Internal Revenue Bulletin 2001-43 (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. 2001–50, page 343.
Built-in gains tax.The built-in gains tax under section 1374
of the Code will not apply to the timber, coal, and domestic
iron ore transactions described in the four situations in the
ruling.
T.D. 8965, page 344.
Final regulations under sections 6221 through 6233 of the
Code implement the unified partnership audit procedures.
REG–107151–00, page 370.
Proposed regulations under section 1041 of the Code relate
to the tax treatment of certain redemptions, during marriage
or incident to divorce, of stock owned by a spouse or former
spouse. A public hearing is scheduled for December 14,
2001.
Announcement 2001–101, page 374.
This document informs issuers of tax-exempt bonds that,
effective immediately, the Service will put into effect proce-
dures to provide relief to issuers affected by the September
11, 2001, terrorist attack. Affected issuers are provided
additional time to file forms required under section 149(e) of
the Code and to make payments required under section
148(f) of the Code.
EMPLOYEE PLANS
Notice 2001–65, page 369.
Weighted average interest rate update.The weighted
average interest rate for October 2001 and the resulting
permissible range of interest rates used to calculate current
liability for purposes of the full funding limitation of section
412(c)(7) of the Code are set forth.
Announcement 2001–103, page 375.
Filing of certain schedules of Form 5500 due October
15, 2001.As a result of the disruption in financial markets
caused by the events of September 11, 2001, this
announcement provides limited relief from the penalties for
failure to file a complete and accurate Schedule B and
Schedule R of a Form 5500 that is due on or before October
15, 2001.
Announcement 2001–104, page 376.
GUST approved opinion letters and advisory letters.
This announcement describes the issuance of GUST
approved opinion letters and advisory letters in the instance
of master & prototype and volume submitter specimen plans
and reminds employers of the need to timely adopt their
GUST approved plans.
Internal Revenue
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Bulletin No. 2001–43
October 22, 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.
(Continued on the next page)

October 22, 20012001–43 I.R.B.
EXEMPT ORGANIZATIONS
Announcement 2001–105, page 376.
A list is provided of organizations now classified as private
foundations.
ADMINISTRATIVE
Rev. Proc. 2001–51, page 369.
Section 1374 rulings. This procedure modifies Rev. Proc.
2001–3 (2001–1 I.R.B. 111) by removing section 5.06 from
the No-Rule list. This concerns the application of section
1374 of the Code to certain timber, coal, and domestic iron
ore transactions. Rev. Proc. 2001–3 modified.

2001–43 I.R.B.October 22, 2001
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents are consolidated semiannually into
Cumulative Bulletins, which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying pub-
lished rulings and procedures, the effect of subsequent leg-
islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The first Bulletin for each month includes a cumulative index
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These monthly indexes are cumulated on a semiannual basis,
and are published in the first Bulletin of the succeeding semi-
annual period, respectively.
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Provide America’s taxpayers top quality service by help-
ing them understand and meet their tax responsibilities
and by applying the tax law with integrity and fairness to
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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.

2001–43 I.R.B.343October 22, 2001
Section 1374.—Tax Imposed on
Certain Built-In Gains
26 CFR 1.1374–4: Recognized built-in gain or loss.
Built-in gains tax.The built-in gains
tax under § 1374 will not apply to the tim-
ber, coal and domestic iron ore transac-
tions described in the four situations in
the ruling.
Rev. Rul. 2001–50
ISSUE
Is the S corporation’s gain recognized
in each of the situations described below
recognized built-in gain for purposes of
§ 1374 of the Internal Revenue Code?
FACTS
Situation 1: An S corporation holds tim-
ber property with built-in gain on the date
its election to convert from a C corporation
to an S corporation is effective (or acquires
timber property with built-in gain from a C
corporation in a transaction to which
§ 1374(d)(8) applies). During the 10-year
period beginning with the first day of the
first taxable year for which the corporation
was an S corporation (or beginning on the
day of the § 1374(d)(8) transaction) (the
recognition period), the S corporation cuts
the timber and sells the resulting wood
products and recognizes that built-in gain
in a transaction to which § 631 does not
apply.
Situation 2: An S corporation holds tim-
ber property with built-in gain on the date
its election to convert from a C corporation
to an S corporation is effective (or acquires
timber property with built-in gain from a C
corporation in a transaction to which
§ 1374(d)(8) applies). During the recogni-
tion period, the S corporation recognizes
that built-in gain on cutting the timber pur-
suant to an election under § 631(a).
Situation 3: An S corporation holds tim-
ber property with built-in gain on the date its
election to convert from a C corporation to
an S corporation is effective (or acquires tim-
ber property with built-in gain from a C cor-
poration in a transaction to which
§ 1374(d)(8) applies). During the recogni-
tion period, the S corporation recognizes that
built-in gain on the disposal of the timber
under a contract to which § 631(b) applies.
Situation 4: An S corporation holds coal
or domestic iron ore property with built-in
gain on the date its election to convert from
a C corporation to an S corporation is ef-
fective (or acquires coal or domestic iron
ore property with built-in gain from a C
corporation in a transaction to which
§ 1374(d)(8) applies). During the recogni-
tion period, the S corporation recognizes
that built-in gain on the disposal of the coal
or domestic iron ore under a contract to
which § 631(c) applies.
LAW AND ANALYSIS
Section 1374 imposes a corporate-level
tax on an S corporation’s net recognized
built-in gain during the recognition period
in the case of a C corporation’s conversion
to S corporation status (§ 1374(a)) or an S
corporation’s acquisition of assets in a
transaction in which the S corporation’s
basis in the acquired assets is determined
by reference to the basis of such assets
in the hands of a C corporation
(§ 1374(d)(8)). Recognized built-in gain
includes any gain recognized on the dispo-
sition of an asset during the recognition pe-
riod, except to the extent the S corporation
establishes that it did not hold the asset on
the conversion date or § 1374(d)(8) transac-
tion date, or that the gain recognized was
greater than the excess of the asset’s fair
market value over its adjusted basis on the
conversion date or § 1374(d)(8) transaction
date (§ 1374(d)(3)). Section 1374(d)(3) ap-
plies to any gain recognized during the
recognition period in a transaction treated
as a sale or exchange for Federal income
tax purposes (§ 1.1374–4(a) of the Income
Tax Regulations). In Example 1 of
§ 1.1374–4(a)(3), X is a C corporation that
elects to become an S corporation effective
January 1, 1996. On that date, X owns a
working interest in an oil and gas property
with a fair market value of $250,000 and an
adjusted basis of $500,000. During the
recognition period, X produces and sells oil
extracted from the oil and gas property for
$75,000. The example concludes that the
$75,000 is not recognized built-in gain
under § 1374 because, as of the beginning
of the recognition period, X held only a
working interest in the oil and gas property,
and not the oil itself.
Section 631(a) provides that, under cer-
tain circumstances, a taxpayer’s cutting of
timber is treated as a sale or exchange of
the timber in the year it is cut. Section
631(b) provides that, under certain circum-
stances, a taxpayer’s disposition of timber
shall be treated as giving rise to gain or
loss on a sale of such timber. Section
631(c) provides that, under certain circum-
stances, a taxpayer’s disposition to unre-
lated parties of coal or domestic iron ore
shall be treated as giving rise to gain or
loss on a sale of such coal or iron ore. In
general, § 631 permits a taxpayer to benefit
from capital gain treatment in circum-
stances that would otherwise give rise to
ordinary income.
If an S corporation holds timber prop-
erty on the date its election to convert from
a C corporation to an S corporation is ef-
fective and, during the recognition period,
cuts the timber and sells the resulting wood
products in a transaction to which § 631
does not apply, the tax consequences to the
S corporation under § 1374 are determined
using the same analysis contained in Ex-
ample 1 of § 1.1374–4(a)(3). The wood
products sold as inventory during the
recognition period did not constitute sepa-
rate assets held by the S corporation on the
conversion date and thus their production
and sale do not constitute a partial disposi-
tion of the timber property. See Rev. Rul.
72–515 (1972–2 C.B. 466) (treating grow-
ing timber as part of the underlying real
property for purposes of § 1031). Accord-
ingly, the S corporation’s income on the
sale of the resulting wood products during
the recognition period is not recognized
built-in gain within the meaning of
§ 1374(d)(3) and is not taxed under § 1374.
Notwithstanding the treatment accorded
income under § 631, the income received
from the sale of the resulting wood prod-
uct, produced coal, or produced iron ore
involves the receipt of normal operating
business income in the nature of rent or
royalties. See Rev. Rul. 77–109 (1977–1
C.B. 87) (holding that payments received
from a disposal of coal to which § 631(c)
does not apply is ordinary income). The
receipt of normal operating business in-
come in the nature of rents and royalties is
not subject to tax under § 1374. There is
no indication that Congress intended the
capital gain tax rate benefits provided by
section § 631 to cause normal operating
business income from the cutting of tim-
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

October 22, 20013442001–43 I.R.B.
ber or the extraction of minerals to be sub-
ject to tax under § 1374. Moreover,
§ 631(c) is designed to favor domestic
production of iron ore and sales of coal
and iron ore to unrelated parties. Applying
§ 1374 to income taxed under § 631(c)
could have the anomalous effect of taxing
sales of domestic iron ore more heavily
than sales of foreign production and tax-
ing sales of coal and iron to unrelated par-
ties more heavily than sales to related par-
ties. Accordingly, an S corporation’s gain
recognized pursuant to § 631(a), § 631(b),
or § 631(c) during the recognition period
is not recognized built-in gain within the
meaning of § 1374(d)(3).
HOLDINGS
The S corporation’s gain recognized in
the transactions described in Situation 1,
2, 3, and 4 is not recognized built-in gain
for purposes of § 1374.
See also Rev. Proc. 2001–51 (2001–43
I.R.B. 369), which modifies Rev. Proc.
2001–3 (2001–1 I.R.B. 111), by deleting
therefrom section 5.06 (the no-rule under
§ 1374, regarding the tax imposed on cer-
tain built-in gains).
DRAFTING INFORMATION
The principal author of this revenue
ruling is Cristian P. Silva of the Office of
Associate Chief Counsel (Corporate). For
further information regarding this revenue
ruling, contact Mr. Silva at (202) 622-
7750 (not a toll-free call).
Section 6221.—Tax Treatment
Determined at Partnership Level
26 CFR 301.6221–1: Tax treatment determined at
partnership level.
T.D. 8965
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 301 and 602
Unified Partnership Audit
Procedures
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains final
regulations relating to the unified partnership
audit procedures added to the Internal
Revenue Code by the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA), and
amended by the Taxpayer Relief Act of 1997
(1997 Act) and the Internal Revenue Service
Restructuring and Reform Act of 1998 (1998
Act). The unified partnership audit proce-
dures provide administrative rules for the
auditing of a partnership and its partners.
EFFECTIVE DATES:These regulations
are effective October 4, 2001.
FOR FURTHER INFORMATION CON-
TACT: William Heard at (202) 622-7950
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained
in these final regulations have been reviewed
and, pending receipt and evaluation of public
comments, approved by the Office of Man-
agement and Budget (OMB) under 44
U.S.C. 3507 and assigned control number
1545-0790. Responses to these collections
of information are both mandatory and vol-
untary and are required to receive a benefit.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless the collec-
tion of information displays a valid control
number assigned by the Office of Manage-
ment and Budget.
The collections of information required
by §§ 301.6222(b)–1, 301.6227(c)–1, and
301.6227(d)–1 are reflected on Form 8082,
“Notice of Inconsistent Treatment or Admin-
istrative Adjustment Request (AAR).”The
burden associated with them is reflected on
that form.
The remaining collections of information:
§§ 301.6222(a)–2,301.6222(b)–2,
301.6222(b)–3(a)(2), 301.6223(b)–1(b),
301.6223(c)–1(a), 301.6223(e)–2(a),
301.6223(g)–1, 301.6223(h)–1, 301.6224
(b)–1(b), 301.6224(c)–1(c), 301.6224(c)
–3(c), 301.6229(b)–2(b), 301.6230(b)–1,
301.6230(e)–1, 301.6231(a)(1)–1(b),
301.6231(a)(7)–1, 301.6231(c)–1(d),
301.6231(c)–2(d), are not reflected on the
Form 8082. The estimated annual burden
per respondent varies from .25 hours to .75
hours, depending on individual circum-
stances, with an estimated average of .5
hours.
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
These regulations finalize the regulations
proposed December 13, 1984 (L.R. 242–84,
1984–2 C.B. 917 [49 FR 48573]), April 18,
1986 (L.R. 205–82, 1986–1 C.B. 782 [51
FR 13231]), and January 26, 1999
(REG–106564–98, 1999–1 C.B. 714 [64 FR
3886]) and issued as temporary regulations
on December 13, 1984 (T.D. 7996, 1985–1
C.B. 357 [49 FR 48536]), March 5, 1987
(T.D. 8128, 1987–1 C.B. 325 [52 FR 6779]),
and January 26, 1999 (T.D. 8808, 1999–1
C.B. 682 [64 FR 3837]). On January 26,
1999, proposed regulations (REG–106564–
98, 1999–1 C.B. 714) were published in the
Federal Register(64 FR 3886). These reg-
ulations implemented the amendments to the
unified partnership audit rules made by the
1997 and 1998 Acts. In addition, the pream-
ble to those proposed regulations stated that
the IRS planned on finalizing all of the uni-
fied partnership audit procedure regulations
as part of this project (i.e., those regulations
proposed on December 13, 1984, and April
18, 1986). No written comments were re-
ceived in response to the January 26, 1999,
notice of proposed rulemaking. Contempo-
raneous with the issuance of proposed regu-
lations, Treasury and the IRS issued tempo-
rary regulations containing substantially
similar rules. Taxpayers and the IRS have
been operating under these rules since they
were promulgated as temporary regulations.
The proposed regulations under
§§ 301.6221 thru 301.6233 are adopted,
as revised by this Treasury decision.
Explanation of Provisions
These final regulations contain regula-
tions substantially similar to the previ-
ously proposed and currently effective
temporary regulations under sections
6221 through 6231, inclusive. The sub-
stantive changes from the provisions in
the proposed and temporary regulations
are as follows:
1. Clarification of § 301.6223(a)–2T
Section 6223 requires the IRS to pro-
vide partners with notice of partnership

2001–43 I.R.B.345October 22, 2001
proceedings. Under section 6223, the IRS
must notify each partner of the beginning
of an administrative proceeding by send-
ing out a notice of the beginning of an ad-
ministrative proceeding (NBAP). Under
§ 301.6223(a)–2T, if the IRS has issued an
NBAP but decides not to propose any ad-
justments to the partnership return as filed,
the IRS has 45 days to withdraw the
NBAP. If the IRS does not withdraw the
NBAP, however, it is not required to issue
a notice of final partnership administrative
adjustment (FPAA). This has led to some
confusion among partnerships who post-
pone raising adjustments that may result
in refunds or offsets while they await the
outcome of the partnership-level audit.
The issue of whether the IRS is required to
issue an FPAA after issuance of an NBAP
was litigated in Atlantic Richfield Co. v.
Dept. of Treasury, 1996 U.S. Dist. LEXIS
19891, (D.D.C. Dec. 31, 1996). In that
case, the court held that the IRS is not re-
quired to issue an FPAA even if it does not
withdraw the NBAP. If the IRS does not
issue an FPAA the partners will be unable
to request favorable adjustments unless
they have filed a timely administrative ad-
justment request (AAR) seeking a change
in the treatment of partnership items. Ac-
cordingly, a sentence has been added to
§ 301.6223(a)–2 to explicitly inform tax-
payers that the IRS does not have to issue
an FPAA notwithstanding the issuance of
(and failure to withdraw) an NBAP.
2. Elections Made Under § 301.6223(e)–2T
As stated above, section 6223 requires
the IRS to provide partners with an NBAP
and an FPAA. If the IRS fails to provide a
partner with timely notice, the partner
may, under § 301.6223(e)–2T(c)(2), elect
to have either the FPAA, a court decision,
a consistent settlement agreement, or con-
version to nonpartnership items apply to
that partner’s partnership items. That
election must be mailed within 45 days
after “that notice was mailed.” Section
301.6223(e)–2T(c)(2). To remove any
ambiguity regarding which notice triggers
the right to make an election under sec-
tion 6223(e), the final regulations amend
the temporary regulations to make it clear
that the 45-day period for making the
election under section 6223(e) relates to
the mailing of the FPAA, not the NBAP.
The final regulations also clarify that, in
accordance with Wind Energy Technology
Associates III v. Commissioner, 94 T.C.
787 (1990), the issuance of an NBAP
fewer than 120 days before the issuance
of the FPAA does not invalidate the
FPAA. Instead, a taxpayer will have 45
days from the mailing of the FPAA to
make the elections provided in section
6223(e).
3. Effect of a Nonresident Alien Partner
on the Small Partnership Exception of
Section 6231(a)(1)(B)(i)
For purposes of the unified partnership
audit rules, section 6231(a)(1)(B)(i) con-
tains an exception from the definition of a
partnershipfor certain small partnerships.
Under this rule, a partnershipdoes not in-
clude any partnership having 10 or fewer
partners, each of whom is an individual
(other than a nonresident alien), a C cor-
poration, or an estate of a deceased part-
ner. The proposed regulations stated that
“the 10 or fewer limitation . . . is applied
to the number of natural persons (other
than nonresident aliens) . . .” Some prac-
titioners have read this provision to mean
that a nonresident alien can be a partner in
a small partnership that is not subject to
the unified partnership audit rules, but
that such partners are not counted toward
the 10 partner limitation. To clarify that a
partnership that has a nonresident alien
partner cannot qualify for the small part-
nership exception of section 6231(a)
(1)(B)(i), this parenthetical has been re-
moved in § 301.6231(a)(1)–1(a)(1) of the
final regulations.
4. Definition of Affected Item
Under the unified partnership audit
rules, special procedures apply with re-
spect to affected items, that is, items that
are affected by partnership items. Section
301.6231(a)(5)–1T defines the term af-
fected itemas including, among other
things, a partner’s basis in the partner’s
partnership interest, the application of the
section 465 at-risk rules to a partner, and
any addition to tax or additional amount
to the extent that they are not partnership
items. Generally, affected items are di-
rectly assessed following partnership pro-
ceedings. If the item requires partner-
level determinations, however, the IRS
must assert changes to affected items in a
partner-level deficiency proceeding fol-
lowing the completion of the partnership-
level proceeding.
The IRS promulgated § 301.6231(a)
(5)–1T before the enactment of section
469, the passive loss rules. Because the
application of the passive loss rules to a
partner is similar to the existing list of af-
fected items, the final regulations provide
that the application of the passive loss
rules under section 469 to a partner with
respect to a loss flowing from a partner-
ship is an affected item to the extent it is
not a partnership item.
5. Husbands and Wives Owning Partner-
ship Interests Separately or Jointly
The temporary regulations under sec-
tion 6231 describe the treatment of
spouses under the unified partnership
audit rules where: (1) a married couple
owns an interest in a partnership as joint
property; and (2) a married individual
owns an interest in a partnership as sepa-
rate property. Section 301.6231(a)
(12)–1T applies when a married couple
owns a partnership interest as joint prop-
erty. It provides that, with limited excep-
tions, spouses holding a joint interest in a
partnership are both treated as partners for
purposes of subchapter C of chapter 63 of
the Internal Revenue Code. This regula-
tion interprets section 6231(a)(12), which
provides that a husband and wife who
have a joint interest in a partnership shall
be treated as one person, except as other-
wise provided in regulations.
Section 301.6231(a)(2)–1T applies
when one spouse owns a partnership in-
terest as separate property. It provides
that, with limited exceptions, a spouse
who files a joint return with an individual
holding a separate interest in a partnership
is treated as a partner for purposes of sub-
chapter C of chapter 63. This regulation
interprets section 6231(a)(2), which pro-
vides that the term partnerincludes any
person whose income tax liability is de-
termined in whole or in part by taking into
account directly or indirectly partnership
items.
In Callaway v. Commissioner, 231 F.3d
106 (2d Cir. 2000), the U.S. Court of Ap-
peals for the Second Circuit considered
§ 301.6231(a)(2)–1T in holding that a
wife was not bound by the outcome of a
unified partnership proceeding where her
husband’s partnership items converted to
nonpartnership items during the proceed-
ing. The partnership interest at issue in
Callawaywas the husband’s separate
property. The court reasoned that the wife
was treated as a partner under the regula-
tion only because she filed a joint return

October 22, 20013462001–43 I.R.B.
with a person who owned a partnership
interest; therefore, her tax liability was
determined in part by taking into account
partnership items. Once the husband’s
partnership items converted to nonpart-
nership items, the wife’s tax liability was
no longer affected by any partnership
items and there was no longer any reason
for her to participate in or be bound by the
partnership proceedings.
In so holding, the Callaway court dis-
tinguished Dubin v. Commissioner,99
T.C. 325 (1992). In Dubin, the Tax Court
held that a wife was bound by the out-
come of a unified partnership audit pro-
ceeding even though her husband’s part-
nership items converted to nonpartnership
items prior to the conclusion of the pro-
ceeding. In Dubin, unlike Callaway,the
husband and wife owned the interest as
joint property. Therefore, each was
treated as having a share of partnership
items that could be affected by the part-
nership proceeding independently of the
other’s share.
To resolve questions concerning the
treatment of partnership items when a
conversion event occurs with respect to a
spouse, §§ 301.6231(a)(2)–1T and
301.6231(a)(12)–1T have been amended
to be consistent with the Callawayopin-
ion.
6. Partnership-Level Determinations of
Penalties
Before the 1997 Act, the IRS could im-
pose penalties on a partner only through
the application of the deficiency proce-
dures after the completion of a partner-
ship-level proceeding. Forcing the IRS to
open deficiency proceedings against the
individual partners was inconsistent with
the efficiency goal of the partnership audit
rules. The 1997 Act cured this problem
by providing that, for partnership taxable
years ending after August 5, 1997, part-
nership-level proceedings include the de-
termination of applicable penalties at the
partnership level. Partners may now raise
any partner-level defenses to the imposi-
tion of penalties only in a subsequent re-
fund action.
The temporary regulations issued on
January 26, 1999 (the 1999 Regulations),
revised §§ 301.6221–1T, 301.6224(c)
–3T(b)(1), and 301.6231(a)(6)–1T to con-
form those regulations to the statutory
change. The revised regulations mandate
that the partnership’s penalty defenses are
to be resolved during the partnership pro-
ceeding; individual defenses can only be
brought by the partner in a subsequent re-
fund action. In addition, the 1999 Regu-
lations modify the computational adjust-
ment rules to allow the IRS to assess
penalties under those procedures. Finally,
the 1999 Regulations specify that partner-
ship-level determinations of a penalty
may be the subject of a settlement agree-
ment between the IRS and a partner in a
partnership. If they are, then the IRS
must offer consistent settlement terms
with respect to those partnership-level de-
terminations of the penalty (and other set-
tled partnership items) to other partners in
the partnership, subject to the limitations
of section 6224(c)(2) and the regulations
thereunder.
The final regulations make additional
changes to the regulations under subchap-
ter C of chapter 63 to conform those regu-
lations to the new statutory treatment of
penalties. Specifically, the final regula-
tions amend § 301.6224(c)–1T to clarify
that a settlement agreement between the
tax matters partner and the IRS with re-
spect to penalties, like a settlement agree-
ment with respect to partnership items,
binds partners other than notice partners
and members of a notice group. Simi-
larly, the final regulations amend
§ 301.6224(c)–2T to clarify that a settle-
ment agreement between a pass-thru part-
ner and the IRS with respect to penalties
binds indirect partners, as would a settle-
ment agreement with respect to partner-
ship items. In addition, the final regula-
tions amend § 301.6229(f)–1T to clarify
that the rules applicable to partial settle-
ments of partnership items also apply to
partnership-level determinations of penal-
ties.
The final regulations also amend
§ 301.6226(f)–1T to reflect the 1997 Act
changes to section 6226(f). The 1997 Act
grants courts jurisdiction to determine
penalties, additions to tax, or additional
amounts relating to an adjustment to part-
nership items. The final regulations do
not, however, amend § 301.6226(e)–1T to
require that a partnership contesting an
FPAA, in a United States district court or
the United States Court of Federal
Claims, deposit tax attributable to partner-
ship-level determinations of penalties as a
condition of bringing the proceeding. Be-
cause the 1997 Act amends section
6226(f), but not section 6226(e), it ap-
pears that Congress did not intend to re-
quire a deposit of penalties attributable to
partnership-level determinations as a con-
dition of bringing such an action. This
rule is applicable to civil actions begin-
ning on or after October 4, 2001.
Treasury and the IRS also amended
§ 301.6226(e)–1T to clarify that, in the case
of a petition filed by a 5-percent group or
pass-thru partner, the members of the group
or the indirect partners holding an interest
in the partnership through the pass-thru
partner must deposit the aggregate amount
by which their tax liabilities would be in-
creased if the treatment of partnership items
on the partners’ returns were made consis-
tent with the treatment of partnership items
on the partnership return. This clarification
is applicable to civil actions beginning on
or after March 30, 2002.
7. Applicability Dates
This document contains final regula-
tions relating to the unified partnership
audit procedures added to the Internal
Revenue Code by TEFRA, and amended
by the 1997 Act and the 1998 Act. Pro-
posed regulations were published on De-
cember 13, 1984, April 18, 1986, and Jan-
uary 26, 1999. Temporary regulations
were published on December 13, 1984
(effective December 10, 1984), March 5,
1987 (effective September 3, 1982), and
January 26, 1999 (effective January 26,
1999). The final regulations published in
this document apply to unified partner-
ship proceedings with respect to partner-
ship taxable years beginning on or after
October 4, 2001. For unified partnership
proceedings with respect to partnership
taxable years beginning before October 4,
2001, taxpayers and practitioners are di-
rected to the temporary regulations that
were in effect for the period in question.
Effective Date
These regulations are effective as of
October 4, 2001.
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 is hereby certified
that the collection of information in

