Internal Revenue Bulletin 2003-19 (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.

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.
INCOME TAX
Ct. D. 2077, page 868.
Research and development expenses; accounting.The Su-
preme Court holds that section 1.861–8(e)(3) is a proper exer-
cise of the Secretary of the Treasury’s rulemaking authority.
Boeing Co., et al. v. United States.
Rev. Rul. 2003–45, page 876.
Federal rates; adjusted federal rates; adjusted federal long-
term rate and the long-term exempt rate.For purposes of
sections 382, 1274, 1288, and other sections of the Code,
tables set forth the rates for May 2003.
Rev. Rul. 2003–47, page 866.
Length of service award plan.This ruling provides an ex-
ample to eligible employers of a type of length-of-service award
program (LOSAP) that would qualify as a valid LOSAP plan de-
scribed in section 457(e)(11)(A)(ii) of the Code.
Rev. Rul. 2003–48, page 863.
Demutualization.This ruling provides guidance as to the tax
consequences when, as described in the specific facts pre-
sented, a mutual savings bank converts to a stock savings bank
and a holding company structure is created.
Notice 2003–20, page 894.
This notice describes the withholding and reporting require-
ments applicable to eligible deferred compensation plans de-
scribed in section 457(b) of the Code for periods after December
31, 2001. Notice 2000–38 modified.
EMPLOYEE PLANS
Rev. Rul. 2003–47, page 866.
Length of service award plan.This ruling provides an ex-
ample to eligible employers of a type of length-of-service award
program (LOSAP) that would qualify as a valid LOSAP plan de-
scribed in section 457(e)(11)(A)(ii) of the Code.
T.D. 9052, page 879.
Final regulations provide guidance on the notification require-
ments under section 4980F of the Code and section 204(h) of
the Employee Retirement Income Security Act of 1974 (ERISA).
Notice 2003–20, page 894.
This notice describes the withholding and reporting require-
ments applicable to eligible deferred compensation plans de-
scribed in section 457(b) of the Code for periods after December
31, 2001. Notice 2000–38 modified.
EXEMPT ORGANIZATIONS
Announcement 2003–28, page 899.
A list is provided of organizations now classified as private foun-
dations.
(Continued on the next page)
Bulletin No. 2003–19
May 12, 2003
Finding Lists begin on page ii.

EMPLOYMENT TAX
Rev. Rul. 2003–46, page 878.
Federal Insurance Contributions Act (FICA); Medicare.This
ruling provides that for the continuing employment exception to
the Medicare portion of the Federal Insurance Contributions Act
tax to apply to service performed by an employee of a state, po-
litical subdivision, or instrumentality thereof, such employee must
be a member of a retirement system pursuant to section
3121(b)(7)(F) of the Code. Rev. Ruls. 86–88 and 88–36 supple-
mented.
Rev. Rul. 2003–47, page 866.
Length of service award plan.This ruling provides an ex-
ample to eligible employers of a type of length-of-service award
program (LOSAP) that would qualify as a valid LOSAP plan de-
scribed in section 457(e)(11)(A)(ii) of the Code.
Notice 2003–20, page 894.
This notice describes the withholding and reporting require-
ments applicable to eligible deferred compensation plans de-
scribed in section 457(b) of the Code for periods after December
31, 2001. Notice 2000–38 modified.
ADMINISTRATIVE
Notice 2003–20, page 894.
This notice describes the withholding and reporting require-
ments applicable to eligible deferred compensation plans de-
scribed in section 457(b) of the Code for periods after December
31, 2001. Notice 2000–38 modified.
Notice 2003–27, page 898.
Credit for sales of fuel produced from a nonconventional
source, inflation adjustment factor, and reference price.
This notice publishes the nonconventional source fuel credit, in-
flation adjustment factor, and reference price under section 29
of the Code for calendar year 2002. This data is used to deter-
mine the credit allowable on sales of fuel produced from a non-
conventional source.
May 12, 20032003–19 I.R.B.

The IRS Mission
Provide America’s taxpayers top quality service by helping them
understand and meet their tax responsibilities and by applying
the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of the
Commissioner of Internal Revenue for announcing official rul-
ings and procedures of the Internal Revenue Service and for pub-
lishing Treasury Decisions, Executive Orders, Tax Conventions,
legislation, court decisions, and other items of general inter-
est. It is published weekly and may be obtained from the Super-
intendent 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 pub-
lished rulings apply retroactively unless otherwise indicated. Pro-
cedures relating solely to matters of internal management are
not published; however, statements of internal practices and pro-
cedures that affect the rights and duties of taxpayers are pub-
lished.
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 taxpay-
ers or technical advice to Service field offices, identifying de-
tails 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 re-
lied on, used, or cited as precedents by Service personnel in the
disposition of other cases. In applying published rulings and pro-
cedures, the effect of subsequent legislation, regulations, court
decisions, rulings, and procedures must be considered, and Ser-
vice personnel and others concerned are cautioned against reach-
ing the same conclusions 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, Legisla-
tion and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these sub-
jects are contained in the other Parts and Subparts. Also in-
cluded in this part are Bank Secrecy Act Administrative Rulings.
Bank Secrecy Act Administrative Rulings are issued by the De-
partment of the Treasury’s Office of the Assistant Secretary (En-
forcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The first Bulletin for each month includes a cumulative index for
the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the first Bulletin of the succeeding semiannual pe-
riod, respectively.
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.
2003–19 I.R.B.May 12, 2003

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of May 2003. See Rev. Rul. 2003–45, page
876.
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term
rates are set forth for the month of May 2003. See
Rev. Rul. 2003–45, page 876.
Section 368.—Definitions
Relating to Corporate
Reorganizations
26 CFR 1.368–1: Purpose and scope of exception
of reorganization exchanges.
Demutualization.This ruling provides
guidance as to the tax consequences when,
as described in the specific facts presented,
a mutual savings bank converts to a stock
savings bank and a holding company struc-
ture is created.
Rev. Rul. 2003–48
ISSUE
What are the tax consequences when, as
described in the facts below, a mutual sav-
ings bank converts to a stock savings bank?
FACTS
State Y Mutual Bank is a State Y mu-
tual savings bank engaged in banking and
banking related activities. State Y Mutual
Bank is regulated by State Y, and State Y
Mutual Bank’s deposits are insured by the
FDIC. A membership interest in State Y
Mutual Bank arises from the ownership of
a bank deposit account in State Y Mutual
Bank and is inextricably tied to the bank
deposit account from the time of deposit.
A membership interest in State Y Mutual
Bank entitles the member to vote for the
board of directors and to receive assets and
other consideration in the event of the liq-
uidation, dissolution, or winding up of State
Y Mutual Bank. The rights inherent in each
membership interest are created by opera-
tion of State Y law solely as a result of the
member’s ownership of a bank deposit ac-
count in State Y Mutual Bank and cannot
be transferred separately from that bank de-
posit account. Further, if a bank deposit ac-
count is surrendered by the member, the
membership interest ceases to exist, hav-
ing no continuing value.
Mutual Holding Company is a State Y
mutual bank holding company. A member-
ship interest in Mutual Holding Company
arises from the ownership of a bank de-
posit account in a bank that is a direct or
indirect, wholly owned subsidiary of Mu-
tual Holding Company. Such a member-
ship interest is inextricably tied to the bank
deposit account from the time of deposit.
A membership interest in Mutual Hold-
ing Company entitles the member to vote
for the board of directors of Mutual Hold-
ing Company and to receive assets or other
consideration in the event of the liquida-
tion, dissolution, or winding up of Mu-
tual Holding Company. The rights inherent
in each membership interest are created by
operation of State Y law solely as a re-
sult of the member’s bank deposit account
and cannot be transferred separately from
that bank deposit account. Further, if a bank
deposit account is surrendered by the mem-
ber, the membership interest ceases to ex-
ist, having no continuing value.
Stock Holding Company is a State Y
stock company the articles of incorpora-
tion and by-laws of which authorize the is-
suance of capital stock. Stock Holding
Company has one class of voting stock out-
standing.
Transitory is a transitory State Y stock
savings bank.
Each transaction described below is un-
dertaken for a valid business purpose.
Situation 1. Pursuant to State Y law and
pursuant to an integrated business plan to
convert State Y Mutual Bank from a State
Y-chartered mutual savings bank to a State
Y-chartered stock savings bank and cre-
ate a holding company structure, the fol-
lowing events occur. State Y Mutual Bank
incorporates Mutual Holding Company for
the sole purpose of engaging in the fol-
lowing transactions. Mutual Holding Com-
pany initially is organized in stock form.
Although Mutual Holding Company is tem-
porarily organized as a stock corporation
solely due to regulatory requirements, the
parties intend at the time Mutual Holding
Company is organized that Mutual Hold-
ing Company will operate and function in
mutual form. In turn, Mutual Holding Com-
pany incorporates two wholly owned sub-
sidiaries, Stock Holding Company and
Transitory. Thereafter, the following events
occur substantially contemporaneously: State
Y Mutual Bank exchanges its State Y mu-
tual bank charter for a State Y stock sav-
ings bank charter (which permits the bank
to issue equity interests in the form of stock)
and changes its name to Stock Bank; Mu-
tual Holding Company cancels its outstand-
ing stock and exchanges its charter for a
State Y mutual holding company charter;
and Transitory merges with and into Stock
Bank with Stock Bank surviving as a
wholly owned subsidiary of Mutual Hold-
ing Company and State Y Mutual Bank’s
members receiving Mutual Holding Com-
pany membership interests in place of their
former State Y Mutual Bank membership
interests. Mutual Holding Company then
transfers all of its Stock Bank stock to Stock
Holding Company in exchange for voting
stock of Stock Holding Company. Pursu-
ant to the same plan, Stock Holding Com-
pany issues more than 20 percent but less
than 50 percent of its common stock to the
public in a qualified underwriting transac-
tion as defined in § 1.351–1(a)(3) (the
“Stock Offering”).
Under State Y law, Stock Bank’s cor-
porate existence as a stock savings bank is
a continuation of State Y Mutual Bank’s
corporate existence as a mutual savings
bank.
Situation 2. The facts are the same as in
Situation 1, except that Stock Holding Com-
pany issues no more than 20 percent of its
common stock in the Stock Offering.
LAW
Section 351(a) provides that no gain or
loss will be recognized if property is trans-
ferred to a corporation by one or more per-
sons solely in exchange for stock in such
corporation and immediately after the ex-
change such person or persons are in con-
trol (as defined in § 368(c)) of the
corporation.
Section 1.351–1(a)(3) of the Income Tax
Regulations provides that, for purposes of
§ 351, if a person acquires stock of a cor-
poration from an underwriter in exchange
2003–19 I.R.B.863May 12, 2003

for cash in a qualified underwriting trans-
action, the person who acquires stock from
the underwriter is treated as transferring
cash directly to the corporation in exchange
for stock of the corporation and the under-
writer is disregarded. A qualified under-
writing transaction is a transaction in which
a corporation issues stock for cash in an un-
derwriting in which either the underwriter
is an agent of the corporation or the un-
derwriter’s ownership of the stock is tran-
sitory.
Section 354(a) provides that, in gen-
eral, no gain or loss shall be recognized if
stock or securities in a corporation a party
to a reorganization are, in pursuance of the
plan of reorganization, exchanged solely for
stock or securities in such corporation or
in another corporation a party to the reor-
ganization.
Section 368(a)(1)(A) states that the term
“reorganization”means a statutory merger
or consolidation. Section 368(a)(2)(E) pro-
vides that a transaction otherwise qualify-
ing under§368(a)(1)(A) will not be
disqualified by reason of the fact that stock
of a corporation (the“controlling corpora-
tion”) that before the merger was in con-
trol of the merged corporation is used in the
transaction, if (1) after the transaction, the
corporation surviving the merger holds sub-
stantially all of its properties and of the
properties of the merged corporation (other
than stock of the controlling corporation dis-
tributed in the transaction), and (2) in the
transaction, former shareholders of the sur-
viving corporation exchanged, for an
amount of voting stock of the controlling
corporation, an amount of stock in the sur-
viving corporation that constitutes con-
trol of such corporation (the control-for-
voting-stock requirement).
Section 368(a)(1)(B) provides that the
term reorganization means the acquisition
by one corporation, in exchange solely for
all or a part of its voting stock (or in ex-
change solely for all or a part of the vot-
ing stock of a corporation which is in
control of the acquiring corporation), of
stock of another corporation if, immedi-
ately after the acquisition, the acquiring cor-
poration has control of such other
corporation (whether or not such acquir-
ing corporation had control immediately be-
fore the acquisition).
For purposes of§§368(a)(1)(B) and
368(a)(2)(E), control is defined in§368(c).
Section 368(c) defines the term“control”
to mean the ownership of stock possess-
ing at least 80 percent of the total com-
bined voting power of all classes of stock
entitled to vote and at least 80 percent of
the total number of shares of all other
classes of stock of the corporation.
Section 368(a)(1)(E) provides that the
term reorganization includes a recapital-
ization. InHelvering v. Southwest Con-
sol. Corp., 315 U.S. 194, 202 (1942), the
Supreme Court defined a recapitalization as
a“reshuffling of a capital structure within
the framework of an existing corporation.”
Section 368(a)(1)(F) provides that the
term reorganization means a mere change
in identity, form, or place of organization
of one corporation, however effected.
Section 368(a)(2)(C) states, in relevant
part, that a transaction otherwise qualify-
ing under§368(a)(1)(A) or 368(a)(1)(B)
will not be disqualified by reason of the fact
that part or all of the assets or stock which
were acquired in the transaction are trans-
ferred to a corporation controlled by the cor-
poration acquiring such assets or stock.
Section 1.368–2(k)(1) of the Income Tax
Regulations restates the general rule of
§368(a)(2)(C) but permits the assets or
stock acquired in certain types of reorga-
nizations, including reorganizations under
§368(a)(1)(A) or (B), to be successively
transferred to one or more corporations con-
trolled (as defined in§368(c)) in each trans-
fer by the transferor corporation without
disqualifying the reorganization. Addition-
ally,§1.368–2(k)(2) provides that a trans-
action qualifying under§§368(a)(1)(A) and
368(a)(2)(E) is not disqualified by reason
of the fact that part or all of the stock of
the surviving corporation is transferred or
successively transferred to one or more cor-
porations controlled in each transfer by the
transferor corporation.
Generally, to qualify as a reorganiza-
tion under§368(a)(1), a transaction must
satisfy the continuity of business enter-
prise (COBE) requirement. Section 1.368–
1(d)(1) provides that COBE requires the
issuing corporation (generally the acquir-
ing corporation) in a potential reorganiza-
tion to either continue the target
corporation’s historic business or use a sig-
nificant portion of the target’s historic busi-
ness assets in a business. Pursuant to
§1.368–1(d)(4)(i), the issuing corpora-
tion is treated as holding all of the busi-
nesses and assets of all members of its
qualified group. Section 1.368–1(d)(4)(ii)
defines a qualified group as one or more
chains of corporations connected through
stock ownership with the issuing corpora-
tion, but only if the issuing corporation
owns directly stock meeting the require-
ments of§368(c) in at least one other cor-
poration,andstockmeetingthe
requirements of§368(c) in each of the cor-
porations (except the issuing corporation)
is owned directly by one of the other cor-
porations. Continuity of business enter-
prise is not required for a recapitalization
to qualify as a reorganization under
§368(a)(1)(E).SeeRev. Rul. 82–34, 1982–1
C.B. 59.
Generally, to qualify as a reorganiza-
tion under§368(a)(1), a transaction must
satisfy the continuity of interest require-
ment. Section 1.368–1(e)(1)(i) provides that
continuity of interest requires that in sub-
stance a substantial part of the value of the
proprietary interests in the target corpora-
tion be preserved in the reorganization. All
facts and circumstances must be consid-
ered in determining whether, in substance,
a proprietary interest in the target corpo-
ration is preserved. Continuity of interest
is not a requirement for reorganizations un-
der§368(a)(1)(E).SeeRev. Rul. 77–415,
1977–2 C.B. 311.
InPaulsen v. Commissioner, 469 U.S.
131 (1985), a state-chartered stock sav-
ings and loan association merged into a
federally-chartered non-stock mutual sav-
ings and loan association. The stockhold-
ers exchanged all of their stock in the state-
chartered stock savings and loan association
for passbook savings accounts and certifi-
cates of deposit in the federally-chartered
non-stock mutual savings and loan asso-
ciation. The Supreme Court determined that
the passbooks and certificates of deposit in
the federally-chartered non-stock mutual
savings and loan association had a pre-
dominantly cash-equivalent component and
an insubstantial equity component. Be-
cause the passbooks and certificates of de-
posit essentially represented cash with an
insubstantial equity component, the Court
held that the transaction did not satisfy the
continuity of interest requirement and, there-
fore, did not qualify as a tax-free reorga-
nization.
In Rev. Rul. 69–3, 1969–1 C.B. 103, X,
a mutual savings and loan association,
merged into Y, another mutual savings and
loan association. In the merger, Y issued to
each share account holder of X a share ac-
May 12, 20038642003–19 I.R.B.

