
lished in the Federal Register(63 FR
34594). A notice of proposed rulemaking
(REG–116608–97, 1998–2 C.B. 78)
cross-referencing the temporary regula-
tions was published in the Federal Regis-
terfor the same day (63 FR 34615).
No written comments responding to the
notice of proposed rulemaking were re-
ceived. No public hearing was requested
or held.
As part of an audit pertaining to the
IRS’s management of the EIC eligibility
program, the Treasury Inspector General
for Tax Administration recommended that
the Treasury and the IRS reconsider (1)
the time at which the taxpayer should be
required to establish eligibility to claim
the EIC, and (2) whether the eligibility re-
quirement should pertain to the reason the
EIC was denied. For example, under the
temporary regulations, a taxpayer who is
denied the credit on the basis of a child
who is determined not to be a qualifying
child must establish eligibility the next
time the taxpayer claims the EIC, regard-
less of whether the taxpayer is claiming
the credit on the basis of one or more
qualifying children or on the basis of no
qualifying children. Treasury and the IRS
believe that the purpose of the eligibility
requirement (to prevent erroneous claims)
is better effectuated if the taxpayer estab-
lishes eligibility the next time the tax-
payer claims the credit with one or more
qualifying children, rather than the next
time the taxpayer claims the credit.
The IRS is currently exploring whether,
and to what extent, its system is capable
of undertaking such a change. If a change
is made, it would not affect the method of
establishing eligibility, that is, the tax-
payer would continue to be required to at-
tach a completed Form 8862 to his or her
tax return. The Treasury and the IRS do
not expect any change will affect returns
for tax year 2001.
If a change is made, the IRS expects to
inform taxpayers of the change in two spe-
cific ways. First, the IRS would revise
Letter 3094, which informs the taxpayer of
the eligibility requirements. Second, the
IRS would revise the instructions for Form
8862 to clarify the return to which it must
be attached. In addition, the IRS would in-
clude information regarding the change in
all IRS taxpayer publications that deal with
the EIC eligibility requirements.
The proposed regulations under section
32(k)(2) are adopted as revised by this
Treasury decision. The revisions are dis-
cussed below.
Explanation of Revisions
To permit the IRS to make changes to
the EIC eligibility program as indicated
above, §1.32–3(c) is revised to state that
the Form 8862 instructions will instruct
the taxpayer when to file Form 8862. A
new sentence is added to §1.32–3(c) to
the effect that, if the taxpayer attaches
Form 8862 to an incorrect return, the tax-
payer will nevertheless be required to at-
tach Form 8862 to the correct return.
July 16, 2001442001–29 I.R.B.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

The IRS and Treasury will consider
written comments pertaining to these re-
visions. Submissions should be sent to:
CC:ITA:RU (T.D. 8953), room 5226, In-
ternal Revenue Service, POB 7604, Ben
Franklin Station, Washington, DC 20044.
Submissions may be hand delivered Mon-
day through Friday between the hours of
8 a.m. and 5 p.m. to: CC:ITA:RU (T.D.
8953), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue, NW.,
Washington, DC. Alternatively, taxpayers
may submit comments electronically via
the Internet by selecting the “Tax Regs”
option on the IRS Home Page, or by sub-
mitting comments directly to the IRS In-
ternet site at http://www.irs.gov/tax_
regs/regslist.html.
Special Analyses
It has been determined that these final
regulations are not a significant regulatory
action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does not
apply to these regulations.
It is hereby certified that these regulations
will not have a significant economic impact
on a substantial number of small entities.
This certification is based upon the fact that
the underlying statute applies only to indi-
viduals. Therefore, a regulatory flexibility
analysis under the Regulatory Flexibility Act
(5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking
preceding these regulations was submit-
ted to the Chief Counsel for Advocacy of
the Small Business Administration for
comment on its impact on small business.
Drafting Information
The principal author of these regula-
tions is Karin Loverud, Office of Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities). How-
ever, other personnel from the IRS and
the Treasury Department participated in
their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805. * * *
Par. 2. Section 1.32–3 is added to read
as follows:
§1.32–3 Eligibility requirements after
denial of the earned income credit.
(a) In general. A taxpayer who has
been denied the earned income credit
(EIC), in whole or in part, as a result of
the deficiency procedures under sub-
chapter B of chapter 63 (deficiency pro-
cedures) is ineligible to file a return
claiming the EIC subsequent to the de-
nial until the taxpayer demonstrates eli-
gibility for the EIC in accordance with
paragraph (c) of this section. If a tax-
payer demonstrates eligibility for a tax-
able year in accordance with paragraph
(c) of this section, the taxpayer need not
comply with those requirements for any
subsequent taxable year unless the Ser-
vice again denies the EIC as a result of
the deficiency procedures.
(b) Denial of the EIC as a result of the
deficiency procedures.For purposes of
this section, denial of the EIC as a result
of the deficiency procedures occurs when
a tax on account of the EIC is assessed as
a deficiency (other than as a mathematical
or clerical error under section
6213(b)(1)).
(c) Demonstration of eligibility. In
the case of a taxpayer to whom para-
graph (a) of this section applies, and ex-
cept as otherwise provided by the Com-
missioner in the instructions for Form
8862, “Information To Claim Earned In-
come Credit After Disallowance,” no
claim for the EIC filed subsequent to the
denial is allowed unless the taxpayer
properly completes Form 8862, demon-
strating eligibility for the EIC, and oth-
erwise is eligible for the EIC. If any
item of information on Form 8862 is in-
correct or inconsistent with any item on
the return, the taxpayer will be treated as
not demonstrating eligibility for the
EIC. The taxpayer must follow the in-
structions for Form 8862 to determine
the income tax return to which Form
8862 must be attached. If the taxpayer
attaches Form 8862 to an incorrect tax
return, the taxpayer will not be relieved
of the requirement that the taxpayer at-
tach Form 8862 to the correct tax return
and will, therefore, not be treated as
meeting the taxpayer’s obligation under
paragraph (a) of this section.
(d) Failure to demonstrate eligibility.
If a taxpayer to whom paragraph (a) of
this section applies fails to satisfy the re-
quirements of paragraph (c) of this sec-
tion with respect to a particular taxable
year, the IRS can deny the EIC as a
mathematical or clerical error under sec-
tion 6213(g)(2)(K).
(e) Special rule where one spouse de-
nied EIC. The eligibility requirements
set forth in this section apply to taxpay-
ers filing a joint return where one spouse
was denied the EIC for a taxable year
prior to marriage and has not established
eligibility as either an unmarried or mar-
ried taxpayer for a subsequent taxable
year.
(f) Effective date. This section ap-
plies to returns claiming the EIC for tax-
able years beginning after December 31,
1997, where the EIC was denied for a
taxable year beginning after December
31, 1996.
§1.32–3T [Removed]
Par. 3. Section 1.32–3T is removed.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 4. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 5. In §602.101, paragraph (b) is
amended by:
1. Removing the entry for 1.32–3T
from the table.
2. Adding an entry for 1.32–3 to read
as follows:
§602.101 OMB Control numbers.
* * * * *
(b) * * *
CFR part or section Current OMB
where identified andcontrol No.
described
* * * * *
1.32–3 . . . . . . . . . . . . . . . . . 1545–1575
* * * * *
2001–29 I.R.B.45July 16, 2001

July 16, 2001462001–29 I.R.B.
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved June 20, 2001.
Mark Weinberger,
Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on June
22, 2001, 8:45 a.m., and published in the issue of the
Federal Register for June 25, 2001, 66 F.R. 33636)
Section 401.—Qualified
Pension, Profit Sharing and
Stock Bonus Plans
26 CFR 1.401(a)(4)–8: Cross-testing.
This revenue ruling describes specific con-
ditions in order for defined benefit replace-
ment allocations under a defined contribu-
tion plan to meet section 1.401(a)(4)–8(b)
of the Income Tax Regulations.
Rev. Rul. 2001–30
I. PURPOSE
This revenue ruling provides guidance
with respect to the application of
§ 1.401(a)(4)–8(b) of the Income Tax
Regulations relating to compliance of cer-
tain new comparability and similar de-
fined contribution plans with the nondis-
crimination requirements of § 401(a)(4)
of the Internal Revenue Code.
Under those regulations, a qualified de-
fined contribution plan that has broadly
available allocation rates can be tested for
nondiscrimination based on plan benefits
(rather than contributions) whether or not
it meets the minimum allocation gateway.
In determining whether a plan has broadly
available allocation rates, the regulations
permit an allocation to be disregarded to
the extent that it is a defined benefit re-
placement allocation or other transition
allocation. Allocations are defined bene-
fit replacement allocations if they satisfy
the basic conditions in the regulations and
the specific conditions prescribed in this
revenue ruling.
II. BACKGROUND
Under final regulations (T.D. 8954,
2001–29 I.R.B. 47) amending §1.401(a)
(4)–8(b), published in the Federal Regis-
ter on June 29, 2001, a defined contribu-
tion plan must satisfy a minimum alloca-
tion gateway in order to be eligible to
meet the nondiscrimination requirements
of § 401(a)(4) on the basis of plan bene-
fits rather than contributions, unless, for
the plan year, the plan has broadly avail-
able allocation rates (as defined in the
regulations) or certain age-based alloca-
tions.
Section 1.401(a)(4)–8(b)(1)(iii)(A)
provides that a plan has broadly available
allocation rates for a plan year if each al-
location rate under the plan is currently
available during the plan year (within the
meaning of § 1.401(a)(4)–4(b)(2)) to a
group of employees that satisfies § 410(b)
(without regard to the average benefit per-
centage test of § 1.410(b)–5). In deter-
mining whether a plan has broadly avail-
able allocation rates for the plan year, an
employee’s allocation may be disregarded
to the extent that it is a transition alloca-
tion. In order to be treated as a transition
allocation, the allocation must be either a
defined benefit replacement allocation
(DBRA) described in § 1.401(a)(4)–
8(b)(1)(iii)(D), or a pre-existing replace-
ment allocation or pre-existing merger
and acquisition allocation described in
§ 1.401(a)(4)–8(b)(1)(iii)(E). Plan provi-
sions relating to transition allocations
must meet the requirements of
§ 1.401(a)(4)–8(b)(1)(iii)(C).
Under § 1.401(a)(4)–8(b)(1)(iii)(D), in
order for an allocation to be a DBRA it
must be provided in accordance with
guidance prescribed by the Commissioner
in the Internal Revenue Bulletin (see “III.
Specific Conditions” below) and the basic
conditions set forth in § 1.401(a)(4)–
8(b)(1)(iii)(D)(1)–(4).
III. SPECIFIC CONDITIONS
(1) This revenue ruling sets forth the
specific conditions that an allocation must
satisfy to be treated as a DBRA under
§ 1.401(a)(4)–8(b)(1)(iii)(D). These spe-
cific conditions are designed to permit
employers to provide, in a nondiscrimina-
tory manner, allocations replacing the re-
tirement benefits that would have been
provided under a defined benefit plan,
without having to satisfy the minimum al-
location gateway. At the same time, the
specific conditions are designed to pre-
vent the inappropriate avoidance of the
gateway in the case of plans that provide
special allocations for employees who
formerly benefited under a defined bene-
fit plan.
(2) Pursuant to this revenue ruling, to
be treated as a DBRA, an allocation must
meet the following conditions for a plan
year:
(a) To satisfy the basic condition in
§ 1.401(a)(4)–8(b)(1)(iii)(D)(1) that
the allocations are provided to a group
of employees who formerly benefitted
under an established nondiscriminatory
defined benefit plan of the employer or
of a prior employer that provided age-
based equivalent allocation rates, the
allocations must be based on a defined
benefit plan that satisfies the following
specific conditions:
(i) The defined benefit plan’s benefit
formula applicable to the group of
employees generated equivalent nor-
mal allocation rates (determined
without regard to changes in accrual
rates attributable to changes in an
employee’s years of service) that in-
creased from year to year as employ-
ees attained higher ages.
(ii) The defined benefit plan satisfied
§§ 410(b) and 401(a)(4), without re-
gard to § 410(b)(6)(C) and without
aggregating with any other plan, for
the plan year immediately preceding
the first plan year for which the allo-
cation is provided to the employees.
If the defined benefit plan was spon-
sored by a prior employer, but not by
the employer, this condition does not
apply.
(iii) The defined benefit plan was in
effect for at least the 5-year period
ending on the date benefit accruals
for the employees under the defined
benefit plan cease (with one year
substituted for 5 years in the case of
a defined benefit plan of a former
employer), and neither the plan for-
mula nor the coverage of the plan
has been substantially changed dur-
ing such period.
(b) To satisfy the basic condition in
§ 1.401(a)(4)–8(b)(1)(iii)(D)(2) that
the allocations for each employee in the
group were reasonably calculated, in a
consistent manner, to replace the retire-
ment benefits that the employee would
have been provided under a defined
benefit plan of the employer or of the

prior employer, the allocation must be
reasonably calculated to replace the
employee’s retirement benefits under
the defined benefit plan based on the
terms of the defined benefit plan (in-
cluding the § 415(b)(1)(A) limit) as in
effect immediately prior to the date
benefit accruals under the defined ben-
efit plan ceased.
(c) To satisfy the basic condition in
§ 1.401(a)(4)–8(b)(1)(iii)(D)(4) that
the composition of the group of em-
ployees who receive the allocations for
the plan year is nondiscriminatory, the
group of employees who receive the al-
locations must satisfy § 410(b) (deter-
mined without regard to the average
benefit percentage test of § 1.410(b)–5)
for the plan year.
DRAFTING INFORMATION
The principal authors of this revenue rul-
ing are Kenneth R. Conn of the Employee
Plans, Tax Exempt and Government Enti-
ties Division and John T. Ricotta and Linda
S. F. Marshall of the Office of Division
Counsel/Associate Chief Counsel (Tax Ex-
empt and Government Entities). For fur-
ther information regarding this revenue rul-
ing, please contact the Employee Plans’
taxpayer assistance telephone service be-
tween the hours of 1:30 and 3:30 p.m. East-
ern time, Monday through Thursday, by
calling (202) 283-9516. Mr. Conn’s num-
ber is (202) 283-9526. Mr. Ricotta’s num-
ber is (202) 622-6060. Ms. Marshall’s
number is (202) 622-6090. (These tele-
phone numbers are not toll-free.)
26 CFR 1.401(a)(4)–8: Cross-testing.
T.D. 8954
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Nondiscrimination Requirements
for Certain Defined Contribution
Retirement Plans
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations that permit certain de-
fined contribution retirement plans to
demonstrate compliance with the nondis-
crimination requirements based on plan
benefits rather than contributions. Under
the final regulations, a defined contribu-
tion plan can test on a benefits basis if it
provides broadly available allocation
rates, age-based allocations, or passes a
gateway requiring allocation rates for
nonhighly compensated employees to be
at least 5% of pay or at least 1/3 of the
highest allocation rate for highly compen-
sated employees. The regulations also
permit qualified defined contribution and
defined benefit plans that are tested to-
gether as a single, aggregated plan (and
that are not primarily defined benefit or
broadly available separate plans) to test
on a benefits basis after passing a similar
gateway, under which the allocation rate
for nonhighly compensated employees
need not exceed 7 1/2 % of pay. These
final regulations affect employers that
maintain qualified retirement plans and
qualified retirement plan participants.
DATES: Effective Date: These regula-
tions are effective June 29, 2001.
Applicability Date: These regulations
apply for plan years beginning on or after
January 1, 2002.
FOR FURTHER INFORMATION CON-
TACT: John T. Ricotta, 202-622-6060, or
Linda S. F. Marshall, 202-622-6090 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
26 CFR part 1 under section 401(a)(4) of
the Internal Revenue Code of 1986
(Code).
Section 401(a)(4) provides that a plan
or trust forming part of a stock bonus,
pension, or profit-sharing plan of an em-
ployer shall not constitute a qualified plan
under section 401(a) of the Code unless
the contributions or benefits provided
under the plan do not discriminate in
favor of highly compensated employees
(HCEs) (within the meaning of section
414(q)). Whether a plan satisfies this re-
quirement depends on the form of the
plan and its effect in operation.
Section 415(b)(6)(A) provides that the
computation of benefits under a defined
contribution plan, for purposes of section
401(a)(4), shall not be made on a basis in-
consistent with regulations prescribed by
the Secretary. The legislative history of
this provision explains that, in the case of
target benefit and other defined contribu-
tion plans, “regulations may establish rea-
sonable earnings assumptions and other
factors for these plans to prevent discrimi-
nation.” Conf. Rep. No. 1280, 93d Cong.,
2d Sess. 277 (1974).
Under the section 401(a)(4) regula-
tions, a plan can demonstrate that either
the contributions or the benefits provided
under the plan are nondiscriminatory in
amount. Defined contribution plans gen-
erally satisfy the regulations by demon-
strating that contributions are nondiscrim-
inatory in amount, through certain safe
harbors provided for under the regulations
or through general testing.
A defined contribution plan (other than
an ESOP) may, however, satisfy the regu-
lations on the basis of benefits by using
cross-testing pursuant to rules provided in
§1.401(a)(4)–8 of the regulations. Under
this cross-testing method, contributions
are converted, using actuarial assump-
tions, to equivalent benefits payable at
normal retirement age, and these equiva-
lent benefits are tested in a manner similar
to the testing of employer-provided bene-
fits under a defined benefit plan.
In Notice 2000–14 (2000–10 I.R.B.
737), released February 24, 2000, the IRS
and the Treasury Department initiated a
review of issues related to use of the
cross-testing method by so-called new
comparability plans and requested public
comments on this plan design from plan
sponsors, participants and other interested
parties. In general, new comparability
plans are defined contribution plans that
have built-in disparities between the allo-
cation rates for classifications of partici-
pants consisting entirely or predominantly
of HCEs and the allocation rates for other
employees.
In a typical new comparability plan,
HCEs receive high allocation rates, while
nonhighly compensated employees
(NHCEs), regardless of their age or years
of service, receive comparatively low al-
location rates. For example, HCEs in
such a plan might receive allocations of
18 or 20% of compensation, while
NHCEs might receive allocations of 3%
of compensation. A similar plan design,
sometimes known as a super-integrated
2001–29 I.R.B.47July 16, 2001