2001–43 I.R.B.347October 22, 2001
§ 301.6229(b)–2(b) does not have a sig-
nificant impact on a substantial number of
small entities. This certification is based
on the fact that the notification is only re-
quired for the few partnerships whose Tax
Matters Partners are debtors in a bank-
ruptcy proceeding under Title 11 of the
United States Code. Moreover, the time
required to prepare and file the notifica-
tion is minimal and will not have a signif-
icant impact on those few small entities
that file the notification. Therefore, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required for
§ 301.6229(b)–2(b).
The other information collections im-
posed by this Treasury decision are not
subject to the Regulatory Flexibility Act
because the notice of proposed rulemak-
ing with respect to these requirements
was published prior to March 29, 1996.
Nevertheless, we believe that these infor-
mation collections will not have a signifi-
cant impact on a substantial number of
small entities. This is based on the fact
that most of the information collections
only apply to entities under audit, and the
remaining information collections apply
only to a small number of small busi-
nesses, namely small partnerships who
elect to have the provisions of subchapter
C of chapter 63 apply, and small business
partners that report partnership items in-
consistently with the reporting of that
item on the partnership return. Moreover,
the time required to prepare and file the
required statements is minimal on those
few small entities that file the statements.
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. Pursuant to section
7805(f) of the Internal Revenue Code, the
notice of proposed rulemaking was sub-
mitted 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 Horace Howells, Office of Associ-
ate Chief Counsel (Passthroughs and Spe-
cial Industries), IRS. However, other
personnel from the IRS and Treasury De-
partment participated in their develop-
ment.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 301 and
602 are amended as follows:
PART 301 - - PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 1 is amended by adding entries in nu-
merical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 301.6231(c)–1 also issued
under 26 U.S.C. 6231(c)(1) and (3).
Section 301.6231(c)–2 also issued
under 26 U.S.C. 6231(c)(1) and (3). * * *
Par. 2. Section 301.6221–1 is added to
read as follows:
§ 301.6221–1 Tax treatment determined
at partnership level.
(a) In general. A partner’s treatment of
partnership items on the partner’s return
may not be changed except as provided in
sections 6222 through 6231 and the regu-
lations thereunder. Thus, for example, if a
partner treats an item on the partner’s re-
turn consistently with the treatment of the
item on the partnership return, the IRS
generally cannot adjust the treatment of
that item on the partner’s return except
through a partnership-level proceeding.
Similarly, the taxpayer may not put part-
nership items in issue in a proceeding re-
lating to nonpartnership items. For exam-
ple, the taxpayer may not offset a
potential increase in taxable income based
on changes to nonpartnership items by a
potential decrease based on partnership
items.
(b) Restrictions inapplicable after
items become nonpartnership items. Sec-
tion 6221 and paragraph (a) of this section
cease to apply to items arising from a
partnership with respect to a partner when
those items cease to be partnership items
with respect to that partner under section
6231(b).
(c) Penalties determined at partnership
level. Any penalty, addition to tax, or ad-
ditional amount that relates to an adjust-
ment to a partnership item shall be deter-
mined at the partnership level.
Partner-level defenses to such items can
only be asserted through refund actions
following assessment and payment. As-
sessment of any penalty, addition to tax,
or additional amount that relates to an ad-
justment to a partnership item shall be
made based on partnership-level determi-
nations. Partnership-level determinations
include all the legal and factual determi-
nations that underlie the determination of
any penalty, addition to tax, or additional
amount, other than partner-level defenses
specified in paragraph (d) of this section.
(d) Partner-level defenses. Partner-
level defenses to any penalty, addition to
tax, or additional amount that relates to an
adjustment to a partnership item may not
be asserted in the partnership-level pro-
ceeding, but may be asserted through sep-
arate refund actions following assessment
and payment. See section 6230(c)(4).
Partner-level defenses are limited to those
that are personal to the partner or are de-
pendent upon the partner’s separate return
and cannot be determined at the partner-
ship level. Examples of these determina-
tions are whether any applicable threshold
underpayment of tax has been met with
respect to the partner or whether the part-
ner has met the criteria of section 6664(b)
(penalties applicable only where return is
filed), or section 6664(c)(1) (reasonable
cause exception) subject to partnership-
level determinations as to the applicabil-
ity of section 6664(c)(2).
(e) Cross-references. See §§ 301.
6231(c)–1 and 301.6231(c)–2 for special
rules relating to certain applications and
claims for refund based on losses, deduc-
tions, or credits from abusive tax shelter
partnerships.
(f) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6221–1T contained in 26 CFR
part 1, revised April 1, 2001.
§ 301.6221–1T [Removed]
Par. 2a. Section 301.6221–1T is re-
moved.
Par. 3. Section 301.6222(a)–1 is added
to read as follows:
§ 301.6222(a)–1 Consistent treatment of
partnership items.
(a) In general. The treatment of a part-
nership item on the partner’s return must
be consistent with the treatment of that
item by the partnership on the partnership
return in all respects including the
amount, timing, and characterization of
the item.

October 22, 20013482001–43 I.R.B.
(b) Treatment must be consistent with
partnership return. The treatment of a
partnership item on the partner’s return
must be consistent with the treatment of
that item on the partnership return. Thus,
a partner who treats an item consistently
with a schedule or other information fur-
nished to the partner by the partnership
has not satisfied the requirement of para-
graph (a) of this section if the treatment of
that item is inconsistent with the treat-
ment of the item on the partnership return
actually filed. For rules relating to the
election to be treated as having reported
the inconsistency where the partner treats
an item consistently with an incorrect
schedule, see § 301.6222(b)–3.
(c) Examples. The following examples
illustrate the principles of this section:
Example 1. B is a partner of Partnership P. Both
B and P use the calendar year as the taxable year. In
December 2001, P receives an advance payment for
services to be performed in 2002 and reports this
amount as income for calendar year 2001. However,
B reports B’s distributive share of this amount on B’s
income tax return for 2002 and not on B’s return for
2001. B’s treatment of this partnership item is
inconsistent with the treatment of the item by P.
Example 2. Partnership P incurred certain start-
up costs before P was actively engaged in its busi-
ness. P capitalized these costs. C, a partner in P,
deducted C’s proportionate share of these start-up
costs. C’s treatment of the partnership expenditure is
inconsistent with the treatment of that item by P.
Example 3. D is a partner in partnership P. P
reports a loss of $100,000 on its return, $5,000 of
which it reports on the Schedule K-1 attached to its
return as D’s distributive share. However, P reports
$15,000 as D’s distributive share of P’s loss on the
Schedule K-1 furnished to D. D reports the $15,000
loss on D’s income tax return. D has not satisfied the
consistent reporting requirement. See, however,
§ 301.6222(b)–3 for an election to be treated as hav-
ing reported the inconsistency.
(d) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6222(a)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6222(a)–1T [Removed]
Par. 3a. Section 301.6222(a)–1T is re-
moved.
Par. 4. Section 301.6222(a)–2 is added
to read as follows:
§ 301.6222(a)–2 Application of
consistent reporting and notification
rules to indirect partners.
(a) In general. The consistent reporting
requirement of § 301.6222(a)–1 is gener-
ally applied with respect to the source
partnership. For purposes of this section,
the term source partnershipmeans the
partnership (within the meaning of sec-
tion 6231(a)(1)) from which the partner-
ship item originates.
(b) Indirect partner files consistently
with source partnership. An indirect part-
ner who treats an item from a source part-
nership in a manner consistent with the
treatment of that item on the source part-
nership’s return satisfies the consistency
requirement of section 6222(a) regardless
of whether the indirect partner treats that
item in a manner consistent with the treat-
ment of that item by the pass-thru partner
through which the indirect partner holds
the interest in the source partnership.
Under these circumstances, therefore, the
Internal Revenue Service shall not send to
the indirect partner the notice described in
section 6231(b)(1)(A).
(c) Indirect partner files inconsistently
with source partnership—(1) Indirect
partner notifies the Internal Revenue Ser-
vice of inconsistency. An indirect partner
who—
(i) Treats an item from a source part-
nership in a manner inconsistent with the
treatment of that item on the source part-
nership’s return; and
(ii) Files a statement identifying the in-
consistency with the source partnership in
accordance with § 301.6222(b)–1, shall
not be subject to a computational adjust-
ment to conform the treatment of that
item to the treatment of that item on the
return of the source partnership.
(2) Indirect partner does not notify the
Internal Revenue Service of inconsis-
tency. Except as provided in paragraph
(c)(3) of this section, an indirect partner
who—
(i) Treats an item from a source part-
nership in a manner inconsistent with the
treatment of that item on the source part-
nership’s return; and
(ii) Fails to file a statement identifying
the inconsistency with the source partner-
ship in accordance with § 301.6222(b)–1,
is subject to a computational adjustment
to conform the treatment of that item to
the treatment of that item on the return of
the source partnership.
(3) Indirect partner files consistently
with a pass-thru partner that notifies the
Internal Revenue Service of the inconsis-
tency. If an indirect partner treats an item
from a source partnership in a manner
consistent with the treatment of that item
by a pass-thru partner through which the
indirect partner holds the interest in the
source partnership and that pass-thru part-
ner—
(i) Treats that item in a manner incon-
sistent with the treatment of that item on
the source partnership’s return; and
(ii) Files a statement identifying the in-
consistency with the source partnership in
accordance with § 301.6222(b)–1, the in-
direct partner is not subject to a computa-
tional adjustment to conform to the treat-
ment of that item on the return of the
source partnership.
(d) Examples. The following examples
illustrate the principles of this section:
Example 1. One of the partners in Partnership A
is Partnership B, which has four equal partners C, D,
E, and F. Both A and B are partnerships within the
meaning of section 6231(a)(1). On its return, A
reports $100,000 as B’s distributive share of A’s ordi-
nary income. B, however, reports only $80,000 as its
distributive share of the income and does not notify
the Internal Revenue Service of this inconsistent
treatment with respect to A. C reports $20,000 as its
distributive share of the item. Although C reports the
item consistently with B, C is subject to a computa-
tional adjustment to conform the treatment of that
item on C’s return to the treatment of that item on A’s
return.
Example 2. Assume the same facts as in Example
1, except that B notified the Internal Revenue
Service of its inconsistent treatment with respect to
source partnership A. C is not subject to a computa-
tional adjustment.
Example 3. Assume the same facts as in Example
1. D reports only $15,000 as D’s distributive share
of the income and does not report the inconsistency.
F reports only $9,000 as its distributive share of the
item but reports this inconsistency with respect to
source partnership A. D is subject to a computation-
al adjustment to conform the treatment of that item
on D’s return to the treatment of that item on A’s
return. F is not subject to a computational adjust-
ment.
Example 4. Assume the same facts as in Example
3, except that F reported the inconsistency with
respect to B and did not report the inconsistency
with respect to source partnership A. F is subject to
a computational adjustment to conform the treatment
of that item on F’s return to the treatment of that item
on A’s return.
Example 5. Assume the same facts as in Example
1. E reports $25,000 as its distributive share of the
item. Regardless of whether E reports the inconsis-
tency between its treatment of the item and that by
B, E is neither subject to a computational adjustment
to conform E’s treatment of that item to that of B nor
subject to the notice described in section
6231(b)(1)(A) with respect to any such notification
of inconsistent treatment.
(e) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For

2001–43 I.R.B.349October 22, 2001
years beginning prior to October 4, 2001,
see § 301.6222(a)–2T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6222(a)–2T [Removed]
Par. 4a. Section 301.6222(a)–2T is re-
moved.
Par. 5. Section 301.6222(b)–1 is added
to read as follows:
§ 301.6222(b)–1 Notification to the
Internal Revenue Service when partnership
items are treated inconsistently.
(a) In general. The statement identify-
ing an inconsistency described in section
6222(b)(1)(B) shall be filed by filing the
form prescribed for that purpose in accor-
dance with the instructions accompanying
that form.
(b) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6222(b)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6222(b)–1T [Removed]
Par. 5a. Section 301.6222(b)–1T is re-
moved.
Par. 6. Section 301.6222(b)–2 is added
to read as follows:
§ 301.6222(b)–2 Effect of notification of
inconsistent treatment.
(a) In general. Generally, if a partner
treats a partnership item on the partner’s
return in a manner inconsistent with the
treatment of that item on the partnership
return, the Internal Revenue Service may
make a computational adjustment to con-
form the treatment of the item by the part-
ner with the treatment of that item on the
partnership return. Any additional tax re-
sulting from that computational adjust-
ment may be assessed without either the
commencement of a partnership proceed-
ing or notification to the partner that all
partnership items arising from that part-
nership will be treated as nonpartnership
items. However, if a partner notifies the
Internal Revenue Service of the inconsis-
tent treatment of a partnership item in the
manner prescribed in § 301.6222(b)–1,
the Internal Revenue Service generally
may not make an adjustment with respect
to that partnership item unless the Internal
Revenue Service—
(1) Conducts a partnership-level pro-
ceeding; or
(2) Notifies the partner under section
6231(b)(1)(A) that all partnership items
arising from that partnership will be
treated as nonpartnership items. See,
however,§§ 301.6231(c)–1 and
301.6231(c)–2 for special rules relating to
certain applications and claims for refund
based on losses, deductions, or credits
from abusive tax shelter partnerships.
(b) Partner protected only to extent of
notification. (1) A partner who reports the
inconsistent treatment of partnership items
on the partner’s return is protected from
computational adjustments under section
6222(c) only with respect to those partner-
ship items the inconsistent treatment of
which is reported. Thus, if a partner notify-
ing the Internal Revenue Service with re-
spect to one item fails to report the incon-
sistent treatment of another item, the
partner is subject to a computational adjust-
ment with respect to that other item.
(2) The following example illustrates
the principles of this paragraph (b):
Example. Partner A of Partnership P treats a
deduction and a capital gain arising from P on A’s
return in a manner that is inconsistent with the treat-
ment of those items by P. A reports the inconsistent
treatment of the deduction but not of the gain. A is
subject to a computational adjustment under section
6222(c) with respect to the gain.
(c) Adjustments in a separate proceed-
ing not limited to conforming adjust-
ments. (1) If the Internal Revenue Service
conducts a separate proceeding with a
partner whose partnership items are
treated as nonpartnership items under sec-
tion 6231(b), the Internal Revenue Ser-
vice is not limited to making adjustments
that merely conform the partner’s return
to the partnership return.
(2) Example. The following example
illustrates the principles of this paragraph
(c):
Example. Partnership P allocates to E, one of its
partners, a loss of $8,000. E, however, claims a loss
of $9,000 and reports the inconsistent treatment.
The Internal Revenue Service notifies E that it will
treat all of E’s partnership items arising from P as
nonpartnership items. As a result of a separate pro-
ceeding with E, the Internal Revenue Service may
issue a deficiency notice which could include reduc-
ing the loss to $3,000.
(d) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6222(b)–2T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6222(b)–2T [Removed]
Par. 6a. Section 301.6222(b)–2T is re-
moved.
Par. 7. Section 301.6222(b)–3 is added
to read as follows:
§ 301.6222(b)–3 Partner receiving
incorrect schedule.
(a) In general.A partner shall be
treated as having complied with section
6222(b)(1)(B) and § 301.6222(b)–1 with
respect to a partnership item if the part-
ner—
(1) Demonstrates that the treatment of
the partnership item on the partner’s re-
turn is consistent with the treatment of
that item on the schedule prescribed by
the Internal Revenue Service and fur-
nished to the partner by the partnership
showing the partner’s share of income,
credits, deductions, etc.; and
(2) Elects in accordance with the rules
prescribed in paragraph (b) of this section
to have this section apply with respect to
that item.
(b) Election provisions—(1) Time and
manner of making election. The election
described in paragraph (a) of this section
shall be made by filing a statement with
the Internal Revenue Service office issu-
ing the notice of computational adjust-
ment within 30 days after the notice is
mailed to the partner.
(2) Contents of statement. The state-
ment described in paragraph (b)(1) of this
section shall be—
(i) Clearly identified as an election
under section 6222(b)(2);
(ii) Signed by the partner making the
election; and
(iii) Accompanied by copies of the
schedule furnished to the partner by the
partnership and of the notice of computa-
tional adjustment. The partner need not
enclose a copy of the notice of computa-
tional adjustment, however, if the partner
clearly identifies the notice of computa-
tional adjustment. Generally, the require-
ment described in paragraph (a)(1) of this
section will be satisfied by attaching to
the statement a copy of the schedule fur-
nished to the partner by the partnership.
However, if it is not clear from the infor-
mation contained on the schedule that the
treatment of the partnership item on the
schedule is consistent with the partner’s
treatment of such item on the partner’s re-

October 22, 20013502001–43 I.R.B.
turn, the statement shall also include an
explanation of how the treatment of such
item on the schedule is consistent with the
treatment on the partner’s return with re-
spect to the characterization, timing, and
amount of such item.
(c) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6222(b)–3T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6222(b)–3T [Removed]
Par. 7a. Section 301.6222(b)–3T is re-
moved.
Par. 8. Section 301.6223(a)–1 is added
to read as follows:
§ 301.6223(a)–1 Notice sent to tax
matters partner.
(a) In general. For purposes of sub-
chapter C of chapter 63 of the Internal
Revenue Code, a notice is treated as
mailed to the tax matters partner on the
earlier of—
(1) The date on which the notice is
mailed to “THE TAX MATTERS PART-
NER” at the address of the partnership (as
provided on the partnership return, except
as updated under § 301.6223(c)–1); or
(2) The date on which the notice is
mailed to the person who is the tax mat-
ters partner at the address of that person
(as provided on the partner’s return, ex-
cept as updated under § 301.6223(c)–1)
or the partnership. See § 301.6223(c)–1
for rules relating to the information used
by the Internal Revenue Service in pro-
viding notices, etc.
(b) Example. The provisions of this
section may be illustrated by the follow-
ing example:
Example. Partnership P designates B as its tax
matters partner in accordance with § 301.6231(a)
(7)–1(b). On December 1, a notice of the beginning
of an administrative proceeding is mailed to “THE
TAX MATTERS PARTNER” at the address of P. On
January 10, a copy of the notice is mailed to B at B’s
address. December 1 is treated as the date that the
notice was mailed to the tax matters partner.
(c) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6223(a)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6223(a)–1T [Removed]
Par. 8a. Section 301.6223(a)–1T is re-
moved.
Par. 9. Section 301.6223(a)–2 is added
to read as follows:
§ 301.6223(a)–2 Withdrawal of notice of
the beginning of an administrative
proceeding.
(a) In general. If the Internal Revenue
Service, within 45 days after the day on
which the notice specified in section
6223(a)(1) is mailed to the tax matters
partner, decides not to propose any ad-
justments to the partnership return as
filed, the Internal Revenue Service may
withdraw the notice specified in section
6223(a)(1) by mailing a letter to that ef-
fect to the tax matters partner within that
45-day period. Even if the Internal Rev-
enue Service does not withdraw the no-
tice specified in section 6223(a)(1), the
Internal Revenue Service is not required
to issue a notice of final partnership ad-
ministrative adjustment. If the Internal
Revenue Service withdraws the notice
specified in section 6223(a)(1), neither
the Internal Revenue Service nor the tax
matters partner is required to furnish any
notice with respect to that proceeding to
any other partner. Except as provided in
paragraph (b) of this section, a notice
specified in section 6223(a)(1) which has
been withdrawn shall be treated for pur-
poses of subchapter C of chapter 63 of
the Internal Revenue Code as if that no-
tice had never been mailed to the tax mat-
ters partner.
(b) Internal Revenue Service may not
reissue notice except under certain cir-
cumstances. If the notice specified in sec-
tion 6223(a)(1) was mailed to the tax mat-
ters partner with respect to a partnership
taxable year and that notice was later
withdrawn as provided in paragraph (a) of
this section, the Internal Revenue Service
shall not mail a second notice specified in
section 6223(a)(1) with respect to that
taxable year unless—
(1) There is evidence of fraud, malfea-
sance, collusion, concealment, or misrep-
resentation of a material fact;
(2) The prior proceeding involved the
misapplication or erroneous interpretation
of an established Internal Revenue Ser-
vice position existing at the time of the
previous examination, or the failure to
make an adjustment based on such a posi-
tion; or
(3) Other circumstances exist which in-
dicate that failure to reissue the notice
would be a serious administrative omis-
sion.
(c) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6223(a)–2T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6223(a)–2T [Removed]
Par. 9a. Section 301.6223(a)–2T is re-
moved.
Par. 10. Section 301.6223(b)–1 is
added to read as follows:
§ 301.6223(b)–1 Notice group.
(a) In general. If a group of partners
having in the aggregate a 5 percent or
more interest in the profits of a partner-
ship requests and designates one of their
members to receive the notices described
in sections 6223(a)(1) and (2), the mem-
ber so designated shall be treated as a
partner to whom section 6223(a) applies.
Thus, the designated representative is
entitled to receive any notice described
in section 6223(a) that is mailed to the
tax matters partner 30 days or more after
the day on which the Internal Revenue
Service receives the request from the
group.
(b) Request for notice—(1) In general.
The Internal Revenue Service shall mail
to the member of the notice group desig-
nated to receive such notice any notice
described in section 6223(a) that is
mailed to the tax matters partner 30 days
or more after the day on which the Inter-
nal Revenue Service receives the request
for notice from the group if such request
for notice is made in accordance with the
rules prescribed in this paragraph (b).
(2) Content of request. The request for
notice from a notice group shall—
(i) Identify the partnership by name,
address, and taxpayer identification num-
ber;
(ii) Specify the taxable year or years for
which the notice group is formed;
(iii) Designate the member of the group
to receive the notices;
(iv) Set out the name, address, taxpayer
identification number, and profits interest
of each member of the group; and
(v) Be signed by all partners compris-
ing the notice group.

2001–43 I.R.B.351October 22, 2001
(3) Place for filing. The request for no-
tice from a notice group generally must be
filed with the service center where the
partnership return is filed. However, if
the notice group representative knows that
the notice described in section 6223(a)(1)
(beginning of an administrative proceed-
ing) has already been mailed to the tax
matters partner, the statement should be
filed with the Internal Revenue Service
office that mailed that notice.
(4) Copy to be sent to the tax matters
partner. A copy of the request for notice
from a notice group shall be provided to
the tax matters partner by the notice group
representative within 30 days after the re-
quest is filed with the Internal Revenue
Service.
(5) Years covered by request. A request
for notice by a notice group may relate
only to partnership taxable years that have
ended before the request is filed. A re-
quest, however, may relate to more than
one partnership taxable year if the 5 per-
cent or more profits interest requirement
of section 6223(b)(2) is satisfied for each
year to which the request relates.
(c) Composition of notice group—(1)
In general. A notice group shall be com-
prised only of persons who were partners
at some time during the partnership tax-
able year for which the group is formed.
If a notice group is formed for more than
one taxable year, each member of the
group must have been a partner at some
time during at least one of the taxable
years for which the group is formed. A
notice group may include a partner enti-
tled to separate notice. See section
6231(d) and § 301. 6231(d)–1 for rules
relating to determining the interest of a
partner in the profits of a partnership for a
partnership taxable year for purposes of
section 6223(b). See paragraph (c)(6) of
this section for rules relating to indirect
and pass-thru partners.
(2) Partner may be a member of only
one group. A partner cannot be a member
of more than one notice group with re-
spect to the same partnership for the same
partnership taxable year. See paragraph
(c)(6) of this section for rules relating to
indirect and pass-thru partners.
(3) Partner may join group after forma-
tion. A partner may join a notice group
at any time after the formation of that
group by filing, with the Internal Revenue
Service office where the notice group
filed its request, a statement that it is join-
ing the notice group. The statement shall
identify the partner joining the notice
group, the partnership, and the members
of the notice group by name, address, and
taxpayer identification number and shall
be signed by the joining partner. A copy
of the statement shall be provided by the
joining partner to both the tax matters
partner and the notice group representa-
tive within 30 days after the request is
filed with the Internal Revenue Service.
The partner shall become a member of the
notice group for each partnership taxable
year for which the group was formed and
for which the partner was a partner at any
time during such partnership taxable year.
(4) Date on which a partner becomes a
member of notice group. A partner shall
become a member of a notice group on
the 30th day after the day on which the In-
ternal Revenue Service receives—
(i) A request for notice from a notice
group that identifies that partner as a
member of that notice group; or
(ii) A statement filed in accordance
with paragraph (c)(3) of this section that
states that the partner is joining the notice
group.
(5) No withdrawal from notice group. A
partner who has signed a notice group re-
quest filed with the Internal Revenue Ser-
vice remains a member of that notice group
until the group terminates. A partner can-
not withdraw from the notice group.
(6) Indirect and pass-thru partners—(i)
Pass-thru partners and unidentified indi-
rect partners. A pass-thru partner may
become a member of a notice group as
provided in this section. For purposes of
applying the aggregate interest require-
ment specified in paragraph (a) of this
section to a pass-thru partner, the partner-
ship interest held by the pass-thru partner
shall not include any interest held through
the pass-thru partner by an indirect part-
ner that has been identified as provided in
section 6223(c)(3) and § 301.6223(c)–1
before the date on which the pass-thru
partner becomes a member of the notice
group.
(ii) Indirect partners identified before
the pass-thru partner joins a notice
group. An indirect partner may become a
member of a notice group with respect to
a partnership taxable year only if—
(A) The indirect partner held an interest
in the partnership (either directly or
through one or more pass-thru partners) at
some time during that taxable year; and
(B) The indirect partner was identified
as provided in section 6223(c)(3) and
§ 301.6223(c)–1 on or before the date on
which the pass-thru partner became a
member of a notice group.
(d) Termination of notice group. Un-
less the original request for notice from
the notice group or a subsequent state-
ment filed by the representative (in accor-
dance with paragraphs (b)(3) and (4) of
this section) designates a successor to the
designated group representative, the
group terminates if the representative dies
(or, in the case of an entity, if the entity is
dissolved), resigns, or is adjudicated in-
competent.
(e) Notice group is not a 5-percent
group. The forming of a notice group
under this section does not constitute the
forming of a 5-percent group for purposes
of litigation. A notice group is formed
solely for the purpose of receiving no-
tices. A 5-percent group is formed solely
for the purpose of filing a petition for ju-
dicial review or appealing a judicial deter-
mination. See § 301.6226(b)–1. Thus, a
member of a notice group may choose not
to join a 5-percent group formed by other
members of the notice group.
(f) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6223(b)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6223(b)–1T [Removed]
Par. 10a. Section 301.6223(b)–1T is
removed.
Par. 11. Section 301.6223(c)–1 is
added to read as follows:
§ 301.6223(c)–1 Additional information
regarding partners furnished to the
Internal Revenue Service .
(a) In general. In addition to the
names, addresses, and profits interests as
shown on the partnership return, the Inter-
nal Revenue Service will use additional
information as provided in this section for
purposes of administering subchapter C
of chapter 63 of the Internal Revenue
Code.
(b) Procedure for furnishing additional
information—(1) In general.Any person