count equal to the dollar amount evidenced
by such holder’s passbook. Because the
share account holders of X received pro-
prietary interests in Y that were equiva-
lent to their equity interests in X before the
exchange, the exchange was solely an
equity-for-equity exchange that satisfied the
continuity of interest requirement. Accord-
ingly, the Service ruled that the transac-
tion qualified as a tax-free reorganization
under§368(a)(1)(A).
ANALYSIS
Situation 1. Because Stock Bank is a
continuation of State Y Mutual Bank un-
der State Y law, the conversion from State
Y Mutual Bank to Stock Bank qualifies as
a reorganization under§368(a)(1)(E) as
wellasareorganizationunder
§368(a)(1)(F). Because Stock Bank is a
continuation of State Y Mutual Bank, tax
attributes of State Y Mutual Bank (such as
a bad debt reserve maintained under§585
and a suspended reserve described in
§593(g)(2)(A)(ii)) continue as tax attributes
of Stock Bank. Finally, neither the subse-
quent transfer of Stock Bank stock to Stock
Holding Company nor the Stock Offering
prevents the conversion from qualifying as
a reorganization under§368(a)(1)(E) as
wellasareorganizationunder
§368(a)(1)(F).See§1.368–1(e)(1); Rev.
Rul. 96–29, 1996–1 C.B. 50; Rev. Rul. 77–
415, 1977–2 C.B. 311.
Because the status of Mutual Holding
Company as a stock holding company is
transitory, the conversion of Mutual Hold-
ing Company from a stock holding com-
pany to a mutual holding company is
disregarded.
Because the former owners of the bank
are in control (within the meaning of
§368(c)) of Mutual Holding Company, their
transfer of their equity interests in the bank
to Mutual Holding Company, in exchange
for membership interests in Mutual Hold-
ing Company, qualifies as a transfer de-
scribed in§351. Furthermore, that
transaction qualifies as a transfer described
in§351, even though Mutual Holding
Company transfers all of its Stock Bank
stock to Stock Holding Company.SeeRev.
Rul. 77–449, 1977–2 C.B. 110; Rev. Rul.
83–34, 1983–1 C.B. 79. However, the same
transaction (in which Transitory merges into
Stock Bank) does not qualify as a reorga-
nization either under§§368(a)(1)(A) and
368(a)(2)(E) or under§368(a)(1)(B) be-
cause at the end of the planned series of
transactions Stock Holding Company is not
a controlled corporation.
Finally, Mutual Holding Company’s con-
tribution of the stock of Stock Bank to
Stock Holding Company in exchange for
Stock Holding Company’s voting stock con-
stitutes a transfer described in§351. The
subsequent Stock Offering by Stock Hold-
ing Company does not prevent the trans-
action from qualifying as a transfer
described in§351 because the persons to
whom the stock is issued pursuant to the
Stock Offering, together with Mutual Hold-
ing Company, are transferors to Stock Hold-
ing Company under§351.See§1.351–
1(a)(3).
Situation 2. For the reasons described in
the analysis of Situation 1, the conver-
sion from State Y Mutual Bank to Stock
Bank qualifies as a reorganization under
§368(a)(1)(E) as well as a reorganization
under§368(a)(1)(F). Because Stock Bank
is a continuation of State Y Mutual Bank,
tax attributes of State Y Mutual Bank (such
as a bad debt reserve maintained under
§585 and a suspended reserve described
in§593(g)(2)(A)(ii)) continue as tax at-
tributes of Stock Bank.
Because the status of Mutual Holding
Company as a stock holding company is
transitory, the conversion of Mutual Hold-
ing Company from a stock holding com-
pany to a mutual holding company is
disregarded.
For the reasons described in Situation 1,
the exchange by the former bank owners
of their equity interests in the bank for
membership interests in Mutual Holding
Company qualifies as a transfer described
in§351.
In addition, each of the membership in-
terests in State Y Mutual Bank and Mu-
tual Holding Company constitutes a
proprietary interest in the entities that is
treated as voting stock for federal income
tax purposes.SeeRev. Rul. 69–3, 1969–1
C.B. 103. Because Mutual Holding Com-
pany acquires, in exchange solely for mem-
bership interests in Mutual Holding
Company, the actual stock of Stock Bank,
and, immediately after that acquisition Mu-
tual Holding Company controls Stock Bank,
that acquisition qualifies as a reorganiza-
tion under§368(a)(1)(B), provided that the
continuity of business enterprise and con-
tinuity of interest requirements are satis-
fied. Because Stock Bank continues to
provide the same services as State Y Mu-
tual Bank after the transactions described
herein, the continuity of business enter-
prise requirement is satisfied.See§1.368–
1(d)(1). In addition, the acquisition satisfies
the continuity of interest requirement be-
cause, in the overall transaction, the State
Y Mutual Bank members receive Mutual
Holding Company membership interests in
place of their former Mutual Bank mem-
bership interests.SeeRev. Rul. 69–3;cf.
Paulsen v. Commissioner, 469 U.S. 131
(1985). Thus, the acquisition qualifies as a
reorganization within the meaning of
§368(a)(1)(B). Moreover, neither the sub-
sequent transfer by Mutual Holding Com-
pany of Stock Bank stock to Stock Holding
Company nor the Stock Offering prevents
the acquisition from qualifying as a reor-
ganization under§368(a)(1)(B).See
§368(a)(2)(C);§1.368–1(d)(4)(i);§1.368–
2(k).
For purposes of§354, the former State
Y Mutual Bank’s members’exchange of
their ownership interests for Mutual Hold-
ing Company’s membership interests is pur-
suant to that reorganization.
In addition, the merger of Transitory into
Stock Bank qualifies as a reorganization un-
der§§368(a)(1)(A) and 368(a)(2)(E) be-
cause the owners of the bank exchanged,
for membership interests in Mutual Hold-
ing Company, an amount of stock in the
bank that constitutes control of Stock Bank.
Neither the subsequent transfer by Mu-
tual Holding Company of the Stock Bank
stock to Stock Holding Company nor the
Stock Offering (of no more than 20 per-
cent of the stock of Stock Holding Com-
pany) prevents the merger from so
qualifying.See§1.368–2(k).
Furthermore, for the reasons described
in Situation 1, Mutual Holding Compa-
ny’s contribution of the stock of Stock Bank
to Stock Holding Company in exchange for
Stock Holding Company’s voting stock con-
stitutes a transfer described in§351.
The analyses in Situations 1 and 2, in
general, would also apply if State Y Mu-
tual Bank and Stock Bank were incorpo-
rated in different jurisdictions. However, in
that case, the conversion would not qualify
as a reorganization under§368(a)(1)(E), but
would qualify as a reorganization under
§368(a)(1)(F). In a reorganization under
§368(a)(1)(F), Stock Bank takes into ac-
count the items of State Y Mutual Bank as
provided in§381.
2003–19 I.R.B.865May 12, 2003

HOLDING
This revenue ruling describes the tax
consequences that occur when, as described
in the facts set forth in this ruling, a mu-
tual savings bank converts to a stock sav-
ings bank.
DRAFTING INFORMATION
The principal authors of this revenue rul-
ing are Jeffrey B. Fienberg and Emidio J.
Forlini, Jr., of the Office of Associate Chief
Counsel (Corporate). For further informa-
tion regarding this revenue ruling, con-
tact either Mr. Fienberg or Mr. Forlini at
(202) 622–7930 (not a toll-free call).
Section 382.—Limitation on
Net Operating Loss
Carryforwards and Certain
Built-In Losses Following
Ownership Change
The adjusted applicable federal long-term rate
is set forth for the month of May 2003. See Rev.
Rul. 2003–45, page 876.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of May 2003. See Rev. Rul. 2003–45, page
876.
Section 457.—Deferred
Compensation Plans of State
and Local Governments and
Tax Exempt Organizations
Length of service award plan.This rul-
ing provides an example to eligible em-
ployers of a type of length-of-service award
program (LOSAP) that would qualify as a
valid LOSAP plan described in section
457(e)(11)(A)(ii) of the Code.
Rev. Rul. 2003–47
ISSUES:
(1) Is the plan described below a length
of service award plan described in
§457(e)(11)(A)(ii) of the Internal Rev-
enue Code?
(2) When are benefits under the plan in-
cludible in gross income?
(3) Are benefits paid under the plan
wages for purposes of FICA taxes?
FACTS
Pursuant to State S law, the County C
Fire Department has adopted a written plan
(the“Plan”) to implement County C’s vol-
unteer fire fighters’and rescue squad work-
ers’service award program. County C and
its fire department intend the Plan to be a
length of service award plan described in
§457(e)(11)(A)(ii). The County C Fire De-
partment is an agency or instrumentality of
County C which is an eligible employer
within the meaning of§457(e)(1) and main-
tains the plan. The County C Fire Depart-
ment employs both professional and
volunteer fire fighters.
The Plan has been established for the
benefit of long-termbona fidevolunteers
who perform fire fighting, prevention, and
rescue squad services for the fire depart-
ment, including related essential services,
such as services performed by dispatch-
ers, mechanics, ambulance drivers, and cer-
tified instructors. The Plan provides length
of service awards to participating volun-
teers in recognition of their volunteer ser-
vices to the fire department.
The Plan provides that benefits are only
provided to a volunteer who does not re-
ceive compensation from the department for
performing fire fighting and prevention ser-
vices, emergency medical and ambulance
services, and related essential services, other
than reimbursement for (or reasonable al-
lowance for) reasonable expenses incurred
in the performance of such services, or rea-
sonable benefits (including length of ser-
vice awards) and nominal fees for such
services, customarily paid by the depart-
ment in connection with the performance
of such services by volunteers.
Under the Plan, a bookkeeping account
is established for each participating volun-
teer and, when a participating volunteer sat-
isfies the Plan’s age and service
requirements for distribution of benefits, the
volunteer automatically receives the bal-
ance of the volunteer’s account, payable in
60 monthly installments beginning on the
tenth day of the first month following the
month in which the requirements are sat-
isfied. If a participating volunteer dies prior
to satisfying the Plan’s age and service re-
quirements, the balance of the volunteer’s
account is paid to the volunteer’s benefi-
ciary in a single sum within 60 days after
the date of the volunteer’s death. If a par-
ticipating volunteer dies after payments un-
der the Plan have commenced, but before
receiving all monthly installments under the
Plan, the balance of the volunteer’s ac-
count is paid to the volunteer’s benefi-
ciary for the remainder of the 60 monthly
installments.
Under the Plan, County C and its fire de-
partment each periodically provide cred-
its to the accounts of participating
volunteers. Each account is also credited
with deemed earnings in accordance with
the Plan and State S law. The deemed earn-
ings are based on an index that does not ex-
ceed a rate of return on a predetermined
actual investment or a reasonable rate of re-
turn, as defined under§31.3121(v)(2)–
1(d)(2)(i) of the regulations. The Plan
provides that the combined amount cred-
ited to any account with respect to any par-
ticipating volunteer, other than deemed
earnings, cannot exceed $3,000 for any year
of service credit.
The Plan provides that all amounts cred-
ited to the bookkeeping accounts, and all
deemed earnings attributable to such
amounts, remain solely the property of
County C and its fire department, and, un-
til paid or made available to a participant
or beneficiary, are subject to the claims of
County C’s and the fire department’s gen-
eral creditors. The Plan also provides that
a participating volunteer (or beneficiary) has
only an unsecured right to an award un-
der the Plan. The rights of a participating
volunteer (or beneficiary) to an award un-
der the Plan cannot be assigned and are
nontransferable. If a participating volun-
teer ceases to provide services to the fire
department prior to satisfying the Plan’s age
and service requirements for distribution of
benefits (other than by reason of the vol-
unteer’s death or disability), the volun-
teer’s rights to an award under the Plan are
forfeited and County C and its fire depart-
ment cease to have any liability regard-
ing the volunteer’s account.
LAW AND ANALYSIS
Section 451(a) and§1.451–1(a) pro-
vide that generally an item of gross in-
come is includible in gross income for the
taxable year in which it is actually or con-
structively received by a cash basis tax-
payer. Section 1.451–2(a) provides that
May 12, 20038662003–19 I.R.B.