plan, provides for an additional allocation
rate that applies only to compensation in
excess of a specified threshold, but the
specified threshold (e.g., $100,000) or the
additional allocation rate (e.g., 10%) is
higher than the maximum threshold and
rate allowed under the permitted disparity
rules of section 401(l).
These new comparability and similar
plans rely on the cross-testing method to
demonstrate compliance with the nondis-
crimination rules by comparing the actu-
arially projected value of the employer
contributions for the younger NHCEs
with the actuarial projections of the larger
contributions (as a percentage of compen-
sation) for the older HCEs. As a result,
these plans are able generally to provide
higher rates of employer contributions to
HCEs, while NHCEs are not allowed to
earn the higher allocation rates as they
work additional years for the employer or
grow older. Notwithstanding the analyti-
cal underpinnings of cross-testing, the
IRS and Treasury Department became
concerned that new comparability and
similar plans were not consistent with the
basic purpose of the nondiscrimination
rules under section 401(a)(4).
After consideration of the comments
received in response to Notice 2000–14,
the IRS and Treasury issued pro-
posed regulations on this subject
(REG–114697–00, 2000–43 I.R.B. 421),
which were published in the Federal
Registeron October 6, 2000 (65 FR
59774). The proposed regulations pre-
served the cross-testing rules of the sec-
tion 401(a)(4) regulations, but prescribed
a gateway condition for new comparabil-
ity and similar plans to meet in order to
be eligible to use cross-testing to satisfy
the nondiscrimination rules on the basis
of benefits. However, defined contribu-
tion plans that provide broadly available
allocation rates, as defined in the pro-
posed regulations, did not have to satisfy
the gateway. The definition of broadly
available allocation rates under the pro-
posed regulations covered plans that pro-
vide different allocation rates to differ-
ent, nondiscriminatory groups of
employees. Under the proposed regula-
tions, the definition also covered plans
that base allocations or allocation rates
on age or years of service, that, in con-
trast to new comparability plans, provide
an opportunity for participants to “grow
into” higher allocation rates as they age
or accumulate additional service.
The proposed regulations also ad-
dressed a new comparability-type plan
design that aggregates a defined benefit
plan that benefits primarily HCEs with a
defined contribution plan that benefits
primarily NHCEs. This design would
permit an employer to circumvent the
minimum allocation gateway by aggre-
gating (for purposes of the nondiscrimina-
tion rules) a new comparability or similar
defined contribution plan with a defined
benefit plan that provides only minimal
benefits to NHCEs or covers only a rela-
tively small number of NHCEs. In addi-
tion, a defined benefit plan that benefits
primarily HCEs, and that is aggregated
with a defined contribution plan for
nondiscrimination testing, could produce
results similar to a new comparability
plan but with a potential for substantially
more valuable benefits for HCEs. The
proposed regulations provided a gateway
for testing the aggregated plans on the
basis of benefits that must be satisfied un-
less the aggregated defined contribution
and defined benefit plan (the DB/DC
plan) is primarily defined benefit in char-
acter (as defined in the proposed regula-
tions), or unless each of the defined con-
tribution and defined benefit portions of
the DB/DC plan is a broadly available
separate plan (as defined in the proposed
regulations).
Written comments responding to the
notice of proposed rulemaking were re-
ceived, and a public hearing was held on
January 25, 2001, at the request of one
commentator. After consideration of the
comments, the proposed regulations are
adopted as revised by this Treasury deci-
sion.
Explanation of Provisions
A. Overview
Like the proposed regulations, these
final regulations permit defined contribu-
tion plans with either broadly available al-
location rates or certain age-based alloca-
tion rates to test on a benefits basis
(cross-test) in the same manner as under
current law, and permit other defined con-
tribution plans to cross-test once they pass
a gateway that prescribes minimum allo-
cation rates for NHCEs. Similarly, these
final regulations retain the rule in the pro-
posed regulations that permits a DB/DC
plan to test on a benefits basis in the same
manner as under current law if the
DB/DC plan either is primarily defined
benefit in character or consists of broadly
available separate plans. Other DB/DC
plans are permitted to test on a benefits
basis once they pass a corresponding
gateway prescribing minimum aggregate
normal allocation rates for NHCEs.
B. Gateway for Cross-Testing of New
Comparability and Similar Plans
These final regulations retain the rule
in the proposed regulations that requires a
defined contribution plan that does not
provide broadly available allocation rates
or certain age-based allocation rates (as
these terms are defined in these final reg-
ulations) to satisfy a gateway in order to
be eligible to use the cross-testing rules to
meet the nondiscrimination requirements
of section 401(a)(4). Under these final
regulations, as under the proposed regula-
tions, a plan satisfies this minimum allo-
cation gateway if each NHCE in the plan
has an allocation rate that is at least one
third of the allocation rate of the HCE
with the highest allocation rate, but a plan
is deemed to satisfy the gateway if each
NHCE receives an allocation of at least
5% of the NHCE’s compensation (within
the meaning of section 415(c)(3)).
Several commentators raised questions
about the interaction of the requirements
under the proposed regulations and other
regulatory rules relating to testing for
nondiscrimination. For example, some
commentators asked what was intended
by the gateway requirement that all
NHCEs receive the minimum required al-
location. Except as specifically provided,
the regulatory definitions and rules that
apply for purposes of section 401(a)(4)
also apply for purposes of these regula-
tions. For example, the term employee,
as used in these regulations, is defined in
§1.401(a)(4)–12 as an employee (within
the meaning of §1.410(b)–9) who benefits
as an employee under the plan for the plan
year, and an NHCE is defined in
§1.401(a)(4)–12 as an employee who is
not an HCE. Thus, an individual who
does not otherwise benefit under the plan
for the plan year is not an employee under
these regulations, hence not an NHCE,
and need not be given the minimum re-
quired allocation under the gateway.
July 16, 2001482001–29 I.R.B.

Similarly, the allocation rate referred to in
the gateway is determined under
§1.401(a)(4)–2(c) as the allocations to an
employee’s account for a plan year, ex-
pressed either as a percentage of plan year
compensation (which must be calculated
using a definition of compensation that
satisfies the requirements of section
414(s)) or as a dollar amount.
The general rules and regulatory defini-
tions applicable under section 410(b)
apply also for purposes of these regula-
tions. For example, these regulations do
not change the general rule prohibiting
aggregation of a 401(k) plan or 401(m)
plan with a plan providing nonelective
contributions. Accordingly, matching
contributions are not taken into account
for purposes of the gateway. Similarly,
pursuant to §1.410(b)–6(b)(3), if a plan
benefits employees who have not met the
minimum age and service requirements of
section 410(a)(1), the plan may be treated
as two separate plans, one for those other-
wise excludable employees and one for
the other employees benefitting under the
plan. Thus, if the plan is treated as two
separate plans in this manner, cross-test-
ing the portion of the plan benefitting the
nonexcludable employees will not result
in minimum required allocations under
the gateway for the employees who have
not met the section 410(a)(1) minimum
age and service requirements.
One commentator suggested that the
regulatory provision that permits a plan to
satisfy the gateway requirement by pro-
viding an allocation of at least 5% of
compensation within the meaning of sec-
tion 415(c)(3) not require that the alloca-
tion be based on a full year’s compensa-
tion in the case of an employee who
participates in the plan for only a portion
of the plan year. The final regulations
modify this requirement as suggested.
The final regulations allow a plan to sat-
isfy the gateway by providing an alloca-
tion of at least 5% of compensation within
the meaning of section 415(c)(3), limited
to a period otherwise permissible under
the timing rules applicable under the defi-
nition of plan year compensation, in the
same manner as the general rules under
the section 401(a)(4) regulations. The de-
finition of plan year compensation per-
mits use of amounts paid only during the
period of participation within the plan
year.
Some commentators questioned
whether it was necessary to require the
use of compensation within the meaning
of section 415(c)(3) for purposes of the
5% of compensation component of the
minimum allocation gateway. One of
these commentators argued that using
compensation within the meaning of sec-
tion 414(s) would be more appropriate.
Two other commentators argued that, for
this purpose, plans should be able to use a
definition of compensation that would be
a reasonable definition of compensation
for purposes of section 414(s) without re-
gard to whether the definition of compen-
sation meets the nondiscrimination stan-
dard under the section 414(s) regulations.
After consideration of these comments,
the requirement that section 415(c)(3)
compensation be used for purposes of the
5% of compensation component of the
minimum allocation gateway has been re-
tained. For purposes of the “one third”
component of the gateway, a definition of
compensation that satisfies section 414(s)
is an appropriate measure because this
component is based on the ratio of HCE
allocation rates to NHCE allocation rates.
By contrast, the 5% of compensation
component of the gateway does not re-
flect a comparison of NHCE allocations
to HCE allocations, but is based on a par-
ticular level of NHCE allocations. With-
out the comparison between HCE and
NHCE allocations, a rule permitting the
use of a definition of compensation that
satisfies section 414(s), but is less inclu-
sive than total compensation, could lead
to NHCE allocations that are significantly
smaller than the minimum that is contem-
plated by the regulations. Therefore, it is
appropriate to require the use of total
compensation, as defined in section
415(c)(3), for the 5% allocation compo-
nent of the gateway. Furthermore, per-
mitting the use of a potentially discrimi-
natory definition of compensation would
be inconsistent with the nondiscrimina-
tion requirements in general, including
the minimum allocation gateway.
C. Plans with Broadly Available
Allocation Rates
Like the proposed regulations, these
final regulations provide that a plan that
has broadly available allocation rates
need not satisfy the minimum allocation
gateway. In order to be broadly available,
each allocation rate under the plan must
be currently available to a group of em-
ployees that satisfies section 410(b)
(without regard to the average benefit per-
centage test). Thus, if, within one plan,
an employer provides different allocation
rates for nondiscriminatory groups of em-
ployees at different locations or different
profit centers, the plan would not need to
satisfy the minimum allocation gateway
in order to use cross-testing.
For purposes of determining whether an
allocation rate that was available only to
employees who satisfied an age or service
condition was currently available to a sec-
tion 410(b) group, the proposed regula-
tions allowed such a condition to be disre-
garded if certain standards were met. The
final regulations retain this exception from
the application of the minimum allocation
gateway. However, this exception has
been relocated and is now part of an ex-
panded provision for plans with age-based
allocations (see Plans with Age-Based Al-
locations portion of this preamble).
In response to comments, the final regu-
lations also liberalize the determination of
whether a plan has broadly available allo-
cation rates. First, the final regulations
permit two allocation rates to be aggre-
gated in a manner similar to the rule that
permits aggregation of certain benefits,
rights or features. This rule permits ex-
cess NHCEs with a higher allocation rate
to be used to support a lower allocation
rate. For example, under this rule, if under
a plan there are two groups of participants,
one group that receives an allocation rate
of 10% and another that receives an allo-
cation rate of 3%, and if the group of em-
ployees who receive the 10% allocation
rate satisfies section 410(b) (without re-
gard to the average benefit percentage
test), then the 10% rate and the 3% rate
can be aggregated and treated as a single
allocation rate for purposes of determining
whether the plan has broadly available al-
location rates. In addition, the final regu-
lations provide that, in determining
whether a plan provides broadly available
allocation rates, differences in allocation
rates resulting from any method of permit-
ted disparity provided for under the sec-
tion 401(l) regulations are disregarded.
D. Transition Allocations
Several commentators raised the con-
cern that a defined contribution plan may
2001–29 I.R.B.49July 16, 2001