October 22, 20013522001–43 I.R.B.
may furnish additional information at any
time by filing a written statement with the
Internal Revenue Service. However, the
information contained in the statement
will be considered for purposes of deter-
mining whether a partner is entitled to a
notice described in section 6223(a) only if
the Internal Revenue Service receives the
statement at least 30 days before the date
on which the Internal Revenue Service
mails the notice to the tax matters partner.
Similarly, information contained in the
statement generally will not be taken into
account for other purposes by the Internal
Revenue Service until 30 days after the
statement is received.
(2) Where statement must be filed. A
statement furnished under this section
generally must be filed with the service
center where the partnership return is
filed. However, if the person filing the
statement knows that the notice described
in section 6223(a)(1) (beginning of an ad-
ministrative proceeding) has already been
mailed to the tax matters partner, the
statement should be filed with the Internal
Revenue Service office that mailed such
notice.
(3) Contents of statement. The state-
ment shall—
(i) Identify the partnership, each part-
ner for whom information is supplied, and
the person supplying the information by
name, address, and taxpayer identification
number;
(ii) Explain that the statement is fur-
nished to correct or supplement earlier in-
formation with respect to the partners in
the partnership;
(iii) Specify the taxable year to which
the information relates;
(iv) Set out the corrected or additional
information; and
(v) Be signed by the person supplying
the information.
(c) No incorporation by reference to
previously furnished documents. Incorpo-
ration by reference of information con-
tained in another document previously
furnished to the Internal Revenue Service
will not be given effect for purposes of
section 6223(c) or 6229(e). For example,
reference to a return filed by a pass-thru
partner which contains identifying infor-
mation with respect to the indirect part-
ners of that pass-thru partner is not suffi-
cient to identify the indirect partners
unless a copy of the document referred to
is attached to the statement. Furthermore,
reference to a prior general notification to
the Internal Revenue Service that a part-
ner who would otherwise be the tax mat-
ters partner is a debtor in a bankruptcy
proceeding or has had a receiver ap-
pointed for the partner in a receivership
proceeding is not sufficient unless a copy
of the notification document referred to is
attached to the statement.
(d) Information supplied by a person
other than the tax matters partner. The
Internal Revenue Service may require ap-
propriate verification in the case of infor-
mation furnished by a person other than
the tax matters partner. The 30-day pe-
riod referred to in paragraph (b)(1) of this
section shall not begin until that verifica-
tion is supplied.
(e) Power of attorney—(1) In general.
This paragraph (e) applies to powers of
attorney with respect to proceedings
under subchapter C of chapter 63 of the
Internal Revenue Code (chapter 63C) that
begin on or after January 2, 2002.
(2) Specifically for purposes of sub-
chapter C of chapter 63 of the Internal
Revenue Code. A power of attorney
specifically for purposes of subchapter C
of chapter 63 of the Internal Revenue
Code shall be furnished in accordance
with paragraph (b)(2) of this section.
(3) Existing power of attorney. A
power of attorney granted to another per-
son by a partner for other tax purposes
shall not be given effect for purposes of
subchapter C of chapter 63 unless the
partner specifically requests that the
power be given such effect in a statement
furnished to the Internal Revenue Service
in accordance with paragraph (b) of this
section.
(f) Internal Revenue Service may use
other information. In addition to the in-
formation on the partnership return and
that supplied on statements filed under
this section, the Internal Revenue Service
may use other information in its posses-
sion (for example, a change in address re-
flected on a partner’s return) in adminis-
tering subchapter C of chapter 63 of the
Internal Revenue Code. However, the In-
ternal Revenue Service is not obligated to
search its records for information not ex-
pressly furnished under this section.
(g) Effective date. Except as provided
in paragraph (e)(1) of this section, this
section is applicable to partnership tax-
able years beginning on or after October
4, 2001. For years beginning prior to Oc-
tober 4, 2001, see § 301.6223(c)–1T con-
tained in 26 CFR part 1, revised April 1,
2001.
§ 301.6223(c)–1T [Removed]
Par. 11a. Section 301.6223(c)–1T is
removed.
Par. 12. Section 301.6223(e)–1 is
added to read as follows:
§ 301.6223(e)–1 Effect of Internal
Revenue Service’s failure to provide
notice.
(a) Notice group. Section 6223(e)
(1)(B)(ii) applies with respect to a notice
group only if the request for notice de-
scribed in § 301.6223(b)–1 is received by
the Internal Revenue Service at least 30
days before the notice is mailed to the tax
matters partner.
(b) Indirect partners—(1) In general.
For purposes of section 6223(e), the Inter-
nal Revenue Service’s failure to provide
notice to a pass-thru partner entitled to
notice under section 6223(b) is deemed a
failure to provide notice to indirect part-
ners holding an interest in the partnership
through the pass-thru partner. However,
this rule does not apply if the indirect
partner—
(i) Receives notice from the Internal
Revenue Service;
(ii) Is identified as provided in section
6223(c)(3) and § 301.6223(c)–1 at least
30 days before the notice is mailed to the
tax matters partner; or
(iii) Is a member of a notice group enti-
tled to notice under paragraph (a) of this
section.
(2) Examples. The provisions of para-
graph (b)(1) of this section may be illus-
trated by the following examples:
Example 1. Partnership ABC has as one of its
partners, A, a partnership with three partners, X, Y,
and Z. ABC does not have more than 100 partners,
and partnership A is entitled to notice under section
6223(a). In addition, Z was identified as provided in
section 6223(c)(3) and § 301.6223(c)–1 on May 1,
2002. The Internal Revenue Service mailed a notice
to the tax matters partner of ABC on July 1, 2002,
but failed to provide notice to partnership A.
Notwithstanding the Internal Revenue Service’s
notice to the tax matters partner, the Internal
Revenue Service is deemed to have failed to provide
notice to X and Y. The Internal Revenue Service’s
failure to provide notice to A, however, has no effect
on Z; whether notice was provided to Z is deter-
mined independently.

2001–43 I.R.B.353October 22, 2001
Example 2. Assume the same facts as in Example
1, except that the Internal Revenue Service provided
notice to partnership A but did not provide separate
notice to Z. Notwithstanding the Internal Revenue
Service’s notice to partnership A, the Internal
Revenue Service is deemed to have failed to provide
notice to Z.
Example 3. Assume the same facts as in Example
1, except that partnership ABC has more than 100
partners and partnership A is entitled to notice under
section 6223(b) because it had at least a 1 percent
profits interest in partnership ABC. In addition, X
became a member of a notice group on June 1, 2002,
and the Internal Revenue Service mailed a notice to
the designated member of that notice group. The
Internal Revenue Service also mailed a separate
notice to Z. The Internal Revenue Service’s failure
to provide notice to partnership A only affects Y,
who is deemed not to have been provided notice by
the Internal Revenue Service.
(c) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6223(e)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6223(e)–1T [Removed]
Par. 12a. Section 301.6223(e)–1T is
removed.
Par. 13. Section 301.6223(e)–2 is
added to read as follows:
§ 301.6223(e)–2 Elections if Internal Rev-
enue Service fails to provide timely notice.
(a) In general. This section applies in
any case in which the Internal Revenue
Service fails to timely mail any notice de-
scribed in section 6223(a) of the Internal
Revenue Code to a partner entitled to
such notice within the period specified in
section 6223(d). The failure to issue any
notice within the period specified in sec-
tion 6223(d) does not invalidate the notice
of the beginning of an administrative pro-
ceeding or final partnership administra-
tive adjustment (FPAA). An untimely
FPAA enables the recipient of the un-
timely notice to make the elections de-
scribed in paragraphs (b), (c), and (d) of
this section. The period within which to
make the elections described in para-
graphs (b), (c), and (d) of this section
commences with the mailing of an FPAA
to the partner. In the absence of an elec-
tion, paragraphs (b) and (c) of this section
provide for the treatment of a partner’s
partnership items.
(b) Proceeding finished. If at the time
the Internal Revenue Service mails the
partner an FPAA—
(1) The period within which a petition
for review of the FPAA under section
6226 may be filed has expired and no pe-
tition has been filed; or
(2) The decision of a court in an ac-
tion begun by such a petition has be-
come final, the partner may elect in ac-
cordance with paragraph (d) of this
section to have that adjustment, that de-
cision, or a settlement agreement de-
scribed in section 6224(c)(2) with re-
spect to the partnership taxable year to
which the adjustment relates apply to
that partner. If the partner does not
make an election in accordance with
paragraph (d) of this section, the part-
nership items of the partner for the part-
nership taxable year to which the pro-
ceeding relates shall be treated as having
become nonpartnership items as of the
day on which the Internal Revenue Ser-
vice mails the partner the FPAA.
(c) Proceeding still going on. If at the
time the Internal Revenue Service mails
the partner an FPAA, paragraphs (b)(1)
and (2) of this section do not apply, the
partner shall be a party to the proceeding
unless the partner elects, in accordance
with paragraph (d) of this section, to
have—
(1) A settlement agreement described
in section 6224(c)(2) with respect to the
partnership taxable year to which the pro-
ceeding relates apply to the partner; or
(2) The partnership items of the partner
for the partnership taxable year to which
the proceeding relates treated as having
become nonpartnership items as of the
day on which the Internal Revenue Ser-
vice mails the partner the FPAA.
(d) Election—(1) In general. The elec-
tion described in paragraph (b) or (c) of
this section shall be made in the manner
prescribed in this paragraph (d). The
election shall apply to all partnership
items for the partnership taxable year to
which the election relates.
(2) Time and manner of making elec-
tion. The election shall be made by filing
a statement with the Internal Revenue
Service office mailing the FPAA within
45 days after the date on which the FPAA
was mailed to the partner making the
election.
(3) Contents of statement. The state-
ment shall—
(i) Be clearly identified as an election
under section 6223(e)(2) or (3);
(ii) Specify the election being made
(that is, application of final partnership
administrative adjustment, court decision,
consistent settlement agreement, or non-
partnership item treatment);
(iii) Identify the partner making the
election and the partnership by name, ad-
dress, and taxpayer identification number;
(iv) Specify the partnership taxable
year to which the election relates; and
(v) Be signed by the partner making the
election.
(e) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6223(e)–2T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6223(e)–2T [Removed]
Par. 13a. Section 301.6223(e)–2T is
removed.
Par. 14. Section 301.6223(f)–1 is
added to read as follows:
§ 301.6223(f)–1 Duplicate copy of final
partnership administrative adjustment.
(a) In general. Section 6223(f) does
not prohibit the Internal Revenue Service
from issuing a duplicate copy of the no-
tice of final partnership administrative ad-
justment (for example, in the event the
original notice is lost).
(b) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6223(f)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6223(f)–1T [Removed]
Par. 14a. Section 301.6223(f)–1T is re-
moved.
Par. 15. Section 301.6223(g)–1 is
added to read as follows:
§ 301.6223(g)–1 Responsibilities of the
tax matters partner.
(a) Notices described in section
6223(a)—(1) Notice of beginning of pro-
ceeding. Except as otherwise provided in
§ 301.6223(a)–2, the tax matters partner
shall, within 75 days after the Internal
Revenue Service mails the notice speci-
fied in section 6223(a)(1), forward a copy
of that notice to each partner not entitled
to notice from the Internal Revenue

Service under section 6223. See
§ 301.6230(e)–1 for information to be
furnished to the Internal Revenue Service.
(2) Notice of final partnership adminis-
trative adjustment. The tax matters part-
ner shall, within 60 days after the Internal
Revenue Service mails the notice speci-
fied in section 6223(a)(2), forward a copy
of that notice to each partner not entitled
to notice from the Internal Revenue Ser-
vice under section 6223.
(3) Requirement inapplicable in certain
cases. The tax matters partner is not re-
quired to send notice to a partner if—
(i) Before the expiration of the applica-
ble 75-day or 60-day period, the partner-
ship items of that partner have become
nonpartnership items (for example, by
settlement);
(ii) That partner is an indirect partner
and has not been identified to the tax mat-
ters partner at least 30 days before the tax
matters partner is required to send such
notice;
(iii) That partner is treated as a partner
solely by virtue of § 301.6231(a)(2)–1;
(iv) That partner was a member of a no-
tice group as of the date on which the no-
tice was mailed to the tax matters partner
(see § 301.6223(b)–1(c)(4) for the date on
which a partner becomes a member of a
notice group);
(v) The notice has already been pro-
vided to that partner by another person; or
(vi) The notice is withdrawn by the Inter-
nal Revenue Service under § 301.6223(a)–2.
(b) Other notices or information—(1)
In general. The tax matters partner shall
furnish to the partners specified in para-
graph (b)(2) of this section information
with respect to the following—
(i) Closing conference with the exam-
ining agent;
(ii) Proposed adjustments, rights of ap-
peal, and requirements for filing of a
protest;
(iii) Time and place of any Appeals
conference;
(iv) Acceptance by the Internal Rev-
enue Service of any settlement offer;
(v) Consent to the extension of the pe-
riod of limitations with respect to all part-
ners;
(vi) Filing of a request for administra-
tive adjustment (including a request for
substituted return treatment under
§ 301.6227(c)–1) on behalf of the partner-
ship;
(vii) Filing by the tax matters partner or
any other partner of any petition for judi-
cial review under sections 6226 or
6228(a);
(viii) Filing of any appeal with respect
to any judicial determination provided for
in sections 6226 or 6228(a); and
(ix) Final judicial redetermination.
(2) Partners to be notified. The tax
matters partner shall provide information
with respect to any action or other matter
specified in paragraph (b)(1) of this sec-
tion to all notice group representatives
and all other partners except partners—
(i) Whose partnership items become
nonpartnership items before the expira-
tion of the period specified in paragraph
(b)(3) of this section for furnishing that
information;
(ii) Who are indirect partners and who
are not identified to the tax matters part-
ner at least 30 days before the tax matters
partner is required to provide the informa-
tion;
(iii) Who are treated as partners solely
by virtue of § 301.6231(a)(2)–1;
(iv) Who are members of a notice
group as of the date on which the tax mat-
ters partner takes that action or receives
information with respect to that matter
(see § 301.6223(b)–1(c)(4) for the date on
which a partner becomes a member of a
notice group); or
(v) Who have already received infor-
mation with respect to the action or matter
from any other person.
(3) Time for furnishing information.
The tax matters partner shall furnish in-
formation with respect to an action or
other matter described in paragraph (b)(1)
of this section within 30 days of taking
the action or receiving information with
respect to that matter.
(c) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6223(g)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6223(g)–1T [Removed]
Par. 15a. Section 301.6223(g)–1T is
removed.
Par. 16. Section 301.6223(h)–1 is
added to read as follows:
§ 301.6223(h)–1 Responsibilities of pass-
thru partner.
(a) In general. The pass-thru partner
shall, within 30 days of receiving notice
or any other information regarding a part-
nership proceeding from the Internal Rev-
enue Service, the tax matters partner, or
another pass-thru partner, forward a copy
of that notice or information to the person
or persons holding an interest through the
pass-thru partner in the profits or losses of
the partnership for the partnership taxable
year to which the notice or information
relates. In the case of a pass-thru partner
that is a partnership within the meaning of
section 6231(a)(1), the tax matters partner
of such partnership shall forward copies
of the notice or information to the part-
ners of such partnership.
(b) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6223(h)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6223(h)–1T [Removed]
Par. 16a. Section 301.6223(h)–1T is
removed.
Par. 17. Section 301.6224(a)–1 is
added to read as follows:
§ 301.6224(a)–1 Participation in
administrative proceedings.
(a) In general. Every partner in the
partnership, including an indirect partner,
has the right to participate in any phase of
administrative proceedings. However, ex-
cept as provided in section 6223 and the
regulations thereunder, neither the Inter-
nal Revenue Service nor the tax matters
partner is required to provide notice of
any proceeding to the partners. Conse-
quently, a partner who wishes, for exam-
ple, to be present during a preliminary
discussion between an examining agent
and the tax matters partner should make
special arrangements with the tax matters
partner to obtain information as to the
time and place of the discussion. The In-
ternal Revenue Service and the tax mat-
ters partner will determine the time and
place for all administrative proceedings.
Arrangements will generally not be
changed merely for the convenience of
another partner.
(b) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
October 22, 20013542001–43 I.R.B.

years beginning prior to October 4, 2001,
see § 301.6224(a)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6224(a)–1T [Removed]
Par. 17a. Section 301.6224(a)–1T is
removed.
Par. 18. Section 301.6224(b)–1 is
added to read as follows:
§ 301.6224(b)–1 Partner may waive
rights.
(a) In general. A partner may at any
time waive any right that the partner has
or any restriction on action by the Internal
Revenue Service under subchapter C of
chapter 63 of the Internal Revenue Code.
(b) Form and manner of making
waiver. The waiver described in para-
graph (a) of this section shall be made by
a written statement. If the Internal Rev-
enue Service furnishes a form to be used
for this purpose, the partner may make the
waiver by completing the form in accor-
dance with the form’s instructions. If
such a form is not furnished, the state-
ment shall—
(1) Be clearly identified as a waiver
under section 6224(b);
(2) Identify the partner and the partner-
ship by name, address, and taxpayer iden-
tification number;
(3) Specify the right or restriction being
waived and the taxable year(s) to which
the waiver applies;
(4) Be signed by the partner making the
waiver; and
(5) Be filed with the service center
where the partnership return is filed.
However, if the person filing the state-
ment knows that the notice described in
section 6223(a)(1) (beginning of an ad-
ministrative proceeding) has already been
mailed to the tax matters partner, the
statement shall be filed with the Internal
Revenue Service office that mailed such
notice.
(c) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6224(b)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6224(b)–1T [Removed]
Par. 18a. Section 301.6224(b)–1T is
removed.
Par. 19. Section 301.6224(c)–1 is
added to read as follows:
§ 301.6224(c)–1 Tax matters partner may
bind nonnotice partners.
(a) In general. In the absence of a
showing of fraud, malfeasance, or misrep-
resentation of fact, if the tax matters part-
ner enters into a settlement agreement
with the Internal Revenue Service with
respect to partnership items, including
partnership-level determinations relating
to any penalty, addition to tax, or addi-
tional amounts that relate to adjustments
to partnership items, and expressly states
that the agreement shall be binding on the
other partners, then that agreement shall
be binding on all partners except those
who—
(1) Are, as of the day on which the
agreement is entered into, either notice
partners or members of a notice group
(see § 301.6223(b)–1(c)(4) for the date on
which a partner becomes a member of a
notice group); or
(2) Have, at least 30 days before the
day on which the agreement is entered
into, filed with the Internal Revenue Ser-
vice the statement described in paragraph
(c) of this section.
(b) Indirect partners—(1) In general.
If, under paragraph (a) of this section, a
pass-thru partner is not bound by an
agreement entered into by the tax matters
partner, all indirect partners holding an in-
terest in the partnership through that pass-
thru partner shall not be bound by that
agreement. If, however, the pass-thru
partner is bound by an agreement entered
into by the tax matters partner, paragraph
(a) of this section shall be applied sepa-
rately to each indirect partner holding an
interest in the partnership through the
pass-thru partner to determine whether
the indirect partner is also bound by the
agreement.
(2) Example. The following example
illustrates the principles of this section:
Example. Partnership P has over 100 partners.
Partnership J is a partner in partnership P with a
profits interest of less than 1 percent. Partnership J
has three partners, A, B, and C. A is a member of a
notice group with respect to partnership P, but B and
C are not. On July 1, 2002, B filed the statement
described in paragraph (c) of this section not to be
bound by any settlement agreement entered into by
the tax matters partner of partnership P. On August
1, 2002, the tax matters partner of partnership P
enters into a settlement agreement with the Internal
Revenue Service and states that the agreement is
binding on other partners as provided in section
6224(c)(3). Because partnership J is bound by the
settlement agreement, paragraph (a) of this section is
applied separately to each of the indirect partners to
determine whether they are bound. A is not bound
by the agreement because A was a member of a
notice group on the day the agreement was entered
into and B is not bound because B filed the statement
not to be bound at least 30 days before the agreement
was entered into. C is bound by the settlement
agreement.
(c) Statement not to be bound—(1)
Contents of statement. The statement re-
ferred to in paragraph (a)(2) of this sec-
tion shall—
(i) Be clearly identified as a statement
to deny settlement authority to the tax
matters partner under section 6224(c)
(3)(B);
(ii) Identify the partner and partnership
by name, address, and taxpayer identifica-
tion number;
(iii) Specify the taxable year or years to
which the statement applies; and
(iv) Be signed by the partner filing the
statement.
(2) Place where statement is to be filed.
The statement described in paragraph
(c)(1) of this section generally shall be
filed with the Internal Revenue Service
service center where the partnership re-
turn is filed. However, if the partner
knows that the notice described in section
6223(a)(1) (beginning of an administra-
tive proceeding) has already been mailed
to the tax matters partner, the statement
shall be filed with the Internal Revenue
Service office that mailed that notice.
(3) Consolidated statements. The state-
ment described in paragraph (c)(1) of this
section may be filed with respect to more
than one partner if the requirements of
that paragraph (c)(1) (including signa-
tures) are satisfied with respect to each
partner.
(d) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6224(c)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6224(c)–1T [Removed]
Par. 19a. Section 301.6224(c)–1T is
removed.
Par. 20. Section 301.6224(c)–2 is
added to read as follows:
2001–43 I.R.B.355October 22, 2001

§ 301.6224(c)–2 Pass-thru partner binds
indirect partners.
(a) Pass-thru partner binds unidentified
indirect partners—(1) In general. If a
pass-thru partner enters into a settlement
agreement with the Internal Revenue Ser-
vice with respect to partnership items,
that agreement binds all indirect partners
holding an interest in that partnership
through the pass-thru partner except those
indirect partners who have been identified
as provided in section 6223(c)(3) and
§ 301.6223(c)–1 at least 30 days before
the date on which the agreement is en-
tered into. A settlement with respect to
partnership items includes partnership-
level determinations relating to any
penalty, addition to tax, and additional
amounts that relate to adjustments to part-
nership items. However, if, in addition to
the interest in the partnership held
through the pass-thru partner entering into
a settlement agreement, an indirect part-
ner holds a separate interest in that part-
nership, either directly or indirectly
through a different pass-thru partner, then
the indirect partner shall not be bound by
that settlement agreement with respect to
the interests held directly or indirectly
through a pass-thru partner other than the
pass-thru partner entering into the settle-
ment agreement.
(2) Example. The provisions of para-
graph (a)(1) of this section may be illus-
trated by the following example:
Example. Partnership J is a partner in partnership
P. C is a partner in J but has not been identified as
provided in section 6223(c)(3) and § 301.6223(c)–1.
The only interest that C holds in P is through J. The
tax matters partner of J enters into a settlement
agreement with the Internal Revenue Service with
respect to partnership items arising from P. C is
bound by the settlement agreement entered into by
the tax matters partner of J.
(b) Person in pass-thru partner autho-
rized to enter into settlement agreement
that binds indirect partners. In the case of
a pass-thru partner that is—
(1) A partnership within the meaning of
section 6231(a)(1), the tax matters partner
of that partnership;
(2) A partnership other than a partner-
ship described in paragraph (b)(1) of this
section, any general partner of that part-
nership;
(3) An S corporation, any officer of that
S corporation; or
(4) A trust, estate, or nominee, any per-
son authorized in writing to act on behalf
of that trust, estate, or nominee, may enter
into a settlement agreement with the In-
ternal Revenue Service on behalf of its re-
spective entity that would bind the
unidentified indirect partners that hold a
partnership interest through the pass-thru
partner.
(c) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6224(c)–2T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6224(c)–2T [Removed]
Par. 20a. Section 301.6224(c)–2T is
removed.
Par. 21. Section 301.6224(c)–3 is
added to read as follows:
§ 301.6224(c)–3 Consistent settlements.
(a) In general. If the Internal Revenue
Service enters into a settlement agreement
with any partner with respect to partner-
ship items, whether comprehensive or
partial, the Internal Revenue Service shall
offer to any other partner who so requests
in accordance with paragraph (c) of this
section, settlement terms consistent with
those contained in the settlement agree-
ment entered into.
(b) Requirements for consistent settle-
ment terms—(1) In general. Consistent
settlement terms are those based on the
same determinations with respect to part-
nership items. However, consistent settle-
ment terms also may include partnership-
level determinations of any penalty,
addition to tax, or additional amount that
relates to partnership items. Settlements
with respect to partnership items shall be
self-contained; thus, a concession by one
party with respect to a partnership item
may not be based upon a concession by
another party with respect to any item that
is not a partnership item other than a part-
nership-level determination of any
penalty, addition to tax, or additional
amount that relates to an adjustment to a
partnership item. Consistent agreements
must be identical to the original settle-
ment (that is, the settlement upon which
the offered settlement terms are based). A
consistent agreement must mirror the
original settlement and may not be limited
to selected items from the original settle-
ment. Once a partner has settled a part-
nership item, or a partnership-level deter-
mination of any penalty, addition to tax,
or additional amount that relates to an ad-
justment to a partnership item, that part-
ner may not subsequently request settle-
ment terms consistent with a settlement
that contains the previously settled item.
The requirement for consistent settlement
terms applies only if—
(i) The items were partnership items (or
a partnership-level determination of any
related penalty, addition to tax, or addi-
tional amount) for the partner entering
into the original settlement immediately
before the original settlement; and
(ii) The items are partnership items (or
a partnership-level determination of any
related penalty, addition to tax, or addi-
tional amount) for the partner requesting
the consistent settlement at the time the
partner files the request.
(2) Effect of consistent agreement.
Consistent settlement terms are reflected
in a consistent agreement. A consistent
agreement is not a settlement agreement
that gives rise to further consistent settle-
ment rights because it is required to be
given without volitional agreement of the
Secretary. Therefore, a consistent agree-
ment required to be offered to a requesting
taxpayer is not a settlement agreement
under section 6224(c)(2) or paragraph
(c)(3) of this section which starts a new
period for requesting consistent settlement
terms. For all other purposes of the Inter-
nal Revenue Code, however, (e.g.,binding
effect under section 6224(c)(1) and con-
version to nonpartnership items under sec-
tion 6231(b)(1)(C)), a consistent agree-
ment is treated as a settlement agreement.
(c) Time and manner of requesting con-
sistent settlements—(1) In general. A
partner desiring settlement terms consis-
tent with the terms of any settlement
agreement entered into between any other
partner and the Internal Revenue Service
shall submit a written statement to the In-
ternal Revenue Service office that entered
into the settlement.
(2) Contents of statement. Except as
otherwise provided in instructions to the
taxpayer from the Internal Revenue Ser-
vice, the written statement described in
paragraph (c)(1) of this section shall—
(i) Identify the statement as a request
for consistent settlement terms under sec-
tion 6224(c)(2);
(ii) Contain the name, address, and tax-
payer identification number of the part-
October 22, 20013562001–43 I.R.B.