income is constructively received in the tax-
able year during which it is credited to the
taxpayer’s account, set apart, or other-
wise made available so that the taxpayer
may draw on it at any time. However, in-
come is not constructively received if the
taxpayer’s control of its receipt is subject
to substantial limitations or restrictions.
Rev. Rul. 60–31, 1960–1 C.B. 174, holds
that a mere promise by the service recipi-
ent to pay the service provider, not repre-
sented by notes or secured in any way, does
not constitute receipt of income within the
meaning of the cash receipts and disburse-
ments method of accounting.See also, Rev.
Rul. 69–650, 1969–2 C.B. 106, and Rev.
Rul. 69–649, 1969–2 C.B. 106.
Section 457 governs the taxation of de-
ferred compensation plans of eligible em-
ployers. The term“eligible employer”is
defined in§457(e)(1) as a state, political
subdivision of a state, and any agency or
instrumentality of a state or political sub-
division of a state, and any other organi-
zation (other than a governmental unit)
exempt from tax under subtitle A of the
Code. Deferred compensation plans main-
tained by eligible employers to which§457
applies are either eligible plans or ineli-
gible plans. An“eligible deferred compen-
sation plan,”as defined in§457(b), must,
among other things, provide that the maxi-
mum amount which may be deferred un-
der the plan for a taxable year will not
exceed the lesser of the applicable dollar
amount ($12,000 in 2003) or 100 percent
of the participant’s includible compensa-
tion. Section 457(a)(1) provides that com-
pensation (and income attributable to such
compensation) deferred under an eligible de-
ferred compensation plan maintained by a
political subdivision of a State is includ-
ible in a participant’s gross income in the
taxable year in which the compensation (and
income attributable to such compensa-
tion) is paid to the participant.
Section 457(f)(1)(A) provides that gen-
erally if a plan of an eligible employer pro-
viding for a deferral of compensation is not
an eligible deferred compensation plan,
compensation deferred under such plan is
included in the participant’s gross income
for the first taxable year in which there is
no substantial risk of forfeiture of the rights
to such compensation.
Section 457(e)(11)(A)(ii) provides that
a plan paying solely length of service
awards tobona fidevolunteers or their ben-
eficiaries on account of qualified services
performed by such volunteers is treated as
not providing for the deferral of compen-
sation under§457. Section 457(e)(11)(C)
defines qualified services as fire fighting and
prevention services, emergency medical ser-
vices, and ambulance services.
Section 457(e)(11)(B) provides special
rules applicable to a length of service award
plan. Section 457(e)(11)(B)(i) defines a
bona fidevolunteer to include only per-
sons whose only compensation received for
performing qualified services are reim-
bursements for (or reasonable allowances
for) reasonable expenses incurred in per-
forming such services or reasonable ben-
efits (including length of service awards)
and nominal fees for such services, cus-
tomarily paid by eligible employers in con-
nection with the performance of such
services by volunteers.
Section 457(e)(11)(B)(ii) provides that
a length of service award plan may not pro-
vide for an aggregate amount of length of
service awards exceeding $3,000 accru-
ing with respect to any year of service by
any volunteer.
Section 3121(a)(5)(I) provides that any
payment made to, or on behalf of, an em-
ployee or his or her beneficiary under a plan
described in§457(e)(11)(A)(ii) and main-
tained by an eligible employer, as defined
in§457(e)(1), is not treated as“wages”for
purposes of Federal Insurance Contribu-
tions Act (FICA) taxes.
The Plan established by County C and
its fire department satisfies the require-
ments of§457(e)(11)(A)(ii). The Plan ap-
plies only to volunteers who provide
qualified services,i.e., fire fighting and pre-
vention services, emergency medical ser-
vices, ambulance services, or other related
essential services in compliance with
§457(e)(11)(C). The Plan also satisfies
§457(e)(11)(B)(i) by limiting eligible vol-
unteers to persons who receive reimburse-
ments, reasonable expenses, nominal fees,
or reasonable benefits customarily paid by
eligible employers in connection with the
performance of qualified services by vol-
unteers. Finally, the Plan satisfies
§457(e)(11)(B)(ii) by limiting the aggre-
gate amount of awards for any year of ser-
vice to $3,000.
Since the Plan qualifies as a length of
service award plan under§457(e)(11)
(A)(ii), neither§457(a) nor§457(f) ap-
ply to benefits under the Plan. Instead,
amounts distributable under the Plan are in-
cludible in gross income under§451 and
the regulations thereunder, when paid or
made available without substantial limita-
tion or restriction.
In addition, since the Plan qualifies as
a length of service award plan under
§457(e)(11)(A)(ii) maintained by an eli-
gible employer (as defined in§457(e)(1)),
§3121(a)(5)(I) provides that any payment
made to, or on behalf of, a volunteer or his
or her beneficiary under the Plan is not
treated as“wages”for purposes of deter-
mining if FICA taxes apply to such pay-
ment.
HOLDINGS
(1) County C’s Plan is a length of ser-
vice award plan described in§457(e)(11)
(A)(ii). The Plan, therefore, is not subject
to§457(a) or§457(f).
(2) An award under the Plan is includ-
ible in a cash basis recipient’s gross in-
come under§451 and the regulations
thereunder, in the taxable year when paid
or made available without substantial limi-
tation or restriction.
(3) Awards paid under the Plan are not
wages for purposes of FICA taxes.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is John Tolleris of the Office of Divi-
sion Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities). For fur-
ther information regarding this revenue rul-
ing, contact John Tolleris at (202) 622–
6060 (not a toll-free call).
Section 467.—Certain
Payments for the Use of
Property or Services
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of May 2003. See Rev. Rul. 2003–45, page
876.
Section 468.—Special Rules
for Mining and Solid Waste
Reclamation and Closing
Costs
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
2003–19 I.R.B.867May 12, 2003

month of May 2003. See Rev. Rul. 2003–45, page
876.
Section 482.—Allocation of
Income and Deductions
Among Taxpayers
Federal short-term, mid-term, and long-term
rates are set forth for the month of May 2003. See
Rev. Rul. 2003–45, page 876.
Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of May 2003. See Rev. Rul. 2003–45, page
876.
Section 642.—Special Rules
for Credits and Deductions
Federal short-term, mid-term, and long-term
rates are set forth for the month of May 2003. See
Rev. Rul. 2003–45, page 876.
Section 807.—Rules for
Certain Reserves
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of May 2003. See Rev. Rul. 2003–45, page
876.
Section 846.—Discounted
Unpaid Losses Defined
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of May 2003. See Rev. Rul. 2003–45, page
876.
Section 861.—Income From
Sources Within the United
States
Ct. D. 2077
SUPREME COURT OF THE
UNITED STATES
No. 01–1209 (2003)
BOEING CO., ET AL.
v.
UNITED STATES
CERTIORARI TO THE
UNITED STATES COURT OF
APPEALS FOR
THE NINTH CIRCUIT
March 4, 2003*
Syllabus
Under a 1971 statute providing special
tax treatment for export sales made by an
American manufacturer through a subsid-
iary that qualified as a“domestic interna-
tional sales corporation”(DISC), no tax is
payable on the DISC’s retained income un-
til it is distributed. See 26 U.S.C. Secs. 991–
997. The statute thus provides an incentive
to maximize the DISC’s share—and to
minimize the parent’s share—of the par-
ties’aggregate income from export sales.
The statute provides three alternative ways
for a parent to divert a limited portion of
its income to the DISC. See Sec. 994(a)(1)–
(3). The alternative that The Boeing Com-
pany chose limited the DISC’s taxable
income to a little over half of the parties
“combined taxable income”(CTI). In 1984,
the“foreign sales corporation”(FSC) pro-
visions replaced the DISC provisions. As
under the DISC regime, it is in the par-
ent’s interest to maximize the FSC’s share
of the taxable income generated by ex-
port sales. Because most of the differences
between these regimes are immaterial to this
suit, the Court’s analysis focuses mainly on
the DISC provisions. The Treasury Regu-
lation at issue, 26 CFR Sec. 1.861–8(e)(3)
(1979), governs the accounting for research
and development (R&D) expenses when a
taxpayer elects to take a current deduc-
tion, telling the taxpaying parent and its
DISC“what”must be treated as a cost
when calculating CTI, and“how”those
costs should be (a) allocated among dif-
ferent products and (b) apportioned be-
tween the DISC and its parent. With respect
to the“what”question, the regulation in-
cludes a list of Standard Industrial Classi-
fication (SIC) categories (e.g., transportation
equipment) and requires that R&D for any
product within the same category as the ex-
ported product be taken into account. The
regulations use gross receipts from sales as
the basis for both“how”questions. Boe-
ing organized its internal operations along
product lines (e.g., aircraft model 767) for
management and accounting purposes, each
of which constituted a separate“program”
within the organization; and $3.6 billion of
its R&D expenses were spent on“Com-
pany Sponsored Product Development,”i.e.,
product-specific research. Boeing’s accoun-
tants treated all Company Sponsored costs
as directly related to a single program and
unrelated to any other program. Because
nearly half of the Company Sponsored
R&D at issue was allocated to programs
that had no sales in the year in which the
research was conducted, that amount was
deducted by Boeing currently in calculat-
ing its taxable income for the years at is-
sue, but never affected the calculation of the
CTI derived by Boeing and its DISC from
export sales. The Internal Revenue Ser-
vice reallocated Boeing’s Company Spon-
sored R&D costs for 1979 to 1987, thereby
decreasing the untaxed profits of its ex-
port subsidiaries and increasing its tax-
able profits on export sales. After paying
the additional taxes, Boeing filed this re-
fund suit. In granting Boeing summary
judgment, the District Court found Sec.
1.861–8(e)(3) invalid, reasoning that its cat-
egorical treatment of R&D conflicted with
congressional intent that there be a direct
relationship between items of gross in-
come and expenses related thereto, and with
a specific DISC regulation giving the tax-
payer the right to group and allocate in-
come and costs by product or product line.
The Ninth Circuit reversed.
Held: section 1.861–8(e)(3) is a proper
exercise of the Secretary of the Treasury’s
rulemaking authority. Pp. 8–19.
(a) The relevant statutory text does not
support Boeing’s argument that the stat-
ute and certain regulations give it an un-
qualified right to allocate its Company
Sponsored R&D expenses to the specific
products to which they are factually
*
Together with No. 01–1382,United States v. Boeing Sales Corp. et al., also on certiorari to the same court.
May 12, 20038682003–19 I.R.B.

related and to exclude such R&D from
treatment as a cost of any other product.
The method that Boeing chose to deter-
mine an export sale’s transfer price al-
lowed the DISC“to derive taxable income
attributable to [an export sale] in an amount
whichdoes not exceed...50percent of
thecombined taxable incomeof [the DISC
and the parent] which isattributableto the
qualified export receipts on such property
derived as the result of a sale by the DISC
plus 10 percent of the export promotion ex-
penses of such DISC attributable to such
receipts....”26 U.S.C. Sec. 994(a)(2) (em-
phasis added).
The statute does not define“combined
taxable income”or specifically mention
R&D expenditures. The Secretary’s regu-
lation must be treated with deference, see
Cottage Savings Assn. v. Commissioner, 499
U.S. 554, 560–561, but the statute places
some limits on the Secretary’s interpre-
tive authority. First,“does not exceed”
places an upper limit on the share of the ex-
port profits that can be assigned to a DISC
and gives three methods of setting the trans-
fer price. Second,“combined taxable in-
come”makes it clear that the domestic
parent’s taxable income is a part of the CTI
equation. Third,“attributable”limits the por-
tion of the domestic parent’s taxable in-
come that can be treated as a part of the
CTI. The Secretary’s classification of all
R&D as an indirect cost of all export sales
of products in a broadly defined SIC cat-
egory is not arbitrary. It provides consis-
tent treatment for cost items used in
computing the taxpayer’s domestic tax-
able income and CTI, and its allocation of
R&D expenditures to all products in a cat-
egory even when specifically intended to
improve only one or a few of those prod-
ucts is no more tenuous than the alloca-
tion of a chief executive officer’s salary to
every product that a company sells, even
when he devotes virtually all of his time to
the development of the Edsel. Reading Sec.
994 in light of Sec. 861, the more gen-
eral provision dealing with the distinction
between domestic and foreign source in-
come, does not support Boeing’s contrary
view. If the Secretary reasonably deter-
mines that Company Sponsored R&D can
be properly apportioned on a categorical ba-
sis, the portion of Sec. 861(b) that de-
ducts from gross income“a ratable part of
any expenses...which cannot definitely
be allocated to some item or class of gross
income”is inapplicable. Pp. 8–13.
(b) Boeing’s arguments based on spe-
cific DISC regulations are also unavail-
ing. Language in 26 CFR Sec. 1.994–
1(c)(6)(iii), part of the rule describing CTI
computation, does not prohibit a ratable al-
location of R&D expenditures that can be
“definitely related”to particular export sales.
Whether such an expense can be“defi-
nitely related”is determined by the rules
set forth in the very rule that Boeing chal-
lenges, Sec. 1.861–8. Moreover, the Sec-
retary could reasonably determine that
expenditures on model 767 research con-
ducted in years before any 767’s were sold
were not“definitely related”to any sales,
but should be treated as an indirect cost of
producing the gross income derived from
the sale of all planes in the transportation
equipment category. Nor do Secs. 1.994–
1(c)(7)(i) and (ii)(a), which control group-
ing of transactions for determining the
transfer price of sales of export property,
and Sec. 1.994–1(c)(6)(iv), which gov-
erns the grouping of receipts when the CTI
method is used, speak to the questions
whether or how research costs should be al-
located and apportioned. Pp. 13–17.
(c) What little relevant legislative his-
tory there is in this suit weighs in the Gov-
ernment’s favor. Pp. 18–19.
258 F.3d 958, affirmed.
STEVENS, J., delivered the opinion of
the Court, in which REHNQUIST, C.J., and
O’CONNOR, KENNEDY, SOUTER,
GINSBURG, and BREYER, JJ., joined.
THOMAS, J., filed a dissenting opinion, in
which SCALIA, J., joined.
SUPREME COURT OF THE
UNITED STATES
Nos. 01–1209 and 01–1382
THE BOEING COMPANY
AND CONSOLIDATED
SUBSIDIARIES PETITIONERSv.
UNITED STATES—01–1209
UNITED STATES PETITIONERv.
BOEING SALES CORPORATION
ET AL.—01–1382
ON WRITS OF CERTIORARI TO THE
UNITED STATES COURT OF
APPEALS
FOR THE NINTH CIRCUIT
March 4, 2003
JUSTICE STEVENS delivered the opin-
ion of the Court.
This suit concerns tax provisions en-
acted by Congress in 1971 to provide in-
centives for domestic manufacturers to
increase their exports and in 1984 to limit
and modify those incentives. The specific
question presented involves the interpre-
tation of a Treasury Regulation (26 CFR
Sec. 1.861–8(e)(3) (1979)) promulgated in
1977 that governs the accounting for re-
search and development (R&D) expenses
under both statutory schemes.
1
We shall ex-
plain the general outlines of the two stat-
utes before we focus on that regulation.
The 1971 statute provided special tax
treatment for export sales made by an
American manufacturer through a subsid-
iary that qualified as a“domestic interna-
tional sales corporation”(DISC).
2
The DISC
itself is not a taxpayer; a portion of its in-
come is deemed to have been distributed
1
In 1996, the provisions of 26 CFR Sec. 1.861–8 were amended, renumbered, and republished as 26 CFR Sec. 1.861–17. See 26 CFR Sec. 1.861–17 (2002); see also 60 Fed. Reg. 66503 (1995).
2
To qualify as a DISC, at least 95 percent of a corporation’s gross receipts must arise from qualified export receipts. See 26 U.S.C. Sec. 992(a)(1)(A). In addition, at least 95 percent of the corporation’s assets must be
export related. See Sec. 992(a)(1)(B).
2003–19 I.R.B.869May 12, 2003