fail the broadly available test because of
grandfathered allocation rates provided to
employees who formerly participated in a
defined benefit plan or provided to a
group of employees in connection with a
merger, acquisition, or other similar trans-
action. In response to these comments,
the final regulations permit an employee’s
allocation to be disregarded, to the extent
the employee’s allocation is a transition
allocation (as defined in the regulations)
for the plan year. Transition allocations
which can be disregarded can be defined
benefit replacement allocations, pre-exist-
ing replacement allocations, or pre-exist-
ing merger and acquisition allocations (as
defined in the regulations).
In each case, the transition allocations
must be provided to a closed group of em-
ployees and must be established under
plan provisions. Once the allocations are
established under the plan, they cannot be
modified, except to reduce allocations for
HCEs, or because of de minimischanges
(such as a change in the definition of
compensation to include section 132(f)
elective reductions). A plan also does not
violate this requirement because of an
amendment that either adds or removes a
provision applicable to all employees in
the group eligible for the allocations
under which each employee who is eligi-
ble for a transition allocation receives the
greater of the transition allocation or an-
other allocation for which the employee
would otherwise be eligible. If the plan
provides that all employees who are eligi-
ble for the transition allocation receive the
greater of the transition allocation or an
otherwise available allocation, the other-
wise available allocation is considered
currently available to all such employees,
including employees for whom the transi-
tion allocation is greater.
These final regulations set forth basic
conditions for defined benefit replace-
ment allocations. These conditions pro-
vide a framework that is designed to en-
sure that these allocations are provided in
a manner consistent with the general prin-
ciples underlying the provisions for
broadly available allocation rates under
these regulations. The regulations then
delegate authority to the Commissioner to
prescribe rules for defined benefit re-
placement allocations in revenue rulings,
notices, and other guidance published in
the Internal Revenue Bulletin. Rev. Rul.
2001–30 (2001–29 I.R.B. 46), dated July
16, 2001, published in conjunction with
these final regulations, prescribes specific
conditions for defined benefit replace-
ment allocations that relate to the basic
conditions set forth in the regulations.
This division of the medium of guidance
is designed to provide ongoing flexibility
to the IRS and Treasury to respond to
changing circumstances, or additional in-
formation relating to defined benefit re-
placement allocations.
The basic conditions that allocations
must satisfy in order to be defined benefit
replacement allocations are as follows:
(1) The allocations are provided to a
group of employees who formerly bene-
fitted under an established nondiscrimina-
tory defined benefit plan of the employer
or of a prior employer that provided age-
based equivalent allocation rates; (2) the
allocations for each employee were rea-
sonably calculated, in a consistent man-
ner, to replace the retirement benefits that
the employee would have been provided
under the defined benefit plan if the em-
ployee had continued to benefit under the
defined benefit plan; (3) no employee
who receives the allocation receives any
other allocations under the plan for the
plan year (except as provided in these reg-
ulations); and (4) the composition of the
group of employees who receive the allo-
cations is nondiscriminatory.
Rev. Rul. 2001–30 fleshes out these
basic conditions for determining whether
an allocation is a defined benefit replace-
ment allocation. Under the revenue rul-
ing, the defined benefit plan’s benefit for-
mula applicable to the group of
employees must be one that generated
equivalent normal allocation rates (deter-
mined without regard to changes in ac-
crual rates attributable to changes in an
employee’s years of service) that in-
creased from year to year as employees
attained higher ages. Further, if the de-
fined benefit plan was sponsored by the
employer, the defined benefit plan satis-
fied sections 410(b) and 401(a)(4), with-
out regard to section 410(b)(6)(C) and
without aggregating with any other plan,
for the plan year which immediately pre-
cedes the first plan year for which the al-
locations are provided. Finally, the de-
fined benefit plan must be one that has
been established and maintained without
substantial change for at least the 5 years
ending on the date benefit accruals under
the defined benefit plan cease (with one
year substituted for 5 years in the case of
a defined benefit plan of a former em-
ployer).
In order to be defined benefit replace-
ment allocations for the plan year, the al-
locations for each employee in the group
must be reasonably calculated, in a con-
sistent manner, to replace the employee’s
retirement benefits under the defined ben-
efit plan based on the terms of the defined
benefit plan (including the section
415(b)(1)(A) limit) as in effect immedi-
ately prior to the date accruals under the
defined benefit plan cease. In addition,
the group of employees who receive the
allocations in a plan year must satisfy sec-
tion 410(b) (determined without regard to
the average benefit percentage test of
§1.410(b)–5).
Although the regulations and Rev. Rul.
2001–30 prescribe conditions for the de-
fined benefit replacement allocations,
they still leave employers with flexibility
in structuring these benefits. For exam-
ple, there is more than one way in which
the allocations may reasonably be calcu-
lated, such as a level percentage of pay
for each year or an amount that increases
as the employee ages.
The final regulations provide special
rules applicable to allocations that are ei-
ther pre-existing replacement allocations
or pre-existing merger and acquisition al-
locations. Allocations are pre-existing re-
placement allocations if the allocations
are provided pursuant to a plan provision
adopted before June 29, 2001, are pro-
vided to employees who formerly benefit-
ted under a defined benefit plan and are
reasonably calculated, in a consistent
manner, to replace some or all of the re-
tirement benefits that the employee would
have received under the defined benefit
plan and any other plan or arrangement of
the employer if the employee had contin-
ued to benefit under such defined benefit
plan and such other plan or arrangement.
Allocations are pre-existing merger and
acquisition allocations if the allocations
were established in connection with a
stock or asset acquisition, merger, or other
similar transaction occurring prior to Au-
gust 28, 2001, for a group of employees
who were employed by the acquired trade
or business prior to a specified date, pro-
vided that the class of employees eligible
July 16, 2001502001–29 I.R.B.

for the allocations is closed no later than
two years after the transaction (or January
1, 2002, if earlier), the allocations are pro-
vided pursuant to a plan amendment
adopted by the date the class was closed,
and the allocations for each employee in
the group are reasonably calculated, in a
consistent manner, to replace some or all
of the retirement benefits that the em-
ployee would have received under any
plan of the employer if the new employer
had continued to provide the retirement
benefits that the prior employer was pro-
viding for employees of the trade or busi-
ness.
E. Plans with Age-Based Allocations
These final regulations provide a sepa-
rate exception from the application of the
minimum allocation gateway for certain
plans with age-based allocation rates.
This provision incorporates the exception
under the proposed regulations for plans
with gradual age or service schedules, and
expands the exception to include plans
that provide for allocation rates based on
a uniform target benefit allocation.
A plan has a gradual age or service
schedule if the schedule of allocation
rates under the plan’s formula is available
to all employees in the plan and provides
for allocation rates that increase smoothly
at regular intervals. The rules applicable
to the schedule of allocation rates are de-
signed to be sufficiently flexible to ac-
commodate a wide variety of age- or ser-
vice-based plans (including age-weighted
profit-sharing plans that provide for allo-
cations resulting in the same equivalent
accrual rate for all employees). The final
regulations clarify that a plan projecting
future age or service may not use imputed
disparity in determining whether the allo-
cation rates under the schedule increase
smoothly at regular intervals. In response
to comments, the final regulations also
accommodate smoothly increasing sched-
ules of allocation rates that are based on
the sum of age and years of service. In
addition, to conform with the rules for
computation of service under
§1.401(a)(4)–12, references to service
have been changed to years of service.
The requirement that the allocation
rates under a schedule increase smoothly
at regular intervals provides important
protection for employees, because this re-
quirement limits the exception from the
minimum allocation gateway to plans in
which NHCEs actually receive the benefit
of higher rates as they attain higher ages
or complete additional years of service.
Some commentators expressed concern
that employers could be forced to reduce
allocations to younger or shorter-service
NHCEs in order to satisfy the conditions
for allocation rates that increase smoothly
at regular intervals. In response to these
comments, the final regulations provide
that a plan’s schedule of allocation rates
does not fail to increase smoothly at regu-
lar intervals merely because a specified
minimum uniform allocation rate is pro-
vided for all employees or because the
minimum benefit described in section
416(c)(2) is provided for all non-key em-
ployees (either because the plan is top
heavy or without regard to whether the
plan is top heavy) if one of two alternative
conditions is satisfied. These two alterna-
tive conditions are intended to limit the
potential use of a minimum allocation to
provide a schedule of rates that delivers
allocations similar to those under a new
comparability plan (i.e., a flat allocation
rate applicable for all employees below a
certain age, followed by a sharply in-
creasing schedule of rates that effectively
benefits only HCEs) without satisfying
the minimum allocation gateway.
A plan satisfies the first alternative con-
dition if the allocation rates under the plan
that exceed the specified minimum rate
could form part of a schedule of alloca-
tion rates that increase smoothly at regu-
lar intervals (as defined in these regula-
tions) in which the lowest allocation rate
is at least 1% of plan year compensation.
The second alternative condition, avail-
able for a plan using an age-based sched-
ule, allows the use of a minimum alloca-
tion rate if, for each age band above the
minimum allocation rate, the allocation
rate applicable for that band is less than or
equal to the allocation rate that would
yield an equivalent accrual rate at the
highest age in the band that is the same as
the equivalent accrual rate determined for
the oldest hypothetical employee who
would receive just the minimum alloca-
tion rate. Thus, under this condition, the
allocation rates above the minimum allo-
cation rate do not rise more steeply than
expected under an age-weighted profit-
sharing plan generally intended to provide
the same accrual rate at all ages.
The exception to the minimum alloca-
tion gateway for plans with age-based al-
location rates also applies to certain uni-
form target benefit plans that do not
comply with the safe-harbor testing
method provided in §1.401(a)(4)–
8(b)(3).
1
A plan has allocation rates
based on a uniform target benefit alloca-
tion if it would comply with the require-
ments for a safe harbor target benefit plan
in §1.401(a)(4)–8(b)(3) except that the in-
terest rate for determining the actuarial
present value of the stated plan benefit
and the theoretical reserve is lower than a
standard interest rate, the stated benefit is
calculated assuming compensation in-
creases, or the plan computes the current
year contribution using the actual account
balance instead of the theoretical reserve.
F. Application to Defined Contribution
Plans That Are Combined with Defined
Benefit Plans (DB/DC Plans)
These regulations prescribe rules for
testing defined contribution plans that are
aggregated with defined benefit plans for
purposes of sections 401(a)(4) and 410(b).
These rules apply in situations in which the
employer aggregates the plans because one
of the plans does not satisfy sections
401(a)(4) and 410(b) standing alone. These
rules do not apply to safe harbor floor-off-
set arrangements described in
§1.401(a)(4)–8(d), or to the situation in
which plans are aggregated solely for pur-
poses of satisfying the average benefit per-
centage test of §1.410(b)–5.
These regulations retain the rule of the
proposed regulations that the combination
of a defined contribution plan and a de-
fined benefit plan may demonstrate
nondiscrimination on the basis of benefits
if the combined plan (the DB/DC plan) is
primarily defined benefit in character,
consists of broadly available separate
plans (as these terms are defined in the
regulations), or satisfies a minimum ag-
gregate allocation gateway requirement
that is generally similar to the minimum
allocation gateway for defined contribu-
tion plans that are not combined with a
defined benefit plan.
2001–29 I.R.B.51July 16, 2001
1
No exception to the minimum allocation gateway is
needed for target benefit plans that comply with the
safe-harbor testing provisions of §1.401(a)(4)-8(b)(3),
because they are deemed to satisfy section 401(a)(4)
with respect to an equivalent amount of benefits.

1. Gateway for benefits testing of
combined plans
In order to apply this minimum aggre-
gate allocation gateway, the employee’s
aggregate normal allocation rate is deter-
mined by adding the employee’s alloca-
tion rate under the defined contribution
plan to the employee’s equivalent alloca-
tion rate under the defined benefit plan.
This aggregation allows an employer that
provides NHCEs with both a defined con-
tribution and a defined benefit plan to
take both plans into account in determin-
ing whether the minimum aggregate allo-
cation gateway is met.
Under the gateway, if the aggregate
normal allocation rate of the HCE with
the highest aggregate normal allocation
rate under the plan (HCE rate) is less than
15%, the aggregate normal allocation rate
for all NHCEs must be at least 1/3 of the
HCE rate. If the HCE rate is between
15% and 25%, the aggregate normal allo-
cation rate for all NHCEs must be at least
5%. If the HCE rate exceeds 25%, then
the aggregate normal allocation rate for
each NHCE must be at least 5% plus one
percentage point for each 5-percentage-
point increment (or portion thereof) by
which the HCE rate exceeds 25% (e.g.,
the NHCE minimum is 6% for an HCE
rate that exceeds 25% but not 30%, and
7% for an HCE rate that exceeds 30% but
not 35%).
Several commentators expressed a con-
cern that the minimum aggregate alloca-
tion gateway in the proposed regulations
could require contributions for NHCEs
that would make DB/DC plans too expen-
sive for employers in certain circum-
stances. This could occur in cases where
one HCE had a very high equivalent allo-
cation rate on account of age or some
other factor, and could prompt such an
employer to redesign its plans in ways
that could disadvantage NHCEs. In re-
sponse to these comments, these final reg-
ulations provide that a plan is deemed to
satisfy this minimum aggregate allocation
gateway if the aggregate normal alloca-
tion rate for each NHCE is at least 7 1/2%
of compensation within the meaning of
section 415(c)(3), determined over a pe-
riod otherwise permissible under the tim-
ing rules applicable under the definition
of plan year compensation.
These regulations retain the rule that, in
determining the equivalent allocation rate
for an NHCE under a defined benefit
plan, a plan is permitted to treat each
NHCE who benefits under the defined
benefit plan as having an equivalent allo-
cation rate equal to the average of the
equivalent allocation rates under the de-
fined benefit plan for all NHCEs benefit-
ting under that plan. This averaging rule
recognizes the grow-in feature inherent in
traditional defined benefit plans (i.e., the
defined benefit plan provides higher
equivalent allocation rates at higher ages).
2. Primarily defined benefit in character
Like the proposed regulations, these
final regulations provide that a DB/DC
plan that is primarily defined benefit in
character is not subject to the gateway re-
quirement and may continue to be tested
for nondiscrimination on the basis of ben-
efits as under former law. A DB/DC plan
is primarily defined benefit in character
if, for more than 50% of the NHCEs ben-
efitting under the plan, the normal accrual
rate attributable to benefits provided
under defined benefit plans for the NHCE
exceeds the equivalent accrual rate attrib-
utable to contributions under defined con-
tribution plans for the NHCE. For exam-
ple, a DB/DC plan is primarily defined
benefit in character where the defined
contribution plan covers only salaried em-
ployees, the defined benefit plan covers
only hourly employees, and more than
half of the NHCEs participating in the
DB/DC plan are hourly employees partic-
ipating only in the defined benefit plan.
Some comments suggested a loosening
of the standard as to when a DB/DC plan is
primarily defined benefit in character, but
no changes have been made. The Treasury
and IRS believe that the determination of
whether a DB/DC plan is primarily defined
benefit in character should be based on the
relative size of the defined benefit accruals
and the defined contribution allocations for
individual employees, as reflected in the
actual benefits testing that is being done
under section 401(a)(4). In particular, the
actuarial assumptions used to determine
whether a DB/DC plan is primarily defined
benefit in character must be the same as-
sumptions that are used to apply the cross-
testing rules.
3. Broadly available separate plans
Like the proposed regulations, these
final regulations provide that a DB/DC
plan that consists of broadly available
separate plans may continue to be tested
for nondiscrimination on the basis of ben-
efits as under current law, even if it does
not satisfy the gateway requirement. A
DB/DC plan consists of broadly available
separate plans if the defined contribution
plan and the defined benefit plan, tested
separately, would each satisfy the require-
ments of section 410(b) and the nondis-
crimination in amount requirement of
§1.401(a)(4)–1(b)(2), assuming satisfac-
tion of the average benefit percentage test
of §1.410(b)–5. Thus, the defined contri-
bution plan must separately satisfy the
nondiscrimination requirements (taking
into account these regulations as applica-
ble), but for this purpose assuming satis-
faction of the average benefit percentage
test. Similarly, the defined benefit plan
must separately satisfy the nondiscrimina-
tion requirements, assuming for this pur-
pose satisfaction of the average benefit
percentage test. In conducting the re-
quired separate testing, all plans of a sin-
gle type (defined contribution or defined
benefit) within the DB/DC plan are aggre-
gated, but those plans are tested without
regard to plans of the other type.
This alternative is useful, for example,
where an employer maintains a defined
contribution plan that provides a uniform
allocation rate for all covered employees
at one business unit and a safe harbor de-
fined benefit plan for all covered employ-
ees at another unit, and where the group
of employees covered by each of those
plans is a group that satisfies the nondis-
criminatory classification requirement of
section 410(b). Because the employer
provides broadly available separate plans,
it may continue to aggregate the plans and
test for nondiscrimination on the basis of
benefits, as an alternative to using the
qualified separate line of business rules or
demonstrating satisfaction of the average
benefit percentage test.
G. Use of Component Plans
As under the proposed regulations, the
rules set forth in these final regulations can-
not be satisfied using component plans
under the restructuring rules. Although
some commentators requested that restruc-
turing be permitted for this purpose, the IRS
and Treasury have determined that such use
of component plans would be inconsistent
with the purpose of these regulations.
July 16, 2001522001–29 I.R.B.