nership and of the partner requesting the
settlement offer (and, in the case of an in-
direct partner, of the pass-thru partner
through which the indirect partner holds
an interest);
(iii) Identify the earlier agreement to
which the request refers; and
(iv) Be signed by the partner making
the request.
(3) Time for filing request. The state-
ment shall be filed not later than the later
of—
(i) The 150th day after the day on
which the notice of final partnership ad-
ministrative adjustment is mailed to the
tax matters partner; or
(ii) The 60th day after the day on which
the settlement agreement was entered
into.
(d) Examples. The following examples
illustrate the principles of this section:
Example 1. The Internal Revenue Service seeks
to disallow a $100,000 loss reported by Partnership
P $20,000 of which was allocated to partner X, and
$10,000 of which was allocated to partner Y. The
Internal Revenue Service agrees to a settlement with
X in which the Internal Revenue Service allows
$12,000 of the loss, accepts the treatment of all other
partnership items on the partnership return, and
imposes a penalty for negligence related to the
$8,000 loss disallowance. Partner Y requests settle-
ment terms consistent with the settlement made
between X and the Internal Revenue Service. The
items are partnership items (or a related penalty) for
X immediately before X enters into the settlement
agreement and are partnership items (or a related
penalty) for Y at the time of the request. The Internal
Revenue Service must offer Y settlement terms
allowing a $6,000 loss, a negligence penalty on the
$4,000 disallowance, and otherwise reflecting the
treatment of partnership items on the partnership
return.
Example 2. F files inconsistently with Partner-
ship P and reports the inconsistency. The Internal
Revenue Service notifies F that it will treat all part-
nership items arising from P as nonpartnership items
with respect to F. Later, the Internal Revenue
Service enters into a settlement with F on these
items. The Internal Revenue Service is not required
to offer the other partners of P settlement terms con-
sistent with the settlement reached between F and
the Internal Revenue Service because the items aris-
ing from P are not partnership items with respect
to F.
Example 3. G, a partner in Partnership P, filed
suit under section 6228(b) after the Internal Revenue
Service failed to allow an administrative adjustment
request with respect to a partnership item arising
from P for a taxable year. Under section
6231(b)(1)(B), the partnership items of G for the
partnership taxable year became nonpartnership
items as of the date G filed suit. After G filed suit,
another partner and the Internal Revenue Service
entered into a settlement agreement with respect to
items arising from P in that year. G is not entitled to
consistent settlement terms because, at the time of
the settlement, the items arising from P are no longer
partnership items with respect to G.
(e) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6224(c)–3T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6224(c)–3T [Removed]
Par. 21a. Section 301.6224(c)–3T is
removed.
Par. 22. Section 301.6226(a)–1 is
added to read as follows:
§ 301.6226(a)–1 Principal place of
business of partnership.
(a) In general. The principal place of a
partnership’s business for purposes of de-
termining the appropriate district court in
which a petition for a readjustment of
partnership items may be filed is its prin-
cipal place of business as of the date the
petition is filed.
(b) Example. The provisions of para-
graph (a) of this section may be illustrated
by the following example:
Example. The principal place of Partnership A’s
business on the day that the notice of the final part-
nership administrative adjustment was mailed to A’s
tax matters partner was Cincinnati, Ohio. However,
by the day on which a petition seeking judicial
review of that adjustment was filed, A had moved its
principal place of business to Louisville, Kentucky.
For purposes of section 6226(a)(2), A’s principal
place of business is Louisville.
(c) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6226(a)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6226(a)–1T [Removed]
Par. 22a. Section 301.6226(a)–1T is
removed.
Par. 23. Section 301.6226(b)–1 is
added to read as follows:
§ 301.6226(b)–1 5-percent group.
(a) In general. All members of a 5-per-
cent group shall join in filing any petition
for judicial review. The designation of a
partner as a representative of a notice
group does not authorize that partner to file
a petition for a readjustment of partnership
items on behalf of the notice group.
(b) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6226(b)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6226(b)–1T [Removed]
Par. 23a. Section 301.6226(b)–1T is
removed.
Par. 24. Section 301.6226(e)–1 is
added to read as follows:
§ 301.6226(e)–1 Jurisdictional
requirement for bringing an action in
District Court or United States Court of
Federal Claims.
(a) Amount to be deposited—(1) In
general. The jurisdictional amount that
the filing partner (or, in the case of a peti-
tion filed by a 5-percent group, each
member of the group, or, for civil actions
beginning on or after March 30, 2002, in
the case of a petition filed by a pass-thru
partner, each indirect partner holding an
interest through the pass-thru partner)
shall deposit is the amount by which the
tax liability of the partner would be in-
creased if the treatment of the partnership
items on the partner’s return were made
consistent with the treatment of partner-
ship items on the partnership return, as
adjusted by the notice of final partnership
administrative adjustment. The partner is
not required to pay other outstanding lia-
bilities in order to deposit a jurisdictional
amount.
(2) Example. The provisions of para-
graph (a)(1) of this section may be illus-
trated by the following example:
Example. A files a petition for readjustment of
partnership items in the United States Court of
Federal Claims. A’s tax liability would be increased
by $4,000 if partnership items on A’s return were
conformed to the partnership return, as adjusted by
the notice of final partnership administrative adjust-
ment. A has an unpaid liability of $10,000 attribut-
able to nonpartnership items. A is required to
deposit $4,000 in order to satisfy the jurisdictional
requirement.
(b) Deposit taken into account in com-
puting interest. The amount deposited is
treated as a payment of tax for purposes
of chapter 67 of the Internal Revenue
Code (relating to interest).
(c) Deposit generally not treated as
payment of tax. Except as provided in
paragraph (b) of this section, an amount
deposited under section 6226(e) shall not
be treated as a payment of tax. Thus, the
Internal Revenue Service may proceed
2001–43 I.R.B.357October 22, 2001

against the depositor for a deficiency
based on nonpartnership items without re-
gard to this deposit.
(d) Amount deposited may be applied
against assessment. If the restriction on
assessment provided under section
6225(a) lapses with respect to a defi-
ciency attributable to partnership items
for a partnership taxable year while an
amount is on deposit under section
6226(e) in connection with a petition re-
lating to those items, the Internal Revenue
Service may apply the amount deposited
against any such deficiency that is as-
sessed.
(e) Effective date. Except as otherwise
provided in paragraph (a)(1) of this sec-
tion, this section is applicable to civil ac-
tions beginning on or after October 4,
2001. For civil actions beginning prior to
October 4, 2001, see § 301.6226(e)–1T
contained in 26 CFR part 1, revised April
1, 2001.
§ 301.6226(e)–1T [Removed]
Par. 24a. Section 301.6226(e)–1T is re-
moved.
Par. 25. Section 301.6226(f)–1 is
added to read as follows:
§ 301.6226(f)–1 Scope of judicial review.
(a) In general. A court reviewing a no-
tice of final partnership administrative ad-
justment has jurisdiction to determine all
partnership items for the taxable year to
which the notice relates and the proper al-
location of such items among the part-
ners. Thus, the review is not limited to
the items adjusted in the notice. In addi-
tion, the court has jurisdiction in the part-
nership-level proceeding to determine any
penalty, addition to tax, or additional
amount that relates to an adjustment to a
partnership item. However, the court
does not have jurisdiction in the partner-
ship-level proceeding to consider any
partner-level defenses to any penalty, ad-
dition to tax, or additional amount that re-
lates to an adjustment to a partnership
item. See section 6230(c)(4) and
§ 301.6221–1(c) and (d).
(b) Example. The provisions of para-
graph (a) of this section may be illustrated
by the following example:
Example. The Internal Revenue Service issues a
notice of final partnership administrative adjustment
with respect to Partnership ABC in which the only
item adjusted is depreciation. A petition for judicial
review of that notice is filed. During the judicial
proceeding, a partner of ABC, in accordance with
the applicable court rules, raises an issue relating to
the treatment of intangible drilling costs. The court
reviewing the notice has jurisdiction to determine
the intangible drilling cost issue in addition to the
depreciation issue.
(c) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6226(f)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6226(f)–1T [Removed]
Par. 25a. Section 301.6226(f)–1T is re-
moved.
§ 301.6227(b)–1T [Removed]
Par. 26. Section 301.6227(b)–1T is re-
moved.
Par. 26a. Section 301.6227(c)–1 is
added to read as follows:
§ 301.6227(c)–1 Administrative
adjustment request by the tax matters
partner on behalf of the partnership.
(a) In general. A request for an admin-
istrative adjustment filed by the tax mat-
ters partner on behalf of the partnership
shall be filed on the form prescribed by
the Internal Revenue Service for that pur-
pose in accordance with that form’s in-
structions. Except as otherwise provided
in that form’s instructions, the request
shall be—
(1) Filed with the service center where
the original partnership return was filed
(but, if the notice described in section
6223(a)(1) (beginning of an administra-
tive proceeding) has already been mailed
to the tax matters partner, the statement
should be filed with the Internal Revenue
Service office that mailed such notice);
(2) Signed by the tax matters partner;
and
(3) Accompanied by revised schedules
showing the effects of the proposed
changes on each partner and an explana-
tion of the changes.
(b) Denied request for treatment as a
substituted return remains administrative
adjustment request. An administrative
adjustment request filed by the tax mat-
ters partner on behalf of the partnership
for which substituted return treatment is
requested but not granted remains an ad-
ministrative adjustment request. Thus,
for example, the tax matters partner may
file suit under section 6228(a) if the Inter-
nal Revenue Service fails to take timely
action on the request.
(c) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6227(b)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6227(c)–1T [Removed]
Par. 27. Section 301.6227(c)–1T is re-
moved.
Par. 27a. Section 301.6227(d)–1 is
added to read as follows:
§ 301.6227(d)–1 Administrative
adjustment request filed on behalf of a
partner.
(a) In general. A request for an adminis-
trative adjustment on behalf of a partner
shall be filed on the form prescribed by the
Internal Revenue Service for that purpose
in accordance with that form’s instructions.
Except as otherwise provided in that form’s
instructions, the request shall—
(1) Be filed in duplicate, the original
copy filed with the partner’s amended in-
come tax return (on which the partner
computes the amount by which the part-
ner’s tax liability should be adjusted if the
request is granted) and the other copy
filed with the service center where the
partnership return is filed (but, if the no-
tice described in section 6223(a)(1) (be-
ginning of an administrative proceeding)
has already been mailed to the tax matters
partner, the statement should be filed with
the Internal Revenue Service office that
mailed such notice);
(2) Identify the partner and the partner-
ship by name, address, and taxpayer iden-
tification number;
(3) Specify the partnership taxable year
to which the administrative adjustment re-
quest applies;
(4) Relate only to partnership items;
and
(5) Relate only to one partnership and
one partnership taxable year.
(b) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6227(c)–1T contained in 26
CFR part 1, revised April 1, 2001.
October 22, 20013582001–43 I.R.B.

Par. 28. Section 301.6229(b)–1 is
added to read as follows:
§ 301.6229(b)–1 Extension by agreement.
(a) In general. Any partnership may
authorize any person to extend the period
described in section 6229(a) with respect
to all partners by filing a statement to that
effect with the service center where the
partnership return is filed (but, if the no-
tice described in section 6223(a)(1) (be-
ginning of an administrative proceeding)
has already been mailed to the tax matters
partner, the statement should be filed with
the Internal Revenue Service office that
mailed such notice). The statement
shall—
(1) Provide that it is an authorization
for a person other than the tax matters
partner to extend the assessment period
with respect to all partners;
(2) Identify the partnership and the per-
son being authorized by name, address,
and taxpayer identification number;
(3) Specify the partnership taxable year
or years for which the authorization is ef-
fective; and
(4) Be signed by all persons who were
general partners (or, in the case of an
LLC, member-managers, as those terms
are defined in § 301.6231(a)(7)–2(b)) at
any time during the year or years for
which the authorization is effective.
(b) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6229(b)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6229(b)–1T [Removed]
Par. 28a. Section 301.6229(b)–1T is
removed.
Par. 29. Section 301.6229(b)–2 is
added to read as follows:
§ 301.6229(b)–2 Special rule with respect
to debtors in Title 11 cases.
(a) In general. Notwithstanding any
other law or rule of law, if an agreement
is entered into under section
6229(b)(1)(B), and the agreement is
signed by a person who would be the tax
matters partner but for the fact that, at
the time that the agreement is executed,
the person is a debtor in a bankruptcy
proceeding under Title 11 of the United
States Code, such agreement shall be
binding on all partners in the partnership
unless the Internal Revenue Service has
been notified of the bankruptcy proceed-
ing in accordance with paragraph (b) of
this section.
(b) Procedures for notifying the Inter-
nal Revenue Service of a partner’s bank-
ruptcy proceeding. (1) The Internal Rev-
enue Service shall be notified of the
bankruptcy proceeding of the tax matters
partner in accordance with the procedures
set forth in § 301.6223(c)–1.
(2) In addition to the information speci-
fied in § 301.6223(c)–1, notification that
a person is (or was) a debtor in a bank-
ruptcy proceeding shall include the date
the bankruptcy proceeding was filed, the
name and address of the court in which
the bankruptcy proceeding exists (or took
place), the caption of the bankruptcy pro-
ceeding (including the docket number or
other identification number used by the
court), and the status of the proceeding as
of the date of notification.
(c) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6229(b)–2T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6229(b)–2T [Removed]
Par. 29a. Section 301.6229(b)–2T is
removed.
Par. 30. Section 301.6229(e)–1 is
added to read as follows:
§ 301.6229(e)–1 Information with respect
to unidentified partner.
(a) In general. A partner who is not
properly identified on the partnership re-
turn (including an indirect partner) re-
mains an unidentified partner for pur-
poses of section 6229(e) until identifying
information is furnished as provided in
§ 301.6223(c)–1.
(b) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6229(e)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6229(e)–1T [Removed]
Par. 30a. Section 301.6229(e)–1T is
removed.
Par. 31. Section 301.6229(f)–1 is
added to read as follows:
§ 301.6229(f)–1 Special rule for partial
settlement agreements.
(a) In general. If a partner enters into
a settlement agreement with the Internal
Revenue Service with respect to the
treatment of some of the partnership
items or partnership-level determina-
tions of any penalty, addition to tax, or
additional amount in dispute for a part-
nership taxable year, but one or more
other partnership items or determina-
tions remain in dispute, the period of
limitations for assessing any tax attribut-
able to the settled items shall be deter-
mined as if such agreement had not been
entered into.
(b) Other items remaining in dispute.
Pursuant to section 6226(c), a partner is a
party to a partnership-level judicial pro-
ceeding with respect to partnership items
and partnership-level determinations of
penalties, additions to tax or additional
amounts. When a partner settles partner-
ship items, the settled partnership items
convert to nonpartnership items under
section 6231(b)(1)(C) and will not be sub-
ject to any future or pending partnership-
level proceeding pursuant to section
6226(d)(1). The remaining unsettled part-
nership items, as well as any unsettled
penalty, addition to tax, or additional
amount that relates to an adjustment to a
partnership item (regardless of whether
the partnership item to which it relates has
been settled), however, will remain sub-
ject to determination under partnership-
level administrative and judicial proce-
dures. Consequently, any remaining
unsettled items, including any unsettled
penalty, addition to tax, or additional
amount that relates to an adjustment to a
partnership item, will be deemed to re-
main in dispute. Thus, the period for as-
sessing any tax attributable to the settled
items will be governed by the period for
assessing any tax attributable to the re-
maining unsettled items.
(c) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6229(f)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6229(f)–1T [Removed]
2001–43 I.R.B.359October 22, 2001

Par. 31a. Section 301.6229(f)–1T is re-
moved.
Par. 32. Section 301.6230(b)–1 is
added to read as follows:
§ 301.6230(b)–1 Request that correction
not be made.
(a) In general. The request that a cor-
rection not be made under section
6230(b)(2) shall be in writing and shall—
(1) State that it is a request that a cor-
rection not be made under section
6230(b);
(2) Identify the partnership and the
partner filing the request by name, ad-
dress, and taxpayer identification number;
(3) Be signed by the partner filing the
request; and
(4) Be filed with the Internal Revenue
Service office that provided the notice of
the correction of the error.
(b) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6230(b)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6230(b)–1T [Removed]
Par. 32a. Section 301.6230(b)–1T is
removed.
Par. 33. Section 301.6230(c)–1 is
added to read as follows:
§ 301.6230(c)–1 Claim arising out of
erroneous computation, etc.
(a) In general. A claim for refund
under section 6230(c) shall state the
grounds for the claim and shall be filed
with the service center where the partner’s
return is filed.
(b) Effective date. This section is
applicable to partnership taxable years
beginning on or after October 4, 2001.
For years beginning prior to October 4,
2001, see § 301.6230(c)–1T contained
in 26 CFR part 1, revised April 1,
2001.
§ 301.6230(c)–1T [Removed]
Par. 33a. Section 301.6230(c)–1T is
removed.
Par. 34. Section 301.6230(e)–1 is
added to read as follows:
§ 301.6230(e)–1 Tax matters partner
required to furnish names.
(a) In general. If a notice of the begin-
ning of an administrative proceeding is
mailed to the tax matters partner with re-
spect to any partnership taxable year, the
tax matters partner shall furnish to the In-
ternal Revenue Service office that issued
the notice the name, address, profits inter-
est, and taxpayer identification number of
each person who was a partner in the part-
nership at any time during that taxable
year if that information was not provided
on the partnership return filed for that
year.
(b) Revised or additional information.
If the tax matters partner discovers that
any information furnished to the Internal
Revenue Service on the partnership return
or under paragraph (a) of this section was
incorrect or incomplete, the tax matters
partner shall furnish revised or additional
information to the Internal Revenue Ser-
vice within 15 days of discovering that
the information furnished to the Internal
Revenue Service was incorrect or incom-
plete.
(c) Information required with respect to
indirect partners. The requirements of
this section for identifying information
apply with respect to indirect partners to
the extent that the tax matters partner has
such information.
(d) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6230(e)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6230(e)–1T [Removed]
Par. 34a. Section 301.6230(e)–1T is
removed.
Par. 35. Section 301.6231(a)(1)–1 is
added to read as follows:
§ 301.6231(a)(1)–1 Exception for small
partnerships.
(a) In general. For purposes of the ex-
ception for small partnerships under sec-
tion 6231(a)(1)(B), the rules contained in
this section shall apply.
(1) 10 or fewer. The 10 or fewer limi-
tation described in section 6231(a)
(1)(B)(i) is applied to the number of nat-
ural persons, C corporations, and estates
of deceased partners that were partners at
any one time during the partnership tax-
able year. Thus, for example, a partner-
ship that at no time during the taxable
year had more than 10 partners may be
treated as a small partnership even if, be-
cause of transfers of interests in the part-
nership, 11 or more natural persons, C
corporations, or estates of deceased part-
ners owned interests in the partnership for
some portion of the taxable year. See sec-
tion 1361(a)(2) for the definition of a C
corporation. For purposes of section
6231(a)(1)(B) and this section, a husband
and wife (and their estates) are treated as
one person.
(2) Pass-thru partner. The exception
provided in section 6231(a)(1)(B) does
not apply to a partnership for a taxable
year if any partner in the partnership dur-
ing that taxable year is a pass-thru partner
as defined in section 6231(a)(9). For pur-
poses of this paragraph (a)(2), an estate
shall not be treated as a pass-thru partner.
(3) Determination made annually. The
determination of whether a partnership
meets the requirements for the exception
for small partnerships under section
6231(a)(1)(B) and this paragraph (a) shall
be made with respect to each partnership
taxable year. Thus, a partnership that
does not qualify as a small partnership in
one taxable year may qualify as a small
partnership in another taxable year if the
requirements for the exception under sec-
tion 6231(a)(1)(B) and this paragraph (a)
are met with respect to that other taxable
year.
(b) Election to have subchapter C of
chapter 63 apply—(1) In general. Any
partnership that meets the requirements
set forth in section 6231(a)(1)(B) and
paragraph (a) of this section (relating to
the exception for small partnerships) may
elect under paragraph (b)(2) of this sec-
tion to have the provisions of subchapter
C of chapter 63 of the Internal Revenue
Code apply with respect to that partner-
ship.
(2) Method of election. A partnership
shall make the election described in para-
graph (b)(1) of this section by attaching a
statement to the partnership return for the
first taxable year for which the election is
to be effective. The statement shall be
identified as an election under section
6231(a)(1)(B)(ii), shall be signed by all
persons who were partners of that partner-
ship at any time during the partnership
taxable year to which the return relates,
and shall be filed at the time (determined
with regard to any extension of time for
October 22, 20013602001–43 I.R.B.