to its shareholders, and the shareholders
must pay taxes on that portion, but no tax
is payable on the DISC’s retained income
until it is actually distributed. See 26 U.S.C.
Secs. 991–997. Typically,“a DISC is a
wholly owned subsidiary of a U.S. corpo-
ration.”1 Senate Finance Committee, Defi-
cit Reduction Act of 1984, 98th Cong., p.
630, n. 1 (Comm. Print 1984) (hereinaf-
ter Committee Print). The statute thus pro-
vides an incentive to maximize the DISC’s
share—and to minimize the parent’s share
—of the parties’aggregate income from
export sales.
The DISC statute does not, however, al-
low the parent simply to assign all of the
profits on its export sales to the DISC.
Rather,“to avoid granting undue tax ad-
vantages,”
3
the statute provides three al-
ternative ways in which the parties may
divert a limited portion of taxable income
from the parent to the DISC. See 26 U.S.C.
Secs. 994(a)(1)–(3). Each of the alterna-
tives assumes that the parent has sold the
product to the DISC at a hypothetical
“transfer price”that produced a profit for
both seller and buyer when the product was
resold to the foreign customer. The alter-
native used by Boeing in this suit limited
the DISC’s taxable income to a little over
half of the parties’“combined taxable in-
come”(CTI).
4
Soon after its enactment, the DISC stat-
ute became“the subject of an ongoing dis-
pute between the United States and certain
other signatories of the General Agree-
ment on Tariffs and Trade (GATT)”re-
garding whether the DISC provisions were
impermissible subsidies that violated our
treaty obligations. Committee Print 634.“To
remove the DISC as a contentious issue and
to avoid further disputes over retaliation, the
United States made a commitment to the
GATT Council on October 1, 1982, to pro-
pose legislation that would address the con-
cerns of other GATT members.”Id.at 634–
635. This ultimately resulted in the
replacement of the DISC provisions in 1984
with the“foreign sales corporation”(FSC)
provisions of the Code. See Deficit Re-
duction Act of 1984, Pub. L. 98–369, Secs.
801–805, 98 Stat. 985.
5
Unlike a DISC, an FSC is a foreign cor-
poration, and a portion of its income is tax-
able by the United States. Seeibid.; see also
B. Bittker & J. Eustice, Federal Income
Taxation of Corporations and Sharehold-
ers¶17.14 (5th ed. 1987). Whereas a por-
tion of a DISC’s income was tax deferred,
a portion of an FSC’s income is exempted
from taxation. Compare 26 U.S.C. Secs.
991–997 with 26 U.S.C. Secs. 921, 923
(1988 ed.). Hence, under the FSC regime,
as under the DISC regime, it is in the par-
ent’s interest to maximize the FSC’s share
of the taxable income generated by ex-
port sales. Because the differences be-
tween the DISC and FSC regimes for the
most part are immaterial to this suit, the
analysis in this opinion will focus mainly
on the DISC provisions.
6
The Internal Revenue Code gives the
taxpayer an election either to capitalize and
amortize the costs of R&D over a period
of years or to deduct such expenses cur-
rently. See 26 U.S.C. Sec. 174. The regu-
lation at issue here, 26 CFR Sec. 1.861–
8(e)(3)(1979),dealswithR&D
expenditures for which the taxpayer has
taken a current deduction. It tells the tax-
paying parent and its DISC“what”must be
treated as a cost when calculating CTI, and
“how”those costs should be (a) allocated
among different products and (b) appor-
tioned between the DISC and its parent.
7
With respect to the“what”question, the
Treasury might have adopted a broad ap-
proach defining the relevant R&D as in-
cluding all of the parent’s products, or, a
narrow approach defining the relevant R&D
as all R&D directly related to a particular
product being exported. Instead, the regu-
lation includes a list of two-digit Stan-
dard Industrial Classification (SIC)
categories (examples are“chemicals and al-
lied products”and“transportation equip-
ment”), and it requires that R&D for any
product within the same category as the ex-
ported product be taken into account.
8
See
ibid. The regulation explains that R&D on
any product“is an inherently speculative ac-
tivity”that sometimes contributes unex-
pected benefits on other products, and“that
the gross income derived from successful
research and development must bear the
cost of unsuccessful research and devel-
opment.”Ibid.
With respect to the two“how”ques-
tions, the regulations use gross receipts from
sales as the basis both for allocating the
costs among the products within the broad
R&D categories and also for apportion-
ing those costs between the parent and the
DISC. Thus, if the exported product con-
stitutes 20 percent of the parties’total sales
of all products within an R&D category, 20
percent of the R&D cost is allocated to that
product. And if export sales represent 70
percent of the total sales of that product, 70
percent of that amount, or 14 percent of the
R&D, is apportioned to the DISC.
I
Petitioners (and cross-respondents) are
The Boeing Company and subsidiaries that
include a DISC and an FSC. For over 40
years, Boeing has been a world leader in
commercial aircraft development and a ma-
jor exporter of commercial aircraft. Dur-
ing the period at issue in this litigation, the
dollar volume of its sales amounted to about
$64 billion, 67 percent of which were
DISC-eligible export sales. The amount that
Boeing spent on R&D during that period
amounted to approximately $4.6 billion.
During the tax years at issue here, Boe-
ing organized its internal operations along
3
S. Rep. No. 92–437, p. 13 (1971) (hereinafter S. Rep.).
4
To be more precise, it allowed the DISC“to derive taxable income attributable to [an export sale] in an amount which does not exceed...50percent of the combined taxable income of [the DISC and the parent]
plus 10 percent of the export promotion expenses of such DISC attributable to such receipts....26U.S.C.Sec. 994(a)(2).
A hypothetical example in both the House and Senate Committee Reports illustrated the computation of a transfer price of $816 based on a DISC’s selling price of $1,000 and the parent’s cost of goods sold of $650.
The gross margin of $350 was reduced by $180 (including the DISC’s promotion expenses of $90, the parent’s directly related selling and administrative expenses of $60, and the parent’s prorated indirect expenses of
$30), to produce a CTI of $170. Half of that amount ($85) plus 10 percent of the DISC’s promotion expenses ($9) gave the DISC its allowable taxable income of $94, leaving only $76 of income immediately taxable
to the parent. The $184 aggregate of the two amounts attributed to the DISC (promotion expenses of $90 plus its $94 share of CTI) subtracted from the $1,000 gross receipt produced the“transfer price”of $816. See
S. Rep. at 108, n. 7; H.R. Rep. No. 92–533, p. 74, n. 7 (1971) (hereinafter H.R. Rep.).
5
In 2000, Congress repealed and replaced the FSC provisions with the“extraterritorial income”exclusion of 26 U.S.C. Sec. 114.
6
Two aspects of the 1984 statute that do have special significance to this suit are discussed in Part IV,infra.
7
Treasury Regulation Sec. 1.861–8 (1979) also specifies how other specific items of expense should be treated. See,e.g., 26 CFR Sec. 1.861–8(e)(2) (1979) (interest fees); Sec. 1.861–8(e)(5) (legal and accounting fees);
Sec. 1.861–8(e)(6) (income taxes).
8
The original regulation used two-digit SIC categories. See Sec. 1.861–8(e)(3). The current regulation uses narrower three-digit SIC categories, See 26 CFR Sec. 1.861–17(a)(2)(ii) (2002), but the change is not relevant
to this suit.
May 12, 20038702003–19 I.R.B.

product lines (e.g., aircraft models 727, 737,
747, 757, 767) for management and ac-
counting purposes, each of which consti-
tuted a separate“program”within the
Boeing organization. For those purposes, it
divided its R&D expenses into two broad
categories:“Blue Sky”and“Company
Sponsored Product Development.”The
former includes the cost of broad-based re-
search aimed at generally advancing the
state of aviation technology and develop-
ing alternative designs of new commer-
cial planes. The latter includes product-
specific research pertaining to a specific
program after the board of directors has
given its approval for the production of a
new model. With respect to its $1 billion
of“Blue Sky”R&D, Boeing’s account-
ing was essentially consistent with 26 CFR
Sec. 1.861–8(e)(3) (1979).
9
Its method of
accounting for $3.6 billion of“Company
Sponsored”R&D gave rise to this litiga-
tion.
Boeing’s accountants treated all of the
Company Sponsored research costs as di-
rectly related to a single program, and as
totally unrelated to any other program. Thus,
for DISC purposes, the cost of Company
Sponsored R&D directly related to the 767
model, for example, had no effect on the
calculation of the“combined taxable in-
come”produced by export sales of any
other models. Moreover, because immense
Company Sponsored research costs were
routinely incurred while a particular model
was being completed and before any sales
of that model occurred, those costs effec-
tively“disappeared”in the calculation of
the CTI even for the model to which the
R&D was most directly related.
10
Almost
half of the $3.6 billion of Company Spon-
sored R&D at issue in this suit was allo-
cated to programs that had no sales in the
year in which the research was conducted.
That amount (approximately $1.75 bil-
lion) was deducted by Boeing currently in
the calculation of its taxable income for the
years at issue, but never affected the cal-
culation of the CTI derived by Boeing and
its DISC from export sales.
Pursuant to an audit, the Internal Rev-
enue Service reallocated Boeing’s Com-
pany Sponsored R&D costs for the years
1979 to 1987, thereby decreasing the un-
taxed profits of its export subsidiaries and
increasing the parent’s taxable profits from
export sales. Boeing paid the additional tax
obligation of $419 million and filed this suit
seeking a refund. Relying on the decision
of the Eighth Circuit inSt. Jude Medical,
Inc. v. Commissioner, 34 F.3d 1394 (1994),
the District Court entered summary judg-
ment in favor of Boeing. It held that 26
CFR Sec. 1.861–8(e)(3) (1979) is invalid
as applied to DISC and FSC transactions
because the regulation’s categorical treat-
ment of R&D conflicted with congres-
sional intent that there be a“direct”
relationship between items of gross in-
come and expenses“related thereto,”and
with a specific DISC regulation giving the
taxpayer the right to group and allocate in-
come and costs by product or product line.
The Court of Appeals for the Ninth Cir-
cuit reversed, 258 F.3d 958 (2001), and we
granted certiorari to resolve the conflict be-
tween the Circuits, 535 U.S. 1094 (2002).
We now affirm.
II
Section 861 of the Internal Revenue
Code distinguishes between United States
and foreign source income for several dif-
ferent purposes. See 26 U.S.C. Sec. 861.
The regulation at issue in this suit, 26 CFR
Sec. 1.861–8(e)(3) (1979), was promul-
gated pursuant to that general statute. Sepa-
rate regulations promulgated under the
DISC statute, 26 U.S.C. Secs. 991–997, in-
corporate 26 CFR Sec. 1.861–8(e)(3) (1979)
by specific reference. See Sec. 1.994–
1(c)(6)(iii) (citing and incorporating the cost
allocation rules of Sec. 1.861–8). Boeing
does not claim that its method of account-
ing for Company Sponsored R&D com-
plied with Sec. 1.861–8(e)(3). Rather, it
argues that Sec. 1.861–8(e)(3) is so plainly
inconsistent with congressional intent and
with other provisions of the DISC regula-
tions that it cannot be validly applied to its
computation of CTI for DISC purposes.
Boeing argues, in essence, that the stat-
ute and certain specific regulations pro-
mulgated pursuant to 26 U.S.C. Sec. 994
give it an unqualified right to allocate its
Company Sponsored R&D expenses to the
specific products to which they are“fac-
tually related”and to exclude any allo-
cated R&D from being treated as a cost of
any other product. The relevant statutory
text does not support its argument.
As we have already mentioned, the
DISC statute gives the taxpayer a choice of
three methods of determining the transfer
price for an exported good. Boeing elected
to use only the second method described in
the following text:
“Inter-company pricing rules”
(a) In general
“In the case of a sale of export prop-
erty to a DISC by a person described in
section 482, the taxable income of such
DISC and such person shall be based
upon a transfer price which would al-
low such DISC to derive taxable in-
come attributable to such sale (regardless
of the sales price actually charged) in an
amountwhich does not exceed the great-
est of—
(1) 4 percent of the qualified export
receipts on the sale of such property by
the DISC plus 10 percent of the ex-
port promotion expenses of such DISC
attributable to such receipts,
(2) 50 percent of thecombined tax-
able incomeof such DISC and such per-
son which isattributableto the qualified
export receipts on such property de-
rived as the result of a sale by the DISC
plus 10 percent of the export promo-
tion expenses of such DISC attribut-
able to such receipts, or
(3) taxable income based upon the sale
price actually charged (but subject to the
rules provided in section 482).”
(b) Rules for commissions, rentals, and
marginal costing
The Secretary shall prescribe regula-
tions setting forth
****
“(2)rules for the allocation of ex-
penditures in computing combined tax-
able income under subsection (a)(2)in
those cases where a DISC is seeking to
establish or maintain a market for ex-
port property.”26 U.S.C. Secs.
994(a)(1)–(3), (b)(2) (emphasis added).
The statute does not define the term
“combined taxable income,”nor does it spe-
9
Because all of Boeing’s commercial aircraft were“transportation equipment”within the meaning of the Treasury Regulation, it properly allocated all of its Blue Sky research among all of its programs, and then ap-
portioned those costs between the parent and the DISC. However, according to the Government, it erroneously did so on the basis of hours of direct laborrather than sales. See Brief for United States 10.
10
When Boeing charged R&D costs to programs that had no sales in the year the research was conducted, the R&D costs effectively“disappeared”in the sense that they were not accounted for by Boeing in computing
its CTI.
2003–19 I.R.B.871May 12, 2003

cifically mention expenditures for R&D.
Congress did grant the Secretary express au-
thority to prescribe regulations for deter-
mining the proper allocation of expenditures
in computing CTI in certain specific con-
texts. See,e.g., Secs. 994(b)(1)–(2). Yet in
promulgating 26 CFR Sec. 1.861–8 (1979),
the Secretary of the Treasury exercised his
rulemaking authority under 26 U.S.C. Sec.
7805(a), which gives the Secretary gen-
eral authority to“prescribe all needful rules
and regulations for the enforcement”of the
Internal Revenue Code. See 41 Fed. Reg.
49160 (1976) (“The proposed regulations
are to be issued under the authority con-
tained in section 7805 of the Internal Rev-
enue Code”). Even if we regard the
challenged regulation as interpretive be-
cause it was promulgated under Sec.
7805(a)’s general rulemaking grant rather
than pursuant to a specific grant of author-
ity, we must still treat the regulation with
deference. SeeCottage Savings Assn. v.
Commissioner, 499 U.S. 554, 560–561
(1991).
The words that we have emphasized in
the statutory text do place some limits on
the Secretary’s interpretive authority. First,
the“does not exceed”phrase places an up-
per limit on the share of the export prof-
its that can be assigned to a DISC and also
gives the taxpayer an unfettered right to se-
lect any of the three methods of setting a
“transfer price.”Second, the use of the term
“combined taxable income”in subsection
(a)(2) makes it clear that the taxable in-
come of the domestic parent is a part of the
equation that should produce the CTI. As
Boeing recognizes, even a charitable con-
tribution to the Seattle Symphony that re-
duces its domestic earnings from sales of
767’s must be treated as a cost that is not
definitely related to any particular cat-
egory of income and thus must be appor-
tioned among all categories of income,
including income from export sales. See
Brief for Petitioners 8, n. 7. Third, the word
“attributable”places a limit on the por-
tion of the domestic parent’s taxable in-
come that can be treated as a part of the
CTI. It is this word that provides the statu-
tory basis for Boeing’s position.
Under Boeing’s reading of the statute,
a calculation of the domestic income“at-
tributable”to the export sale of a 767 may
include both the direct and indirect costs of
manufacturing and selling 767’s, but it may
not include the direct costs of selling any-
thing else. Moreover, if Boeing’s accoun-
tants classify a particular cost as directly
related to the 767, that classification is con-
clusive. Thus, while the Secretary asserts
that Boeing’s R&D expenses are definitely
related to all income in the relevant SIC cat-
egory, Boeing claims the right to divide its
R&D in a way that effectively creates three
segments: (1) Blue Sky; (2) Company
Sponsored R&D on products that have no
sales in the current year; and (3) Com-
pany Sponsored R&D on products that are
being sold currently. Boeing, like the Sec-
retary, essentially treats Blue Sky R&D as
an indirect cost in computing both its do-
mestic taxable income and its CTI. With re-
spect to the second segment, Boeing uses
the R&D to reduce its domestic taxable
earnings on every product it sells, but elimi-
nates it entirely from the calculation of CTI
on any product by charging the R&D costs
to programs without any sales. The third
segment is used for both domestic and CTI
purposes, but with respect to CTI only for
the export sales to which it is“factually re-
lated.”
The Secretary’s classification of all R&D
as an indirect cost of all export sales of
products in a broadly defined SIC cat-
egory—in other words, as“attributable”
to such sales is surely not arbitrary. It has
the virtue of providing consistent treat-
ment for cost items used in computing the
taxpayer’s domestic taxable income and its
CTI. Moreover, its allocation of R&D ex-
penditures to all products in a category even
when specifically intended to improve only
one or a few of those products is no more
tenuous than the allocation of a chief ex-
ecutive officer’s salary to every product that
a company sells even when he devotes vir-
tually all of his time to the development of
an Edsel.
On the other hand, even if Boeing’s
method of accounting for R&D is fully jus-
tified for management purposes, it cer-
tainly produces anomalies for tax purposes.
Most obvious is the fact that it enabled Boe-
ing to deduct some $1.75 billion of expen-
ditures from its domestic taxable earnings
under 26 U.S.C. Sec. 174 and never de-
duct a penny of those expenditures from its
“combined taxable earnings”under the
DISC statute. See Brief for Petitioners 11.
Less obvious, but nevertheless significant,
is that Boeing’s method assumed that Blue
Sky research produces benefits for air-
plane models that are producing current in-
come and—at the same time—assumed
that Company Sponsored research related
to a specific product, such as the 727, is not
likely to produce benefits for other air-
plane models, such as the 737 or 767.
11
In all events, the mere use of the word
“attributable”in the text of Sec. 994 surely
does not qualify the Secretary’s authority
to decide whether a particular tax deduct-
ible expenditure made by the parent of a
DISC is sufficiently related to its export
sales to qualify as an indirect cost in the
computation of the parties’CTI. Boeing ar-
gues, however, that the text of Sec. 994
should be read in light of Sec. 861, the
more general provision dealing with the dis-
tinction between domestic and foreign
source income.
Title 26 U.S.C. Sec. 861(b) contains the
following two sentences:
“Taxable income from sources within
United States”
“From the items of gross income speci-
fied in subsection (a) as being income
from sources within the United States
there shall be deducted the expenses,
losses, and other deductions properly ap-
portioned or allocated theretoand a rat-
able partof any expenses, losses, or
other deductionswhich cannot defi-
nitely be allocated to some item or class
of gross income. The remainder, if any,
shall be included in full as taxable in-
come from sources within the United
States”. (Emphasis added.)
Focusing on the emphasized words, Boe-
ing interprets this section as having cre-
ated a background rule dividing all expenses
into two categories: those that can be al-
located to specific income and those that
cannot.“Ratable”allocation is permis-
sible for the second category, but not for the
first, according to Boeing. Moreover, in
Boeing’s view, any expense in the first cat-
egory cannot be ratably apportioned across
all classes of income.
There are at least two flaws in this ar-
gument. First, although the emphasized
words authorize ratable apportionment of
11
This assumption, of course, runs contrary to the Secretary’s determination that R&D“is an inherently speculative activity”that sometimes contributes unexpected benefits on other products. 26 CFR Sec. 1.861–
8(e)(3)(i)(A) (1979).
May 12, 20038722003–19 I.R.B.