Effective Date
These regulations apply for plan years
beginning on or after January 1, 2002.
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. 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 Code,
the notice of proposed rulemaking pre-
ceding these regulations was submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small business.
Drafting Information
The principal authors of these regula-
tions are John T. Ricotta and Linda S. F.
Marshall of the Office of the Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities). How-
ever, other personnel from the IRS and
Treasury participated in their develop-
ment.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1 — INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In §1.401(a)(4)–0, the entry for
§1.401(a)(4)–8(b)(1) is revised to read as
follows:
§1.401(a)(4)–0 Table of contents.
* * * * *
§1.401(a)(4)–8 Cross-testing.
* * * * *
(b) * * *
(1) General rule and gateway.
* * * * *
Par. 3. In §1.401(a)(4)–8, paragraph
(b)(1) is revised to read as follows:
§1.401(a)(4)–8 Cross-testing.
* * * * *
(b) Nondiscrimination in amount of
benefits provided under a defined contri-
bution plan—(1) General rule and gate-
way—(i) General rule. Equivalent bene-
fits under a defined contribution plan
(other than an ESOP) are nondiscrimina-
tory in amount for a plan year if—
(A) The plan would satisfy
§1.401(a)(4)–2(c)(1) for the plan year if
an equivalent accrual rate, as determined
under paragraph (b)(2) of this section,
were substituted for each employee’s allo-
cation rate in the determination of rate
groups; and
(B) For plan years beginning on or after
January 1, 2002, the plan satisfies one of
the following conditions—
(1) The plan has broadly available allo-
cation rates (within the meaning of para-
graph (b)(1)(iii) of this section) for the
plan year;
(2) The plan has age-based allocation
rates that are based on either a gradual age
or service schedule (within the meaning
of paragraph (b)(1)(iv) of this section) or
a uniform target benefit allocation (within
the meaning of paragraph (b)(1)(v) of this
section) for the plan year; or
(3) The plan satisfies the minimum al-
location gateway of paragraph (b)(1)(vi)
of this section for the plan year.
(ii) Allocations after testing age. A
plan does not fail to satisfy paragraph
(b)(1)(i)(A) of this section merely be-
cause allocations are made at the same
rate for employees who are older than
their testing age (determined without re-
gard to the current-age rule in paragraph
(4) of the definition of testing agein
§1.401(a)(4)–12) as they are made for
employees who are at that age.
(iii) Broadly available allocation
rates—(A) In general. A plan has
broadly available allocation rates for the
plan year if each allocation rate under the
plan is currently available during the plan
year (within the meaning of
§1.401(a)(4)–4(b)(2)), to a group of em-
ployees that satisfies section 410(b)
(without regard to the average benefit per-
centage test of §1.410(b)–5). For this
purpose, if two allocation rates could be
permissively aggregated under
§1.401(a)(4)–4(d)(4), assuming the allo-
cation rates were treated as benefits,
rights or features, they may be aggregated
and treated as a single allocation rate. In
addition, the disregard of age and service
conditions described in §1.401(a)(4)–
4(b)(2)(ii)(A) does not apply for purposes
of this paragraph (b)(1)(iii)(A).
(B) Certain transition allocations. In
determining whether a plan has broadly
available allocation rates for the plan year
within the meaning of paragraph
(b)(1)(iii)(A) of this section, an em-
ployee’s allocation may be disregarded to
the extent that the allocation is a transition
allocation for the plan year. In order for
an allocation to be a transition allocation,
the allocation must comply with the re-
quirements of paragraph (b)(1)(iii)(C) of
this section and must be either—
(1) A defined benefit replacement allo-
cation within the meaning of paragraph
(b)(1)(iii)(D) of this section; or
(2) A pre-existing replacement alloca-
tion or pre-existing merger and acquisi-
tion allocation, within the meaning of
paragraph (b)(1)(iii)(E) of this section.
(C) Plan provisions relating to transi-
tion allocations—(1) In general. Plan
provisions providing for transition alloca-
tions for the plan year must specify both
the group of employees who are eligible
for the transition allocations and the
amount of the transition allocations.
(2) Limited plan amendments. Alloca-
tions are not transition allocations within
the meaning of paragraph (b)(1)(iii)(B) of
this section for the plan year if the plan
provisions relating to the allocations are
amended after the date those plan provi-
sions are both adopted and effective. The
preceding sentence in this paragraph
(b)(1)(iii)(C)(2) does not apply to a plan
amendment that reduces transition alloca-
tions to HCEs, makes de minimischanges
in the calculation of the transition alloca-
tions (such as a change in the definition of
compensation to include section 132(f)
elective reductions), or adds or removes a
provision permitted under paragraph
(b)(1)(iii)(C)(3) of this section.
(3) Certain permitted plan provisions.
An allocation does not fail to be a transi-
tion allocation within the meaning of
paragraph (b)(1)(iii)(B) of this section
merely because the plan provides that
each employee who is eligible for a tran-
sition allocation receives the greater of
2001–29 I.R.B.53July 16, 2001

such allocation and the allocation for
which the employee would otherwise be
eligible under the plan. In a plan that con-
tains such a provision, for purposes of de-
termining whether the plan has broadly
available allocation rates within the
meaning of paragraph (b)(1)(iii)(A) of
this section, the allocation for which an
employee would otherwise be eligible is
considered currently available to the em-
ployee, even if the employee’s transition
allocation is greater.
(D) Defined benefit replacement allo-
cation. An allocation is a defined benefit
replacement allocation for the plan year if
it is provided in accordance with guidance
prescribed by the Commissioner pub-
lished in the Internal Revenue Bulletin
(see § 601.601(d)(2)(ii)(b) of this chapter)
and satisfies the following conditions—
(1) The allocations are provided to a
group of employees who formerly bene-
fitted under an established nondiscrimina-
tory defined benefit plan of the employer
or of a prior employer that provided age-
based equivalent allocation rates;
(2) The allocations for each employee
in the group were reasonably calculated,
in a consistent manner, to replace the re-
tirement benefits that the employee would
have been provided under the defined
benefit plan if the employee had contin-
ued to benefit under the defined benefit
plan;
(3) Except as provided in paragraph
(b)(1)(iii)(C) of this section, no employee
who receives the allocation receives any
other allocations under the plan for the
plan year; and
(4) The composition of the group of
employees who receive the allocations is
nondiscriminatory.
(E) Pre-existing transition alloca-
tions—(1) Pre-existing replacement allo-
cations. An allocation is a pre-existing
replacement allocation for the plan year if
the allocation satisfies the following con-
ditions—
(i) The allocations are provided pur-
suant to a plan provision adopted before
June 29, 2001;
(ii) The allocations are provided to em-
ployees who formerly benefitted under a
defined benefit plan of the employer; and
(iii) The allocations for each employee
in the group are reasonably calculated, in
a consistent manner, to replace some or
all of the retirement benefits that the em-
ployee would have received under the de-
fined benefit plan and any other plan or
arrangement of the employer if the em-
ployee had continued to benefit under
such defined benefit plan and such other
plan or arrangement.
(2) Pre-existing merger and acquisition
allocations. An allocation is a pre-exist-
ing merger and acquisition allocation for
the plan year if the allocation satisfies the
following conditions—
(i) The allocations are provided solely
to employees of a trade or business that
has been acquired by the employer in a
stock or asset acquisition, merger, or other
similar transaction occurring prior to Au-
gust 28, 2001, involving a change in the
employer of the employees of the trade or
business;
(ii) The allocations are provided only to
employees who were employed by the ac-
quired trade or business before a specified
date that is no later than two years after the
transaction (or January 1, 2002, if earlier);
(iii) The allocations are provided pur-
suant to a plan provision adopted no later
than the specified date; and
(iv) The allocations for each employee
in the group are reasonably calculated, in
a consistent manner, to replace some or
all of the retirement benefits that the em-
ployee would have received under any
plan of the employer if the new employer
had continued to provide the retirement
benefits that the prior employer was pro-
viding for employees of the trade or busi-
ness.
(F) Successor employers. An employer
that accepts a transfer of assets (within the
meaning of section 414(l)) from the plan
of a prior employer may continue to treat
any transition allocations provided under
that plan as transition allocations under
paragraph (b)(1)(iii)(B) of this section,
provided that the successor employer con-
tinues to satisfy the applicable require-
ments set forth in paragraphs
(b)(1)(iii)(C) through (E) of this section
for the plan year.
(iv)Gradual age or service schedule—
(A) In general. A plan has a gradual age
or service schedule for the plan year if the
allocation formula for all employees
under the plan provides for a single
schedule of allocation rates under
which—
(1) The schedule defines a series of
bands based solely on age, years of ser-
vice, or the number of points representing
the sum of age and years of service (age
and service points), under which the same
allocation rate applies to all employees
whose age, years of service, or age and
service points are within each band; and
(2) The allocation rates under the
schedule increase smoothly at regular in-
tervals, within the meaning of paragraphs
(b)(1)(iv)(B) and (C) of this section.
(B) Smoothly increasing schedule of al-
location rates. A schedule of allocation
rates increases smoothly if the allocation
rate for each band within the schedule is
greater than the allocation rate for the im-
mediately preceding band (i.e., the band
with the next lower number of years of
age, years of service, or age and service
points) but by no more than 5 percentage
points. However, a schedule of allocation
rates will not be treated as increasing
smoothly if the ratio of the allocation rate
for any band to the rate for the immedi-
ately preceding band is more than 2.0 or if
it exceeds the ratio of allocation rates be-
tween the two immediately preceding
bands.
(C) Regular intervals. A schedule of
allocation rates has regular intervals of
age, years of service or age and service
points, if each band, other than the band
associated with the highest age, years of
service, or age and service points, is the
same length. For this purpose, if the
schedule is based on age, the first band is
deemed to be of the same length as the
other bands if it ends at or before age 25.
If the first age band ends after age 25,
then, in determining whether the length of
the first band is the same as the length of
other bands, the starting age for the first
age band is permitted to be treated as age
25 or any age earlier than 25. For a
schedule of allocation rates based on age
and service points, the rules of the preced-
ing two sentences are applied by substi-
tuting 25 age and service points for age
25. For a schedule of allocation rates
based on service, the starting service for
the first service band is permitted to be
treated as one year of service or any lesser
amount of service.
(D) Minimum allocation rates permit-
ted. A schedule of allocation rates under a
plan does not fail to increase smoothly at
regular intervals, within the meaning of
paragraphs (b)(1)(iv)(B) and (C) of this
section, merely because a minimum uni-
July 16, 2001542001–29 I.R.B.

form allocation rate is provided for all
employees or the minimum benefit de-
scribed in section 416(c)(2) is provided
for all non-key employees (either because
the plan is top heavy or without regard to
whether the plan is top heavy) if the
schedule satisfies one of the following
conditions—
(1) The allocation rates under the plan that
are greater than the minimum allocation rate
can be included in a hypothetical schedule of
allocation rates that increases smoothly at
regular intervals, within the meaning of
paragraphs (b)(1)(iv)(B) and (C) of this sec-
tion, where the hypothetical schedule has a
lowest allocation rate no lower than 1% of
plan year compensation; or
(2) For a plan using a schedule of allo-
cation rates based on age, for each age
band in the schedule that provides an allo-
cation rate greater than the minimum allo-
cation rate, there could be an employee in
that age band with an equivalent accrual
rate that is less than or equal to the equiv-
alent accrual rate that would apply to an
employee whose age is the highest age for
which the allocation rate equals the mini-
mum allocation rate.
(v) Uniform target benefit allocations.
A plan has allocation rates that are based
on a uniform target benefit allocation for
the plan year if the plan fails to satisfy the
requirements for the safe harbor testing
method in paragraph (b)(3) of this section
merely because the determination of the
allocations under the plan differs from the
allocations determined under that safe
harbor testing method for any of the fol-
lowing reasons—
(A) The interest rate used for determin-
ing the actuarial present value of the
stated plan benefit and the theoretical re-
serve is lower than a standard interest
rate;
(B) The stated benefit is calculated as-
suming compensation increases at a spec-
ified rate; or
(C) The plan computes the current year
contribution using the actual account bal-
ance instead of the theoretical reserve.
(vi) Minimum allocation gateway—(A)
General rule.A plan satisfies the mini-
mum allocation gateway of this paragraph
(b)(1)(vi) if each NHCE has an allocation
rate that is at least one third of the alloca-
tion rate of the HCE with the highest allo-
cation rate.
(B) Deemed satisfaction. A plan is
deemed to satisfy the minimum allocation
gateway of this paragraph (b)(1)(vi) if
each NHCE receives an allocation of at
least 5% of the NHCE’s compensation
within the meaning of section 415(c)(3),
measured over a period of time permitted
under the definition of plan year compen-
sation.
(vii) Determination of allocation rate.
For purposes of paragraph (b)(1)(i)(B) of
this section, allocations and allocation
rates are determined under §1.401(a)
(4)–2(c)(2), but without taking into ac-
count the imputation of permitted dispar-
ity under §1.401(a)(4)–7. However, in
determining whether the plan has broadly
available allocation rates as provided in
paragraph (b)(1)(iii) of this section, dif-
ferences in allocation rates attributable
solely to the use of permitted disparity de-
scribed in §1.401(l)–2 are disregarded.
(viii)Examples.The following exam-
ples illustrate the rules in this paragraph
(b)(1):
Example 1. (i) Plan M, a defined contribution
plan without a minimum service requirement, pro-
vides an allocation formula under which allocations
are provided to all employees according to the fol-
lowing schedule:
2001–29 I.R.B.55July 16, 2001
Completed Years of Service Allocation RateRatio of Allocation Rate for Band
to Allocation Rate for Immediately
Preceding Band
0-53.0%not applicable
6-104.5%1.50
11-156.5%1.44
16-208.5%1.31
21-2510.0%1.18
26 or more11.5%1.15
(ii) Plan M provides that allocation rates for all
employees are determined using a single schedule
based solely on service, as described in paragraph
(b)(1)(iv)(A)(1) of this section. Therefore, if the al-
location rates under the schedule increase smoothly
at regular intervals as described in paragraph
(b)(1)(iv)(A)(2) of this section, then the plan has a
gradual age or service schedule described in para-
graph (b)(1)(iv) of this section.
(iii) The schedule of allocation rates under Plan
M does not increase by more than 5 percentage
points between adjacent bands and the ratio of the
allocation rate for any band to the allocation rate
for the immediately preceding band is never more
than 2.0 and does not increase. Therefore, the al-
location rates increase smoothly as described in
paragraph (b)(1)(iv)(B) of this section. In addi-
tion, the bands (other than the highest band) are all
5 years long, so the increases occur at regular in-
tervals as described in paragraph (b)(1)(iv)(C) of
this section. Thus, the allocation rates under the
plan’s schedule increase smoothly at regular inter-
vals as described in paragraph (b)(1)(iv)(A)(2) of
this section. Accordingly, the plan has a gradual
age or service schedule described in paragraph
(b)(1)(iv) of this section.
(iv) Under paragraph (b)(1)(i) of this section,
Plan M satisfies the nondiscrimination in amount re-
quirement of §1.401(a)(4)-1(b)(2) on the basis of
benefits if it satisfies paragraph (b)(1)(i)(A) of this
section, regardless of whether it satisfies the mini-
mum allocation gateway of paragraph (b)(1)(vi) of
this section.
Example 2. (i) The facts are the same as in Ex-
ample 1, except that the 4.5% allocation rate applies
for all employees with 10 years of service or less.
(ii) Plan M provides that allocation rates for all
employees are determined using a single schedule
based solely on service, as described in paragraph
(b)(1)(iv)(A)(1) of this section. Therefore, if the al-
location rates under the schedule increase smoothly
at regular intervals as described in paragraph
(b)(1)(iv)(A)(2) of this section, then the plan has a
gradual age or service schedule described in para-
graph (b)(1)(iv) of this section.
(iii) The bands (other than the highest band) in
the schedule are not all the same length, since the
first band is 10 years long while other bands are 5
years long. Thus, the schedule does not have regular
intervals as described in paragraph (b)(1)(iv)(C) of
this section. However, under paragraph
(b)(1)(iv)(D) of this section, the schedule of alloca-
tion rates does not fail to increase smoothly at regu-
lar intervals merely because the minimum allocation