filing) and place prescribed for filing the
partnership return. However, for any part-
nership taxable year for which the due
date of the return (determined without re-
gard to extensions) is before January 2,
2002, the partnership may file the state-
ment described in the preceding sentence
on or before the date which is one year
before the date specified in section
6229(a) for the expiration of the period of
limitations with respect to that partnership
(determined with regard to extensions of
that period under section 6229(b)).
(3) Years covered by election. The
election shall be effective for the partner-
ship taxable year to which the return re-
lates and all subsequent partnership tax-
able years unless revoked with the
consent of the Commissioner.
(c) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6231(a)(1)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6231(a)(1)–1T [Removed]
Par. 35a. Section 301.6231(a)(1)–1T is
removed.
Par. 36. Section 301.6231(a)(2)–1 is
added to read as follows:
§ 301.6231(a)(2)–1 Persons whose tax
liability is determined indirectly by
partnership items.
(a) Spouse filing joint return with indi-
vidual holding a separate interest—(1) In
general. Except as otherwise provided in
this paragraph (a), a spouse who files a
joint return with an individual holding a
separate interest in the partnership shall
be treated as a partner for purposes of
subchapter C of chapter 63 of the Internal
Revenue Code. Thus, the spouse who
files a joint return with a partner will be
permitted to participate in administrative
and judicial proceedings.
(2) Counting rules. A spouse who files
a joint return with an individual holding a
separate interest in the partnership shall
not be counted as a partner for purposes
of applying section 6223(b) (relating to
special rules for partnerships with more
than 100 partners) and section
6231(a)(1)(B) (relating to the exception
for small partnerships).
(3) Notice rules—(i) In general. Ex-
cept as provided in paragraph (a)(3)(ii) of
this section, for purposes of subchapter C
of chapter 63 of the Internal Revenue
Code, a spouse who files a joint return
with an individual holding a separate in-
terest in the partnership shall be treated as
receiving any notice received by the indi-
vidual holding the separate interest.
(ii) Spouse identified on partnership re-
turn or by statement. Paragraph (a)(3)(i)
of this section shall not apply to a spouse
who files a joint return with an individual
holding a separate interest in the partner-
ship if that spouse—
(A) Is identified on the partnership re-
turn; or
(B) Is identified as a partner entitled to
notice as provided in § 301.6223(c)–1(b).
(4) Conversion of partnership items—
(i) Individual holding a separate interest.
A spouse who files a joint return with an
individual holding a separate interest in
the partnership shall cease to be treated as
a partner in the partnership under para-
graph (a)(1) of this section upon the con-
version of the partnership items of the in-
dividual holding the separate interest in
the partnership to nonpartnership items
pursuant to section 6231(b). If each
spouse holds a separate interest in the
partnership, the previous sentence shall be
applied separately with respect to each
partnership interest.
(ii) Spouse who files a joint return with
an individual holding a separate interest
in the partnership. A spouse who files a
joint return with an individual holding a
separate interest in the partnership shall
cease to be treated as a partner in the part-
nership under paragraph (a)(1) of this sec-
tion upon the occurrence of an event that
would convert the partnership items of the
spouse to nonpartnership items if the
spouse were the owner of a separate inter-
est.
(iii) Examples. The following exam-
ples illustrate the application of paragraph
(a)(4) of this section:
Example 1. Husband owns a separate interest
in ABC partnership and files a joint return with Wife.
Husband files for bankruptcy. Pursuant to
§ 301.6231(c)–7, upon filing for bankruptcy, the
partnership items of the debtor convert to nonpart-
nership items. Thus, Husband’s partnership items
converted to nonpartnership items upon the filing of
Husband’s bankruptcy petition. Pursuant to para-
graph (a)(4)(i) of this section, Wife is no longer
treated as a partner of ABC partnership as of the date
the partnership items of Husband converted to non-
partnership items.
Example 2. Wife owns a separate interest in XYZ
partnership and files a joint return with Husband.
Husband files for bankruptcy. Because the filing of
the bankruptcy petition by Husband is an event that
would convert Husband’s partnership items to non-
partnership items if Husband were the owner of a
separate interest, Husband shall no longer be treated
as a partner as of the filing of the bankruptcy peti-
tion. Pursuant to paragraph (a)(4)(ii) of this section,
the partnership items of Wife are not affected by
Husband’s bankruptcy.
(5) Cross–reference. See § 301.6231(a)
(12)–1 for special rules relating to spouses
holding a joint interest in a partnership.
(b) Shareholder of C corporation. A
shareholder of a C corporation (as defined
in section 1361(a)(2)) is not a partner in a
partnership merely because the C corpo-
ration is a partner in that partnership.
(c) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6231(a)(2)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6231(a)(2)–1T [Removed]
Par. 36a. Section 301.6231(a)(2)–1T is
removed.
Par. 37. Section 301.6231(a)(5)–1 is
added to read as follows:
§ 301.6231(a)(5)–1 Definition of affected
item.
(a) In general. The term affected item
means any item to the extent such item is
affected by a partnership item. It includes
items unrelated to the items reflected on
the partnership return (for example, an
item, such as the threshold for the medical
expense deduction under section 213, that
varies if there is a change in an individual
partner’s adjusted gross income).
(b) Basis in a partner’s partnership in-
terest. The basis of a partner’s partner-
ship interest is an affected item to the ex-
tent it is not a partnership item.
(c) At-risk limitation. The application
of the at-risk limitation under section 465
to a partner with respect to a loss incurred
by a partnership is an affected item to the
extent it is not a partnership item.
(d) Passive losses. The application of
the passive loss rules under section 469 to
a partner with respect to a loss incurred by
a partnership is an affected item to the ex-
tent it is not a partnership item.
(e) Penalty, addition to tax, or addi-
tional amount—(1) In general. The term
affected itemincludes any penalty, addi-
tion to tax, or additional amount provided
2001–43 I.R.B.361October 22, 2001

by subchapter A of chapter 68 of the In-
ternal Revenue Code of 1986 to the extent
provided in this paragraph (e).
(2) Penalty, addition to tax, or addi-
tional amount without floor. If a penalty,
addition to tax, or additional amount that
does not contain a floor (that is, a thresh-
old amount of underpayment or under-
statement necessary before the imposition
of the penalty, addition to tax, or addi-
tional amount) is imposed on a partner as
the result of an adjustment to a partner-
ship item, the term affected itemshall in-
clude the penalty, addition to tax, or addi-
tional amount computed with reference to
the portion of the underpayment that is at-
tributable to the partnership item adjust-
ment(s) to which the penalty, addition to
tax, or additional amount applies.
(3) Penalty, addition to tax, or addi-
tional amount containing floor—(i) Floor
exceeded prior to adjustment. If a partner
would have been subject to a penalty, ad-
dition to tax, or additional amount that
contains a floor in the absence of an ad-
justment to a partnership item (that is, the
partner’s understatement or underpay-
ment exceeded the floor even without an
adjustment to a partnership item) the term
affected itemshall include only the por-
tion of the penalty, addition to tax, or ad-
ditional amount computed with reference
to the partnership item (or affected item)
adjustments.
(ii) Floor not exceeded prior to adjust-
ment. In the case of a penalty, addition to
tax, or additional amount that contains a
floor, if the taxpayer’s understatement or
underpayment does not exceed the floor
prior to an adjustment to a partnership
item but does so after such adjustment,
the term affected itemshall include the
penalty, addition to tax, or additional
amount computed with reference to the
entire underpayment or understatement to
which the penalty, addition to tax, or addi-
tional amount applies.
(4) Examples. The provisions of this
paragraph (e) may be illustrated by the
following examples:
Example 1. A, a partner of P, had an aggregate
underpayment of $1,000 of which $100 is attribut-
able to an adjustment to partnership items. A is neg-
ligent in reporting the partnership items. The accu-
racy-related penalty under section 6662 for
negligence computed with reference to the $100
underpayment attributable to the partnership item
adjustments is an affected item.
Example 2. B, a partner of P, understated B’s
income tax liability attributable to nonpartnership
items by $6,000. An adjustment to a partnership
item resulting from a partnership proceeding
increased B’s income tax by an additional $2,000.
Prior to the adjustment, B would have been subject
to the accuracy-related penalty under section 6662
for a substantial understatement of income tax with
respect to the $6,000 understatement attributable to
nonpartnership items. The portion of the accuracy-
related penalty under section 6662 computed with
reference to the $2,000 understatement attributable
to partnership items to which the accuracy-related
penalty applies is an affected item. The portion of
the accuracy-related penalty under section 6662
computed with reference to the $6,000 pre-existing
understatement is not an affected item.
Example 3. C, a partner in partnership P, under-
stated C’s income tax liability attributable to non-
partnership items by $4,000. As a result of an
adjustment to partnership items, that understatement
is increased to $10,000. Prior to the adjustment, C
would not have been subject to the accuracy-related
penalty under section 6662 for a substantial under-
statement of income tax. The accuracy-related
penalty under section 6662 computed with reference
to the entire $10,000 understatement to which the
accuracy-related penalty applies is an affected item.
(f) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6231(a)(5)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6231(a)(5)–1T [Removed]
Par. 37a. Section 301.6231(a)(5)–1T is
removed.
Par. 38. Section 301.6231(a)(6)–1 is
added to read as follows:
§ 301.6231(a)(6)–1 Computational
adjustments.
(a) Changes in a partner’s tax
liability—(1) In general. A change in the
tax liability of a partner to properly reflect
the treatment of a partnership item under
subchapter C of chapter 63 of the Internal
Revenue Code is made through a compu-
tational adjustment. A computational ad-
justment includes a change in tax liability
that reflects a change in an affected item
where that change is necessary to prop-
erly reflect the treatment of a partnership
item, or any penalty, addition to tax, or
additional amount that relates to an ad-
justment to a partnership item. However,
if a change in a partner’s tax liability can-
not be made without making one or more
partner-level determinations, that portion
of the change in tax liability attributable
to the partner-level determinations shall
be made under the deficiency procedures
(as described in subchapter B of chapter
63 of the Internal Revenue Code), except
for any penalty, addition to tax, or addi-
tional amount that relates to an adjust-
ment to a partnership item.
(2) Affected items that do not require
partner-level determinations. Changes in
a partner’s tax liability with respect to af-
fected items that do not require partner-
level determinations (such as the thresh-
old amount of medical deductions under
section 213 that changes as the result of
determinations made at the partnership
level) are computational adjustments that
are directly assessed. When making
computational adjustments, the Internal
Revenue Service may assume that
amounts the partner reported on the part-
ner’s individual return include all
amounts reported to the partner by the
partnership (on the Schedule K-1s at-
tached to the partnership’s original re-
turn), absent contrary notice to the Inter-
nal Revenue Service (for example, a
“Notice of Inconsistent Treatment” pur-
suant to § 301.6222(a)–2(c)). Such an
assumption by the Internal Revenue Ser-
vice does not constitute a partner-level
determination. Moreover, substituting
redetermined partnership items for the
partner’s previously reported partnership
items (including partnership items in-
cluded in carryover amounts) does not
constitute a partner-level determination
where the Internal Revenue Service oth-
erwise accepts, for the sole purpose of
determining the computational adjust-
ment, all nonpartnership items (includ-
ing, for example, nonpartnership item
components of carryover amounts) as re-
ported.
(3) Affected items that require partner-
level determinations. Changes in a part-
ner’s tax liability with respect to affected
items that require partner-level determina-
tions (such as a partner’s at-risk amount to
the extent it depends upon the source
from which the partner obtained the funds
that the partner contributed to the partner-
ship) are computational adjustments that
are subject to the deficiency procedures.
Notwithstanding the preceding sentence,
any penalty, addition to tax, or additional
amount that relates to an adjustment to a
partnership item is not subject to the defi-
ciency procedures, but rather may be di-
rectly assessed as part of the computa-
tional adjustment that is made following
the partnership proceeding, based on de-
October 22, 20013622001–43 I.R.B.

terminations in that proceeding, regard-
less of whether any partner-level determi-
nations may be required.
(b) Interest. A computational adjust-
ment includes any interest due with re-
spect to any underpayment or overpay-
ment of tax attributable to adjustments to
reflect properly the treatment of partner-
ship items.
(c) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6231(a)(6)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6231(a)(6)–1T [Removed]
Par. 38a. Section 301.6231(a)(6)–1T is
removed.
Par. 39. Section 301.6231(a)(7)–1 is
amended by revising paragraphs (p)(2),
(r)(1), and (s) to read as follows:
§ 301.6231(a)(7)–1 Designation or
selection of tax matters partner.
* * * * *
(p) * * *
(2) When each general partner is
deemed to have no profits interest in the
partnership. If it is impracticable under
paragraph (o)(2) of this section to apply
the largest-profits-interest rule of para-
graph (m)(2) of this section, the Commis-
sioner will select a partner (including a
general or limited partner) as the tax mat-
ters partner in accordance with the criteria
set forth in paragraph (q) of this section.
The Commissioner will notify, within 30
days of the selection, the partner selected,
the partnership, and all partners required
to receive notice under section 6223(a) of
the selection of the tax matters partner, ef-
fective as of the date specified in the no-
tice.
* * * * *
(r) * * * (1) In general. If the Commis-
sioner selects a tax matters partner under
the provisions of paragraph (p)(1) or
(p)(3)(i) of this section, the Commis-
sioner will notify, within 30 days of the
selection, the partner selected, the part-
nership, and all partners required to re-
ceive notice under section 6223(a) of the
selection of the tax matters partner, effec-
tive as of the date specified in the notice.
* * * * *
(s) Effective date. This section applies
to all designations, selections, and termi-
nations of a tax matters partner occurring
on or after December 23, 1996, except for
paragraphs (p)(2) and (r)(1), that are ap-
plicable on or after October 4, 2001.
§ 301.6231(a)(7)–1T [Removed]
Par. 39a. Section 301.6231(a)(7)–1T is
removed.
Par. 40. Section 301.6231(a)(12)–1 is
added to read as follows:
§ 301.6231(a)(12)–1 Special rules
relating to spouses.
(a) Spouses holding a joint interest—
(1) In general.Except as otherwise pro-
vided in this section, spouses holding a
joint interest in a partnership shall be
treated as separate partners for purposes
of subchapter C of chapter 63 of the Inter-
nal Revenue Code. Thus, both spouses
may participate in administrative and ju-
dicial proceedings. The term joint inter-
estincludes tenancies in common, joint
tenancies, tenancies by the entirety, and
community property.
(2) Identification of joint interest. For
purposes of this section, an interest shall
be treated as a joint interest in a partner-
ship only if both spouses are identified on
the partnership return or are identified as
partners entitled to notice as provided in
§ 301.6223(c)–1(b).
(3) Failure to identify both spouses as
partners. If both spouses are not identi-
fied as set forth in paragraph (a)(2) of this
section, then the partnership interest shall
be treated as separately owned by the
identified spouse.
(4) Example. The following example
illustrates the application of paragraph
(a)(3) of this section:
Example. Wife owns an interest in ABC
Partnership and is identified on the Schedule K-1 of
the partnership return. Wife and Husband live in a
community property state. The partnership return of
ABC partnership does not identify Husband, and
Husband is not identified as a partner entitled to notice
as provided in § 301.6223(c)–1(b). Pursuant to para-
graph (a)(3) of this section, the partnership interest of
Wife shall be treated as separately owned by Wife.
(b) Notice and counting rules—(1) In
general. Except as provided in paragraph
(b)(2) of this section, for purposes of ap-
plying section 6223 (relating to notice to
partners of proceedings) and section
6231(a)(1)(B) (relating to the exception
for small partnerships), spouses holding a
joint interest in a partnership shall be
treated as one partner. Except as provided
in paragraph (b)(2) of this section, the In-
ternal Revenue Service or the tax matters
partner may send any required notice to
either spouse.
(2) Identified spouse entitled to notice.
For purposes of applying section 6223
(relating to notice to partners of proceed-
ing) for a partnership taxable year, an in-
dividual who holds a joint interest in a
partnership with a spouse who is entitled
to notice under section 6223 shall be enti-
tled to receive separate notice under sec-
tion 6223 if such individual—
(i) Is identified as a partner on the part-
nership return for that taxable year; or
(ii) Is identified as a partner entitled to
notice as provided in § 301.6223(c)–1(b).
(c) Conversion of partnership items—
(1) In general. If spouses holding a joint
interest in a partnership are treated as sep-
arate partners under this section, then sec-
tion 6231(b) (relating to the conversion of
partnership items) shall be applied sepa-
rately to each spouse.
(2) Example. The following example
illustrates the application of paragraph (c)
of this section:
Example. Husband and Wife own a joint interest
in XYZ Partnership. The partnership return identi-
fies both spouses on the Schedule K-1. Under this
section, each spouse is treated as a separate partner.
If Wife enters into a settlement agreement, Wife’s
partnership items convert to nonpartnership items
pursuant to section 6231(b)(1)(C). Accordingly,
Wife no longer has the right to participate in the part-
nership proceeding subsequent to entering into the
settlement agreement. Pursuant to paragraph (c) of
this section, however, the partnership items of
Husband are not affected by the conversion of the
partnership items of Wife, and Husband continues to
have the right to participate in the partnership pro-
ceeding. This result is the same regardless of
whether the partnership items are reported on a joint
return or on separate returns.
(d) Cross-reference. See § 301.6231(a)
(2)–1(a) for special rules relating to
spouses who file joint returns with indi-
viduals holding a separate interest in a
partnership.
(e) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6231(a)(12)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6231(a)(12)–1T [Removed]
Par. 40a. Section 301.6231(a)(12)–1T
is removed.
Par. 41. Section 301.6231(c)–1 is
added to read as follows:
2001–43 I.R.B.363October 22, 2001

§ 301.6231(c)–1 Special rules for certain
applications for tentative carryback and
refund adjustments based on partnership
losses, deductions, or credits.
(a) Application subject to this section.
This section applies in the case of an ap-
plication under section 6411 (relating to
tentative carryback and refund adjust-
ments) based on losses, deductions, or
credits of a partnership if the Commis-
sioner, or the Commissioner’s delegate,
determines, after review of the available
relevant information, that it is highly
likely that a person described in section
6700(a)(1) made, with respect to the part-
nership—
(1) A gross valuation overstatement; or
(2) A false or fraudulent statement with
respect to the tax benefits to be secured by
reason of holding an interest in the part-
nership that would be subject to a penalty
under section 6700 (relating to penalty for
promoting abusive tax shelters, etc.). This
section applies only with respect to an ap-
plication based upon the original report-
ing on the partner’s income tax return of
partnership losses, deductions, or credits.
Thus, this section does not apply to a re-
quest for administrative adjustment under
section 6227 through which a partner
seeks to change the partner’s reporting of
partnership items on the partner’s income
tax return (or on an earlier request for ad-
ministrative adjustment).
(b) Determination of special enforce-
ment area. In the case of an application
under section 6411 described in para-
graph (a) of this section, precluding an as-
sessment under section 6225 that would
be permitted under section 6213(b)(3) (re-
lating to assessments arising out of tenta-
tive carryback or refund adjustments)
with respect to any amount applied, cred-
ited, or refunded as a result of the applica-
tion may encourage the proliferation of
abusive tax shelter partnerships and make
the eventual collection of taxes due more
difficult. Consequently, the Secretary
hereby determines that such applications
present special enforcement considera-
tions within the meaning of section
6231(c)(1)(E).
(c) Assessment permitted under section
6213(b)(3). Notwithstanding section
6225 (relating to restrictions on assess-
ment with respect to partnership items),
an assessment that would be permitted
under section 6213(b)(3) with respect to
any amount applied, credited, or refunded
as a result of an application described in
paragraph (a) of this section may be made
before there is a final partnership-level
determination with respect to the losses,
deductions, or credits on which the appli-
cation is based. As provided in section
6213(b)(1), the Internal Revenue Service
shall mail notice of any such assessment
to the partner filing the application. The
notice shall also inform the partner of the
partner’s limited right to elect to treat
items as nonpartnership items as provided
in paragraph (d) of this section.
(d) Limited right to elect to treat items as
nonpartnership items—(1) In general. A
partner to whom the Internal Revenue Ser-
vice mails a notice of suspension of action
on a refund claim under paragraph (c) of
this section may elect in accordance with
this paragraph (d) to have all partnership
items for the partnership taxable year in
which the losses, deductions, or credits at
issue arose treated as nonpartnership items.
(2) Time and place of making election.
The election shall be made by filing a
statement with the Internal Revenue Ser-
vice office that mailed the notice of sus-
pension. The statement may be filed at
any time—
(i) After the date which is one year after
the date on which the partnership return
was filed for the partnership taxable year
in which the items at issue arose; and
(ii) Before the date on which the Inter-
nal Revenue Service mails to the tax mat-
ters partner the notice of final partnership
administrative adjustment for the partner-
ship taxable year in which the items at
issue arose. For purposes of this para-
graph (d)(2), a partnership return filed be-
fore the last day prescribed by law for its
filing (determined without regard to ex-
tensions) shall be treated as filed on the
last day.
(3) Contents of the statement. The
statement shall—
(i) Be clearly identified as an election
to have partnership items treated as non-
partnership items because of notification
of an assessment under section
6213(b)(3);
(ii) Identify the partnership by name,
address, and taxpayer identification num-
ber;
(iii) Identify the partner making the
election by name, address, and taxpayer
identification number;
(iv) Specify the partnership taxable
year to which the election applies; and
(v) Be signed by the partner making the
election.
(e) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6231(c)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6231(c)–1T [Removed]
Par. 41a. Section 301.6231(c)–1T is
removed.
Par. 42. Section 301.6231(c)–2 is
added to read as follows:
§ 301.6231(c)–2 Special rules for certain
refund claims based on losses,
deductions, or credits from abusive tax
shelter partnerships.
(a) Claims subject to this section. This
section applies in the case of a claim for
credit or refund based on losses, deduc-
tions or credits of a partnership if the
Commissioner, or the Commissioner’s
delegate, determines, after review of
available relevant information, that it is
highly likely that a person described in
section 6700(a)(1) made, with respect to
the partnership—
(1) A gross valuation overstatement; or
(2) A false or fraudulent statement with
respect to the tax benefits to be secured by
reason of holding an interest in the part-
nership that would be subject to a penalty
under section 6700 (relating to penalty for
promoting abusive tax shelters, etc.). This
section applies only with respect to a
claim that is based upon the partner’s
original reporting on the partner’s income
tax return of partnership losses, deduc-
tions, or credits. Thus, this section does
not apply to a request for administrative
adjustment under section 6227 through
which a partner seeks to change the part-
ner’s reporting of partnership items on the
partner’s income tax return (or on an ear-
lier request for administrative adjust-
ment). For purposes of this section, any
income tax return requesting a credit or
refund shall be treated as a claim for a
credit or refund.
(b) Determination of special enforce-
ment area. Granting a claim for credit or
refund described in paragraph (a) of this
section may encourage the proliferation
of abusive tax shelter partnerships and
October 22, 20013642001–43 I.R.B.

make the eventual collection of taxes
more difficult. Consequently, the Secre-
tary hereby determines that such claims
present special enforcement considera-
tions within the meaning of section
6231(c)(1)(E).
(c) Action on refund claims suspended.
In the case of a claim described in para-
graph (a) of this section, the Internal Rev-
enue Service may mail to the partner fil-
ing the claim a notice stating that no
action will be taken on the partner’s claim
until the completion of the partnership-
level proceedings. The notice shall also
inform the partner of the partner’s limited
right to elect to treat items as nonpartner-
ship items as provided in paragraph (d) of
this section.
(d) Limited right to elect to treat items
as nonpartnership items—(1) In general.
A partner to whom the Internal Revenue
Service mails a notice of suspension
under paragraph (c) of this section may
elect in accordance with this paragraph
(d) to have all partnership items for the
partnership taxable year in which the
losses, deductions, or credits at issue
arose treated as nonpartnership items.
(2) Time and place of making election.
The election shall be made by filing a
statement with the Internal Revenue Ser-
vice office that mailed the notice of sus-
pension. The statement may be filed at
any time—
(i) After the date which is one year after
the date on which the partnership return
was filed for the partnership taxable year
in which the items at issue arose; and
(ii) Before the date on which the Inter-
nal Revenue Service mails to the tax mat-
ters partner the notice of final partnership
administrative adjustment for the partner-
ship taxable year in which the items at
issue arose. For purposes of this para-
graph (d)(2), a partnership return filed be-
fore the last day prescribed by law for its
filing (determined without regard to ex-
tensions) shall be treated as filed on the
last day.
(3) Contents of the statement. The
statement shall—
(i) Be clearly identified as an election
to have partnership items treated as non-
partnership items because of notification
of suspension of action on a refund claim;
(ii) Identify the partnership by name,
address, and taxpayer identification num-
ber;
(iii) Identify the partner making the
election by name, address, and taxpayer
identification number;
(iv) Specify the partnership taxable
year to which the election applies; and
(v) Be signed by the partner making the
election.
(e) Effective date. This section applies
with respect to any claim described in
paragraph (a) of this section that is filed
on or after October 4, 2001. For claims
filed prior to October 4, 2001, see
§ 301.6231(c)–2T contained in 26 CFR
part 1, revised April 1, 2001.
§ 301.6231(c)–2T [Removed]
Par. 42a. Section 301.6231(c)–2T is
removed.
Par. 43. Section 301.6231(c)–3 is
added to read as follows:
§ 301.6231(c)–3 Limitation on
applicability of §§ 301.6231(c)–4
through 301.6231(c)–8.
(a) In general. A provision of
§§ 301.6231(c)–4 through 301.6231(c)–8
shall not apply with respect to partnership
items arising in a partnership taxable year
if, as of the date on which those items
would otherwise begin to be treated as non-
partnership items under that provision—
(1) A notice of final partnership admin-
istrative adjustment with respect to those
items has been mailed to the tax matters
partner; and
(2) Either—
(i) The period during which an action
with respect to that final partnership ad-
ministrative adjustment may be brought
under section 6226 has expired and no
such action has been brought; or
(ii) The decision of the court in an ac-
tion brought under section 6226 with re-
spect to that final partnership administra-
tive adjustment has become final.
(b) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6231(c)–3T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6231(c)–3T [Removed]
Par. 43a. Section 301.6231(c)–3T is
removed.
Par. 44. Section 301.6231(c)–4 is
added to read as follows:
§ 301.6231(c)–4 Termination and
jeopardy assessment.
(a) In general. The treatment of items
as partnership items with respect to a part-
ner against whom an assessment of in-
come tax under section 6851 (termination
assessment) or section 6861 (jeopardy as-
sessment) is made will interfere with the
effective and efficient enforcement of the
internal revenue laws. Accordingly, part-
nership items of such a partner arising in
any partnership taxable year ending with
or within the partner’s taxable year for
which an assessment of income tax under
section 6851 or 6861 is made shall be
treated as nonpartnership items as of the
moment before such assessment is made.
(b) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6231(c)–4T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6231(c)–4T [Removed]
Par. 44a. Section 301.6231(c)–4T is
removed.
Par. 45. Section 301.6231(c)–5 is
added to read as follows:
§ 301.6231(c)–5 Criminal investigations.
(a) In general. The treatment of items
as partnership items with respect to a part-
ner under criminal investigation for viola-
tion of the internal revenue laws relating
to income tax will interfere with the effec-
tive and efficient enforcement of the inter-
nal revenue laws. Accordingly, partner-
ship items of such a partner arising in any
partnership taxable year ending on or be-
fore the last day of the latest taxable year
of the partner to which the criminal inves-
tigation relates shall be treated as nonpart-
nership items as of the date on which the
partner is notified that the partner is the
subject of a criminal investigation and
written notification is sent by the Internal
Revenue Service that the partner’s part-
nership items shall be treated as nonpart-
nership items. The partnership items of a
partner who is notified that the partner is
the subject of a criminal investigation
shall not be treated as nonpartnership
items under this section unless and until
such partner is sent written notification
from the Internal Revenue Service of such
treatment.
2001–43 I.R.B.365October 22, 2001