costs that cannot definitely be allocated to
some item or class of income, the sen-
tence as a whole does not prohibit ratable
apportionment of expenses that could be,
but perhaps in fairness should not be, treated
as direct costs. Second, the Secretary has
the authority to prescribe regulations de-
termining whether an expense can be prop-
erly apportioned to an item of gross income
in the calculation of CTI. See 26 U.S.C.
Sec. 7805(a). Thus, as in this suit, if the
Secretary reasonably determines that Com-
pany Sponsored R&D can be properly ap-
portioned on a categorical basis, the
italicized portion of Sec. 861 is simply in-
applicable.
In sum, Boeing’s arguments based on
statutory text are plainly insufficient to over-
come the deference to which the Secre-
tary’s interpretation is entitled.
III
Boeing also advances two arguments
based on the text of specific DISC regu-
lations. The first resembles its argument
based on the text of Sec. 861 and the sec-
ond relies on regulations providing that cer-
tain accounting decisions made by the
taxpayer shall be controlling.
The regulations included in 26 CFR Sec.
1.994–1 (1979) set forth intercompany pric-
ing rules for DISCs. They generally de-
scribe the three methods of determining a
transfer price, noting that the taxpayer may
choose the most favorable method, and may
group transactions to use one method for
some export sales and another method for
others. Seeibid. With respect to the CTI
method used by Boeing, there is a rule, Sec.
1.994–1(c)(6), that describes the compu-
tation of CTI. The rule broadly defines the
CTI of a DISC and its related supplier from
a sale of export property as the excess of
gross receipts over their total costs“which
relate to such gross receipts.”
12
Subdivi-
sion (iii) of that rule, on which Boeing re-
lies, provides:
“Costs (other than cost of goods sold)
which shall be treated as relating to gross
receipts from sales of export property are
(a) the expenses, losses, and other de-
ductionsdefinitely related, and there-
fore allocated and apportioned, thereto,
and (b) a ratable part of any other ex-
penses, losses, or other deductionswhich
arenot definitely related to a class of
gross income, determined in a manner
consistent with the rules set forth in Sec.
1.861–8.”Sec. 1.994–1(c)(6)(iii) (em-
phasis added).
Boeing interprets the emphasized words
as prohibiting a ratable allocation of R&D
expenditures that can be“definitely re-
lated”to particular export sales. The ob-
vious response to this argument is provided
by the final words in the paragraph.
Whether such an expense can be“defi-
nitely related”is determined by the rules
set forth in the very regulation that Boe-
ing challenges, Sec. 1.861–8. Moreover, it
seems quite clear that the Secretary could
reasonably determine that expenditures on
767 research conducted in years before any
767’s were sold were not“definitely re-
lated”to any sales, but should be treated
as an indirect cost of producing the gross
income derived from the sale of all planes
in the transportation equipment category.
Boeing also argues that the regulations
expressly allow it to allocate and appor-
tion R&D expenses to groups of export
sales that are based on industry usage rather
than SIC categories. The regulations pro-
viding the strongest support for this argu-
ment are Secs. 1.994–1(c)(7)(i) and (ii)(a),
which control the grouping of transac-
tions for the purpose of determining the
transfer price of sales of export property,
and Sec. 1.994–1(c)(6)(iv), which gov-
erns the grouping of receipts when the CTI
method of transfer pricing is used.
13
Trea-
sury Regulation Sec. 1.994–1(c)(7) reads,
in part, as follows:
“Grouping transactions.(i) Generally, the
determinations under this section are to
be made on a transaction-by-transaction
basis. However, at the annual choice of
the taxpayer some or all of these deter-
minations may be made on the basis of
groups consisting of products or prod-
uct lines.”
“(ii) A determination by a taxpayer as to
a product or a product line will be ac-
cepted by a district director if such de-
termination conforms to any one of the
following standards: (a) A recognized in-
dustry or trade usage, or (b) the 2-digit
major groups...oftheStandard In-
dustrial Classification....”
As we understand the statutory and regu-
latory scheme, it gives controlling effect to
three important choices by the taxpayer.
First, the taxpayer may elect to deduct R&D
expenses on an annual basis instead of capi-
talizing and amortizing those costs. See 26
U.S.C. Sec. 174(a)(1). Second, when en-
gaging in export transactions with a DISC,
the taxpayer may choose any one of the
three methods of determining the transfer
price. See Sec. 994(a). Third, the taxpayer
may decide how best to group those trans-
actions for purposes of applying the trans-
fer pricing methods. See 26 CFR Sec.
1.994–1(c)(7) (1979). Conceivably the tax-
payer could account for each sale sepa-
rately, by product lines, or by grouping all
of its export sales together. These regula-
tions confirm the finality of the third type
of choice (i.e., which groups of sales will
be evaluated under one of the three alter-
native transfer pricing methods), but do not
speak to the questions answered by the
regulation at issue in this suit—namely,
whether or how a particular research cost
should be allocated and apportioned.
Nor does Sec. 1.994–1(c)(6)(iv) sup-
port Boeing’s argument. It provides that a
“taxpayer’s choice in accordance with sub-
paragraph (7) of this paragraph as to the
grouping of transactions shall be control-
12
Treasury Regulation Sec. 1.994–1(c)(6), 26 CFR Sec. 1.994–1(c)(6) (1979), provides in part:
“Combined taxable income.”For purposes of this section, the combined taxable income of a DISC and its related supplier from a sale of export property is the excess of the gross receipts (as defined in section 993(f))
of the DISC from such sale over the total costs of the DISC and related supplier which relate to such gross receipts. Gross receipts from a sale do not include interest with respect to the sale. Combined taxable income
under this paragraph shall be determined after taking into account under paragraph (e)(2) of this section all adjustments required by section 482 with respect to transactions to which such section is applicable. In de-
termining the gross receipts of the DISC and the total costs of the DISC and related supplier which relate to such gross receipts, the following rules shall be applied:
“(i) Subject to subdivisions (ii) through (v) of this subparagraph, the taxpayer’s method of accounting used in computing taxable income will be accepted for purposes of determining amounts and the taxable year for
which items of income and expense (including depreciation) are taken into account. See Sec. 1.991–1(b)(2) with respect to the method of accounting which may be used by a DISC.”
13
In support of its argument that Secs. 1.994–1(c) and 1.861–8(e)(3) conflict, Boeing also points to various proposed regulations, including example 1 of proposed regulation Sec. 1.861–8(g). See Brief for Petitioners
22–26. Unlike Boeing and the dissent, Seepostat 2–3, we find these proposed regulations to be of little consequence given that they were nothing more than mere proposals. In 1972—when regulations governing
DISCs were first proposed—the Secretary made clear that the proposed regulations were suggestions only and that whatever final regulations were ultimately adopted would govern. See Technical Memorandum ac-
companying Notice of Proposed Rulemaking, 1972 T. M. Lexis 14, pp. *8–*9 (June 29, 1972) (providing that in determining deductible expenses,“the rules of section 861(b) and Sec. 1.861–8 are to be applied in what-
ever form they ultimately take in a new notice to be prepared”).
2003–19 I.R.B.873May 12, 2003

ling, and costs deductible in a taxable year
shall be allocated and apportioned to the
items or classes of gross income of such
taxable year resulting from such group-
ing.”The regulation makes clear that if the
taxpayer selects the CTI method of trans-
fer pricing (as Boeing did), then the tax-
payer may choose to group export receipts
according to product lines, two-digit SIC
codes, or on a transaction-by-transaction ba-
sis.Ibid. The regulation also establishes that
there shall be an allocation and apportion-
ment of all relevant costs deducted in the
taxable year.Ibid. Notably, however, the
regulation simply does not speak to how
costs should be allocated among different
items or classes of gross income and ap-
portioned between the DISC and its par-
ent once the taxpayer (pursuant to Sec.
1.994–1(c)(6)) groups its gross receipts.
Treasury Regulation Sec. 1.861–8(e)(3) fills
this gap by providing that R&D expendi-
tures that are related to all income reason-
ably connected with the taxpayer’s relevant
two-digit SIC category or categories are“al-
locable to all items of gross income as a
class. . . related to such product category
(or categories).”26 CFR Sec. 1.861–8(e)(3)
(1979) (emphasis added).
IV
Boeing also relies heavily on legisla-
tive history, particularly on statements in
Reports prepared by the tax-writing com-
mittees of the House and the Senate on the
DISC statute. Those Reports are virtually
identical in terms of their discussion of the
DISC provisions. See H.R. Rep. at 58–
95; S. Rep. at 90–129. Neither says any-
thing about R&D costs. They both contain
statements supporting the proposition that
in determining how to calculate income that
qualifies for a tax benefit, the expenses to
be deducted from gross income are those
expenses that are“directly related”to the
income. See H.R. Rep., at 74, S. Rep., at
107. Those statements are not, however, in-
consistent with the proposition that par-
ticular R&D expenses may be factually
related to more than one item of income,
or with the proposition that the Secretary
has broad authority to promulgate regula-
tions determining which expenses are di-
rectly or indirectly related to particular items
of income.
If anything, what little relevant legisla-
tive history there is in this suit weighs in
favor of the Government’s position in two
important respects. First, whereas the DISC
transfer price could be set at a level that at-
tributed over half of the CTI to the DISC,
when Congress enacted the FSC provi-
sions in 1984, it lowered the maximum al-
lowable share of CTI attributable to an FSC
to 23 percent. Compare 26 U.S.C. Sec.
994(a)(2) with 26 U.S.C. Sec. 925(a)(2)
(1988 ed.). This dramatizes the point that
even though the purpose of the DISC and
FSC statutes was to provide American firms
with a tax incentive to increase their ex-
ports, Congress did not intend to grant“un-
due tax advantages”to firms. S. Rep., at 13.
Rather, the statutory formulas were de-
signed to place ceilings on the amount of
those special tax benefits. See Committee
Print 636 (“[T]he income of the foreign
sales corporation must be determined ac-
cording to transfer prices specified in the
bill: either actual prices for sales between
unrelated, independent parties or, if the sales
are between related parties, formula prices
which are intended to comply with GATT’s
requirement of arm’s-length prices”).
Second, the 1977 R&D regulation at is-
sue in this suit had been in effect for seven
years when Congress enacted the FSC pro-
visions. Yet Congress did not legislatively
override 26 CFR Sec. 1.861–8(e)(3) (1979)
in enacting the FSC provisions. In fact, al-
though a moratorium was placed on the ap-
plication of Sec. 1.861–8(e)(3) for purposes
of the sourcing of income in 1981,
14
a 1984
conference agreement specified that the
moratorium would“not apply for other pur-
poses, such as the computation of com-
bined taxable income of a DISC (or FSC)
and its related supplier.”H.R. Conf. Rep.
No. 98–861, p. 1263 (1984). The fact that
Congress did not legislatively override 26
CFR Sec. 1.861–8(e)(3) (1979) in enact-
ing the FSC provisions in 1984 serves as
persuasive evidence that Congress regarded
that regulation as a correct implementa-
tion of its intent. SeeLorillard v. Pons, 434
U.S. 575, 580–581 (1978).
The judgment of the Court of Appeals
is affirmed.
It is so ordered.
SUPREME COURT OF THE
UNITED STATES
Nos. 01–1209 and 01–1382
THE BOEING COMPANY AND
CONSOLIDATED
SUBSIDIARIES PETITIONERSv.
UNITED STATES—01–1209
UNITED STATES PETITIONERv.
BOEING SALES CORPORATION
ET AL.—01–1382
ON WRITS OF CERTIORARI
TO THE UNITED STATES
COURT OF APPEALS
FOR THE NINTH CIRCUIT
JUSTICE THOMAS, with whom JUS-
TICE SCALIA joins, dissenting.
Before placing its hand in the taxpay-
er’s pocket, the Government must place its
finger on the law authorizing its action.
United Dominion Industries, Inc. v.
United States, 532 U.S. 822, 839 (2001)
(THOMAS,J.,concurring)(citing
Leavell v. Blades, 237 Mo. 695, 700–701,
141 S.W. 893, 894 (1911)). Despite the
Government’s failure to do so here, the
Court holds in its favor; I respectfully dis-
sent.
To read the majority opinion, one would
think that the Court has before it a per-
fectly clear statutory and regulatory scheme
and that the position of petitioners/cross-
respondents (hereinafter Boeing) is ut-
terly without support. Nothing could be
further from the facts of this suit. Indeed,
the Internal Revenue Service (IRS) itself ini-
tially read the statutory and regulatory pro-
visions at issue here to permit precisely
what Boeing asserts it is allowed to do.
1
When regulations governing DISCs were
first proposed in 1972, the IRS received
public comments recommending that the
regulations be amplified to include rules and
examples on how expenses should be
treated for purposes of determining the com-
bined taxable income of the DISC and a re-
lated supplier. The IRS, however, declined
to incorporate the recommendations in the
14
In 1981, Congress imposed a temporary moratorium on the application of the cost allocation rules of 26 CFR Sec. 1.861–8(e)(3) (1979) solely for the geographic sourcing of income. See Economic Recovery Tax Act
of 1981, Pub. L. 97–34, Sec. 223, 95 Stat. 249. As a result, research expenditures made for research conducted in the United States were allocated against United States source gross income only—not between United
States source income and foreign source income. See H.R. Conf. Rep. No. 98–861, p. 1262 (1984).
1
Because, as the Court notes, ante at 4, differences in the rules governing domestic international sales corporations (DISCs) and foreign sales corporations do not affect the outcome of this suit, I too focus only on the
relevant DISC provisions.
May 12, 20038742003–19 I.R.B.