rate of 4.5% results in a first band that is longer than
the other bands, if either of the conditions of para-
graph (b)(1)(iv)(D)(1) or (2) of this section is satis-
fied.
(iv) In this case, the schedule of allocation rates
satisfies the condition in paragraph (b)(1)(iv)(D)(1)
of this section because the allocation rates under the
plan that are greater than the 4.5% minimum alloca-
tion rate can be included in the following hypotheti-
cal schedule of allocation rates that increases
smoothly at regular intervals and has a lowest allo-
cation rate of at least 1% of plan year compensation:
July 16, 2001562001–29 I.R.B.
Completed Years of Service Allocation RateRatio of Allocation Rate for Band
to Allocation Rate for Immediately
Preceding Band
0-52.5%not applicable
6-104.5%1.80
11-156.5%1.44
16-208.5%1.31
21-2510.0%1.18
26 or more11.5%1.15
(v) Accordingly, the plan has a gradual age or
service schedule described in paragraph
(b)(1)(iv) of this section. Under paragraph
(b)(1)(i) of this section, Plan M satisfies the
nondiscrimination in amount requirement of
§1.401(a)(4)–1(b)(2) on the basis of benefits if it
satisfies paragraph (b)(1)(i)(A) of this section, re-
gardless of whether it satisfies the minimum allo-
cation gateway of paragraph (b)(1)(vi) of this
section.
Example 3.(i) Plan N, a defined contribution
plan, provides an allocation formula under which al-
locations are provided to all employees according to
the following schedule:
Age Allocation rateRatio of Allocation Rate for Band
to Allocation Rate for Immediately
Preceding Band
under 253.0%not applicable
25-346.0%2.00
35-449.0%1.50
45-5412.0%1.33
55-6416.0%1.33
65 or older21.0%1.31
(ii) Plan N provides that allocation rates for all
employees are determined using a single schedule
based solely on age, as described in paragraph
(b)(1)(iv)(A)(1) of this section. Therefore, if the al-
location rates under the schedule increase smoothly
at regular intervals as described in paragraph
(b)(1)(iv)(A)(2) of this section, then the plan has a
gradual age or service schedule described in para-
graph (b)(1)(iv) of this section.
(iii) The schedule of allocation rates under Plan
N does not increase by more than 5 percentage
points between adjacent bands and the ratio of the
allocation rate for any band to the allocation rate for
the immediately preceding band is never more than
2.0 and does not increase. Therefore, the allocation
rates increase smoothly as described in paragraph
(b)(1)(iv)(B) of this section. In addition, the bands
(other than the highest band and the first band,
which is deemed to be the same length as the other
bands because it ends prior to age 25) are all 5 years
long, so the increases occur at regular intervals as
described in paragraph (b)(1)(iv)(C) of this section.
Thus, the allocation rates under the plan’s schedule
increase smoothly at regular intervals as described
in paragraph (b)(1)(iv)(A)(2) of this section. Ac-
cordingly, the plan has a gradual age or service
schedule described in paragraph (b)(1)(iv) of this
section.
(iv) Under paragraph (b)(1)(i) of this section,
Plan N satisfies the nondiscrimination in amount re-
quirement of §1.401(a)(4)–1(b)(2) on the basis of
benefits if it satisfies paragraph (b)(1)(i)(A) of this
section, regardless of whether it satisfies the mini-
mum allocation gateway of paragraph (b)(1)(vi) of
this section.
Example 4. (i) Plan O, a defined contribution
plan, provides an allocation formula under which al-
locations are provided to all employees according to
the following schedule:
Age Allocation rateRatio of Allocation Rate for Band
to Allocation Rate for Immediately
Preceding Band
under 403%not applicable
40-446%2.00
45-499%1.50
50-5412%1.33
55-5916%1.33
60-6420%1.25
65 or older25%1.25

(ii) Plan O provides that allocation rates for all
employees are determined using a single schedule
based solely on age, as described in paragraph
(b)(1)(iv)(A)(1) of this section. Therefore, if the al-
location rates under the schedule increase smoothly
at regular intervals as described in paragraph
(b)(1)(iv)(A)(2) of this section, then the plan has a
gradual age or service schedule described in para-
graph (b)(1)(iv) of this section.
(iii) The bands (other than the highest band) in
the schedule are not all the same length, since the
first band is treated as 15 years long while other
bands are 5 years long. Thus, the schedule does not
have regular intervals as described in paragraph
(b)(1)(iv)(C) of this section. However, under para-
graph (b)(1)(iv)(D) of this section, the schedule of
allocation rates does not fail to increase smoothly at
regular intervals merely because the minimum allo-
cation rate of 3% results in a first band that is longer
than the other bands, if either of the conditions of
paragraph (b)(1)(iv)(D)(1) or (2) of this section is
satisfied.
(iv) In this case, in order to define a hypothetical
schedule that could include the allocation rates in
the actual schedule of allocation rates, each of the
bands below age 40 would have to be 5 years long
(or be treated as 5 years long). Accordingly, the hy-
pothetical schedule would have to provide for a
band for employees under age 30, a band for em-
ployees in the range 30-34 and a band for employees
age 35-39.
(v) The ratio of the allocation rate for the age 40-
44 band to the next lower band is 2.0. Accordingly,
in order for the applicable allocations rates under
this hypothetical schedule to increase smoothly, the
ratio of the allocation rate for each band in the hypo-
thetical schedule below age 40 to the allocation rate
for the immediately preceding band would have to
be 2.0. Thus, the allocation rate for the hypothetical
band applicable for employees under age 30 would
be .75%, the allocation rate for the hypothetical
band for employees in the range 30-34 would be
1.5% and the allocation rate for employees in the
range 35-39 would be 3%.
(vi) Because the lowest allocation rate under any
possible hypothetical schedule is less than 1% of
plan year compensation, Plan O will be treated as
satisfying the requirements of paragraphs
(b)(1)(iv)(B) and (C) of this section only if the
schedule of allocation rates satisfies the steepness
condition described in paragraph (b)(1)(iv)(D)(2) of
this section. In this case, the steepness condition is
not satisfied because the equivalent accrual rate for
an employee age 39 is 2.81%, but there is no hypo-
thetical employee in the band for ages 40-44 with an
equal or lower equivalent accrual rate (since the
lowest equivalent accrual rate for hypothetical em-
ployees within this band is 3.74% at age 44).
(vii) Since the schedule of allocation rates under
the plan does not increase smoothly at regular inter-
vals, Plan O’s schedule of allocation rates is not a
gradual age or service schedule. Further, Plan O
does not provide uniform target benefit allocations.
Therefore, under paragraph (b)(1)(i) of this section,
Plan O cannot satisfy the nondiscrimination in
amount requirement of §1.401(a)(4)–1(b)(2) for the
plan year on the basis of benefits unless either Plan
O provides for broadly available allocation rates for
the plan year as described in paragraph (b)(1)(iii) of
this section (i.e., the allocation rate at each age is
provided to a group of employees that satisfies sec-
tion 410(b) without regard to the average benefit
percentage test), or Plan O satisfies the minimum al-
location gateway of paragraph (b)(1)(vi) of this sec-
tion for the plan year.
Example 5. (i) Plan P is a profit-sharing plan
maintained by Employer A that covers all of Em-
ployer A’s employees, consisting of two HCEs, X
and Y, and 7 NHCEs. Employee X’s compensation
is $170,000 and Employee Y’s compensation is
$150,000. The allocation for Employees X and Y is
$30,000 each, resulting in an allocation rate of
17.65% for Employee X and 20% for Employee Y.
Under Plan P, each NHCE receives an allocation of
5% of compensation within the meaning of section
415(c)(3), measured over a period of time permitted
under the definition of plan year compensation.
(ii) Because the allocation rate for X is not cur-
rently available to any NHCE, Plan P does not have
broadly available allocation rates within the mean-
ing of paragraph (b)(1)(iii) of this section. Further-
more, Plan P does not provide for age based-alloca-
tion rates within the meaning of paragraph (b)(1)(iv)
or (v) of this section. Thus, under paragraph
(b)(1)(i) of this section, Plan P can satisfy the
nondiscrimination in amount requirement of
§1.401(a)(4)–1(b)(2) for the plan year on the basis
of benefits only if Plan P satisfies the minimum allo-
cation gateway of paragraph (b)(1)(vi) of this sec-
tion for the plan year.
(iii) The highest allocation rate for any HCE
under Plan P is 20%. Accordingly, Plan P would sat-
isfy the minimum allocation gateway of paragraph
(b)(1)(vi) of this section if all NHCEs have an allo-
cation rate of at least 6.67%, or if all NHCEs receive
an allocation of at least 5% of compensation within
the meaning of section 415(c)(3) (measured over a
period of time permitted under the definition of plan
year compensation).
(iv) Under Plan P, each NHCE receives an alloca-
tion of 5% of compensation within the meaning of
section 415(c)(3) (measured over a period of time
permitted under the definition of plan year compen-
sation). Accordingly, Plan P satisfies the minimum
allocation gateway of paragraph (b)(1)(vi) of this
section.
(v) Under paragraph (b)(1)(i) of this section, Plan
P satisfies the nondiscrimination in amount require-
ment of §1.401(a)(4)–1(b)(2) on the basis of benefits
if it satisfies paragraph (b)(1)(i)(A) of this section.
* * * * *
Par. 4. Section 1.401(a)(4)–9 is
amended by adding paragraph (b)(2)(v)
and revising paragraph (c)(3)(ii) to read
as follows:
§1.401(a)(4)–9 Plan aggregation and
restructuring.
* * * * *
(b) * * *
(2) * * *
(v) Eligibility for testing on a benefits
basis—(A)General rule. For plan years
beginning on or after January 1, 2002, un-
less, for the plan year, a DB/DC plan is
primarily defined benefit in character
(within the meaning of paragraph
(b)(2)(v)(B) of this section) or consists of
broadly available separate plans (within
the meaning of paragraph (b)(2)(v)(C) of
this section), the DB/DC plan must satisfy
the minimum aggregate allocation gate-
way of paragraph (b)(2)(v)(D) of this sec-
tion for the plan year in order to be per-
mitted to demonstrate satisfaction of the
nondiscrimination in amount requirement
of §1.401(a)(4)–1(b)(2) on the basis of
benefits.
(B) Primarily defined benefit in char-
acter.A DB/DC plan is primarily defined
benefit in character if, for more than 50%
of the NHCEs benefitting under the plan,
the normal accrual rate for the NHCE at-
tributable to benefits provided under de-
fined benefit plans that are part of the
DB/DC plan exceeds the equivalent ac-
crual rate for the NHCE attributable to
contributions under defined contribution
plans that are part of the DB/DC plan.
(C) Broadly available separate plans.
A DB/DC plan consists of broadly avail-
able separate plans if the defined contri-
bution plan and the defined benefit plan
that are part of the DB/DC plan each
would satisfy the requirements of section
410(b) and the nondiscrimination in
amount requirement of §1.401(a)(4)–
1(b)(2) if each plan were tested separately
and assuming that the average benefit per-
centage test of §1.410(b)–5 were satis-
fied. For this purpose, all defined contri-
bution plans that are part of the DB/DC
plan are treated as a single defined contri-
bution plan and all defined benefit plans
that are part of the DB/DC plan are
treated as a single defined benefit plan. In
addition, if permitted disparity is used for
an employee for purposes of satisfying
the separate testing requirement of this
paragraph (b)(2)(v)(C) for plans of one
type, it may not be used in satisfying the
separate testing requirement for plans of
the other type for the employee.
(D) Minimum aggregate allocation
gateway—(1) General rule. A DB/DC
plan satisfies the minimum aggregate al-
location gateway if each NHCE has an
aggregate normal allocation rate that is at
least one third of the aggregate normal al-
location rate of the HCE with the highest
such rate (HCE rate), or, if less, 5% of the
NHCE’s compensation, provided that the
HCE rate does not exceed 25% of com-
pensation. If the HCE rate exceeds 25%
2001–29 I.R.B.57July 16, 2001

of compensation, then the aggregate nor-
mal allocation rate for each NHCE must
be at least 5% increased by one percent-
age point for each 5-percentage-point in-
crement (or portion thereof) by which the
HCE rate exceeds 25% (e.g., the NHCE
minimum is 6% for an HCE rate that ex-
ceeds 25% but not 30%, and 7% for an
HCE rate that exceeds 30% but not 35%).
(2) Deemed satisfaction. A plan is
deemed to satisfy the minimum aggregate
allocation gateway of this paragraph
(b)(2)(v)(D) if the aggregate normal alloca-
tion rate for each NHCE is at least 7 1/2%
of the NHCE’s compensation within the
meaning of section 415(c)(3), measured
over a period of time permitted under the
definition of plan year compensation.
(3) Averaging of equivalent allocation
rates for NHCEs. For purposes of this
paragraph (b)(2)(v)(D), a plan is permit-
ted to treat each NHCE who benefits
under the defined benefit plan as having
an equivalent normal allocation rate equal
to the average of the equivalent normal al-
location rates under the defined benefit
plan for all NHCEs benefitting under that
plan.
(E) Determination of rates. For pur-
poses of this paragraph (b)(2)(v), the nor-
mal accrual rate and the equivalent nor-
mal allocation rate attributable to defined
benefit plans, the equivalent accrual rate
attributable to defined contribution plans,
and the aggregate normal allocation rate
are determined under paragraph (b)(2)(ii)
of this section, but without taking into ac-
count the imputation of permitted dispar-
ity under §1.401(a)(4)–7, except as other-
wise permitted under paragraph
(b)(2)(v)(C) of this section.
(F) Examples. The following examples
illustrate the application of this paragraph
(b)(2)(v):
Example 1. (i) Employer A maintains Plan M, a
defined benefit plan, and Plan N, a defined contribu-
tion plan. All HCEs of Employer A are covered by
Plan M (at a 1% accrual rate), but are not covered by
Plan N. All NHCEs of Employer A are covered by
Plan N (at a 3% allocation rate), but are not covered
by Plan M. Because Plan M does not satisfy section
410(b) standing alone, Plans M and N are aggre-
gated for purposes of satisfying sections 410(b) and
401(a)(4).
(ii) Because none of the NHCEs participate in the
defined benefit plan, the aggregated DB/DC plan is
not primarily defined benefit in character within the
meaning of paragraph (b)(2)(v)(B) of this section
nor does it consist of broadly available separate
plans within the meaning of paragraph (b)(2)(v)(C)
of this section. Accordingly, the aggregated Plan M
and Plan N must satisfy the minimum aggregate al-
location gateway of paragraph (b)(2)(v)(D) of this
section in order to be permitted to demonstrate satis-
faction of the nondiscrimination in amount require-
ment of §1.401(a)(4)–1(b)(2) on the basis of bene-
fits.
Example 2. (i) Employer B maintains Plan O, a
defined benefit plan, and Plan P, a defined contribu-
tion plan. All of the six employees of Employer B
are covered under both Plan O and Plan P. Under
Plan O, all employees have a uniform normal ac-
crual rate of 1% of compensation. Under Plan P,
Employees A and B, who are HCEs, receive an allo-
cation rate of 15%, and participants C, D, E and F,
who are NHCEs, receive an allocation rate of 3%.
Employer B aggregates Plans O and P for purposes
of satisfying sections 410(b) and 401(a)(4). The
equivalent normal allocation and normal accrual
rates under Plans O and P are as follows:
July 16, 2001582001–29 I.R.B.
EmployeeEquivalent Normal Allocation Rates Equivalent Normal Accrual Rates for the
for the 1% Accrual under Plan O15%/3% Allocations under Plan P
(defined benefit plan)(defined contribution plan)
HCE A (age 55)3.93%3.82%
HCE B (age 50)2.61%5.74%
C (age 60)5.91%.51%
D (age 45)1.74%1.73%
E (age 35).77%3.90%
F (age 25).34%8.82%
(ii) Although all of the NHCEs benefit under Plan
O (the defined benefit plan), the aggregated DB/DC
plan is not primarily defined benefit in character be-
cause the normal accrual rate attributable to defined
benefit plans (which is 1% for each of the NHCEs)
is greater than the equivalent accrual rate under de-
fined contribution plans only for Employee C. In
addition, because the 15% allocation rate is avail-
able only to HCEs, the defined contribution plan
cannot satisfy the requirements of §1.401(a)(4)–2
and does not have broadly available allocation rates
within the meaning of §1.401(a)(4)–8(b)(1)(iii).
Further, the defined contribution plan does not sat-
isfy the minimum allocation gateway of
§1.401(a)(4)–8(b)(1)(vi) (3% is less than 1/3 of the
15% HCE rate). Therefore, the defined contribution
plan within the DB/DC plan cannot separately sat-
isfy §1.401(a)(4)–1(b)(2) and does not constitute a
broadly available separate plan within the meaning
of paragraph (b)(2)(v)(C) of this section. Accord-
ingly, the aggregated plans are permitted to demon-
strate satisfaction of the nondiscrimination in
amounts requirement of §1.401(a)(4)–1(b)(2) on the
basis of benefits only if the aggregated plans satisfy
the minimum aggregate allocation gateway of para-
graph (b)(2)(v)(D) of this section.
(iii) Employee A has an aggregate normal alloca-
tion rate of 18.93% under the aggregated plans
(3.93% from Plan O plus 15% from Plan P), which
is the highest aggregate normal allocation rate for
any HCE under the plans. Employee F has an aggre-
gate normal allocation rate of 3.34% under the ag-
gregated plans (.34% from Plan O plus 3% from
Plan P) which is less than the 5% aggregate normal
allocation rate that Employee F would be required to
have to satisfy the minimum aggregate allocation
gateway of paragraph (b)(2)(v)(D) of this section.
(iv) However, for purposes of satisfying the min-
imum aggregate allocation gateway of paragraph
(b)(2)(v)(D) of this section, Employer B is permitted
to treat each NHCE who benefits under Plan O (the
defined benefit plan) as having an equivalent alloca-
tion rate equal to the average of the equivalent allo-
cation rates under Plan O for all NHCEs benefitting
under that plan. The average of the equivalent allo-
cation rates for all of the NHCEs under Plan O is
2.19% (the sum of 5.91%, 1.74%, .77%, and .34%,
divided by 4). Accordingly, Employer B is permit-
ted to treat all of the NHCEs as having an equivalent
allocation rate attributable to Plan O equal to 2.19%.
Thus, all of the NHCEs can be treated as having an
aggregate normal allocation rate of 5.19% for this
purpose (3% from the defined contribution plan and
2.19% from the defined benefit plan) and the aggre-
gated DB/DC plan satisfies the minimum aggregate
allocation gateway of paragraph (b)(2)(v)(D) of this
section.
* * * * *
(c) * * *
(3) * * *
(ii) Restructuring not available for cer-
tain testing purposes. The safe harbor in
§1.401(a)(4)–2(b)(3) for plans with uni-
form points allocation formulas is not
available in testing (and thus cannot be
satisfied by) contributions under a com-
ponent plan. Similarly, component plans