(b) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6231(c)–5T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6231(c)–5T [Removed]
Par. 45a. Section 301.6231(c)–5T is
removed.
Par. 46. Section 301.6231(c)–6 is
added to read as follows:
§ 301.6231(c)–6 Indirect method of proof
of income.
(a) In general. The treatment of items
as partnership items with respect to a part-
ner whose taxable income is determined
by use of an indirect method of proof of
income will interfere with the effective
and efficient enforcement of the internal
revenue laws. Accordingly, partnership
items of such a partner arising in any part-
nership taxable year ending on or before
the last day of the taxable year of the part-
ner for which a deficiency notice based
upon an indirect method of proof of in-
come is mailed to the partner shall be
treated as nonpartnership items as of the
date on which that deficiency notice is
mailed to the partner.
(b) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6231(c)–6T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6231(c)–6T [Removed]
Par. 46a. Section 301.6231(c)–6T is
removed.
Par. 47. Section 301.6231(c)–7 is
added to read as follows:
§ 301.6231(c)–7 Bankruptcy and
receivership
(a) Bankruptcy. The treatment of items
as partnership items with respect to a part-
ner named as a debtor in a bankruptcy pro-
ceeding will interfere with the effective
and efficient enforcement of the internal
revenue laws. Accordingly, partnership
items of such a partner arising in any part-
nership taxable year ending on or before
the last day of the latest taxable year of the
partner with respect to which the United
States could file a claim for income tax
due in the bankruptcy proceeding shall be
treated as nonpartnership items as of the
date the petition naming the partner as
debtor is filed in bankruptcy.
(b) Receivership. The treatment of
items as partnership items with respect to
a partner for whom a receiver has been
appointed in any receivership proceeding
before any court of the United States or of
any State or the District of Columbia will
interfere with the effective and efficient
enforcement of the internal revenue laws.
Accordingly, partnership items of such a
partner arising in any partnership taxable
year ending on or before the last day of
the latest taxable year of the partner with
respect to which the United States could
file a claim for income tax due in the re-
ceivership proceeding shall be treated as
nonpartnership items as of the date a re-
ceiver is appointed in any receivership
proceeding before any court of the United
States or of any State or the District of
Columbia.
(c) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6231(c)–7T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6231(c)–7T [Removed]
Par. 47a. Section 301.6231(c)–7T is
removed.
Par. 48. Section 301.6231(c)–8 is
added to read as follows:
§ 301.6231(c)–8 Prompt assessment.
(a) In general. The treatment of items
as partnership items with respect to a part-
ner on whose behalf a request for a
prompt assessment of tax under section
6501(d) is filed will interfere with the ef-
fective and efficient enforcement of the
internal revenue laws. Accordingly, part-
nership items of such a partner arising in
any partnership taxable year ending with
or within any taxable year of the partner
with respect to which a request for a
prompt assessment of tax is filed shall be
treated as nonpartnership items as of the
date that the request is filed.
(b) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6231(c)–8T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6231(c)–8T [Removed]
Par. 48a. Section 301.6231(c)–8T is
removed.
Par. 49. Section 301.6231(d)–1 is
added to read as follows:
§ 301.6231(d)–1 Time for determining
profits interest of partners for purposes of
sections 6223(b) and 6231(a)(11).
(a) Partner owns interest at close of
year. For purposes of section 6223(b)
(relating to special rules for partnerships
with more than 100 partners) and section
6231(a)(11) (relating to 5-percent
groups), except as otherwise provided in
this section, the profits interest held by a
partner, directly or indirectly through one
or more pass-thru partners, in a partner-
ship (the source partnership) to which
subchapter C of chapter 63 of the Internal
Revenue Code applies shall be deter-
mined at the close of the source partner-
ship’s taxable year.
(b) Partner does not own interest at
close of year. If the entire direct and indi-
rect interest of a partner in a source part-
nership is terminated by virtue of a dispo-
sition by such partner of such interest (or
by virtue of the disposition of an interest
held by one or more pass-thru partners
through which the partner holds an inter-
est), then the profits interest of such part-
ner in the source partnership shall be mea-
sured as of the moment before the
disposition causing such termination. The
preceding sentence shall not apply with
respect to a termination if subsequent to
such termination and before the close of
the source partnership’s taxable year the
partner acquires a direct or indirect inter-
est in the source partnership.
(c) Disposition of last remaining por-
tion of interest is disposition of entire in-
terest. If a partner (or a pass-thru partner
through which a partner holds an interest)
makes several partial dispositions of an
interest in a source partnership during a
taxable year of the source partnership,
paragraph (b) of this section will apply
with respect to the disposition which
causes a termination of the partner’s en-
tire direct and indirect interest in the
source partnership.
(d) No profits interest in certain cases.
If—
(1) The interest of a partner in a part-
nership is entirely disposed of before the
October 22, 20013662001–43 I.R.B.

close of the taxable year of the partner-
ship; and
(2) No items of the partnership for that
taxable year are required to be taken into
account by the partner, then that partner
has no profits interest in the partnership
for that taxable year.
(e) Examples. The provisions of this
section may be illustrated by the follow-
ing examples. Assume in all examples
that there have been no reacquisitions
prior to the close of the source partner-
ship’s taxable year. The examples are as
follows:
Example 1. B holds an interest in partnership P
through T, a pass-thru partner. P uses a fiscal year
ending June 30 as P’s taxable year; B and T use the
calendar year as the taxable year. As of the close of
P’s taxable year ending June 30, 2002, T holds an
interest in P and B holds an interest in P through T.
The profits interest held by B in P through T for that
year is determined as of June 30, 2002.
Example 2. Assume the same facts as in Example
1, except that B sold the entire interest that B held in
P through T on November 5, 2001. The profits inter-
est held by B in P through T for P’s taxable year end-
ing June 30, 2002, is determined as of the moment
before the sale on November 5, 2001.
Example 3. C holds an interest in partnership P
through T, a pass-thru partner. C, P, and T all use the
calendar year as the taxable year. T disposes of T’s
interest in P on June 5, 2002. The profits interest
held by C in P through T for 2002 is determined as
of the moment before the disposition on June 5,
2002.
Example 4. Assume the same facts as in Example
3, except that C sold C’s entire interest in T (and,
therefore, C’s entire interest that C held in P through
T) on March 15, 2002. The profits interest held by
C in P through T for 2002 is determined as of the
moment before the sale on March 15, 2002.
Example 5. On January 1, 2002, D held a 2 per-
cent profits interest in partnership P. Both D and P
use the calendar year as the taxable year. On August
1, 2002, D transfers three-fourths of D’s profits
interest in P to E. On September 1, 2002, D sells D’s
remaining .5 percent profits interest in P to F. For
purposes of sections 6223(b) and 6231(a)(11), D had
a .5 percent profits interest in P for 2002.
Example 6. Assume the same facts as in Example
5, except that on January 1, 2002, D also held a 1
percent profits interest in partnership P through T, a
pass-thru partner which also uses the calendar year
as the taxable year. In addition to the sale to E on
August 1, 2002, D sold a portion of D’s interest in T
on December 1, 2002, such that after the sale, D held
a .2 percent profits interest in P through T. D made
no other transfers of interests in either P or T. For
purposes of sections 6223(b) and 6231(a)(11), D had
a .7 percent profits interest in P for 2002.
(f) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6231(d)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6231(d)–1T [Removed]
Par. 49a. Section 301.6231(d)–1T is
removed.
Par. 50. Section 301.6231(e)–1 is
added to read as follows:
§ 301.6231(e)–1 Effect of a
determination with respect to a
nonpartnership item on the determination
of a partnership item.
(a) In general. The determination of
an item after it has become a nonpartner-
ship item with respect to a partner is not
controlling in the determination of that
item with respect to other partners. Thus,
for example, the determination by a court
in a separate proceeding relating to a
partner that a certain partnership expen-
diture was deductible does not bind either
the Internal Revenue Service or the other
partners in a later partnership or other
proceeding.
(b) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6231(e)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6231(e)–1T [Removed]
Par. 50a. Section 301.6231(e)–1T is
removed.
Par. 51. Section 301.6231(e)–2 is
added to read as follows:
§ 301.6231(e)–2 Judicial decision not a
bar to certain adjustments.
(a) In general. A court decision with
respect to a partner’s income tax liability
attributable to nonpartnership items shall
not be a bar to further proceedings with
respect to that partner’s income tax liabil-
ity if that partner’s partnership items be-
come nonpartnership items after the
appropriate time to include such nonpart-
nership items in the earlier court proceed-
ing has passed. Thus, the Internal Rev-
enue Service could issue a later
deficiency notice for the same taxable
year with respect to that partner or that
partner could bring a refund suit with re-
spect to those items that have become
nonpartnership items.
(b) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6231(e)–2T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6231(e)–2T [Removed]
Par. 51a. Section 301.6231(e)–2T is
removed.
Par. 52. Section 301.6231(f)–1 is
added to read as follows:
§ 301.6231(f)–1 Disallowance of losses
and credits in certain cases.
(a) Application of section. This section
applies if—
(1) A partnership, whether domestic or
foreign, that is required to file a return
under section 6031 for a taxable year fails
to file the return within the time pre-
scribed; and
(2) At any time after the close of that
taxable year, either—
(i) The tax matters partner of that part-
nership resides outside the United States;
or
(ii) The books and records of that part-
nership are maintained outside the United
States.
(b) Computational adjustment permit-
ted if return is not filed after mailing of
notice. Except as otherwise provided in
paragraph (c) of this section, if—
(1) This section applies with respect to
a partnership for a partnership taxable
year;
(2) The Internal Revenue Service mails
notice to a partner that the losses and
credits arising from that partnership for
that year will be disallowed to that partner
unless the partnership files a return for
that year within 60 days after the date on
which the notice is mailed; and
(3) The partnership fails to file a return
for that year within that 60-day period,
the Internal Revenue Service may, with-
out conducting a partnership-level pro-
ceeding, mail a notice of computational
adjustment to that partner to reflect the
disallowance of any loss (including a cap-
ital loss) or credit arising from that part-
nership for that year.
(c) Restriction on notices under para-
graph (b) of this section. Neither the no-
tice referred to in paragraph (b)(2) of this
section nor the notice of computational
adjustment referred to in paragraph (b) of
this section may be mailed on a day on
which—
(1) The tax matters partner of the partner-
ship resides within the United States; and
2001–43 I.R.B.367October 22, 2001

(2) The books and records of the partner-
ship are maintained within the United
States. Thus, if this section applies with re-
spect to a partnership for a taxable year
solely because the tax matters partner of that
partnership resided outside the United
States for a period after the close of that tax-
able year and the tax matters partner later
takes up residence within the United States,
no notice may be mailed under paragraph
(b) of this section while the tax matters part-
ner resides within the United States.
(d) No disallowance in certain circum-
stances. If the person to whom the notice
referred to in paragraph (b)(2) of this sec-
tion is mailed establishes to the satisfac-
tion of the Internal Revenue Service—
(1) That the losses and credits arising
from the partnership for the year are
proper; and
(2) That the partner has made a good
faith effort to have the partnership file the
required return; the Internal Revenue Ser-
vice may allow the losses and credits in
whole or in part.
(e) Effective date. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6231(f)–1T contained in 26
CFR part 1, revised April 1, 2001.
§ 301.6231(f)–1T [Removed]
Par. 52a. Section 301.6231(f)–1T is re-
moved.
Par. 53. Section 301.6233–1 is added
to read as follows:
§ 301.6233–1 Extension to entities filing
partnership returns.
(a) Entities filing a partnership return.
Except as provided in paragraph (c)(1) of
this section, the provisions of subchapter
C of chapter 63 of the Internal Revenue
Code (subchapter C) and the regulations
thereunder shall apply with respect to any
taxable year of an entity for which such
entity files a partnership return as well as
to such entity’s items for that taxable year
and to any person holding an interest in
such entity at any time during that taxable
year. Any final partnership administrative
adjustment or judicial determination re-
sulting from a proceeding under subchap-
ter C with respect to such taxable year
may include a determination that the en-
tity is not a partnership for such taxable
year as well as determinations with re-
spect to all items of the entity that would
be partnership items, as defined in section
6231(a)(3) and the regulations thereunder,
if such entity had been a partnership in
such taxable year (including, for example,
any amounts taxable to an entity deter-
mined to be an association taxable as a
corporation). For example, a final deter-
mination under subchapter C that an en-
tity that filed a partnership return is an as-
sociation taxable as a corporation will
serve as a basis for a computational ad-
justment reflecting the disallowance of
any loss or credit claimed by a purported
partner with respect to that entity.
(b) Partnership return filed but no en-
tity found to exist— Paragraph (a) of this
section shall apply where a partnership re-
turn is filed for a taxable year but it is de-
termined that there is no entity for such
taxable year. For purposes of applying
paragraph (a) of this section, the partner-
ship return shall be treated as if it were
filed by an entity. However, any final
partnership administrative adjustment or
judicial determination resulting from a
proceeding under subchapter C with re-
spect to such taxable year may also in-
clude a determination that there is no en-
tity for such taxable year.
(c) Exceptions. Paragraph (a) of this
section shall not apply to—
(1) Entities for any taxable year in
which such entity would be excepted
from the provisions of subchapter C of the
Internal Revenue Code under section
6231(a)(1)(B) and the regulations there-
under (relating to the exception for small
partnerships) if such entity were a part-
nership for such taxable year; and
(2) Entities for any taxable year for
which a partnership return was filed for
the sole purpose of making the election
described in section 761(a).
(d) Effective dates. This section is ap-
plicable to partnership taxable years be-
ginning on or after October 4, 2001. For
years beginning prior to October 4, 2001,
see § 301.6233–1T contained in 26 CFR
part 1, revised April 1, 2001.
§ 301.6233–1T [Removed]
Par. 53a. Section 301.6233–1T is re-
moved.
PART 602 — OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 54. The authority for Part 602 con-
tinues to read as follows:
Authority: 26 U.S.C.7805.
Par. 55. Section 602.101, paragraph (b)
is amended by removing the entries for
“301.6222(a)–2T”, “301.6222(b)–1T”,
“301.6222(b)–2T”, “301.6222(b)–3T”,
“301.6227(b)–1T”, and adding the fol-
lowing entries to the table in numerical
order:
§ 602.101 OMB Control numbers.
* * * * *
(b) * * *
CFR part or section
where identifiedCurrent OMB
and describedcontrol No.
* * * * *
301.6222(a)–2 . . . . . . . . . . . 1545–0790
301.6222(b)–1 . . . . . . . . . . . 1545–0790
301.6222(b)–2 . . . . . . . . . . . 1545–0790
301.6222(b)–3 . . . . . . . . . . . 1545–0790
301.6223(b)–1 . . . . . . . . . . . 1545–0790
301.6223(c)–1 . . . . . . . . . . . 1545–0790
301.6223(e)–2 . . . . . . . . . . . 1545–0790
301.6223(g)–1 . . . . . . . . . . . 1545–0790
301.6223(h)–1 . . . . . . . . . . . 1545–0790
301.6224(b)–1 . . . . . . . . . . . 1545–0790
301.6224(c)–1 . . . . . . . . . . . 1545–0790
301.6224(c)–3 . . . . . . . . . . . 1545–0790
301.6227(c)–1 . . . . . . . . . . . 1545–0790
301.6227(d)–1 . . . . . . . . . . . 1545–0790
301.6229(b)–2 . . . . . . . . . . . 1545–0790
301.6230(b)–1 . . . . . . . . . . . 1545–0790
301.6230(e)–1 . . . . . . . . . . . 1545–0790
301.6231(a)(1)–1 . . . . . . . . . 1545–0790
* * * * *
301.6231(c)–1 . . . . . . . . . . . 1545–0790
301.6231(c)–2 . . . . . . . . . . . 1545–0790
* * * * *
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue Service.
Approved September 20, 2001.
Mark Weinberger,
Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on Octo-
ber 3, 2001, 8:45 a.m., and published in the issue of
the Federal Register for October 4, 2001, 66 F.R.
50541)
October 22, 20013682001–43 I.R.B.

90% to 105%90% to 110%
WeightedPermissiblePermissible
MonthYearAverageRangeRange
October 20015.765.18 to 6.055.18 to 6.34
2001–43 I.R.B.369October 22, 2001
Weighted Average Interest Rate
Update
Notice 2001–65
Notice 88–73 provides guidelines for
determining the weighted average interest
rate and the resulting permissible range of
interest rates used to calculate current lia-
bility for the purpose of the full funding
limitation of § 412(c)(7) of the Internal
Revenue Code as amended by the
Omnibus Budget Reconciliation Act of
1987 and as further amended by the
Uruguay Round Agreements Act, Pub. L.
103–465 (GATT).
The average yield on the 30-year
Treasury Constant Maturities for
September 2001 is 5.48 percent.
The following rates were determined
for the plan years beginning in the month
shown below.
Part III. Administrative, Procedural, and Miscellaneous
Drafting Information
The principal author of this notice is
Todd Newman of the Employee Plans,
Tax Exempt and Government Entities
Division. For further information regard-
ing this notice, please call Mr. Newman at
(202) 283-9702 (not a toll-free number).
26 CFR 601.201: Rulings and determination
letters.
Rev. Proc. 2001–51
SECTION 1. PURPOSE AND NATURE
OF CHANGE
.01 The purpose of this revenue proce-
dure is to modify Rev. Proc. 2001–3
(2001–1 I.R.B. 111) by removing section
5.06 from the No-Rule list. Section 5.06
concerns the application of § 1374 of the
Internal Revenue Code to timber, coal and
domestic iron ore transactions.
SECTION 2. BACKGROUND
.01 Rev. Proc. 2001–3 sets forth those
provisions of the Internal Revenue Code
under the jurisdiction of the Associate
Chief Counsel (Corporate), the Associate
Chief Counsel (Financial Institutions &
Products), the Associate Chief Counsel
(Income Tax & Accounting),the
Associate Chief Counsel (Passthroughs &
Special Industries), the Associate Chief
Counsel (Procedure and Administration),
and the Division Counsel/Associate Chief
Counsel (Tax Exempt and Government
Entities) relating to issues on which the
Internal Revenue Service will not issue
letter rulings or determination letters.
.02 Section 5 of Rev. Proc. 2001–3 sets
forth those areas under extensive study in
which letter rulings or determination let-
ters will not be issued until the Service
resolves the issue through publication of a
revenue ruling, revenue procedure, or oth-
erwise.
Section 5.06 of Rev. Proc. 2001–3 pro-
vides as follows:
Section 1374.—Tax Imposed on Certain
Built-in Gains — The tax consequences
under § 1374 in the following situations:
(1) an S corporation holds timber property
on the date it converts from a C corpora-
tion to an S corporation (or acquires tim-
ber property from a C corporation in a
transaction to which § 1374(d)(8) applies)
and during the recognition period (a) cuts
the timber and sells resulting wood prod-
ucts (including any unfinished or finished
products derived, manufactured, or pro-
duced from such wood products) in a
transaction to which § 631 does not apply,
(b) recognizes gain or loss on cutting the
timber pursuant to a § 631(a) election, or
(c) recognizes gain or loss on the disposal
of timber under a contract to which
§ 631(b) applies, and (2) an S corporation
holds coal or domestic iron ore property
on the date it converts from a C corpora-
tion to an S corporation (or acquires coal
or domestic iron ore property from a C
corporation in a transaction to which
§ 1374(d)(8) applies) and during the
recognition period recognizes gain or loss
on the disposal of the coal or iron ore
under a contract to which § 631(c) applies.
SECTION 3. PROCEDURE
Rev. Proc. 2001–3 is modified by delet-
ing section 5.06.
SECTION 4. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2001–3 is modified.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective
October 9, 2001, the date of its release to
the public.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Cristian P. Silva of the Office
of Associate Chief Counsel (Corporate).
For further information about this revenue
procedure, please contact Mr. Silva at
(202) 622-7750 (not a toll-free call).

October 22, 20013702001–43 I.R.B.
Notice of Proposed Rulemaking
and Notice of Public Hearing
Constructive Transfers and
Transfers of Property to a Third
Party on Behalf of a Spouse
REG–107151–00
AGENCY:Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY:This document contains
proposed regulations under section 1041
of the Internal Revenue Code relating to
the tax treatment of certain redemptions,
during marriage or incident to divorce, of
stock owned by a spouse or former
spouse. This document also provides
notice of a public hearing on the proposed
regulations.
DATES:Written comments must be
received by November 1, 2001. Requests
to speak and outlines of topics to be dis-
cussed at the public hearing scheduled for
Friday, December 14, 2001, must be
received by November 23, 2001.
ADDRESSES:Send submissions to:
CC:ITA:RU (REG–107151–00), room
5226, Internal Revenue Service, POB 7604,
Ben Franklin Station, Washington, DC
20044. Submissions may be hand delivered
between the hours of 8 a.m. and 5 p.m. to
CC:ITA:RU (REG–107151–00), Courier’s
Desk, Internal Revenue Service, 1111
Constitution Avenue NW, Washington, DC.
Alternatively, taxpayers may submit com-
ments electronically via the Internet by
selecting the “Tax Regs” option on the IRS
Home Page, or by submitting comments
directly to the IRS Internet site at
http://www.irs.gov/tax_regs/regslist.html.
The public hearing will be held in the
Auditorium, Internal Revenue Build-
ing, 1111 Constitution Avenue NW,
Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regula-
tions, Edward C. Schwartz (202) 622-
4960; concerning submissions and the
hearing, Guy Traynor (202) 622-7180
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained
in this notice of proposed rulemaking has
been submitted to the Office of
Management and Budget for review in
accordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)).
Comments on the collection of informa-
tion should be sent to the Office of
Management and Budget, Attn: Desk
Officer for the Department of the
Treasury, Office of Information and
Regulatory Affairs, Washington, DC
20503, with copies to the Internal
Revenue Service, Attn: IRS Reports
Clearance Officer, W:CAR:MP:FP:S,
Washington, DC 20224. Comments on
the collection of information should be
received by October 2, 2001. Comments
are specifically requested concerning:
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Internal Revenue Service, including
whether the information will have practi-
cal utility;
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be
enhanced;
How the burden of complying with the
proposed collection of information may
be minimized, including through the
application of automated collection tech-
niques or other forms of information tech-
nology; and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of services to provide informa-
tion.
The collection of information in this
proposed regulation is in § 1.1041–2(c) of
these regulations. Section 1.1041–2(c)
permits spouses or former spouses to treat
a redemption of stock of one spouse (the
first spouse) as a transfer of that stock to
the other spouse (the second spouse) in
exchange for the redemption proceeds and
a redemption of the stock from the second
spouse in exchange for the redemption
proceeds if they reflect their intent to do
so in a written agreement or if a divorce or
separation agreement requires such treat-
ment. This information must be retained
and is required for the spouses or former
spouses to report properly the tax conse-
quences of the redemption. The likely
respondents are individuals.
Estimated total annual reporting and/or
recordkeeping burden: 500 hours.
Estimated average annual burden hours
per respondent and/or recordkeeper: 30
minutes.
Estimated number of respondents
and/or recordkeepers: 1,000
Estimated annual frequency of respons-
es: On occasion
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
Section 1041 was added to the Internal
Revenue Code by section 421 of the Tax
Reform Act of 1984 (1984 Act), Public
Law 98–369. Section 1041(a) provides
that no gain or loss will be recognized on
a transfer of property from an individual
to (or in trust for the benefit of) a spouse
or former spouse if the transfer is incident
to a divorce. Under section 1041(b), for
purposes of subtitle A, the transferee is
treated as having acquired the property by
gift from the transferor with a carryover
basis from the transferor.
The House Report accompanying the
1984 Act states:
The current rules governing trans-
fers of property between spouses or
former spouses incident to divorce have
not worked well and have led to much
controversy and litigation. Often the
rules have proved a trap for the unwary
. . . .
Furthermore, in divorce cases, the
government often gets whipsawed.
The transferor will not report any gain
Part IV. Items of General Interest

2001–43 I.R.B.371October 22, 2001
on the transfer, while the recipient
spouse, when he or she sells, is entitled
under [United States v. Davis, 370 U.S.
65 (1962)] to compute his or her gain
or loss by reference to a basis equal to
the fair market value of the property at
the time received.
The committee believes that to
correct these problems and make the
tax laws as unintrusive as possible with
respect to relations between spouses,
the tax laws governing transfers be-
tween spouses and between former
spouses should be changed. . . .
The bill provides that the transfer
of property to a spouse incident to a di-
vorce will be treated, for income tax
purposes, in the same manner as a gift.
Gain (including recapture income) or
loss will not be recognized to the trans-
feror, and the transferee will receive the
property at the transferor’s basis . . . .
Thus, uniform Federal income tax con-
sequences will apply to these transfers
notwithstanding that the property may
be subject to differing state property
laws.
H. R. Rep. No. 432, 98th Cong., 2d Sess.,
Part 2, at 1491–92 (1984) (House Report).
By enacting the carryover basis rules in
section 1041(b), Congress has, in essence,
provided spouses with a mechanism for
determining between themselves which
one will pay tax upon the disposition of
property outside the marital unit. For
example, assume Spouse A owns appreci-
ated property that he or she wishes to sell
to a third party. The spouses may agree
that Spouse A will sell the property to the
third party and recognize the gain. Any
subsequent transfer from Spouse A to
Spouse B of the sales proceeds will be
nontaxable under section 1041. In the
alternative, the spouses may agree that
Spouse A will first transfer the property to
Spouse B. This transfer is nontaxable
under section 1041, with Spouse B taking
a carryover basis in the transferred prop-
erty. Spouse B will then recognize the
gain or loss on the sale of the property to
the third party because a sale to a third
party is not covered by section 1041. In
this latter scenario, the tax consequences
of the sale are shifted to Spouse B.
Under § 1.1041–1T(c), Q&A-9, of the
Temporary Income Tax Regulations
(Q&A-9), section 1041 will apply to a
transfer of property by the transferor
spouse to a third party that is on behalf of
the other spouse or former spouse (non-
transferor spouse) if: (i) the transfer to the
third party is required by the divorce or
separation instrument; (ii) the transfer to
the third party is pursuant to the written
request of the nontransferor spouse; or
(iii) the transferor spouse receives from
the nontransferor spouse a written consent
or ratification of the transfer to the third
party. If Q&A-9 applies, a direct transfer
of property to a third party is treated first
as a transfer to the nontransferor spouse in
a transaction governed by section 1041
and then as an immediate transfer by the
nontransferor spouse to the third party in
a transaction not governed by section
1041.
Q&A-9 has provided spouses and for-
mer spouses with the ability to shift
between themselves the tax consequences
of a sale of property outside the marital
unit. However, the questions of what
standard should be applied for purposes of
determining whether a transfer of proper-
ty is, or is not, “on behalf of” the non-
transferor spouse for purposes of section
1041, and whether the same standard
should be applied for purposes of deter-
mining the tax treatment of the transferor
spouse and the nontransferor spouse
under provisions of the Internal Revenue
Code other than section 1041, have
become the source of much confusion and
litigation in the context of certain stock
redemptions. For instance, the United
States Court of Appeals for the Ninth
Circuit in Arnes v. United States, 981 F.2d
456 (9th Cir. 1992) (regarding the tax
treatment of the transferor spouse), and
the Tax Court in Arnes v. Commissioner,
102 T.C. 522 (1994) (regarding the tax
treatment of the nontransferor spouse),
applied different standards to determine
the tax treatment of the transferor spouse
and the nontransferor spouse, respective-
ly, in the context of a redemption of stock
owned by the transferor spouse.
Consequently, neither spouse was taxed
on the redemption proceeds, a result that
Congress clearly sought to avoid in enact-
ing section 1041. See House Report at
1491.
In the Arnescases, a husband and wife
owned all the stock of a corporation. The
divorce instrument required the wife to
tender her stock to the corporation for
redemption. The Ninth Circuit held that
the redemption was on behalf of the hus-
band and, therefore, was not taxable to the
wife, because it found that the husband
had an obligation under the property set-
tlement to purchase the wife’s stock and
the husband was benefitted by the
redemption. The Ninth Circuit did not
address the tax treatment of the husband,
although it implied that the husband might
be taxable on the redemption.
The Tax Court in Arnesaddressed
whether the husband was taxable on the
redemption. The Tax Court stated that the
question was whether the husband had a
constructive dividend; that is, whether he
had a “primary and unconditional obliga-
tion” to purchase the stock. The court
concluded that the husband did not have a
primary and unconditional obligation to
purchase the wife’s stock and, therefore,
the redemption of the wife’s stock did not
result in a constructive dividend to the
husband. This conclusion, the court stat-
ed, was supported by the IRS’s position in
Rev. Rul. 69–608 (1969–2 C.B. 43). Rev.
Rul. 69–608 holds that a corporation’s
redemption of its stock from a sharehold-
er (the first shareholder) results in a con-
structive distribution to another share-
holder (the second shareholder) if the
redemption is in satisfaction of the second
shareholder’s primary and unconditional
obligation to purchase the first sharehold-
er’s stock. The majority opinion of the
Tax Court in Arnesexpressly declined to
opine as to whether the “on behalf of”
standard of Q&A-9 is the same as the
“primary and unconditional obligation”
standard applicable to constructive distri-
butions.
The uncertainty has persisted in subse-
quent cases. In Read v. Commissioner,
114 T.C. 14 (2000), the Tax Court reject-
ed equating the “primary and uncondi-
tional obligation” standard with the “on
behalf of” standard in Q&A-9 for purpos-
es of determining the tax consequences of
a stock redemption to the transferor
spouse. The Tax Court concluded that the
appropriate standard for determining
whether a transfer of property to a third
party by a transferor spouse was on behalf
of the nontransferor spouse under Q&A-9
was whether the transferor spouse was
acting “as the representative of” or “in the
interest of” the nontransferor spouse or
whether the transfer satisfied a liability or
an obligation of the nontransferor spouse.