final regulations, explaining that proposed
regulation Sec. 1.861–8, which had been
published in 1973, provided ample guid-
ance on the subject. Technical Memoran-
dum accompanying T.D. 7364, 1974, T. M.
Lexis 30, pp. *20–21 (Oct. 29, 1974).
Proposed regulation Sec. 1.861–8(e)(3),
in turn, explained that where“research and
development...isintended or is reason-
ably expected to result in the improve-
ment of specific properties or processes,
deductions in connection with such re-
search and development shall be consid-
ered definitely related and therefore
allocable to the class of gross income to
which the properties or processes give rise
or are reasonablyexpectedto give rise.”38
Fed. Reg. 15843 (1973). The regulations
went on to note that in“other cases, as in
the case of most basic research, research and
development shall generally be consid-
ered definitely related and therefore allo-
cable to all gross income of the current
taxable year which is likely to benefit from
the research and development.”
Ibid. Example 1 in Sec. 1.8618(g) il-
lustrated this principle by considering the
research and development (R&D) expen-
ditures of a corporation manufacturing four-,
six-, and eight-cylinder gasoline engines.
The corporation conducted both general and
engine-specific research. The example made
clear that, while general R&D expenses
were“definitely related”to gross income
resulting from sales of all three types of en-
gines, R&D expenses in connection with a
specific type of engine were to be allo-
cated only to gross income arising from
sales of that type of engine.Id., at 15846
(“X’s deductions for its research and de-
velopment expenses in connection with the
4 cylinder engine are definitely related to
the gross income to which the 4 cylinder
engine gives rise,i.e., gross income from
the sales of 4 cylinder engines...”).
Indeed, the IRS’1974 position on the
proper allocation of R&D expenses in-
curred in connection with separate lines of
products is the only one that makes sense
under the relevant DISC regulations. See,
e.g., 26 CFR Secs. 1.994–1(c)(6), (7)
(1979). As the Court explains,ante,at2,
26 U.S.C. Sec. 994 was designed to pro-
vide special tax treatment for American
companies engaged in export activities. To
that end, Sec. 994 permits a DISC and its
related supplier to compute their relevant
transfer price (and, relatedly, their income
tax liability) based on one of three meth-
ods. See Sec. 994 (providing that the trans-
fer price for sales between a DISC and a
related supplier can be computed based on
(1) the gross income method, (2) the com-
bined taxable income method, and (3) the
usual transfer-pricing rules set forth in Sec.
482).
The Treasury Department has promul-
gated regulations explaining how the statu-
tory framework must be applied. Section
1.994–1(c)(7) of those regulations explains
that, as a general rule, a determination of
the transfer price under Sec. 994 is to be
made on a transaction-by-transaction ba-
sis. Section 1.994–1(c)(7), however, pro-
vides that, instead of following the
transaction-by-transaction rule, taxpayers
may make Sec. 994 transfer price deter-
minations based on groups consisting of
products or product lines. Sec. 1.994–
1(c)(7)(i). Specifically, the regulation states
that
“A determination by a taxpayer as to a
product or a product line will be ac-
cepted by a district director if such de-
termination conforms to any one of the
following standards: (a) A recognized in-
dustry or trade usage, or (b) the 2-digit
major groups (or any inferior classifi-
cations or combinations thereof, within
a major group) of the Standard Indus-
trial Classification [SIC] as prepared by
the [Office of Management and Bud-
get].”Sec. 1.994–1(c)(7)(ii).
Section 1.994–1(c)(6)(iv), in turn, pro-
vides that, in connection with the compu-
tation of combined taxable income,“[t]he
taxpayer’s choice in accordance with [Sec.
1.994–1(c)(7)] as to the grouping of trans-
actions shall be controlling, andcosts de-
ductible in a taxable year shall be allocated
and apportioned to the items or classes of
gross income of such taxable year result-
ing from such grouping.”(Emphasis added.)
Thus, in tandem, Secs. 1.994–1(c)(6)(iv) and
1.994–1(c)(7) give a taxpayer the choice of
allocating and apportioning costs to items
or classes of gross income resulting from
(1) case-by-case transactions, (2) prod-
ucts or product lines grouped together based
on industry or trade usage, and (3) prod-
ucts or product lines grouped together based
on 2-digit SIC codes or lesser included sub-
groups.
Although under Sec. 1.991–1(c)(7) tax-
payers are given three choices with re-
spect to the proper grouping of export
income (andthe related allocation ofex-
penses), and although Sec. 1.994–1(c)(6)(iv)
provides that the taxpayer’s selection un-
der Sec. 1.991–1(c)(7) shall be“control-
ling,”Sec. 1.861–8(e)(3) takes away the
very choices Sec. 1.991–1 provides. Un-
der Sec. 1.861–8(e)(3), the taxpayer is told
that R&D expenses may be allocatedsolely
to items or classes of gross income result-
ing from products that are within the same
2-digit SIC group—which happens to be
only one of the three options given under
Sec. 1.991–1(c)(7). In my view, the rule set
forth in Sec. 1.861–8(e)(3) entirely evis-
cerates the options given in Sec. 1.991–1.
Thus, despite the Court’s efforts to show
that the two regulations complement, rather
than contradict, each other,ante,at15–
17, the conflict is irreconcilable.
2
On these
facts, a taxpayer should be permitted to
compute its tax liability under Sec. 1.991–1,
rather than under Sec. 1.861–8(e)(3), based
on the principle that a specific rule gov-
erns a general one.
3
SeeMorales v. Trans
World Airlines, Inc., 504 U.S. 374, 384
(1992);Crawford Fitting Co. v. J. T.
Gibbons, Inc., 482 U.S. 437, 445 (1987);
see alsoSt. Jude Medical, Inc. v. Commis-
sioner, 34 F.3d 1394 (CA8 1994).
The Court disapproves of Boeing’s
method of allocating R&D because, as the
Court sees it, Boeing’s approach results in
the“disappear[ance]”of relevant costs,ante,
at 6, in“the sense that [R&D costs] were
not accounted for by Boeing in comput-
ing its [combined taxable income],”ante,
at 7, n. 10. The Court is troubled by the fact
that this computation method has enabled
Boeing“to deduct some $1.75 billion of ex-
penditures from its domestic taxable earn-
ings under 26 U.S.C. Sec. 174 and never
deduct a penny of those expenditures from
its‘combined taxable earnings’under the
2
A taxpayer wishing to (1) group its sales based on an accepted industry practice, for example based on different models,and(2) allocate its R&D expenses with respect to a specific model to the items or classes of
gross income resulting from that model is not, on the Government’s view, permitted to do so. Rather, the taxpayer must first allocate R&D expenses incurred in connection with the relevant model to items or classes of
gross income resulting from all models falling within the same 2-digit SIC group and only after doing so can the taxpayer deduct a portion of that model’s R&D expenses from the income earned by sales of that model.
3
With respect to a DISC, Sec. 1.991–1 provides the more specific rules because it applies only to DISCs, while Sec. 1.861–8(e)(3) sets forth more general rules because it applies to all taxpayers that have foreign source
income.
2003–19 I.R.B.875May 12, 2003

DISC statute.”Ante,at11–12. But the“dis-
appearance”of Boeing’s R&D expenses is
the direct result of Congress’decision to en-
courage such expenditures by making them
immediately deductible under 26 U.S.C.
Sec. 174(a)(1). Moreover, the approach
adopted in the regulations, and approved by
the Court, does not remedy the alleged
problem of disappearing R&D expenses. A
company that decides to enter the export
market with a product unrelated to its ex-
isting business remains free to deduct in the
current tax period all R&D expenses in-
curred in connection with the new prod-
uct, even though those expenses would not
be used to offset DISC income resulting
from the sale of existing products.
4
Fi-
nally, neither the Court nor the Govern-
ment provide a satisfactory explanation for
why Sec. 861 can be read to permit the
“disappearance”of most expenses, see,e.g.,
26 CFR Sec. 1.861–8(d)(1) (1979) (“Each
deduction which bears a definite relation-
ship to a class of gross income shall be al-
located to that class...even though, for
the taxable year, no gross income in such
class is received or accrued....Inappor-
tioning deductions, it may be that, for the
taxable year, there is no gross income in the
statutory grouping (or residual grouping),
or that deductions exceed the amount of
gross income in the statutory grouping
(or residual grouping)”); see also 1 J.
Isenbergh, International Taxation: U.S. Taxa-
tion of Foreign Persons and Foreign In-
come¶21.10 (3d ed. 2003) (“[I]f an expense
incurred in one year is properly allocable
to income arising in another, the expense
will be allocated to the class to which the
income belongs and may therefore pro-
duce a loss in that class for the year”), but
to disallow the“disappearance”of R&D ex-
penses.
Because I believe that Sec. 1.861–8(e)(3)
does not apply to a DISC, I need not de-
cide here whether Sec. 1.861–8(e)(3) is con-
sistent with the text of Sec. 861(b) and may
be properly applied in other contexts. I am
puzzled, however, by the Court’s asser-
tion that the Secretary is free to deter-
mine that certain expenses“can be properly
apportioned on a categorical basis,”ante,
at 13, and the implication that the Secre-
tary has authority to require“ratable ap-
portionment of expenses that could be, but
perhaps in fairness should not be, treated
as direct costs.”Ibid.By its terms, Sec.
861(b) appears to contemplate two types of
expenses: (1) those that can definitely be
allocated to some item or class of gross in-
come and (2) those thatcannot. 26 U.S.C.
Sec. 861(b) (providing for the deduction of
“theexpenses, losses, and other deduc-
tions properly apportioned or allocated
theretoand a ratable partof any expenses,
losses, or other deductionswhich cannot
definitely be allocated to some item or class
of gross income”(emphasis added)). More-
over, on its face, the statute does not ap-
pear to permit expenses to be“deemed”
related to an item or class of gross in-
come, even though in actual fact they are
not so related. Yet, Sec. 1.861–8(e)(3) re-
lies on the notion of“deemed relation-
ships.”The regulation states that the
methods of allocation and apportionment es-
tablished there“recognize that research and
development is an inherently speculative ac-
tivity, that findings may contribute unex-
pected benefits, and that the gross income
derived from successful research and de-
velopment must bear the cost of unsuc-
cessful research and development. 26 CFR
Sec. 1.861–8(e)(3)(i)(A) (1979). The regu-
lation then proceeds to require the alloca-
tion of R&D expenses based on 2-digit SIC
groups. But neither the regulation nor the
Court attempt to reconcile the statutory text
with the regulation’s determination to al-
locate certain R&D expenses to items or
classes of gross income that admittedly did
not benefit from that research.
****
In short, I conclude that Boeing prop-
erly computed its tax liability for the years
at issue here. I would therefore reverse the
judgment of the Court of Appeals. Be-
cause the Court concludes otherwise, I re-
spectfully dissent.
Section 1274.—
Determination of Issue Price
in the Case of Certain Debt
Instruments Issued for
Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal rates;
adjusted federal long-term rate and the
long-term exempt rate.For purposes of
sections 382, 1274, 1288, and other sec-
tions of the Code, tables set forth the rates
for May 2003.
Rev. Rul. 2003–45
This revenue ruling provides various pre-
scribed rates for federal income tax pur-
poses for May 2003 (the current month).
Table 1 contains the short-term, mid-term,
and long-term applicable federal rates
(AFR) for the current month for purposes
of section 1274(d) of the Internal Rev-
enue Code. Table 2 contains the short-
term, mid-term, and long-term adjusted
applicable federal rates (adjusted AFR) for
the current month for purposes of section
1288(b). Table 3 sets forth the adjusted fed-
eral long-term rate and the long-term tax-
exempt rate described in section 382(f).
Table 4 contains the appropriate percent-
ages for determining the low-income hous-
ing credit described in section 42(b)(2) for
buildings placed in service during the cur-
rent month. Finally, Table 5 contains the
federal rate for determining the present
value of annuity, an interest for life or for
a term of years, or a remainder or a rever-
sionary interest for purposes of section
7520.
4
Boeing illustrates this point with the following example: Suppose a company that produces and exports athletic clothing (SIC Code 23) decides to invest the proceeds of its clothing sales in research to develop a line
of athletic equipment (SIC Code 39). The company has current DISC sales of $1 million from the athletic clothing, no current sales of athletic equipment, and $500,000 in athletic equipment R&D expenses. Under the
regulations, the $500,000 of equipment-related R&D will be allocated to the athletic equipment SIC Code, which has no income. It will not be allocatedto the athletic clothing SIC Code to reduce the income eligible
for the DISC benefit related to the clothing. Thus, in the words of the Court, the expense will simply“disappear.”Brief for Petitioners 37, n. 17.
May 12, 20038762003–19 I.R.B.

REV. RUL. 2003–45 TABLE 1
Applicable Federal Rates (AFR) for May 2003
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-Term
AFR1.53%1.52%1.52%1.52%
110% AFR1.68%1.67%1.67%1.66%
120% AFR1.83%1.82%1.82%1.81%
130% AFR1.99%1.98%1.98%1.97%
Mid-Term
AFR3.17%3.15%3.14%3.13%
110% AFR3.50%3.47%3.46%3.45%
120% AFR3.82%3.78%3.76%3.75%
130% AFR4.14%4.10%4.08%4.07%
150% AFR4.79%4.73%4.70%4.68%
175% AFR5.59%5.51%5.47%5.45%
Long-Term
AFR4.79%4.73%4.70%4.68%
110% AFR5.27%5.20%5.17%5.14%
120% AFR5.76%5.68%5.64%5.61%
130% AFR6.24%6.15%6.10%6.07%
REV. RUL. 2003–45 TABLE 2
Adjusted AFR for May 2003
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
adjusted AFR1.34%1.34%1.34%1.34%
Mid-term
adjusted AFR2.72%2.70%2.69%2.68%
Long-term
adjusted AFR4.45%4.40%4.38%4.36%
REV. RUL. 2003–45 TABLE 3
Rates Under Section 382 for May 2003
Adjusted federal long-term rate for the current month4.45%
Long-term tax-exempt rate for ownership changes during the current month (the highest
of the adjusted federal long-term rates for the current month and the prior two months.)
4.58%
2003–19 I.R.B.877May 12, 2003