cannot be used for purposes of determin-
ing whether a plan provides broadly avail-
able allocation rates (as defined in
§1.401(a)(4)–8(b)(1)(iii)), determining
whether a plan has a gradual age or ser-
vice schedule (as defined in §1.401
(a)(4)–8(b)(1)(iv)), determining whether
a plan has allocation rates that are based
on a uniform target benefit allocation (as
defined in §1.401(a)(4)–8(b)(1)(v)), or
determining whether a plan is primarily
defined benefit in character or consists of
broadly available separate plans (as de-
fined in paragraphs (b)(2)(v)(B) and (C)
of this section). In addition, the minimum
allocation gateway of §1.401(a)
(4)–8(b)(1)(vi) and the minimum aggre-
gate allocation gateway of paragraph
(b)(2)(v)(D) of this section cannot be sat-
isfied on the basis of component plans.
See §§1.401(k)–1(b)(3)(iii) and
1.401(m)–1(b)(3)(iii) for rules regarding
the inapplicability of restructuring to sec-
tion 401(k) plans and section 401(m)
plans.
* * * * *
Par. 5. Section 1.401(a)(4)–12 is
amended by adding a sentence to the end
of the definition of Standard mortality
tableto read as follows:
§1.401(a)(4)–12 Definitions.
* * * * *
Standard mortality table.* * * The ap-
plicable mortality table under section
417(e)(3)(A)(ii)(I) is also a standard mor-
tality table.
* * * * *
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved June 21, 2001.
Mark Weinberger,
Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on June
28, 2001, 8:45 a.m., and published in the issue of the
Federal Register for June 29, 2001, 66 F.R. 34545)
Section 472.—Last-in, First-out
Inventories
26 CFR 1.472–1: Last-in, first-out inventories.
LIFO; price indexes; department
stores. The May 2001 Bureau of Labor
Statistics price indexes are accepted for
use by department stores employing the
retail inventory and last-in, first-out
inventory methods for valuing inventories
for tax years ended on, or with reference
to, May 31, 2001.
Rev. Rul. 2001–35
The following Department Store Inven-
tory Price Indexes for May 2001 were is-
sued by the Bureau of Labor Statistics.
The indexes are accepted by the Internal
Revenue Service, under § 1.472–1(k) of
the Income Tax Regulations and Rev.
Proc. 86–46, 1986–2 C.B. 739, for appro-
priate application to inventories of depart-
ment stores employing the retail inven-
tory and last-in, first-out inventory
methods for tax years ended on, or with
reference to, May 31, 2001.
The Department Store Inventory Price
Indexes are prepared on a national basis
and include (a) 23 major groups of depart-
ments, (b) three special combinations of
the major groups - soft goods, durable
goods, and miscellaneous goods, and (c) a
store total, which covers all departments,
including some not listed separately, ex-
cept for the following: candy, food,
liquor, tobacco, and contract departments.
2001–29 I.R.B.59July 16, 2001
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
Percent Change
GroupsMayMayfrom May 2000
20002001to May 2001
1
1.Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .501.7491.2-2.1
2.Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . .620.4598.8-3.5
3.Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . .642.2653.91.8
4.Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .923.1889.7-3.6
5.Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .641.0625.4-2.4
6.Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . .573.4570.4-0.5
7.Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .335.1352.0 5.0
8.Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . .543.4553.11.8
9.Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . .401.5394.6-1.7
10.Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .623.7595.5-4.5
11.Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .636.3619.2-2.7
12.Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . .502.5497.1 -1.1
13.Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .943.4934.7-0.9
14.Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .775.9776.30.1
15.Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . .971.1947.8-2.4
16.Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . .672.5641.8-4.6
17.Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .608.6623.72.5
18.Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .779.4767.1-1.6
19.Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .233.7224.3-4.0

DRAFTING INFORMATION
The principal author of this revenue
ruling is Alan J. Tomsic of the Office of
Associate Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue ruling, contact Mr.
Tomsic at (202) 622-4970 (not a toll-free
call).
Section 6302.—Mode or Time of
Collection
26 CFR 31.6302–1: Federal tax deposit rules for
withheld income taxes and taxes under the Federal
Insurance Contributions Act (FICA) attributable to
payments made after December 31, 1992.
T.D. 8952
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 31, 35, 36, 40,
301, and 601
Removal of Federal Reserve
Banks as Federal Depositaries
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains
final regulations which remove the Fed-
eral Reserve Banks as authorized deposi-
taries for Federal tax deposits. The regu-
lations affect taxpayers who make Federal
tax deposits using paper Federal Tax De-
posit (FTD) coupons (Form 8109) at Fed-
eral Reserve Banks.
DATES: Effective Date: These regula-
tions are effective June 26, 2001.
Applicability Date:These regulations
apply to deposits made after December
31, 2000.
FOR FURTHER INFORMATION CON-
TACT: Brinton T. Warren (202) 622-
4940 (not a toll-free number).
SUPPLEMENTARY INFORMATION
Background
This document contains amendments to
26 CFR parts 1, 31, 35, 36, 40, 301, and
601 relating to Federal tax deposits under
section 6302(c) of the Internal Revenue
Code (Code). On December 26, 2000,
temporary regulations (T.D. 8918, 2001–4
I.R.B. 372) relating to the removal of
Federal Reserve Banks as federal deposi-
taries were published in the Federal Reg-
ister(65 FR 81356). A notice of pro-
posed rulemaking (REG–107176–00,
2001–4 I.R.B. 428) that proposed the re-
moval of Federal Reserve Banks as fed-
eral depositaries was published in the
Federal Registerfor the same day (65
FR 81453). No comments were received
from the public in response to the notice
of proposed rulemaking.
Explanation of Provisions
These final regulations, which perma-
nently remove Federal Reserve Banks as
authorized depositaries for Federal tax de-
posits, adopt the rules of the proposed
regulations and remove the corresponding
temporary regulations. The term Federal
Reserve Bank includes twelve banks and
their approximately two dozen branches
that constitute the nation’s central bank-
ing system. The term does not include the
thousands of federally and state chartered
banks that are recognized as members of
the Federal Reserve System. Accord-
ingly, these final regulations do not affect
Federal Tax Deposits (FTDs) made with
paper coupons at any of the more than
10,000 financial institutions nationwide
that serve as Treasury Tax and Loan
(TT&L) depositaries. Deposits made
through the Electronic Federal Tax Pay-
ment System (EFTPS) are also not af-
fected.
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. 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
July 16, 2001602001–29 I.R.B.
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS, Continued
(January 1941 = 100, unless otherwise noted)
Percent Change
GroupsMayMayfrom May 2000
20002001to May 2001
1
20.Radio and Television . . . . . . . . . . . . . . . . . . . . . . . . . . . .60.154.7-9.0
21.Recreation and Education
2
. . . . . . . . . . . . . . . . . . . . . . .93.990.2-3.9
22.Home Improvements
2
. . . . . . . . . . . . . . . . . . . . . . . . . . .128.5125.7-2.2
23.Auto Accessories
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106.5108.92.3
Groups 1 - 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . .604.5594.0-1.7
Groups 16 - 20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . .438.3423.0-3.5
Groups 21 - 23: Misc. Goods
2
. . . . . . . . . . . . . . . . . . . . . . . . .100.998.6-2.3
Store Total
3
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .542.5530.8-2.2
1
Absence of a minus sign before the percentage change in this column signifies a price increase.
2
Indexes on a January 1986 =100 base.
3
The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor,
tobacco, and contract departments.

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, the notice of proposed
rulemaking preceding these regulations
was submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on its impact on
small business.
Drafting Information
The principal author of these regula-
tions is Brinton T. Warren of the Office of
Associate Chief Counsel, Procedure and
Administration (Administrative Provi-
sions and Judicial Practice Division).
However, other personnel from the IRS
and Treasury Department participated in
their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, and under the authority of
26 U.S.C. 7805 and 5 U.S.C. 301, 26 CFR
parts 1, 31, 35, 36, 40, 301 and 601 are
amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
§1.6302–1 [Amended]
Par. 2. Section 1.6302–1 is amended by
removing the fifth sentence in paragraph
(b)(1).
§1.6302–2 [Amended]
Par. 3. Section 1.6302–2 is amended by
removing the third sentence in paragraph
(b)(1).
PART 31—EMPLOYMENT TAXES
AND COLLECTION OF INCOME TAX
AT SOURCE
Par. 4. The authority citation for part 31
continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
§31.6302–1 [Amended]
Par. 5. Section 31.6302–1 is amended
by removing the fourth sentence in
paragraph (i)(3).
§31.6302(c)–3 [Amended]
Par. 6. Section 31.6302(c)–3 is
amended by removing the third sentence
in paragraph (b)(2).
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 7. The authority for part 301 con-
tinues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
§301.6302–1T [Removed]
Par. 8. Section 301.6302–1T is re-
moved.
PARTS 1, 31, 35, 36, 40, 301, 601
[AMENDED]
Par. 9. In the list below, for each sec-
tion indicated in the left column, remove
the language in the middle column and
add, if any, the language in the right col-
umn:
2001–29 I.R.B.61July 16, 2001
SectionRemoveAdd
1.1461–1(a)(1), a Federal reserve bank oran
first sentence
1.1502–5(a)(1), commercial dispositary or Federal Reserve Bankfinancial institution
fourth sentence
1.6151–1(d)(1)Federal Reserve Banks or
1.6302–1(b)(1)214 or, at the election of the corporation,203
fourth sentenceto a Federal Reserve bank
1.6302–1(b)(1),the Federal Reserve bank or
fifth sentence
1.6302–2(a)(1)(i),a Federal Reserve bank oran
first sentence
1.6302–2(a)(1)(ii), a Federal Reserve bank oran
first sentence
1.6302–2(a)(1)(iv), a Federal Reserve bank oran
first sentence
1.6302–2(b)(1),214 or, at the election of the withholding agent,203
second sentenceto a Federal Reserve bank
1.6302–2(b)(1),the Federal Reserve bank or
third sentence
1.6302–3(a)or with a Federal Reserve Bank
31.6071(a)–1(a)(1), or by a Federal Reserve bank
last sentence

July 16, 2001622001–29 I.R.B.
SectionRemoveAdd
31.6071(a)–1(c),a Federal Reserve bank or by
last sentence
31.6151–1(b),Federal Reserve banks and
first sentence
31.6302–1(c)(1),a Federal Reserve bank oran
first sentence
31.6302–1(c)(2)(i)a Federal Reserve bank oran
introductory text
31.6302–1(c)(3)a Federal Reserve bank oran
31.6302–1(i)(3)214 or, at the election of the employer,203
introductory text, to a Federal Reserve bank
first sentence
31.6302–1(i)(5)the Federal Reserve bank or
31.6302(c)–2A(b)(1)(i)with a Federal Reserve bank or
31.6302(c)–2A(b)(3)with a Federal Reserve bank or
31.6302(c)–3(a)(1)(i)with a Federal Reserve bank or
31.6302(c)–3(a)(1)(ii)with a Federal Reserve bank or
31.6302(c)–3(a)(3)with a Federal Reserve bank or
31.6302(c)–3(b)(2)214 or, at the election of the employer,203
second sentenceto a Federal Reserve bank
31.6302(c)–3(b)(2),the Federal Reserve bank or
third sentence
35.3405–1T e–10A.,a Federal Reserve Bank or
first sentence
36.3121(l)(10)–4a Federal Reserve bank oran
40.6302(c)–1(d)(1)214) or to a Federal Reserve bank203)
301.6302–1(a)Federal Reserve banks and authorizedauthorized financial institutions
commercial banks
301.6302–1(b)(1)Federal Reserve banks or authorizedauthorized financial institutions
commercial banks
301.6302–1(b)(2)Federal Reserve banks or authorizedauthorized financial institutions
commercial banks
301.9100–5T(c)Federal Reserve banks and
concluding text
601.401(a)(5)Federal Reserve banks and
heading
601.401(a)(5)(iii)a Federal Reserve bank oran
first sentence
601.401(a)(5)(iii)a Federal Reserve bank oran
second sentence
601.401(a)(5)(iv),a Federal Reserve bank or a financialan authorized financial
first sentenceinstitution authorized in accordance withinstitution
Treasury Department Circular No. 1079, revised,
to accept remittances of these taxes for transmission
to a Federal Reserve bank

Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved June 15, 2001.
Mark A. Weinberger,
Assistant Secretary
of the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on June
25, 2001, 8:45 a.m., and published in the issue of the
Federal Register for June 26, 2001, 66 F.R. 33830)
Section 6323.—Validity and
Priority Against Certain Persons
26 CFR 301.6323(j)–1: Withdrawal of notice of
federal tax lien in certain circumstances.
T.D. 8951
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
Withdrawal of Notice of Federal
Tax Lien in Certain
Circumstances
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulation.
SUMMARY: This document contains
final regulations relating to the with-
drawal of notices of federal tax liens in
certain circumstances. The final regula-
tions reflect changes made to section
6323 of the Internal Revenue Code of
1986 by the Taxpayer Bill of Rights 2.
The final regulations affect all taxpayers
seeking withdrawals of notices of federal
tax liens.
EFFECTIVE DATE: These regulations
apply on or after June 22, 2001.
FOR FURTHER INFORMATION CON-
TACT: Kevin B. Connelly, (202) 622-
3630 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
the Procedure and Administration Regula-
tions (26 CFR part 301) relating to the
withdrawal of notices of federal tax liens
under section 6323 of the Internal Rev-
enue Code (Code). Section 501(a) of the
Taxpayer Bill of Rights 2 (TBOR2), Pub-
lic Law 104–168, 110 Stat. 1452 (1996),
amended section 6323 to authorize the
Secretary to withdraw a notice of federal
tax lien in certain limited circumstances.
Section 501(a) also requires the Secretary
to notify credit reporting agencies, finan-
cial institutions, and creditors of the with-
drawal upon the written request of the
taxpayer. On June 30, 1999, a notice of
proposed rulemaking (REG–101519–97,
1999–2 C.B. 114) reflecting these
changes was published in theFederal
Register(64 FR 35102). Several parties
commented on the notice of proposed
rulemaking and a hearing was held on
November 30, 1999. The final regula-
tions are adopted with minor changes.
Explanation of Provisions
Section 501(a) of TBOR2 amended
section 6323 of the Code by authorizing
the Secretary to withdraw a notice of fed-
eral tax lien under certain conditions and
providing that upon written request of the
taxpayer the Secretary will notify any
credit reporting agency and any financial
institution or creditor identified by the
taxpayer. These regulations implement
section 501(a).
The proposed regulations provided that
the district director had the authority to
withdraw a notice of federal tax lien if the
district director determined that one of the
four conditions enumerated in paragraph
(b) of the regulations existed. Because of
the reorganization of the Internal Revenue
Service (IRS), which eliminated the dis-
trict director position, the final regula-
tions provide that the Commissioner or
his delegate (Commissioner) may with-
draw a notice of federal tax lien under the
proper conditions.
The notice of federal tax lien is with-
drawn by filing a notice of withdrawal in
the office in which the notice of federal
tax lien is filed and providing the taxpayer
with a copy of the notice. Following the
withdrawal of a notice of federal tax lien,
chapter 64 of subtitle F, relating to collec-
tion, is applied as if the IRS had never
filed a notice of federal tax lien. The
withdrawal of a notice of federal tax lien
does not affect the underlying tax lien.
The withdrawal simply relinquishes any
lien priority the IRS had obtained under
section 6323 of the Code when the IRS
filed the notice being withdrawn.
Paragraph (b) of the regulations pro-
vides that the Commissioner has the au-
thority to withdraw a notice of federal tax
lien if one of the following conditions ex-
ists: (1) the filing of the notice of federal
tax lien was premature or otherwise not in
accordance with the administrative proce-
dures of the Secretary; (2) the taxpayer
has entered into an agreement under sec-
tion 6159 to satisfy the liability for which
the lien was imposed by means of install-
ment payments, unless the agreement by
its terms provides that the notice will not
be withdrawn; (3) the withdrawal of no-
tice will facilitate collection of the tax lia-
bility for which the lien was imposed; or
(4) the withdrawal of notice is in the best
interests of the taxpayer and the United
States.
A new example has been added (Exam-
ple 1) that illustrates when the Commis-
sioner may withdraw a notice of federal
tax lien under paragraph (b)(1) because
the IRS failed to follow administrative
procedures when filing notice. Each ex-
ample now refers to just one of the four
withdrawal criteria under paragraph
(b)(1). In addition, the examples have
been renumbered to correspond to the
numbers of the criteria in paragraph (b)
that the examples illustrate.
One of the commenting parties recom-
mended that the final regulations define
the terms “facilitate collection” and
“best interests of the taxpayer and the
United States,” found in paragraphs
(b)(3) and (b)(4). The final regulations
purposely do not define these terms.
Congress intended “to give the IRS dis-
cretion to withdraw a notice of lien” in
these circumstances. H.R. Rep. No. 506,
104th Cong., 2d Sess. 32 (Mar. 28,
1996). The circumstances under which a
lien may be withdrawn are inherently
factual. Further refinement of the statu-
tory terms may unnecessarily limit the
IRS’s ability to withdraw a notice where
appropriate.
A commenting party asked the IRS to
add a paragraph providing that, if the Na-
tional Taxpayer Advocate (or his dele-
gate) determines that a taxpayer is suffer-
ing or about to suffer a significant
hardship, the National Taxpayer Advocate
(or his delegate) may, in appropriate
cases, issue a taxpayer assistance order
2001–29 I.R.B.63July 16, 2001

(TAO) requiring the Commissioner to
withdraw a notice of federal tax lien.
This issue, concerning whether the Na-
tional Taxpayer Advocate (or his dele-
gate) may issue a TAO ordering the with-
drawal of a notice, involves an
interpretation of section 7811, and the au-
thority granted to the National Taxpayer
Advocate, which are not pertinent to this
regulation.
The final regulations provide that a per-
son may request the withdrawal of a no-
tice of federal tax lien by writing to the
Commissioner. A written request for with-
drawal must include: (1) the name, current
address, and taxpayer identification num-
ber of the person requesting withdrawal of
the notice of federal tax lien; (2) a copy of
the notice of federal tax lien affecting the
property, if available; (3) the grounds
upon which the withdrawal of notice of
federal tax lien is being requested; (4) a
list of the names and addresses of any
credit reporting agency and any financial
institution or creditor that the taxpayer
wishes the Commissioner to notify of the
withdrawal of notice of federal tax lien;
and (5) a request to disclose information
relating to the withdrawal to the persons or
entities listed.
The Commissioner must consider each
taxpayer’s request for withdrawal of no-
tice of federal tax lien and determine
whether any of the conditions authorizing
withdrawal exist and whether to issue a
withdrawal. The Commissioner also may
issue a notice of withdrawal based on in-
formation received from a source other
than the taxpayer.
If the Commissioner grants a request
for the withdrawal of notice of federal tax
lien, the taxpayer may supplement the list
of credit reporting agencies and financial
institutions or creditors provided with the
request for withdrawal. If no list was sub-
mitted with the request for withdrawal, a
list may be submitted after the notice is
withdrawn. A request to supplement the
list must be sent in writing to the Com-
missioner. The request must contain: (1)
the name, current address, and taxpayer
identification number of the person re-
questing the notification; (2) a copy of the
notice of withdrawal; (3) the names and
addresses of the persons or entities the
taxpayer wishes the IRS to contact; and
(4) a request to disclose the withdrawal to
the persons or entities listed.
A commenting party suggested that the
IRS send notification to credit agencies
and financial institutions by certified
mail. Certified mail generally is required
where there is a statute of limitations de-
pendent on service. This is not the case
with respect to notification under section
6323(j)(2).
A commenting party also requested that
language be added to the regulations stat-
ing that, upon receipt of notification that
the IRS has withdrawn a notice of federal
tax lien, a credit agency will be immune
from any damage claim a taxpayer may
have against it for its handling of the no-
tice if the credit agency acts within rea-
sonable time after receiving notice. The
statute simply instructs the IRS to notify
credit agencies of a notice of withdrawal
upon request of the taxpayer. The IRS
does not have the statutory authority to
shield a credit agency from a taxpayer’s
claim for damages due to how the credit
agency handled the notice.
The regulations will be applicable on
or after June 22, 2001, with respect to
withdrawals of any notice of federal tax
lien occurring after such date regardless
of when the notice was filed.
Special Analyses
It has been determined that this final
regulation is not a significant regulatory
action as defined in Executive Order
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 collection of infor-
mation in the regulations is exempt pur-
suant to 5 U.S.C. 601(7)(B), the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to
section 7805(f) of the Internal Revenue
Code, this regulation will be submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small businesses.
Drafting Information
The principal author of these regula-
tions is Kevin B. Connelly, Office of As-
sociate Chief Counsel (Procedure and Ad-
ministration), Collection Bankruptcy &
Summons Division, CC:PA:CBS, IRS.
However, other personnel from the IRS
and Treasury Department participated in
their development.
* * * * *
Final Amendments to the Regulations
Accordingly, the IRS amends 26 CFR
part 301 as follows:
PART 301—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 301.6323(j)–1 is added
to read as follows:
§301.6323(j)–1 Withdrawal of notice of
federal tax lien in certain circumstances.
(a) In general.The Commissioner or
his delegate (Commissioner) may with-
draw a notice of federal tax lien filed
under this section, if the Commissioner
determines that any of the conditions in
paragraph (b) of this section exist. A no-
tice of federal tax lien is withdrawn by the
filing by the Commissioner of a notice of
withdrawal in the office in which the no-
tice of federal tax lien is filed. If a notice
of withdrawal is filed, chapter 64 of subti-
tle F, relating to collection, will be applied
as if the withdrawn notice had never been
filed. A copy of the notice of withdrawal
will be provided to the taxpayer. Upon
written request by a taxpayer with respect
to whom a notice of federal tax lien has
been or will be withdrawn, the Commis-
sioner will promptly make reasonable ef-
forts to notify any credit reporting agency
and any financial institution or creditor
identified by the taxpayer of the with-
drawal of such notice. The withdrawal of
a notice of federal tax lien will not affect
the underlying federal tax lien.
(b) Conditions authorizing withdrawal.
The Commissioner may authorize the
withdrawal of a notice of federal tax lien
upon determining that one of the follow-
ing conditions exists:
(1) Premature or not in accordance with
administrative procedures. The filing of
the notice of federal tax lien was premature
or otherwise not in accordance with the ad-
ministrative procedures of the Secretary.
(2) Installment agreement. The tax-
payer has entered into an agreement under
section 6159 to satisfy the liability for
July 16, 2001642001–29 I.R.B.

which the lien was imposed by means of
installment payments. Entry into an in-
stallment agreement may not, however,
be the basis for withdrawal of a notice of
lien if the installment agreement specifi-
cally provides that a notice of federal tax
lien will not be withdrawn.
(3) Facilitate collection. The with-
drawal of the notice of federal tax lien
will facilitate the collection of the tax lia-
bility for which the lien was imposed.
(4) Best interests of the United States
and the taxpayer—(i) In general. The
taxpayer or the National Taxpayer Advo-
cate (or his delegate) has consented to the
withdrawal of the notice of federal tax
lien, and withdrawal of the notice would
be in the best interest of the taxpayer, as
determined by the taxpayer or the Na-
tional Taxpayer Advocate (or his dele-
gate), and in the best interest of the
United States, as determined by the Com-
missioner.
(ii) Best interest of the taxpayer. When
a taxpayer requests the withdrawal of no-
tice of federal tax lien based on the best
interests of the United States and the tax-
payer, the National Taxpayer Advocate
(or his delegate) generally will determine
whether the withdrawal of the notice of
federal tax lien is in the best interest of the
taxpayer. If, however, a taxpayer requests
the Commissioner to withdraw a notice
and has not specifically requested the Na-
tional Taxpayer Advocate (or his dele-
gate) to determine the taxpayer’s best in-
terest, a finding by the Commissioner that
the withdrawal of notice is in the best in-
terest of the taxpayer will be sufficient to
support withdrawal. If the Commissioner
decides independently of a request by the
taxpayer to withdraw a notice of federal
tax lien, the taxpayer or the National Tax-
payer Advocate (or his delegate) must
consent to the withdrawal.
(5) Examples. The following examples
illustrate the provisions of this paragraph
(b):
Example 1. A owes $1,000 in Federal income
taxes. The IRS files a notice of federal tax lien to se-
cure A’s tax liability. However, the IRS failed to fol-
low procedure provided by the Internal Revenue
Manual (but not required by statute) with regard to
managerial approval prior to the filing of a notice of
federal tax lien. The Commissioner may withdraw
the notice of federal tax lien because the filing of the
notice was not in accordance with the Secretary’s
administrative procedures.
Example 2. A owes $1,000 in federal income
taxes. A enters into an agreement to pay the out-
standing federal income tax liability in installments.
The agreement provides that a notice of federal tax
lien may be filed if the taxpayer defaults. A timely
pays the installments each month and has not de-
faulted in any way. Eleven months after entering
into the installment agreement, the Internal Revenue
Service files a notice of federal tax lien. Noting that
there has been no default, the taxpayer asks the In-
ternal Revenue Service to withdraw the notice of
federal tax lien. In this situation, the Commissioner
may withdraw the notice of federal tax lien because
the taxpayer has entered into an installment agree-
ment.
Example 3. A is an employee of X Corporation.
A notice of federal tax lien has been filed to secure
an outstanding tax liability against A. A, who has no
assets and no other secured creditors, has agreed to
pay the balance of tax due through payroll deduc-
tions at a rate higher than the Internal Revenue Ser-
vice could obtain through a wage levy in order to get
the notice of federal tax lien withdrawn. X Corpora-
tion has agreed to allow A to enter into a payroll de-
duction agreement. In this situation, the Commis-
sioner may withdraw the notice of federal tax lien to
facilitate collection.
Example 4. A is owner of a farm machinery
dealership against whom a notice of federal tax lien
has been filed to secure an outstanding tax liability.
A currently is paying the tax liability by an install-
ment agreement. X Corporation has agreed to pro-
vide A with 100 tractors to increase A’s inventory if
the notice of federal tax lien is withdrawn. A asks
the Internal Revenue Service to withdraw the notice
of federal tax lien. The Commissioner determines
that the larger inventory would enable A to generate
additional tractor sales. Increased sales would en-
able A to increase the amount of installment pay-
ments and, consequently, reduce the amount of time
needed to satisfy the liability. A, who has no other
assets or secured creditors, has agreed to modify the
installment agreement. The Commissioner may
withdraw the notice of federal tax lien because the
withdrawal is in the best interest of the taxpayer and
the United States.
(c) Determinations by the Commis-
sioner.The Commissioner must deter-
mine whether any of the conditions autho-
rizing the withdrawal of a notice of
federal tax lien exist if a taxpayer submits
a request for withdrawal in accordance
with paragraph (d) of this section. The
Commissioner may also make this deter-
mination independent of a request from
the taxpayer based on information re-
ceived from a source other than the tax-
payer. If the Commissioner determines
that conditions authorizing the with-
drawal are not present, the Commissioner
may not authorize the withdrawal. If the
Commissioner determines conditions for
withdrawal are present, the Commis-
sioner may (but is not required to) autho-
rize the withdrawal.
(d) Procedures for request for with-
drawal—(1) Manner. A request for the
withdrawal of a notice of federal tax lien
must be made in writing in accordance
with procedures prescribed by the Com-
missioner.
(2) Form.The written request will in-
clude the following information and doc-
uments—
(i) Name, current address, and taxpayer
identification number of the person re-
questing the withdrawal of notice of fed-
eral tax lien;
(ii) A copy of the notice of federal tax
lien affecting the taxpayer’s property, if
available;
(iii) The grounds upon which the with-
drawal of notice of federal tax lien is
being requested;
(iv) A list of the names and addresses of
any credit reporting agency and any fi-
nancial institution or creditor that the tax-
payer wishes the Commissioner to notify
of the withdrawal of notice of federal tax
lien; and
(v) A request to disclose the withdrawal
of notice of federal tax lien to the persons
listed in paragraph (d)(2)(iv) of this sec-
tion.
(e) Supplemental list of credit agen-
cies, financial institutions, and
creditors—(1) In general.If the Com-
missioner grants a withdrawal of notice
of federal tax lien, the taxpayer may
supplement the list in paragraph
(d)(2)(iv) of this section. If no list was
provided in the request to withdraw the
notice of federal tax lien, the list in para-
graph (d)(2)(iv) of this section and the
request for notification in paragraph
(d)(2)(v) of this section may be submit-
ted after the notice is withdrawn.
(2) Manner. A request to supplement
the list of any credit agencies and any fi-
nancial institutions or creditors that the
taxpayer wishes the Commissioner to no-
tify of the withdrawal of notice of federal
tax lien must be made in writing in accor-
dance with procedures prescribed by the
Commissioner.
(3) Form. The request must include the
following information and documents—
(i) Name, current address, and taxpayer
identification number of the taxpayer re-
questing the notification of any credit
agency or any financial institution or
creditor of the withdrawal of notice of
federal tax lien;
(ii) A copy of the notice of withdrawal,
if available;
2001–29 I.R.B.65July 16, 2001

(iii) A supplemental list, identified as
such, of the names and addresses of any
credit reporting agency and any financial
institution or creditor that the taxpayer
wishes the Commissioner to notify of the
withdrawal of notice of federal tax lien;
and
(iv) A request to disclose the with-
drawal of notice of federal tax lien to the
persons listed in paragraph (e)(3)(iii) of
this section.
(f) Effective date. This section applies
on or after June 22, 2001, with respect to
a withdrawal of any notice of federal tax
lien.
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
Approved June 13, 2001.
Mark A. Weinberger,
Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on June
21, 2001, 8:45 a.m., and published in the issue of the
Federal Register for June 22, 2001, 66 F.R. 33464)
July 16, 2001662001–29 I.R.B.