October 22, 20013722001–43 I.R.B.
See also Blatt v. Commissioner,102 T.C.
77 (1994).
Because of these inconsistent stan-
dards, the regulations must be amended to
provide greater certainty in determining
which spouse will be taxed on certain
stock redemptions occurring during mar-
riage or incident to divorce.
Explanation of Provisions
The proposed regulations apply where,
under current law, the “primary and
unconditional obligation” standard applic-
able to constructive distributions governs
the tax consequences to one spouse or for-
mer spouse of a redemption of stock
owned by the other spouse or former
spouse. Accordingly, the proposed regu-
lations provide that they apply only where
the nontransferor spouse owns stock of
the redeeming corporation either immedi-
ately before or immediately after the stock
redemption.
The proposed regulations provide that,
if a corporation redeems stock owned by a
transferor spouse, and the transferor
spouse’s receipt of property in respect of
such stock is treated, under applicable tax
law, as resulting in a constructive distribu-
tion to the nontransferor spouse, then the
stock redeemed is deemed first to be
transferred by the transferor spouse to the
nontransferor spouse and then to be trans-
ferred by the nontransferor spouse to the
redeeming corporation. Section 1041
applies to the deemed transfer of the stock
by the transferor spouse to the nontrans-
feror spouse, provided the requirements of
section 1041 are otherwise satisfied with
respect to such deemed transfer. Section
1041 does not apply to the deemed trans-
fer of stock from the nontransferor spouse
to the redeeming corporation. Any prop-
erty actually received by the transferor
spouse from the redeeming corporation in
respect of the redeemed stock is deemed
first to be transferred by the redeeming
corporation to the nontransferor spouse in
exchange for the stock in a transaction to
which section 1041 does not apply, and
then to be transferred by the nontransferor
spouse to the transferor spouse in a trans-
action to which section 1041 applies, pro-
vided the requirements of section 1041
are otherwise satisfied with respect to
such deemed transfer. The tax conse-
quences of the deemed transfer of stock
from the nontransferor spouse to the
redeeming corporation in exchange for
the redemption proceeds from the
redeeming corporation are determined
under applicable provisions of the Internal
Revenue Code (other than section 1041)
as if such transfers had actually occurred.
Where applicable law does not treat a
transferor spouse’s receipt of property in
respect of stock redeemed as resulting in a
constructive distribution to the nontrans-
feror spouse, the form of the stock
redemption is respected. In other words,
the transferor spouse and the redeeming
corporation are respected as parties to the
redemption transaction, and thus the
transferor spouse, not the nontransferor
spouse, is treated as a party to the redemp-
tion.
The approach of the proposed regula-
tions recognizes that applicable tax law
currently imposes the primary and uncon-
ditional obligation standard, which has its
origins in well-established case law
including Wall v. United States, 164 F.2d
462 (4th Cir. 1947), and Sullivan v. United
States,363 F.2d 724 (8th Cir. 1966), for
determining whether a shareholder has
received a constructive distribution. The
proposed regulations are designed to
remove inconsistencies caused by the
simultaneous potential application of the
on behalf of standard of Q&A-9 for one
spouse and the primary and unconditional
obligation standard of the case law for the
other spouse. Thus, for example, if the
rules of the proposed regulations had
applied in the Arnescase, because the
husband did not have a primary and
unconditional obligation to purchase the
wife’s stock, the redemption would have
been taxed in accordance with its form
with the result that the wife would have
incurred the tax consequences of the
redemption.
The proposed regulations provide a
special rule that permits spouses and for-
mer spouses to treat a redemption of the
transferor spouse’s stock as a deemed
transfer of the redeemed stock by the
transferor spouse to the nontransferor
spouse and then a deemed transfer of the
redeemed stock by the nontransferor
spouse to the redeeming corporation, and
to treat any property actually received by
the transferor spouse from the redeeming
corporation in respect of the redeemed
stock as first transferred by the redeeming
corporation to the nontransferor spouse in
exchange for the stock and then to be
transferred by the nontransferor spouse to
the transferor spouse. The special rule
will apply if a divorce or separation
instrument, or a written agreement
between the transferor spouse and the
nontransferor spouse, requires the trans-
feror spouse and the nontransferor spouse
to file their Federal income tax returns in
a manner that reflects that the transferor
spouse transferred the redeemed stock to
the nontransferor spouse in exchange for
the redemption proceeds and the corpora-
tion redeemed the stock from the non-
transferor spouse in exchange for the
redemption proceeds. Such divorce or
separation instrument must be effective,
or the written agreement must be execut-
ed by both spouses or former spouses,
prior to the date on which the nontransfer-
or spouse files such spouse’s first timely
filed Federal income tax return for the
year that includes the date of the redemp-
tion, but no later than the date such return
is due (including extensions). The special
rule is provided to give spouses and for-
mer spouses a means of ensuring the
application of those Federal income tax
consequences that would have resulted
had applicable tax law treated the trans-
feror spouse’s stock redemption as result-
ing in a constructive distribution to the
nontransferor spouse.
Proposed Effective Date
The proposed regulations are applica-
ble to redemptions of stock on or after the
date the regulations in this section are
published as final regulations, except for
redemptions of stock that are pursuant to
instruments in effect before the date the
regulations in this section are published as
final regulations. For redemptions of
stock before the date the regulations in
this section are published as final regula-
tions and redemptions of stock that are
pursuant to instruments in effect before
the date the regulations in this section are
published as final regulations, see
§ 1.1041–1T(c), A-9. However, these reg-
ulations will be applicable to redemptions
described in the preceding sentence if the
spouses or former spouses execute a writ-
ten agreement on or after August 3, 2001,
that satisfies the requirements of para-
graph (c) of these regulations with respect
to such redemption.

Special Analysis
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in
Executive Order 12866. Therefore, a reg-
ulatory assessment is not required. It has
also been determined that section 553(b)
of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these
regulations, and because the regulations
do not impose a collection of information
on small entities, a Regulatory Flexibility
Analysis is not required. Pursuant to sec-
tion 7805(f) of the Internal Revenue
Code, this notice of proposed rulemaking
will be submitted to the Chief Counsel
for Advocacy of the Small Business
Administration for comment on its impact
on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments (a
signed original and eight (8) copies) and
electronic comments that are submitted
timely to the IRS. The IRS is also inter-
ested in receiving comments regarding the
proper treatment of transfers of property
to third parties by a spouse or former
spouse other than transfers under these
proposed regulations that solely govern
certain redemptions of stock owned by a
spouse or former spouse. Further, com-
ments are specifically requested concern-
ing the effective date provisions in the
proposed regulations. All comments will
be available for public inspection and
copying.
A public hearing has been scheduled for
December 14, 2001, at 10:00 a.m. in the
Auditorium, Internal Revenue Building,
1111 Constitution Avenue, NW, Washing-
ton, DC. Due to building security proce-
dures, visitors must enter at the 10
th
Street
entrance, located between Constitution
and Pennsylvania Avenues, NW. In addi-
tion, all visitors must present photo identi-
fication to enter the building. Because of
access restrictions, visitors will not be ad-
mitted beyond the immediate entrance
area more than 15 minutes before the
hearing starts. For information about hav-
ing your name placed on the building ac-
cess list to attend the hearing, see the
“FOR FURTHER INFORMATION CON-
TACT” section of this preamble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral com-
ments at the hearing must submit timely
written or electronic comments and must
submit an outline of the topics to be dis-
cussed and the time to be devoted to each
topic (preferably a signed original and
eight (8) copies) by November 23, 2001.
A period of 10 minutes will be allotted
to each person for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Edward C. Schwartz of the Office
of the Associate Chief Counsel (Income
Tax and Accounting). However, other
personnel from the IRS and Treasury
Department participated in their develop-
ment.
* * * * *
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In § 1.1041–1T, paragraph (c) is
amended by adding a sentence at the end
of A-9 to read as follows:
§ 1.1041–1T Treatment of transfers of
property between spouses or incident to
divorce (temporary).
* * * * *
(c) * * *
A-9: * * * This A-9 shall not apply to
transfers to which § 1.1041–2 applies.
* * * * *
Par. 3. Section 1.1041–2 is added to
read as follows:
§ 1.1041–2 Certain redemptions of stock.
(a) In general— (1) Redemptions of
stock resulting in constructive distribu-
tions. Notwithstanding Q&A-9 of
§ 1.1041–1T(c), if a corporation redeems
stock owned by a spouse or former spouse
(transferor spouse), and the transferor
spouse’s receipt of property in respect of
such redeemed stock is treated, under
applicable tax law, as resulting in a con-
structive distribution to the other spouse or
former spouse (nontransferor spouse),
then the stock redeemed shall be deemed
first to be transferred by the transferor
spouse to the nontransferor spouse and
then to be transferred by the nontransferor
spouse to the redeeming corporation. Any
property actually received by the transfer-
or spouse from the redeeming corporation
in respect of the redeemed stock shall be
deemed first to be transferred by the
redeeming corporation to the nontransfer-
or spouse in exchange for the redeemed
stock and then to be transferred by the
nontransferor spouse to the transferor
spouse.
(2) Redemptions of stock not resulting
in constructive distributions. Notwith-
standing Q&A-9 of § 1.1041–1T(c), if a
corporation redeems stock owned by the
transferor spouse, and the transferor
spouse’s receipt of property in respect of
such redeemed stock is not treated, under
applicable tax law, as resulting in a con-
structive distribution to the nontransferor
spouse, then the form of the stock re-
demption shall be respected for Federal
income tax purposes. Therefore, the
transferor spouse and the redeeming cor-
poration will be respected as engaging in
a redemption transaction to which the
nontransferor spouse is not a party.
(b) Tax consequences— (1) Transfers
described in paragraph (a)(1). The tax
consequences of each deemed transfer
described in paragraph (a)(1) of this sec-
tion are determined under applicable pro-
visions of the Internal Revenue Code as if
the parties had actually made such trans-
fers. Accordingly, section 1041 applies to
any deemed transfer of the stock and
redemption proceeds between the trans-
feror spouse and the nontransferor spouse,
provided the requirements of section 1041
are otherwise satisfied with respect to
such deemed transfer. Section 1041, how-
ever, will not apply to any deemed trans-
fer of stock by the nontransferor spouse to
the redeeming corporation in exchange
for the redemption proceeds. See section
302 for rules relating to the tax conse-
quences of certain corporate redemptions.
(2) Transfers described in paragraph
(a)(2). Section 1041 will not apply to any
2001–43 I.R.B.373October 22, 2001

of the transfers described in paragraph
(a)(2) of this section. See section 302 for
rules relating to the tax consequences of
certain stock redemptions.
(c) Special rule. Notwithstanding
applicable tax law, a transferor spouse’s
receipt of property in respect of redeemed
stock will be treated as resulting in a con-
structive distribution to the nontransferor
spouse for purposes of paragraph (a)(1) of
this section if a divorce or separation
instrument, or a written agreement
between the transferor spouse and the
nontransferor spouse, requires the trans-
feror spouse and the nontransferor spouse
to file their Federal income tax returns in
a manner that reflects that the transferor
spouse transferred the redeemed stock to
the nontransferor spouse in exchange for
the redemption proceeds and the corpora-
tion redeemed the stock from the non-
transferor spouse in exchange for the
redemption proceeds. Such divorce or
separation instrument must be effective,
or written agreement must be executed by
both spouses or former spouses, prior to
the date on which the nontransferor
spouse files such spouse’s first timely
filed Federal income tax return for the
year that includes the date of the stock
redemption, but no later than the date such
return is due (including extensions).
(d) Limited scope. Paragraphs (a) and
(c) of this section shall apply only to stock
redemptions where, either immediately
before or immediately after the stock
redemption, the nontransferor spouse
owns directly stock of the redeeming cor-
poration.
(e) Examples. The provisions of this
section may be illustrated by the follow-
ing examples:
Example 1. Corporation X has 100 shares out-
standing. A and B each own 50 shares. A and B
divorce. The divorce instrument requires B to pur-
chase A’s shares, and A to sell A’s shares to B, in
exchange for $100x. Corporation X redeems A’s
shares for $100x. Assume that, under applicable tax
law, the stock redemption results in a constructive
distribution to B. Paragraph (a)(1) of this section
applies to the transfers of stock and redemption pro-
ceeds in connection with the redemption transaction.
Accordingly, A will be treated as transferring A’s
stock of Corporation X to B in a transfer to which
section 1041 applies (assuming the requirements of
section 1041 are otherwise satisfied). B will be
treated as transferring the Corporation X stock B is
deemed to have received from A to Corporation X in
exchange for $100x in an exchange to which section
1041 does not apply and sections 302(d) and 301
apply, and B will be treated as transferring the $100x
to A in a transfer to which section 1041 applies.
Example 2. Assume the same facts as Example 1,
except that the divorce instrument requires A to sell
A’s shares to Corporation X in exchange for a note.
B guarantees Corporation X’s payment of the note.
Assume that, under applicable tax law, B does not
have a primary and unconditional obligation to pur-
chase A’s stock. Also assume that the special rule of
paragraph (c) of this section does not apply to the
transfer of stock and redemption proceeds in con-
nection with the redemption transaction. Under
applicable tax law, the stock redemption does not
result in a constructive distribution to B, because B
does not have a primary and unconditional obliga-
tion to purchase A’s stock. Paragraph (a)(1) of this
section does not apply to the transfers of stock and
redemption proceeds in connection with the redemp-
tion transaction. Accordingly, under paragraphs
(a)(2) and (b)(2) of this section, the tax conse-
quences of the redemption will be determined in
accordance with its form as a redemption of A’s
shares by Corporation X. See section 302.
Example 3. Assume the same facts as Example 2,
except that the divorce instrument provides as fol-
lows: “A and B agree that A’s Federal income tax
return for the year that includes the date of the
redemption will reflect that A transferred A’s shares
of Corporation X to B in exchange for the redemp-
tion proceeds of $100x and B’s Federal income tax
return for such year will reflect that Corporation X
redeemed such shares from B in exchange for such
proceeds.” By virtue of the special rule of paragraph
(c) of this section, the redemption is treated as result-
ing in a constructive distribution to B. Accordingly,
A will be treated as transferring A’s stock of
Corporation X to B in a transfer to which section
1041 applies (assuming the requirements of section
1041 are otherwise satisfied). B will be treated as
transferring the Corporation X stock B is deemed to
have received from A to Corporation X in exchange
for $100x in an exchange to which section 1041 does
not apply and sections 302(d) and 301 apply, and B
will be treated as transferring the $100x to A in a
transfer to which section 1041 applies.
(f) Effective date. Except as otherwise
provided in this paragraph, this section is
applicable to redemptions of stock on or
after the date these regulations are pub-
lished as final regulations in the Federal
Register, except for redemptions of stock
that are pursuant to instruments in effect
before the date these regulations are pub-
lished as final regulations in the Federal
Register.For redemptions of stock
before the date these regulations are pub-
lished as final regulations in the Federal
Register and redemptions of stock that
are pursuant to instruments in effect
before the date these regulations are pub-
lished as final regulations in the Federal
Register, see § 1.1041–1T(c), A-9.
However, these regulations will be applic-
able to redemptions described in the pre-
ceding sentence of this paragraph (f) if the
spouses or former spouses execute a writ-
ten agreement on or after August 3, 2001,
that satisfies the requirements of para-
graph (c) of this section with respect to
such redemption.
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
(Filed by the Office of the Federal Register on Au-
gust 2, 2001, 8:45 a.m., and published in the issue of
the Federal Register for August 3, 2001, 66 F.R.
40659)
Disaster Relief for Issuers of
Tax-Exempt Bonds Affected by
the September 11, 2001,
Terrorist Attack
Announcement 2001–101
PURPOSE
The purpose of this announcement is to
inform issuers of tax-exempt bonds that,
effective immediately,the Internal
Revenue Service will put into effect pro-
cedures to provide relief to issuers affect-
ed by the September 11, 2001, Terrorist
Attack.
BACKGROUND
In connection with the September 11,
2001, Terrorist Attack, the President
issued federal disaster declarations with
respect to certain counties and may issue
additional declarations with respect to
other counties (such counties are collec-
tively referred to herein as, the “covered
counties”).
As a consequence of the September 11,
2001, Terrorist Attack, an affected issuer
(as defined below), may not be able to
comply with certain requirements of sec-
tion 103 and related provisions of the
Internal Revenue Code, including, but not
limited to, the requirements set forth in
sections 148(f) and 149(e) of the Code,
with respect to certain of its bond issues.
PROCEDURES FOR REQUESTING
RELIEF
(a) An affected issuer is an issuer that
meets one or more of the following:
(i) It is located in one of the cov-
ered counties;
(ii)It is not located in any of the
covered counties, but its
records necessary to meet a fil-
October 22, 20013742001–43 I.R.B.

ing or paying deadline for the
issue are maintained in one of
the covered counties;
(iii) The facilities financed with the
proceeds of the issue are lo-
cated in one of the covered
counties;
(iv) The conduit borrower for the
issue is located in one of the
covered counties;
(v) The counsel to the issuer or the
conduit borrower, or bond
counsel for the issue, is located
in one of the covered counties;
(vi) The professional on whom the
issuer relies for compliance
with the relevant provision of
the Code is located in one of the
covered counties. For example,
the issuer may need to rely on
one or more of the following
persons in order to comply with
the rebate requirement of sec-
tion 148(f): the bond trustee, a
financial advisor or a rebate
consultant.
(b) With respect to the requirements
under sections 149(e) and 148(f), an
affected issuer has an additional 6 months
plus 120 days to file Form 8038, Form
8038-G, Form 8038-GC, or Form 8038-T
for an issue for which such form is other-
wise required to be filed in accordance
with an original due date that occurs on or
after September 11, 2001, and on or
before November 30, 2001. In the case of
a Form 8038-T, the Service will not
impose a penalty, including any interest
portion thereof, under section 148 of the
Code, on rebate payments, yield reduction
payments and penalties in lieu of rebate
that are originally due on or after
September 11, 2001, and on or before
November 30, 2001, provided such pay-
ments are made within 6 months and 120
days of the original due date of the pay-
ment. For computation purposes, such
payments will be treated as paid on the
last day of the computation or spending
period to which they relate.
(c) When filing a form described in
subsection (b) above, the affected issuer
should add the following designation in
red ink at the top of the form,
“September 11, 2001 – Terrorist Attack,
See Announcement 2001–101.”
(d) In addition to the relief granted in
subsection (b) above, other relief may
also be granted under appropriate cir-
cumstances for affected issuers (for
example, affected issuers unable to
redeem their current refunded issue
within 90 days of issuance of the current
refunding issue). An affected issuer may
request relief by contacting the Tax
Exempt Bonds, Outreach, Planning and
Review (“TEB OPR”) function of Tax
Exempt/Government Entities at (202)
283-9798, contact person: Cliff Gannett.
DRAFTING INFORMATION
The principal author of this announce-
ment is Sunita Lough of Tax Exempt
Bonds Outreach, Planning and Review of
the Office of the Director, Tax Exempt
Bonds, Tax Exempt/Government Entities.
For further information regarding this an-
nouncement or comments as to how addi-
tional relief may be provided to affected
issuers, contact Sunita Lough at (202)
283-9774 (not a toll-free call).
Filing of Certain Forms 5500
Announcement 2001–103
The Internal Revenue Service (IRS),
the Department of Labor’s Pension and
Welfare Benefits Administration
(PWBA), and the Pension Benefit
Guaranty Corporation (PBGC) provide
relief from certain penalties relating to
Forms 5500 for defined benefit and
money purchase pension plans that are
required to be filed on or before October
15, 2001. This announcement also
includes PBGC’s statement of relief
from penalties relating to premiums,
reporting and disclosure, and certifica-
tions.
Background
Section 412(a) of the Internal
Revenue Code (Code) and § 302(a) of
the Employee Retirement Income
Security Act of 1974 (ERISA) provide
that a plan meets the minimum funding
standards of the Code and ERISA for a
plan year if the plan does not have an
accumulated funding deficiency as of
the end of the plan year. Section
412(c)(10) of the Code and § 302(c)(10)
of ERISA provide that, for purposes of
satisfying the minimum funding require-
ments of the Code and ERISA, any con-
tributions for a plan year made by an
employer by the end of the 8 1/2 month
period following the end of such plan
year are deemed to have been made on
the last day of the plan year.
Section 6058 of the Code and § 104 of
ERISA require plan administrators to
file an annual return/report of employee
benefit plan within a specified period of
time after the end of the plan year. The
annual return/report of employee benefit
plan is Form 5500 and Form 5500–EZ
(hereinafter Form 5500). For defined
benefit pension plans subject to the min-
imum funding standard, § 6059 of the
Code requires that a periodic report of
the actuary be filed with the annual
return. Under § 301.6059–1 of the
Procedure and Administration Regula-
tions, the periodic report is the Schedule
B, which must be signed by an enrolled
actuary. In order to properly complete
the Schedule B, the enrolled actuary
must know whether a contribution for a
plan year was made within the period
specified by § 412(c)(10) of the Code
and § 302(c)(10) of ERISA.
Under section 502(c)(2) of ERISA, a
penalty of up to $1,100 a day may be
assessed for each day a plan administra-
tor fails or refuses to file a complete and
accurate annual report and accompany-
ing schedules. Similarly, § 6652(e) of
the Code imposes a penalty of $25 a day
(up to $15,000) for not filing returns for
certain deferred compensation plans.
Section 6692 of the Code imposes a
penalty of $1,000 for not filing an actu-
arial report described in § 6059. Under
§ 301.6692–1(a) of the regulations, a
failure to provide a material item of
information is considered as a failure to
file an actuarial report.
Because of the disruption of the finan-
cial markets caused by the events of
September 11, 2001, many employers
have stated they were not able to make
required contributions to their pension
plans on or before September 15, 2001,
to satisfy the minimum funding stan-
dards.
Grant of Relief
The IRS, the PWBA, and the PBGC
provide the following relief. In the case
of a defined benefit or money purchase
pension plan with a plan year ending on
or after December 27, 2000, and on or
2001–43 I.R.B.375October 22, 2001