REV. RUL. 2003–45 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for May 2003
Appropriate percentage for the 70% present value low-income housing credit7.92%
Appropriate percentage for the 30% present value low-income housing credit3.40%
REV. RUL. 2003–45 TABLE 5
Rate Under Section 7520 for May 2003
Applicable federal rate for determining the present value of an annuity, an interest for life or a term
of years, or a remainder or reversionary interest
3.8%
Section 1288.—Treatment of
Original Issue Discounts on
Tax-Exempt Obligations
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of May 2003. See Rev. Rul. 2003–45, page
876.
Section 3121.—Definitions
Federal Insurance Contributions Act
(FICA); Medicare.This ruling provides
that for the continuing employment excep-
tion to the Medicare portion of the Fed-
eral Insurance Contributions Act tax to
apply to service performed by an employee
of a state, political subdivision, or instru-
mentality thereof, such employee must be
a member of a retirement system pursu-
ant to Internal Revenue Code section
3121(b)(7)(F). Rev. Ruls. 86–88 and 88–36
supplemented.
Rev. Rul. 2003–46
The Federal Insurance Contributions Act
(FICA) tax consists of an old age, survi-
vors, and disability insurance (“OASDI”)
portion and a hospital insurance (“Medi-
care”) portion. This revenue ruling pro-
vides guidance concerning the applicability
of the Medicare portion of FICA tax un-
der Internal Revenue Code§3121(u)(2) to
employees of state and local governments.
Specifically, this revenue ruling considers
the interaction between§§3121(u)(2)(C)
and 3121(b)(7)(F) in the context of the con-
tinuing employment exception. Section
3121(u)(2) generally extends the Medi-
care portion of FICA tax to wages for ser-
vice performed by employees of states,
political subdivisions, and wholly owned in-
strumentalities thereof hired after March 31,
1986. Section 3121(b)(7)(F), enacted by sec-
tion 11332(b) of the Omnibus Budget Rec-
onciliation Act of 1990 (OBRA’90), Pub.
L. 101–508, 104 Stat. 1388, expands the
definition of employment for FICA tax pur-
poses to include service performed after July
1, 1991, by state or local government em-
ployees who are not members of a retire-
ment system.
This revenue ruling supplements Rev.
Rul. 86–88, 1986–2 C.B. 172, and Rev. Rul.
88–36, 1988–1 C.B. 343, both of which
provide guidelines concerning the applica-
tion of§3121(u)(2) in a question and an-
swer format. This revenue ruling also
provides guidelines in a question and an-
swer format. In this revenue ruling, the
terms“state,”“political subdivision,”“state
employer,”“political subdivision employer,”
and“continuing employment exception”
have the same meanings as in Rev. Rul. 86–
88.
SERVICE ELIGIBLE FOR THE
CONTINUING EMPLOYMENT
EXCEPTION
Q1. Is the continuing employment ex-
ception to the Medicare portion of FICA tax
available for service performed by an em-
ployee for a state employer or political sub-
division employer who is not a member of
a retirement system within the meaning of
§3121(b)(7)(F)?
A1. No. Under§3121(u)(2)(C)(i), the
continuing employment exception applies
only to service that is otherwise excluded
from employment under§3121(b)(7). Sec-
tion 3121(b)(7) excepts from employment
service in the employ of a state employer
or political subdivision employer for FICA
tax purposes. However,§3121(b)(7)(F) ex-
pands the definition of employment for
FICA tax purposes to include service by an
employee who is not a member of a re-
tirement system.See§31.3121(b)(7)–2of
the Employment Tax Regulations. The
House-Senate Conference Report to OBRA
’90 provides that“[t]he conference agree-
ment extends Medicare coverage to, and ap-
plies the HI [(Medicare)] tax with respect
to wages of, those employees (otherwise not
already subject to the HI tax) who become
subject to OASDI by reason of this provi-
sion.”H.R. Rep. No. 101–964, at 1105
(1990). Consequently, wages paid for ser-
vice performed by an employee who is not
a member of a retirement system for the
state employer or political subdivision em-
ployer are subject to the OASDI and Medi-
care portions of FICA tax regardless of
when the employee became employed.
Q2. Is the continuing employment ex-
ception available for service performed by
an employee for a state employer or po-
litical subdivision employer who is sub-
ject to the Medicare portion of FICA tax
solely because the employee is not a mem-
ber of a retirement system (i.e., the em-
ployee meets all the requirements of
§3121(u)(2)(C), and the employee’s ser-
vice is not covered by a voluntary agree-
ment with the Secretary of Health and
Human Services pursuant to§218 of the
Social Security Act, 42 U.S.C.§418), but
who becomes a member of a retirement sys-
tem after July 1, 1991?
May 12, 20038782003–19 I.R.B.

A2. Yes. If an employee’s wages are
subject to FICA tax solely because the em-
ployee is not a member of a retirement sys-
tem within the meaning of§3121(b)(7)(F),
and the employee subsequently becomes a
member of a retirement system, then the
employee’s wages will cease to be sub-
ject to the OASDI and Medicare portions
of FICA tax.
EFFECT ON OTHER REVENUE
RULINGS:
This revenue ruling supplements Rev.
Rul. 86–88, 1986–2 C.B. 172, and Rev. Rul.
88–36, 1988–1 C.B. 343.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Patricia P. Holdsworth of the Of-
fice of the Division Counsel/Associate Chief
Counsel (Tax Exempt and Government En-
tities). For further information regarding this
revenue ruling, contact Ms. Holdsworth at
(202) 622–6040 (not a toll-free call).
Section 4980F.—Failure of
Applicable Plans Reducing
Benefit Accruals to Satisfy
Notice Requirements
26 CFR 54.4980F–1: Notice requirements for
certain pension plan amendments significantly
reducing the rate of future benefit accrual.
T.D. 9052
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1, 54, and 602
Notice of Significant
Reduction in the Rate of
Future Benefit Accrual
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
SUMMARY:This document contains fi-
nal regulations providing guidance on the
notification requirements under section
4980F of the Internal Revenue Code (Code)
and section 204(h) of the Employee Re-
tirement Income Security Act of 1974
(ERISA). Under these final regulations, a
plan administrator must give notice of a
plan amendment to certain plan partici-
pants and beneficiaries when the plan
amendment provides for a significant re-
duction in the rate of future benefit ac-
crual or the elimination or significant
reduction in an early retirement benefit or
retirement-type subsidy. These final regu-
lations affect retirement plan sponsors and
administrators, participants in and benefi-
ciaries of retirement plans, and employee
organizations representing retirement plan
participants.
DATES:Effective date:These regulations
are effective on April 9, 2003.
Applicability date:For dates of appli-
cabilityoftheseregulations,see
§54.4980F–1, Q&A–18, of these regula-
tions.
FOR FURTHER INFORMATION CON-
TACT: Pamela R. Kinard at (202) 622–
6060 or Diane S. Bloom at (202) 283–
9888 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained
in these final regulations has been reviewed
and approved by the Office of Manage-
ment and Budget in accordance with the Pa-
perwork Reduction Act (44 U.S.C. 3507)
under control number 1545–1780. Re-
sponses to this collection of information are
required to obtain a benefit for a taxpayer
who wants to amend a plan with an amend-
ment that significantly reduces the rate of
future benefit accrual or eliminates or sig-
nificantly reduces an early retirement ben-
efit or retirement-type subsidy.
An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information unless
the collection of information displays a valid
control number assigned by the Office of
Management and Budget.
The estimated annual burden per re-
spondent varies from 1 hour to 80 hours,
depending on individual circumstances, with
an estimated average of 10 hours.
Comments concerning the accuracy of
this burden estimate and suggestions for re-
ducing this burden should be sent to theIn-
ternal Revenue Service, Attn: IRS Reports
Clearance Officer, W:CAR:MP:T:T:SP,
Washington, DC 20224, and to theOf-
fice of Management and Budget, Attn:
Desk Officer for the Department of the
Treasury, Office of Information and Regu-
latory Affairs, Washington, DC 20503.
Books or records relating to this collec-
tion of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required by
26 U.S.C. 6103.
Background
This document contains amendments to
26 CFR parts 1, 54, and 602 under sec-
tion 4980F of the Code and section 204(h)
of ERISA. Prior to 2001, section 204(h) of
ERISA had no analogous section in the
Code, but pursuant to section 101(a) of the
Reorganization Plan No. 4 of 1978, 29
U.S.C. 1001nt, the Secretary of the Trea-
sury has authority to issue regulations un-
der parts 2 and 3 of subtitle B of title I of
ERISA, including section 204(h) of ERISA.
Under section 104 of the Reorganization
Plan No. 4, the Secretary of Labor retains
enforcement authority with respect to parts
2 and 3 of subtitle B of title 1 of ERISA,
but, in exercising that authority, is bound
by the regulations issued by the Secretary
of Treasury. On December 15, 1995, tem-
porary regulations (T.D. 8631, 1996–1 C.B.
54 [60 FR 64320]), under section 411(d)(6)
of the Code were published in theFed-
eral Register, providing guidance on sec-
tion 204(h) of ERISA. A notice of proposed
rulemaking (EE–34–95, 1996–1 C.B. 761
[60 FR 64401]), cross-referencing the tem-
porary regulations was published in the
Federal Registeron the same day. On De-
cember 14, 1998, final regulations (T.D.
8795, 1999–1 C.B. 459 [63 FR 68678]) ad-
dressing the notice requirements under sec-
tion 204(h) of ERISA were published in the
Federal Registerand were codified in
§1.411(d)–6. The final regulations in this
Treasury decision remove Treasury regu-
lation§1.411(d)–6.
Section 659 of the Economic Growth
and Tax Relief Reconciliation Act of 2001,
Public Law 107–16 (115 Stat. 38)
(EGTRRA) added section 4980F of the
Code. Section 4980F imposes an excise tax
when a plan administrator fails to pro-
vide timely notice of plan amendments that
provide for a significant reduction in the rate
of future benefit accrual. A reduction of an
early retirement benefit or a retirement-
type subsidy is also treated, for purposes of
2003–19 I.R.B.879May 12, 2003

section 4980F of the Code, as a reduction
in the rate of future benefit accrual. Sec-
tion 659(b) of EGTRRA also amended sec-
tion 204(h) of ERISA to treat the
elimination of an early retirement benefit
or a retirement-type subsidy as a reduc-
tion in the rate of future benefit accrual. The
Job Creation and Worker Assistance Act of
2002, Public Law 107–147 (116 Stat. 21)
included certain technical corrections to sec-
tion 659 of EGTRRA.
On April 23, 2002, proposed regula-
tions (REG–136193–01, 2002–1 C.B. 995
[67 FR 19713]) under section 4980F of the
Code and section 204(h) of ERISA were
published in theFederal Register. On Au-
gust 15, 2002, the IRS held a public hear-
ing on the proposed regulations. Written
comments responding to the notice of pro-
posed rulemaking were also received. Af-
ter consideration of all the comments, the
proposed regulations are adopted, as
amended by this Treasury decision, and the
regulations under§1.411(d)–6 are removed.
The revisions are discussed below.
The regulations retain the overall struc-
ture of the proposed regulations and, like
the proposed regulations, include a num-
ber of examples illustrating applicable rules.
Some of the examples show the informa-
tion required to be furnished in a section
204(h) notice, both as to amendments that
result in a simple reduction in the future rate
of benefit accrual and as to those that re-
sult in more complex reductions. The most
complex are examples in which a defined
benefit plan is amended to change prospec-
tively the plan’s benefit accrual formula
from a traditional formula to a formula that
bases future benefits on an account bal-
ance—commonly called a conversion to
a cash balance pension plan—with the re-
sult that, for purposes of the notice require-
ments of section 4980F and section 204(h),
the future rate of benefit accrual may be re-
duced for some participants and increased
for others, including a separate but simi-
larly complex effect on future early retire-
ment benefits.
None of the examples illustrates rules in
any other regulation or positions of Trea-
sury or the IRS regarding provisions of the
Internal Revenue Code other than the no-
tice requirements of section 4980F and sec-
tion 204(h). Thus, the examples do not
indicate any possible outcome regarding
proposed regulations that were published in
the Federal Register (67 FR 76123) on De-
cember 11, 2002, relating to sections
411(b)(1)(H) and 411(b)(2) of the Inter-
nal Revenue Code, which require that ac-
cruals or allocations under certain retirement
plans not cease or be reduced because of
the attainment of any age. Specifically, Trea-
sury and the IRS are still considering com-
ments received in connection with those
proposed regulations, including comments
relating to cash balance pension plans, and
will only address the application of sec-
tion 411(b)(1)(H) to cash balance plans as
part of the process to issue regulations un-
der sections 411(b)(1)(H).
Explanation of Revisions and Sum-
mary of Comments
A.Overview
Section 4980F of the Code and sec-
tion 204(h) of ERISA require notice of an
amendment to an applicable pension plan
that either provides for a significant reduc-
tion in the rate of future benefit accrual or
eliminates or significantly reduces an early
retirement benefit or retirement-type sub-
sidy. An applicable pension plan is a de-
fined benefit plan and any individual
account plan that is subject to the fund-
ing requirements of section 412 of the Code.
The notice is required to be provided to par-
ticipants and alternate payees for whom the
amendment is reasonably expected to re-
duce significantly the rate of future ben-
efit accrual and to employee organizations
representing those participants. The stat-
ute generally requires the plan administra-
tor to provide the notice within a reasonable
time before the effective date of the plan
amendment.
A plan amendment that is subject to the
notice requirements of section 4980F of the
Code and section 204(h) of ERISA (sec-
tion 204(h) amendment) may be subject to
additional reporting and disclosure require-
ments under title I of ERISA, such as the
requirement to provide a summary of ma-
terial modifications (SMM) describing the
amendment. Notice under section 4980F of
the Code and section 204(h) of ERISA (sec-
tion 204(h) notice) must be provided in ac-
cordance with the provisions of these
regulations even though sections 102(a) and
104(b) of ERISA also may require that an
SMM describing the plan amendment be
furnished to participants covered under the
plan and beneficiaries receiving benefits un-
der the plan. The Department of Labor has
advised the IRS that a plan administrator
who provides a section 204(h) notice to ap-
plicable individuals in accordance with this
final rule will be treated as having fur-
nished those individuals with an SMM re-
garding the section 204(h) amendment. The
Department of Labor has also advised the
IRS that furnishing the notice to the last
known address of an individual would be
sufficient for this purpose where the plan
utilizes a method of delivery described in
29 CFR 2520.104b–1 and the fiduciaries of
the plan have taken reasonable steps to keep
plan records up-to-date and to locate lost
or missing participants. Finally, the De-
partment of Labor noted that the plan ad-
ministrator is required to satisfy any other
requirements regarding the furnishing of
SMMs or updated summary plan descrip-
tions, including, for example, satisfaction
of the requirement to furnish an SMM to
any other participants covered under the
plan, and to beneficiaries receiving ben-
efits under the plan, who are entitled to an
SMM regarding the amendment.
B.Conversion of a Money Purchase
Pension Plan into an Individual Account
Plan That is Not Subject to Section 412
Rev. Rul. 2002–42, 2002–28 I.R.B. 76,
provides that a conversion of a money pur-
chase pension plan into a profit-sharing plan
is considered a significant reduction in the
rate of future benefit accrual under the
money purchase pension plan, thus requir-
ing notice under section 4980F of the Code
and section 204(h) of ERISA. As stated in
the revenue ruling, allocations under the
profit-sharing plan are not benefit accru-
als under the money purchase pension plan
for purposes of determining whether there
is a reduction in the rate of future benefit
accrual. Accordingly, the final regulations
clarify that a plan amendment to convert a
money purchase pension plan into a profit-
sharing or any other individual account plan
that is not subject to section 412 of the
Code (including a merger, consolidation, or
transfer) is deemed to be a plan amend-
ment that provides for a significant reduc-
tion in the rate of future benefit accrual for
purposes of section 4980F of the Code and
section 204(h) of ERISA.
C.Rate of Future Benefit Accrual
Determined Annually
A commentator questioned the provi-
sions of the proposed regulations under
which the determination of whether there
May 12, 20038802003–19 I.R.B.