Withdrawal of Notices of
Proposed Rulemaking
Withdrawal of Proposed
Regulations Relating to
Corporations Filing Consolidated
Returns and Proposed
Regulations Relating to
Collapsible Corporations
REG–100548–01
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Withdrawal of notices of pro-
posed rulemaking.
SUMMARY: This document withdraws
two notices of proposed rulemaking, one
relating to corporations filing consoli-
dated income tax returns and the other re-
lating to collapsible corporations. The
proposed regulations were published be-
fore the enactment of the Internal Rev-
enue Code of 1986, do not reflect
changes to the tax law made after their
publication, and will not be finalized un-
less reproposed.
DATES: These proposed regulations are
withdrawn June 27, 2001.
FOR FURTHER INFORMATION CON-
TACT: Charles M. Whedbee (202) 622-
7550 (not a toll-free call).
SUPPLEMENTARY INFORMATION:
Background
On July 31, 1984, the IRS issued pro-
posed regulations (LR–97–79, 1984–2
C.B. 821) relating to corporations filing
consolidated returns (49 FR 30528). Por-
tions of these proposed consolidated re-
turn regulations were withdrawn by sub-
sequent notices of proposed rulemaking
(CO–78–90, 1991–1 C.B. 757 and
REG–103805–99, 2000–42 I.R.B. 376)
published in the Federal Registeron
February 4, 1991 (56 FR 4228) and Sep-
tember 26, 2000 (65 FR 57755).
On August 31, 1984, the IRS issued
proposed regulations (LR–107–84,
1984–2 C.B. 902) relating to collapsible
corporations (49 FR 34523).
The IRS is withdrawing these pro-
posed regulations because of intervening
amendments to the Internal Revenue
Code and because these regulations pro-
jects will not be undertaken in the fore-
seeable future (or if undertaken, the regu-
lations will be reproposed).
Drafting Information
The principal author of this withdrawal
notice is Charles M. Whedbee of the Office
of the Associate Chief Counsel (Corporate).
However, other personnel from the IRS and
Treasury participated in its development.
* * * * *
Withdrawal of Notices of Proposed
Rulemaking
Accordingly, under the authority of 26
U.S.C. 7805, the notices of proposed
rulemaking published in the Federal
Registeron July 31, 1984 (49 FR 30528)
and August 31, 1984 (49 FR 34523) are
withdrawn.
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
(Filed by the Office of the Federal Register on June
26, 2001, 8:45 a.m., and published in the issue of the
Federal Register for June 27, 2001, 66 F.R. 34136)
Foundations Status of Certain
Organizations
Announcement 2001–76
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 follow-
ing organizations (which have been
treated as organizations that are not pri-
vate foundations described in section
509(a) of the Code) are now classified as
private foundations:
ACFE Foundation, Inc., Springfield, MO
Akaryd Trust, Inc., Leawood, KS
American Institute of Jewish Studies,
Overland Park, KS
American Neuropsychiatric Association,
Detroit, MI
Another Way the Fund for Progress,
Wichita, KS
Association for a Free Burma,
Fairbanks, AK
Avonda Land, Inc., St. Louis, MO
Bethany Free Methodist Church-District
40 School Historical Preservation
Society, Inc., Bennington, KS
Beyond Bounds, Inc., Kansas City, MO
Biblical Archeology Educational
Services, Inc., Lincoln, NE
Bismarck-Mandan Interfaith Hospitality
Network, Bismarck, ND
Boomerang Kids, Inc., Kirksville, MO
Boonslick Area Citizens Advisory Board,
Columbia, MO
Box Butte County Family Focus
Coalition, Inc., Alliance, NE
Boys and Girls Club of Standing Rock,
Fort Yates, ND
Brown Hotel, Inc., Neodesha, KS
Brown Institute Association of Topeka,
Topeka, KS
BSDC Foundation, Inc., Beatrice, NE
Call to Commitment, Branson, MO
Capital City Men of Integrity,
Jefferson City, MO
Care of Poor People, Inc., Kansas City,
MO
City Sprouts, Inc., Omaha, NE
Civil War Round Table of Wilmington
Delaware, Inc., Wilmington, DE
Concerned Citizens for Topeka, Inc.,
Topeka, KS
Crawford County Domestic Violence
Coalition, Steelville, MO
Crete Athletic Booster Club, Inc.,
Crete, NE
Crown, Inc., Fulton, MO
Dakota Flyers, Inc., Fargo, ND
Derby Historical Society, Derby, KS
Divine Resurrection Ministries, Inc.,
Oakland, CA
Dolan Residential Care Centers, Inc.,
Chesterfield, MO
Douglas County Fire-Rescue
Departments, Inc., Boys Town, NE
Eagle Feather Indian Center, Inc.,
Minot, ND
Emerald Door, Inc., Fargo, ND
2001–29 I.R.B.67July 16, 2001
Part IV. Items of General Interest

July 16, 2001682001–29 I.R.B.
En Gedi Ministries, Inc., Branson, MO
Eye Laser Center, Springfield, MO
Fargo-Moorehead Express, Inc.,
Saint Paul, MN
Farm & Ranch Educational Exchange,
Morrill, NE
First Place Racing Ministries Foundation,
Lawrence, KS
Flying Circus Air and Sea Museum,
Gravois Mills, MO
Fowler Hospital District, Inc.,
Fowler, KS
Freedom Prison Ministries, Inc.,
Minot, ND
Friends of Kagawad, St. Louis, MO
Gateway Moo Do Kwan Association,
Inc., St. Louis, MO
Gentle Giants Equestrian Therapy,
Incorporation, Russell, KS
Gladd, Inc., Jefferson City, MO
Greater Missouri Area C.A.,
University City, MO
Greater St. Louis Community Prevention
Partnership, St. Louis, MO
Greater St. Louis Regional, Inc.,
St. Louis, MO
Greenway Manor Resident Management
Association, Inc., Wichita, KS
Grundy County R-VI Instructional Fund,
Inc., Trenton, MO
Harvey Sports Boosters, Harvey, ND
Heartland Dance Company, Bellevue, NE
Henderson Health Care Foundation,
Henderson, NE
Home Charitable Foundation,
Kensington, KS
Idhal, Inc., Poplar Bluff, MO
Igbo Union of St. Louis, Inc.,
Florissant, MO
Improve the Educational Process, Inc.,
Topeka, KS
Innovation Institute, Inc.,
Lawrence, KS
John H. Hinrichs PDCA Scholarship
Fund, St. Louis, MO
Johnson County Volleyball Club, Inc.,
Kansas City, KS
Juda, Inc., Buffalo Gap, SD
Kanarts, Incorporated, Lawrence, KS
Kansas Business Education Coalition,
Inc., Overland Park, KS
Kansas City Irish Festival Organization,
Olathe, KS
Kansas International Museum, Inc.,
Topeka, KS
Kansas Search & Rescue Dog
Association, Topeka, KS
Kanza Development, Inc., Wilson, KS
Kids Can Foundation, Inc., Blair, NE
Kids First, Inc., Independence, MO
Kidspace Childrens Museum, Inc.,
Springfield, MO
Kinder Town, Inc., Waverly, KS
La Roca Boxing Club of Leavenworth,
Leavenworth, KS
Lawson Cardinal Soccer Club,
Lawson, MO
Lexington Senior Center, Inc.,
Lexington, MO
Liberty Area Chamber Community
Foundation, Inc., Liberty, MO
Long Time Coming, Inc.,
Kansas City, MO
Maize Youth Baseball & Softball
Association, Maize, KS
Masonic Charity Fund of Wichita
AF&AM, Inc., Wichita, KS
May Morley Elementary School Parent
Teacher Organization, Lincoln, NE
Merry Go Round Day Care Center, Inc.,
Boonville, MO
Midwest Ecological Resources
Foundation, Inc., Lawrence, KS
Midwest Railroad Workers Scholarship
Foundation, St. Louis, MO
Mission Out-Reach to Siberia,
Frohna, MO
Missouri Kids with Neimann-Pick C,
Imperial, MO
Molly M. Rickel Research Library, Inc.,
Manhattan, KS
Myria Lee Youth House, St. Louis, MO
Native American Foundation of
Nebraska, Lincoln, NE
Nebraska Operation Lifesaver,
Lincoln, NE
New Wineskins, Inc., Omaha, NE
Noel Community Development Council,
Inc., Noel, MO
North American Fiddlers Association -
NAFA, Warrenburg, MO
North Dakota Olympic Dreamers, Inc.,
Williston, ND
North Kansas City Kiwanis Foundation,
Gladstone, MO
Old Engine Company 8, Inc., Ottawa, KS
Omicron XI Foundation,
Kansas City, MO
Optimist Club of Deep River - Northview
North Carolina, Sanford, NC
Over the Road Gang, Inc., Ottawa, KS
Pakistan American Society of Greater
Kansas City, Olathe, KS
Parshall 2000, Inc., Parshall, ND
Parsons Community Service Fund, Inc.,
Parsons, KS
Partners in Progress, Portland, ND
Pet Adoption & Welfare Society, Inc.,
Branson, MO
Peter Erickson Ministries, Inc.,
Fargo, ND
Pi Bear Childrens Charities, Inc.,
Hays, KS
Polk County Foundation, Inc.,
Osceola, NE
Posi-Rx, Wichita, KS
Quakes Softball, Inc., Omaha, NE
Ray Menefee Amateur Boxing Club, Inc.,
Lincoln, NE
Reno County Planning Council for
Children and Families, Inc.,
Hutchinson, KS
Saddle Champ Therapeutic Riding
Center, Inc., Kansas City, MO
Safe Harbor, Inc., Scottsbluff, NE
Saline County Fair Association,
Marshall, MO
Sarcoidosis Resource Center of
Delaware, Inc., Wilmington, DE
Seeds for Leadership, Talmage, NE
Senior Center of Carroll County,
Carrollton, MO
S.E.T. Community Youth Center of the
Kansas Business Womens Assn., Inc.,
Kansas City, KS
Shawnee Mission East Friends of the
Arts, Inc., Prairie Village, KS
Shelton Township Library Foundation,
Shelton, NE
Sioux Empire Housing Partnership, Inc.,
Sioux Falls, SD
Smart Motorcyclists Attend Rider
Training, Inc., (S.M.A.R.T., Inc.),
Topeka, KS
Soft Steps, Inc., Mandan, ND
Spirit Four Indian Center of Topeka, Inc.,
Topeka, KS
Splitrock Rail Station, Garretson, SD
St. Louis Advisory Board of Caring
Communities, St. Louis, MO
St. Peters Beautification Task Force, Inc.,
St. Louis, MO
Stepping-Stone Ranch, Inc., Spearfish,
SD
Sumner Youth Services, Inc.,
Wellington, KS
Teton Lakota Museum Board,
Hill City, SD
Topeka Model Railroaders, Incorporated,
Topeka, KS
Tuttle Area Development Corporation,
Tuttle, ND
Veterans Foundation of America,
Columbia, MO

2001–29 I.R.B.69July 16, 2001
Vietnam Veterans Support Foundation,
Inc., Kansas City, MO
Voices of the Children Auxiliary Fund,
Wichita, KS
Watertown Banquet, Watertown, SD
Watertown Inline Skating Association,
Watertown, SD
Wilco Interagency Corporation,
Fredonia, KS
Wilmington Youth Organization, Inc.,
Wilmington, DE
If an organization listed above submits
information that warrants the renewal of
its classification as a public charity or as a
private operating foundation, the Internal
Revenue Service will issue a ruling or de-
termination letter with the revised classi-
fication as to foundation status. Grantors
and contributors may thereafter rely upon
such ruling or determination letter as pro-
vided in section 1.509(a)–7 of the Income
Tax Regulations. It is not the practice of
the Service to announce such revised clas-
sification of foundation status in the Inter-
nal Revenue Bulletin.

July 16, 2001i2001–29 I.R.B.
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”)
that have an effect on previous rulings
use the following defined terms to de-
scribe the effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security
Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

2001–29 I.R.B.iiJuly 16, 2001
Numerical Finding List
1
Bulletins 2001–27 and 2001–28
Announcements:
2001–69, 2001–27 I.R.B. 23
2001–70, 2001–27 I.R.B. 23
2001–71, 2001–27 I.R.B. 26
2001–72, 2001–28 I.R.B. 39
2001–73, 2001–28 I.R.B. 40
2001–74, 2001–28 I.R.B. 40
2001–75, 2001–28 I.R.B. 42
Notices:
2001–39, 2001–27 I.R.B. 3
2001–41, 2001–27 I.R.B. 2
Proposed Regulations:
REG–106917–99, 2001–27 I.R.B. 4
Railroad Retirement Quarterly Rates:
2001–27, I.R.B. 1
Revenue Procedures:
2001–39, 2001–28 I.R.B. 38
Revenue Rulings:
2001–34, 2001–28 I.R.B. 31
Treasury Decisions:
8947, 2001–28, I.R.B. 36
8948, 2001–28, I.R.B. 27
8949, 2001–28, I.R.B. 33
8950, 2001–28, I.R.B. 34
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2001–1 through 2001–26
is in Internal Revenue Bulletin 2001–27, dated July
2, 2001.

July 16, 2001iii2001–29 I.R.B.
Finding List of Current Actions on
Previously Published Items
1
Bulletins 2001–27 and 2001–28
Proposed Regulations:
REG–107186–00
Corrected by
Ann. 2001–71, 2001–27 I.R.B. 26
Revenue Procedures:
97–13
Modified by
Rev. Proc. 2001–39, 2001–28 I.R.B. 38
2000–39
Corrected by
Ann. 2001–73, 2001–28 I.R.B. 40
Revenue Rulings:
57–589
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
65–316
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
68–125
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
69–563
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
74–326
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
78–179
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
1
A cumulative list of current actions on previously
published items in Internal Revenue Bulletins
2001–1 through 2001–26 is in Internal Revenue
Bulletin 2001–27, dated July 2, 2001.

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