before January 8, 2001, for which a Form
5500 is required to be filed on or before
October 15, 2001, plan administrators
and plan sponsors will not be treated as
failing to file a complete and accurate
return/report under § 6058 of the Code or
§ 104 of ERISA, nor will enrolled actu-
aries be treated as failing to file an actu-
arial report that satisfies the requirements
of § 6059(b) of the Code, solely because
contributions made on or before
September 24, 2001, are included on line
3 of Schedule B of Form 5500 (showing
the actual date of payment of the contri-
bution) and line 6(b) of Schedule R of
Form 5500.
In addition, the PBGC provides the
following relief with respect to any plan
with a plan year ending on or after
December 27, 2000, and on or before
January 8, 2001. The PBGC will not
assess any penalties for a failure to pay
PBGC premiums in a timely manner or a
failure to meet a PBGC reporting or dis-
closure requirement, nor will it treat a
certification as failing to be a valid and
correct certification, solely because con-
tributions made on or before September
24, 2001, are included in the plan’s assets
for purposes of PBGC premiums or are
counted for purposes of determining
whether any PBGC reporting or disclo-
sure requirement applies.
Drafting Information
The principal author of this announce-
ment is James E. Holland, Jr. of the
Employee Plans, Tax Exempt and Gov-
ernment Entities Division. For further
information regarding this announcement,
please contact the Employee Plans’ tax-
payer assistance telephone service at
1-877-829-5500, between the hours of
8:00 a.m. and 9:30 p.m. Eastern Time,
Monday through Friday (toll-free num-
ber). Mr. Holland may be reached at
(202) 283-9699 (not a toll-free number).
Issuance of GUST Opinion
Letters for Master and
Prototype Plans
Announcement 2001–104
The Service has begun to issue opinion
letters to sponsors of master and proto-
type (M&P) plans who applied for
GUST
1
opinion letters by December 31,
2000. Recently, the Service completed
revisions to pertinent sections of the List-
ing of Required Modifications and Infor-
mation Package (LRM) for both defined
contribution and defined benefit plans.
The revisions to the LRMs are posted to
the Employee Plans Internet address at
www.irs.gov/ep.
Generally, an employer who, by the end
of the 2001 plan year (December 31, 2001,
for calendar-year plans), either adopts or
certifies its intent to adopt a timely submit-
ted M&P plan or volume submitter speci-
men plan will have until the later of De-
cember 31, 2002, or 12 months after the
date of the last opinion or advisory letter is-
sued to the M&P plan sponsor or volume
submitter practitioner to adopt the GUST-
approved plan. An M&P plan or volume
submitter specimen plan is timely submit-
ted if an application for a GUST opinion or
advisory letter for the plan was filed by De-
cember 31, 2000. An employer who does
not so adopt or certify its intent to adopt a
timely submitted M&P plan or volume sub-
mitter specimen plan must amend its plan
for GUST by the end of the 2001 plan year.
As provided in Announcement 2001–77
(2001–30 I.R.B. 83), the Service will soon
publish on the IRS Web-page a list of the
M&P plans and volume submitter speci-
men plans that were timely submitted for
GUST opinion and advisory letters. This
list will be updated periodically to indicate
the dates on which letters were issued or the
applications were withdrawn. The Service
expects to complete the issuance of GUST
opinion and advisory letters in the first
quarter of calendar year 2002.
More information about GUST dead-
lines and filing procedures can be found in
the following IRS procedures: Rev. Proc.
2000–20 (2000–6 I.R.B. 553), Rev. Proc.
2000–27 (2000–26 I.R.B. 1272), Rev.
Proc. 2001–6 (2001–1 I.R.B. 194), and
Notice 2001–42 (2001–30 I.R.B. 70).
Foundations Status of Certain
Organizations
Announcement 2001–105
The following organizations have
failed to establish or have been unable to
maintain their status as public charities
or as operating foundations. Accord-
ingly, grantors and contributors may not,
after this date, rely on previous rulings
or designations in the Cumulative List of
Organizations (Publication 78), or on
the presumption arising from the filing
of notices under section 508(b) of the
Code. This listing does notindicate that
the organizations have lost their status
as organizations described in section
501(c)(3), eligible to receive deductible
contributions.
Former Public Charities.The follow-
ing organizations (which have been
treated as organizations that are not pri-
vate foundations described in section
509(a) of the Code) are now classified as
private foundations:
4T Ministry, Inc., San Jose, CA
75 Lyerly Residents Council,
Incorporated, Houston, TX
Abundant Rain, Inc., Amarillo, TX
African Business Group ABG,
Dallas, TX
A.H.S. Enterprises, Inc., Houston, TX
Akido of Santa Barbara, Santa Barbara, CA
All Star Kids Day Care, Houston, TX
Alumni Association of Brooks Institute,
Santa Barbara, CA
American Indian Cultural & Business
Council-AICBC, Dallas, TX
Ancient Eyes Foundation, Oxnard, CA
Antelope Valley Youth Football
Association, Bakersfield, CA
Apostolate for Catholic Truth and
Service, Fresno, CA
Applied Geography Conferences, Inc.,
Denton, TX
Asian-American Association Clothing the
Needy, Stockton, CA
Asthma Watch Advocates Reinforcing
and Educating Aware, Lancaster, TX
Athens-Henderson County
Crimestoppers, Malakoff, TX
Beaumont Federation of Neighborhood
Associations, Beaumont, TX
Believers Bible Fellowship, Inc.,
Missoula, MT
Bellerive Residents Council,
Incorporated, Houston, TX
October 22, 20013762001–43 I.R.B.
1
The term “GUST” refers to:
• The Uruguay Round Agreements Act, Pub. L. 103-
465;
• The Uniformed Service Employment and Reem-
ployment Rights Act of 1994, Pub. L. 103-353;
• The Small Business Job Protection Act of 1996,
Pub. L.104-188;
• The Taxpayer Relief Act of 1997, Pub. L.105-34;
• The Internal Revenue Service Restructuring and
Reform Act of 1998, Pub. L.105-206; and
• The Community Renewal Tax Relief Act of 2000,
Pub. L.106-554 (“CRA”).

Benbrook Firefighters Association, Inc.,
Benbrook, TX
Bi Stone Economic Strategy Team, Inc.,
Teague, TX
Big Horn River Guide Company, Inc.,
Billings, MT
Big Sky Gymnastic Booster Club,
Great Falls, MT
Brain Games USA, Duncanville, TX
Brothers of West Liberty Foundation,
Inc., Liberty, TX
Brownwood Area Habitat for Humanity,
Inc., Brownwood, TX
Buenaventura Theatre Group,
Ventura, CA
California Broadcasters Foundation,
Sacramento, CA
California Industrial Safety Council, Inc.,
Bakersfield, CA
Canyon Community Center, Inc.,
Hungry Horse, MT
Carmel Literacy Arts Society,
Carmel, CA
Carmel Valley Trail & Saddle Club
Community Foundation, Inc.,
Salinas, CA
Carpinteria Creek Foundation,
Carpinteria, CA
Cedar Gardens Tenant Association,
Fresno, CA
Center for Attitudinal Healing Dallas,
Inc., Dallas, TX
Center for Hope, Inc., Tacoma, WA
Center for Internet Mail Education and
Research, Santa Cruz, CA
Chances, Inc., Terrell, TX
Charles Tolbert Ministries, Inc.,
Midland, TX
Chestnut Corporation, Bellaire, TX
Child Support Investigations, Inc.,
Santa Ana, CA
Childrens Advocacy Network,
Mammoth Lakes, CA
Childrens Special Moments, Inc.,
Conroe, TX
Chinese Physical Culture Plus, Inc.,
Houston, TX
Coastline Organization of People with
Aids-HIV, La Marque, TX
Connie M. Pate Memorial Scholarship
Fund, Beaumont, TX
Core Performance Manufactory,
Dallas, TX
Corner Boxing Club, Inc., Arlington, TX
Corpus Christi Club Estates Swim Team
Parents Club, Corpus Christi, TX
Corvallis Quick Response Unit,
Corvallis, MT
Court Appointed Special Advocates of
Angelina County, Inc., Lufkin, TX
Cup of Water International Ministries,
Inc., Bay City, TX
Dallas Hispanic Criminal Justice
Association, Dallas, TX
Dan McPherson Memorial Foundation,
Lubbock, TX
DARE Montana, Helena, MT
Deaf Educational Access Foundation,
Palo Alto, CA
Down Syndrome Partnership of Tarrant
County, Inc., Fort Worth, TX
Dr. Thomas S. Mackey Educational Trust,
Galveston, TX
Drum Not Guns, Inc., Dallas, TX
Eagle Fest, Emory, TX
Elks Park Scholarship and Charity Fund,
Merced, CA
Emmaus House, Hollister, CA
Encouragement Ministries, Inc.,
Morgan Hills, CA
Envirohome, Santa Cruz, CA
Equadorables, San Jose, CA
Extended Hope Youth Program,
Lancaster, TX
Fillmore FFA Booster Club,
Fillmore, CA
Firstplus Employees Foundation,
Dallas, TX
Fish Camp Fire Volunteers Auxiliary,
Fish Camp, CA
Fort Worth Beat the Heat Racing,
Fort Worth, TX
Foundation for the Development of
Critical Thought, Inc., Arlington, TX
Foundation for the Missions of
Coromoto, Salinas, CA
Four Corners Community Outreach, Inc.,
Richmond, TX
Friends of the Rink, Inc., Butte, MT
Friends of the Shelter Tobacco Valley
Animal Shelter, Inc., Eureka, MT
Geriatric Assessment Plans, Inc.,
Irving, TX
Glacier Affordable Housing Foundation,
Kalispell, MT
Golden State Human Service Continuum,
Inc., New Haven, CT
Golden State Track Club, San Jose, CA
Great Race Automotive Hall of Fame,
Inc., Granbury, TX
Greater Fairfield Restoration Association,
Inc., Fairfield, TX
Hagerman Quick Response Unit, Inc.,
Hagerman, ID
Hall of Fame of Golf, Inc.,
The Woodlands, TX
Hazel-Lisa-McMurran Foundation,
Lake Arrowhead, CA
Health and Environment International,
Los Altos, CA
Health Education Alliance Foundation,
Great Falls, MT
Henderson County Arts Council,
Athens, TX
Hispanic Festival, Inc., Florissant, MO
Hope Restoration, Inc., Dallas, TX
Houston Council on Sexual Dependency
Recovery, Houston, TX
Humble Beginnings Emergency
Assistance Center, Humble, TX
Idaho Trauma System Development
Coalition, Boise, ID
In Depth Ministries, Inc., Houston, TX
Indian Culture Center-Spring, Spring, TX
Indico Foundation, Fort Worth, TX
Instititute for Comprehensive
Understanding, Sunnyvale, CA
Irving Together, Inc., Irving, TX
Jerusalem Ministries, Inc., Houston, TX
Jim Caruthers Ministries, Inc., Justin, TX
J.R. Richard Foundation for the
Homeless, Dallas, TX
Jungle Gym Daycare, Inc., Culbertson, MT
Kalispell Dramatic Arts Company, Inc.,
Kalispell, MT
Kerman Bible Studies, Fresno, CA
Kerman Unified Education Foundation,
Kerman, CA
Kern County Royals Baseball Club,
Bakersfield, CA
Kern Musicians Association,
Bakersfield, CA
Kindness Foundation, Dallas, TX
Kingdom Stewardship Ministries, Inc.,
Lewisville, TX
Kings Highway Ministries, Incorporated,
Fresno, CA
Knights of Care, Dallas, TX
Lancelot Bell Foundation, Los Gatos, CA
Laurell Akers Ministries, Inc.,
Tomball, TX
Lighthouse Redemption Center,
Camarillo, CA
Lisa L. Netsch Foundation,
Highland Vill, TX
Livingston Area Cultural Arts and
Activities Center, Inc., Livingston, MT
Love Foundation, Houston, TX
McCampbell Institute, Monterey, CA
Midlothian Amateur Baseball
Association, Inc., Midlothian, TX
Ministerio Vida Y Luz, Odessa, TX
Miracle Healing Ministry,
Stevensville, MT
2001–43 I.R.B.377October 22, 2001

Montana County Fire Wardens
Association, Stanford, MT
Montana Mens Foundation,
Bozeman, MT
Montana River Action Network Fund,
Inc., Bozeman, MT
Montana Tribal Business Information
Network, Incorporated, Billings, MT
Monterey County Appointed Special
Advocate Association, Monterey, CA
Monterey Peninsula-Nanao Friendship
Association, Marina, CA
Montessori Phoenix Projects, Inc.,
Gaviota, CA
Nash Country School, Inc.,
Toluca Lake, CA
National Association of Presidential
Assistants in Higher, Washington, DC
National Disaster Search Dog
Foundation, Inc., Ojai, CA
Network Ministries Fellowship, Inc.,
Arlington, TX
New Creation Ministry, Inc.,
Nacogdoches, TX
New Creations Recovery, Inc.,
Porterville, CA
North Grassland Wildlife Foundation,
Newman, CA
North Richland Hill Citizens Police
Academy Alumni Association,
N. Richland Hills, TX
North Texas Housing & Management
Corp., Plano, TX
North Texas Select Softball,
Southlake, TX
Northern Santa Barbara County Athletic
Roundtable, Inc., Santa Maria, CA
Northwest Pharmacist Recovery
Network, Fircrest, WA
Oleander & Sunset Park Association,
Bakersfield, CA
One Church One Child of North-North
Central Texas and Surrounding,
Arlington, TX
One Foundation Ministries, Inc.,
Dallas, TX
Opera San Joaquin, Fresno, CA
Others, Inc., Waxahachie, TX
Out of the Madness Charity, Inc.,
Dallas, TX
Pacific Grove Feast of Lanterns, Inc.,
Pacific Grove, CA
Palo Pinto County A&M Club,
Mineral Wells, TX
Paso Robles Police Activities League,
Paso Robles, CA
Pearl Longbines Cottage for Children,
Inc., Amarillo, TX
Philippians 413 Ministries,
Missoulas, MT
Phoenix Data Center of Santa Clara
County, Inc., Los Gatos, CA
Proclaim Ministries, Plano, TX
Professional Football Referees
Association Charities, Plano, TX
Progressive Economic Opportunity
Programs for Local Efforts, Inc.,
Wichita Falls, TX
Prop Foundation, Inc., Missoula, MT
PTA California Congress of Parents
Teachers and Students, Inc.,
Morgan Hill, CA
Red River Emmaus Community,
Incorporated, Wichita Falls, TX
Rotarun Ski Club, Inc., Hailey, ID
Rural Community Health Centers,
Lemoore, CA
San Angelo Business-Education
Coalition, Inc., San Angelo, TX
San Benito County Athletic Foundation,
Hollister, CA
Sandon Bailey Foundation, Coppell, TX
Santa Barbara Air Fair, Inc., Goleta, CA
Santa Barbara Sister Cities Association-
Yalta, Santa Barbara, CA
Say No To Drugs, Dallas, TX
Seawind, Inc., Seaside, CA
Segeh Gospel Mission, Inc.,
San Jose, CA
Sensible Solutions the Institute, Inc.,
Missoula, MT
Services for the Medically
Disadvantaged, Fort Worth, TX
Sexual Abuse Intervention Network of
Dallas, Inc., Dallas, TX
Shields Valley Foundation, Inc.,
Clyde Park, MT
Sierra Scholarship Foundation, Inc.,
Bishop, CA
Somers Volunteer Firefighters
Association, Inc., Somers, NY
South Texas Prison Outreach, Inc.,
Bay City, TX
Special Family Ministries, Irving, TX
Special Pets Incorporated, Dallas, TX
Spruce Island Foundation,
Sunnyvale, CA
Storm Shelter Counseling for the Fissures
of Men of Ventura County,
Ventura, CA
Structural Engineers World Congress,
Los Altos, CA
Stump Enrichment Ministry for Church
& Family, Dallas, TX
Summitt Place, Inc., Butte, MT
Sun & Star 1996, Dallas, TX
S.Y. Larrick Memorial Library
Foundation, Whitefish, MT
TCC Alumni Association, Conroe, TX
Team Aztecas Sports, Dallas, TX
Teen Court of Hopkins County,
Sulphur Springs, TX
Tegloma Texas Chapter, Incorporated,
Houston, TX
Total Care Living Center, Houston, TX
Transplants Are Us, Missoula, MT
Ulysses-Cora Cephas House of San
Marcos Texas, Dallas, TX
Unified Charities of Texas, Inc.,
Austin, TX
United Kids Charity Group, Inc.,
Incline Village, NV
Vessels for Jesus Prison Missions, Inc.,
Midlothian, TX
Vietnam Helicopter Pilots Association,
Mineral Wells, TX
Vineyard Press, Kalispell, MT
West Houston Community Center, Inc.,
Houston, TX
Westside Food Pantry, Patterson, CA
Wildwood Center for Walking, Inc.,
Saint Paul, MN
Wishing on the Lone Star, Inc.,
Mesquite, TX
Wit Foundation for Artists, Dallas, TX
Women Against Sexual Harassment,
Irving, TX
Womens Resource Video Library,
Somers, MT
Youth Education Systems, Inc.,
Sand City, CA
Youth Net Ministries, Inc.,
Lake Jackson, TX
If an organization listed above sub-
mits information that warrants the re-
newal of its classification as a public
charity or as a private operating founda-
tion, the Internal Revenue Service will
issue a ruling or determination letter
with the revised classification as to
foundation status. Grantors and contrib-
utors may thereafter rely upon such rul-
ing or determination letter as provided
in section 1.509(a)–7 of the Income Tax
Regulations. It is not the practice of the
Service to announce such revised classi-
fication of foundation status in the Inter-
nal Revenue Bulletin.
October 22, 20013782001–43 I.R.B.

2001–43 I.R.B.iOctober 22, 2001
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”)
that have an effect on previous rulings
use the following defined terms to de-
scribe the effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example,modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security
Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

October 22, 2001ii2001–43 I.R.B.
Numerical Finding List
1
Bulletins 2001–27 through 2001–42
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
2001–76, 2001–29 I.R.B. 67
2001–77, 2001–30 I.R.B. 83
2001–78, 2001–30 I.R.B. 87
2001–79, 2001–31 I.R.B. 97
2001–80, 2001–31 I.R.B. 98
2001–81, 2001–33 I.R.B. 175
2001–82, 2001–32 I.R.B. 123
2001–83, 2001–35 I.R.B. 205
2001–84, 2001–35 I.R.B. 206
2001–85, 2001–36 I.R.B. 219
2001–86, 2001–35 I.R.B. 207
2001–87, 2001–35 I.R.B. 208
2001–88, 2001–36 I.R.B. 220
2001–89, 2001–38 I.R.B. 291
2001–90, 2001–35 I.R.B. 208
2001–91, 2001–36 I.R.B. 221
2001–92, 2001–39 I.R.B. 301
2001–94, 2001–39 I.R.B. 303
2001–95, 2001–39 I.R.B. 303
2001–96, 2001–41 I.R.B. 317
2001–97, 2001–40 I.R.B. 310
2001–98, 2001–41 I.R.B. 317
2001–99, 2001–42 I.R.B. 340
2001–100, 2001–41 I.R.B. 317
2001–102, 2001–42 I.R.B. 340
Court Decisions:
2070, 2001–31 I.R.B. 90
Notices:
2001–39, 2001–27 I.R.B. 3
2001–41, 2001–27 I.R.B. 2
2001–42, 2001–30 I.R.B. 70
2001–43, 2001–30 I.R.B. 72
2001–44, 2001–30 I.R.B. 77
2001–45, 2001–33 I.R.B. 129
2001–46, 2001–32 I.R.B. 122
2001–47, 2001–36 I.R.B. 212
2001–48, 2001–33 I.R.B. 130
2001–49, 2001–34 I.R.B. 188
2001–50, 2001–34 I.R.B. 189
2001–51, 2001–34 I.R.B. 190
2001–52, 2001–35 I.R.B. 203
2001–53, 2001–37 I.R.B. 225
2001–54, 2001–37 I.R.B. 225
2001–55, 2001–39 I.R.B. 299
2001–56, 2001–38 I.R.B. 277
2001–57, 2001–38 I.R.B. 279
2001–58, 2001–39 I.R.B. 299
2001–59, 2001–41 I.R.B. 315
2001–60, 2001–40 I.R.B. 304
2001–61, 2001–40 I.R.B. 305
2001–62, 2001–40 I.R.B. 307
2001–63, 2001–40 I.R.B. 308
2001–64, 2001–41 I.R.B. 316
Proposed Regulations:
REG–110311–98, 2001–35 I.R.B. 204
REG–106917–99, 2001–27 I.R.B. 4
REG–103735–00, 2001–35 I.R.B. 204
REG–103736–00, 2001–35 I.R.B. 204
REG–100548–01, 2001–29 I.R.B. 67
REG–106431–01, 2001–37 I.R.B. 272
Railroad Retirement Quarterly Rates:
2001–27, I.R.B. 1
2001–41, I.R.B. 314
Revenue Procedures:
2001–39, 2001–28 I.R.B. 38
2001–40, 2001–33 I.R.B. 130
2001–41, 2001–33 I.R.B. 173
2001–42, 2001–36 I.R.B. 212
2001–43, 2001–34 I.R.B. 191
2001–44, 2001–35 I.R.B. 203
2001–45, 2001–37 I.R.B. 227
2001–46, 2001–37 I.R.B. 263
2001–47, 2001–42 I.R.B. 332
2001–48, 2001–40 I.R.B. 308
2001–49, 2001–39 I.R.B. 300
Revenue Rulings:
2001–30, 2001–29 I.R.B. 46
2001–33, 2001–32 I.R.B. 118
2001–34, 2001–28 I.R.B. 31
2001–35, 2001–29 I.R.B. 59
2001–36, 2001–32 I.R.B. 119
2001–37, 2001–32 I.R.B. 100
2001–38, 2001–33 I.R.B. 124
2001–39, 2001–33 I.R.B. 125
2001–40, 2001–38 I.R.B. 276
2001–41, 2001–35 I.R.B. 193
2001–42, 2001–37 I.R.B. 223
2001–43, 2001–36 I.R.B. 209
2001–44, 2001–37 I.R.B. 223
2001–45, 2001–42 I.R.B. 323
2001–46, 2001–42 I.R.B. 321
2001–47, 2001–39 I.R.B. 293
2001–48, 2001–42 I.R.B. 324
2001–49, 2001–41 I.R.B. 312
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
8951, 2001–29 I.R.B. 63
8952, 2001–29 I.R.B. 60
8953, 2001–29 I.R.B. 44
8954, 2001–29 I.R.B. 47
8955, 2001–32 I.R.B. 101
8956, 2001–32 I.R.B. 112
8957, 2001–33 I.R.B. 125
8958, 2001–34 I.R.B. 183
8959, 2001–34 I.R.B. 185
8960, 2001–34 I.R.B. 176
8961, 2001–35 I.R.B. 194
8962, 2001–35 I.R.B. 201
8963, 2001–35 I.R.B. 197
8964, 2001–42 I.R.B. 320
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.

2001–43 I.R.B.iiiOctober 22, 2001
Finding List of Current Actions on
Previously Published Items
1
Bulletins 2001–27 through 2001–42
Announcements:
2000–48
Modified by
Notice 2001–43, 2001–30 I.R.B. 72
Notices:
98–52
Modified by
Notice 2001–56, 2001–38 I.R.B. 277
99–41
Modified and superseded by
Notice 2001–62, 2001–40 I.R.B. 307
2001–4
Modified by
Notice 2001–43, 2001–30 I.R.B. 72
2001–9
Modified by
Notice 2001–46, 2001–32 I.R.B. 122
2001–15
Supplemented by
Notice 2001–51, 2001–34 I.R.B. 190
2001–42
Modified by
Notice 2001–57, 2001–38 I.R.B. 279
Proposed Regulations:
LR–97–79
Withdrawn by
REG–100548–01, 2001–29 I.R.B. 67
LR–107–84
Withdrawn by
REG–100548–01, 2001–29 I.R.B. 67
REG–110311–98
Supplemented by
T.D. 8961, 2001–35 I.R.B. 194
REG–106917–99
Corrected by
Ann. 2001–86, 2001–35 I.R.B. 207
REG–103735–00
Supplemented by
T.D. 8961, 2001–35 I.R.B. 194
REG–103736–00
Supplemented by
T.D. 8961, 2001–35 I.R.B. 194
REG–107186–00
Corrected by
Ann. 2001–71, 2001–27 I.R.B. 26
REG–130477–00
Supplemented by
Ann. 2001–82, 2001–32 I.R.B. 123
REG–130481–00
Supplemented by
Ann. 2001–82, 2001–32 I.R.B. 123
Revenue Procedures:
83–74
Revoked by
Rev. Proc. 2001–49, 2001–39 I.R.B. 300
Revenue Procedures—Continued:
84–84
Revoked by
Rev. Proc. 2001–49, 2001–39 I.R.B. 300
93–27
Clarified by
Rev. Proc. 2001–43, 2001–34 I.R.B. 191
97–13
Modified by
Rev. Proc. 2001–39, 2001–28 I.R.B. 38
97–19
Modified by
Notice 2001–62, 2001–40 I.R.B. 307
98–44
Superseded by
Rev. Proc. 2001–40, 2001–33 I.R.B. 130
99–27
Superseded by
Rev. Proc. 2001–42, 2001–36 I.R.B. 212
99–49
Modified and amplified by
Rev. Proc. 2001–46, 2001–37 I.R.B. 263
2000–20
Modified by
Notice 2001–42, 2001–30 I.R.B. 70
2000–39
Corrected by
Ann. 2001–73, 2001–28 I.R.B. 40
Superseded by
Rev. Proc. 2001–47, 2001–42 I.R.B. 332
2001–2
Modified by
Rev. Proc. 2001–41, 2001–33 I.R.B. 173
2001–6
Modified by
Notice 2001–42, 2001–30 I.R.B. 70
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
67–274
Amplified by
Rev. Rul. 2001–46, 2001–42 I.R.B. 321
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
70–379
Obsoleted by
Rev. Rul. 2001–39, 2001–33 I.R.B. 125
74–326
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
Revenue Rulings—Continued:
78–127
Modified by
Rev. Rul. 2001–40, 2001–38 I.R.B. 276
78–179
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
89–42
Modified and superseded by
Rev. Rul. 2001–48, 2001–42 I.R.B. 324
90–95
Distinguished by
Rev. Rul. 2001–42, 2001–42 I.R.B. 321
92–19
Supplemented by
Rev. Rul. 2001–38, 2001–33 I.R.B. 124
97–31
Modified and superseded by
Rev. Rul. 2001–48, 2001–42 I.R.B. 324
Treasury Decisions:
8948
Corrected by
Ann. 2001–90, 2001–35 I.R.B. 208
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.

INTERNAL REVENUE BULLETIN
The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the
Superintendent of Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are sold
on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weekly
Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print and
are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the
Superintendent of Documents.
ACCESS THE INTERNAL REVENUE BULLETIN ON THE INTERNET
You may view the Internal Revenue Bulletin on the Internet at www.irs.gov. Select Tax Info for Business at the bottom of the page.
Then select Internal Revenue Bulletins.
INTERNAL REVENUE BULLETINS ON CD–ROM
Internal Revenue Bulletins are available annually as part of Publication 1796 (Tax Products CD–ROM). The CD–ROM can be pur-
chased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders(discount for online orders) or
by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.
HOW TO ORDER
Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
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WE WELCOME COMMENTS ABOUT THE
INTERNAL REVENUE BULLETIN
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would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page
(www.irs.gov) or write to the IRS Bulletin Unit, W:CAR:MP:FP, Washington, DC 20224.
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