is a reduction in the rate of future benefit
accrual would be based on whether the
amendment is reasonably expected to re-
duce“the benefits accruing for a year.”The
commentator objected on the grounds that
this could require section 204(h) notice for
an amendment that increases benefits in one
year and then reduces them in the next,
even though the aggregate benefit over the
two years might not be reduced or might
even be increased in the aggregate. The fi-
nal regulations retain this rule, but clarify
in an example that where a reduction oc-
curs at the same time as an immediate in-
crease in accrued benefits such that the
participant’s aggregate benefit can never be
less than what it would have been had the
amendment not been adopted, the reduc-
tion is not significant.
D.Reduction in the Rate of Future
Benefit Accrual for Individual Account
Plans
A commentator suggested that the regu-
lations be revised to clarify that only con-
tributions or forfeitures that are allocated
to a participant’s account be considered in
determining whether a plan amendment to
an individual account plan reduces the rate
of future benefit accrual. The commenta-
tor recommended this revision to clarify that
an amendment reducing a contribution for-
mula is not considered insignificant solely
because expected future investment re-
turns might offset a portion of the reduc-
tion in the contribution formula. A
clarification that reflects this suggestion has
been adopted in the final regulations.
E.Determination of Applicable
Individuals
A commentator suggested that the regu-
lations be revised to clarify the date as of
which applicable individuals should be iden-
tified. The commentator argued that the lack
of a clear determination date would make
it difficult, from an administrative stand-
point, for plans to identify applicable in-
dividualsduetoturnoveramong
participants. The final regulations pro-
vide that whether a plan participant or an
alternate payee is an applicable individual
is determined on a typical business day that
is reasonably proximate to the time the sec-
tion 204(h) notice is provided (or at the lat-
est date for providing section 204(h) notice,
if earlier), based on all relevant facts and
circumstances. An example to this effect has
been added to the final regulations.
F.Definition of Early Retirement
Benefits and Retirement-Type Subsidies
A commentator stated that Treasury and
IRS should issue regulations defining the
termsearly retirement benefitsand
retirement-type subsidies. The commenta-
tor noted that there are numerous refer-
ences to the termsearly retirement benefit
orretirement-type subsidyin both the Code
(section4980F(f)(3)andsection
411(d)(6)(B)(i)),ERISA(sections
204(g)(2)(A) and 204(h)(9)) and the regu-
lations(§1.411(d)–4andProposed
§54.4980F–1), but the terms are not de-
fined. The commentator expressed con-
cern that adverse consequences might result
from an egregious failure to identify a sig-
nificant reduction in early retirement ben-
efit or a retirement-type subsidy and
guidance has not been issued to clarify the
meaning of those terms. The definitions of
early retirement benefitsandretirement-
type subsidiesaffect more than determin-
ing whether an amendment requires a
section 204(h) notice and, therefore, are be-
yond the scope of these final regulations.
Treasury and IRS anticipate issuing pro-
posed regulations under section 411(d)(6),
including general guidance concerning early
retirement benefits and retirement-type sub-
sidies. Comments regarding the antici-
pated proposed regulations were requested,
including comments on the guidance that
should be provided regarding early retire-
ment benefits and retirement-type subsi-
dies, in Notice 2002–46, 2002–28 I.R.B. 96,
and Notice 2003–10, 2003–5 I.R.B. 369.
G.Timing of Notice
A number of comments addressed what
constitutes a reasonable period for provid-
ing a section 204(h) notice. The proposed
regulations included a generally appli-
cable 45-day advance notice rule with ex-
ceptions for amendments in connection with
certain business transactions and small
plans. Some comments recommended that
notice generally be required to be pro-
vided more than 45 days in advance of the
effective date of the section 204(h) amend-
ment and others recommended that no-
tice generally be allowed to be provided less
than 45 days in advance of the effective
date of the section 204(h) amendment. The
approach in the proposed regulations was
designed to strike a balance between pro-
viding participants with sufficient time to
understand and consider the information in
the notice and allowing employers to ef-
fect changes in their plans for business rea-
sons within a reasonable time, and has been
retained in the final regulations.
A commentator requested clarification
that section 204(h) notice may be pro-
vided before the adoption date of the
amendment. The commentator noted that
neither section 4980F of the Code nor sec-
tion 204(h) of ERISA prevents a plan ad-
ministrator from providing section 204(h)
notice before the adoption date of the
amendment. The regulations have not been
revised to reflect this suggestion because the
statute is already sufficiently clear that sec-
tion 204(h) notice may be provided be-
fore the adoption of the amendment.
H.Certification of Accuracy by Senior
Officer
A commentator suggested that the regu-
lations be revised to require that a senior
officer of the plan sponsor or the plan ad-
ministrator certify to employees of the plan
sponsor and the IRS that the disclosures in
the section 204(h) notice accurately de-
scribe the effects of the amendment and that
the notice is presented in a manner that is
understandable to the average applicable in-
dividual. The commentator also suggested
that the senior officer should certify that the
section 204(h) notice provided to appli-
cable individuals does not contain any false
or misleading information. The commen-
tator argued that this certification would not
be burdensome to plan sponsors if they have
exercised due diligence concerning the con-
tent of the section 204(h) notice. Because
of concerns about the usefulness of such a
rule as well as whether there is statutory au-
thority for such a rule, this suggestion has
not been adopted.
I.Determination and Effects of
Egregious Failures
A commentator suggested that the regu-
lations revise the definition of an egre-
gious violation to distinguish between
intentional and negligent acts of failure. The
commentator stated that it is possible that
a trustee or plan sponsor may make a de-
cision not to provide section 204(h) no-
tice that the trustee or plan sponsor thought
was prudent at the time but later deter-
mined was a mistake. The commentator ar-
gued that these types of decisions, which
may be negligent but not intentional, should
2003–19 I.R.B.881May 12, 2003

not be considered egregious failures. The
commentator suggested that the final regu-
lations be revised to provide that an egre-
gious failure is an action resulting from a
deliberate choice by the plan sponsor, in
which the plan sponsor knew or reason-
ably should have known that a section
204(h) notice would be required. The com-
mentator also suggested that the final regu-
lations be revised to provide that only
applicable individuals who were adversely
affected by the egregious failure be en-
titled to the greater of the old or new ben-
efit formulas.
Section 204(h)(6)(B) of ERISA gener-
ally defines an egregious failure as a fail-
ure within the control of the plan sponsor
that is either an intentional failure or a fail-
ure to provide most of the individuals with
most of the information they are entitled to
receive. Further, section 204(h)(6)(A) of
ERISA provides that, in the case of any
egregious failure to meet any requirement
of section 204(h) with respect to any plan
amendment, the provisions are applied so
that all applicable individuals are entitled
to the greater of the benefits to which they
would have been entitled without regard to
the amendment, or the benefits under the
plan with regard to the amendment. Ac-
cordingly, these suggestions were not
adopted in the final regulations because they
would conflict with the plain language of
section 204(h) of ERISA.
J.Content of Section 204(h) Notice
Section 4980F of the Code and sec-
tion 204(h) of ERISA require that section
204(h) notice be written in a manner cal-
culated to be understood by the average
plan participant and that it provide suffi-
cient information to allow applicable indi-
viduals to understand the effect of the
amendment. Q&A–11 of these final regu-
lations sets forth the content requirements
for section 204(h) notice. The final regu-
lations retain the basic structure of Q&A–11
in the proposed regulations, but include a
number of clarifications, including clari-
fying that the content must permit the ap-
plicable individual to determine the
approximate magnitude of the reduction ap-
plicable to that individual. The regula-
tions provide that this requirement is
deemed to be satisfied if the notice in-
cludes illustrative examples satisfying cer-
tain conditions. At the request of a
commentator, the final regulations clarify
that individualized benefit statements may
be used in lieu of illustrative examples if
the statements include the same informa-
tion as illustrative examples, such as show-
ing the approximate range of the reductions
for the individual if the reductions vary over
time and identification of the assumptions
used in the projections.
K.Benefit Changes Made by Collective
Bargaining Agreements
A commentator suggested that the fi-
nal regulations be revised to distinguish be-
tween a reduction in the rate of future
benefit accrual by collective bargaining
agreements and a reduction in the rate of
future benefit accrual by plan amendments.
Multiemployer plans often incorporate the
provisions of related collective bargain-
ing agreements by reference. The commen-
tator argued that when the rate of future
benefit accrual is being reduced by a change
to a collective bargaining agreement, sec-
tion 204(h) notice is not required because
there is no plan amendment relating to the
reduction. The commentator suggested that
the final regulations include an example
clarifying that in situations where there is
an automatic benefit change that is linked
to a collective bargaining agreement, sec-
tion 204(h) notice is not required, or at a
minimum that some relief be provided to
allow the amendment to go into effect
quickly. The IRS and Treasury believe that
when a benefit formula in a plan docu-
ment incorporates provisions of the col-
lective bargaining agreement by reference,
those provisions are part of the plan. Ac-
cordingly, the final regulations provide a
rule in Q&A–7(a)(2) that if all or a part of
a plan’s rate of future benefit accrual, or an
early retirement benefit or retirement-type
subsidy provided under the plan, depends
on provisions in another document that are
referenced in the plan document, a change
in the provisions of the other document is
an amendment of the plan. An example il-
lustrating this rule has been added to the fi-
nal regulations.
The IRS and Treasury recognize that
multiemployer plans may need additional
time to comply with the requirements of
Q&A–7(a)(2) of these final regulations,
therefore the effective date of this rule has
been delayed until January 1, 2004. In ad-
dition, because of the special characteris-
tics of multiemployer plans (e.g.,
participating employers are often small busi-
nesses with fewer than 100 employees), the
final regulations provide that, for a multi-
employer plan, section 204(h) notice must
be provided at least 15 days before the ef-
fective date of any section 204(h) amend-
ment.
Effective Date
Except with respect to Q&A–7(a)(2),
these regulations are applicable to amend-
ments with an effective date that is on or
after September 1, 2003.
The provisions of Q&A–7(a)(2) of these
regulations are applicable to amendments
with an effective date that is on or after
January 1, 2004.
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 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.
It is hereby certified that the collec-
tion of information in these final regula-
tions will not have a significant economic
impact on a substantial number of small en-
tities. This certification is based upon the
fact that small entities generally do not have
very complex benefit structures in their
plans, or many different classes of partici-
pants who will be differently affected by an
amendment reducing the rate of future ben-
efit accrual. Small entities also have fewer
employees, and thus they are required to
provide section 204(h) notice to fewer in-
dividuals. Accordingly, the time required for
them to prepare and provide section 204(h)
notice will usually be modest. Further-
more, because most small entities will only
be affected when they amend the retire-
ment plans they sponsor to reduce or elimi-
nate benefits, and most small entities will
not so amend their retirement plans fre-
quently, it is generally expected that most
small entities would be required to pro-
vide section 204(h) notice only once over
the course of several years. Therefore, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) is not required.
Pursuant to section 7805(f) of the Code,
the notice of proposed rulemaking preced-
ing these final regulations was submitted to
the Chief Counsel for Advocacy of the
May 12, 20038822003–19 I.R.B.

Small Business Administration for com-
ment on its impact on small business.
Drafting Information
The principal author of these regula-
tions is Pamela R. Kinard, Office of Divi-
sion Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities), Inter-
nal Revenue Service. However, personnel
from other offices of the Internal Rev-
enue Service and Treasury Department par-
ticipated in their development.
*****
AdoptionofAmendmentstothe
Regulations
Accordingly, 26 CFR parts 1, 54, and
602 are amended as follows:
PA RT 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805***
§1.411(d)–6 [Removed]
Par. 2. Section 1.411(d)–6 is removed.
PA RT 5 4—PENSION EXCISE TAXES
Par. 3. The authority citation for part 54
is amended by adding the following cita-
tion in numerical order to read as follows:
Authority: 26 U.S.C. 7805***
Section 54.4980F–1 also issued under 26
U.S.C. 4980F.***
Par. 4. Section 54.4980F–1 is added to
read as follows:
§54.4980F–1 Notice requirements for
certain pension plan amendments
significantly reducing the rate of future
benefit accrual.
The following questions and answers
concern the notification requirements im-
posed by 4980F of the Internal Revenue
Code and section 204(h) of ERISA relat-
ing to a plan amendment of an applicable
pension plan that significantly reduces the
rate of future benefit accrual or that elimi-
nates or significantly reduces an early re-
tirement benefit or retirement-type subsidy.
List of Questions
Q–1. What are the notice requirements
of section 4980F(e) of the Internal Rev-
enue Code and section 204(h) of ERISA?
Q–2. What are the differences between
section 4980F and section 204(h)?
Q–3. What is an“applicable pension
plan”to which section 4980F and section
204(h) apply?
Q–4. What is“section 204(h) notice”and
what is a“section 204(h) amendment”?
Q–5. For which amendments is sec-
tion 204(h) notice required?
Q–6. What is an amendment that re-
duces the rate of future benefit accrual or
reduces an early retirement benefit or
retirement-type subsidy for purposes of de-
termining whether section 204(h) notice is
required?
Q–7. What plan provisions are taken into
account in determining whether an amend-
ment is a section 204(h) amendment?
Q–8. What is the basic principle used in
determining whether a reduction in the rate
of future benefit accrual or a reduction in
an early retirement benefit or retirement-
type subsidy is significant for purposes of
section 4980F and section 204(h)?
Q–9. When must section 204(h) notice
be provided?
Q–10. To whom must section 204(h) no-
tice be provided?
Q–11. What information is required to
be provided in a section 204(h) notice?
Q–12. What special rules apply if par-
ticipants can choose between the old and
new benefit formulas?
Q–13. How may section 204(h) notice
be provided?
Q–14. What are the consequences if a
plan administrator fails to provide section
204(h) notice?
Q–15. What are some of the rules that
apply with respect to the excise tax under
section 4980F?
Q–16. How do section 4980F and sec-
tion 204(h) apply when a business is sold?
Q–17. How are amendments to cease ac-
cruals and terminate a plan treated under
section 4980F and section 204(h)?
Q–18. What are the effective dates of
section 4980F, section 204(h), as amended
by EGTRRA, and these regulations?
Questions and Answers
Q–1. What are the notice requirements
of section 4980F(e) of the Internal Rev-
enue Code and section 204(h) of ERISA?
A–1. (a)Requirements of Internal Rev-
enue Code section 4980F(e) and ERISA sec-
tion 204(h). Section 4980F of the Internal
Revenue Code (section 4980F) and sec-
tion 204(h) of the Employee Retirement In-
come Security Act of 1974, as amended
(ERISA), 29 U.S.C. 1054(h) (section
204(h)) each generally requires notice of an
amendment to an applicable pension plan
that either provides for a significant reduc-
tion in the rate of future benefit accrual or
that eliminates or significantly reduces an
early retirement benefit or retirement-type
subsidy. The notice is required to be pro-
vided to plan participants and alternate pay-
ees who are applicable individuals (as
defined in Q&A–10 of this section) and to
certain employee organizations. The plan
administrator must generally provide the no-
tice before the effective date of the plan
amendment. Q&A–9 of this section sets
forth the time frames for providing no-
tice, Q&A–11 of this section sets forth the
content requirements for the notice, and
Q&A–12 of this section contains special
rules for cases in which participants can
choose between the old and new benefit for-
mulas.
(b)Other notice requirements. Other pro-
visions of law may require that certain par-
ties be notified of a plan amendment. See,
for example, sections 102 and 104 of
ERISA, and the regulations thereunder, for
requirements relating to summary plan de-
scriptions and summaries of material modi-
fications.
Q–2. What are the differences between
section 4980F and section 204(h)?
A–2. The notice requirements of sec-
tion 4980F generally are parallel to the no-
tice requirements of section 204(h), as
amended by the Economic Growth and Tax
Relief Reconciliation Act of 2001, Public
Law 107–16 (115 Stat. 38) (2001)
(EGTRRA). However, the consequences of
the failure to satisfy the requirements of the
two provisions differ: section 4980F im-
poses an excise tax on a failure to satisfy
the notice requirements, while section
204(h)(6), as amended by EGTRRA, con-
tains a special rule with respect to an egre-
gious failure to satisfy the notice
requirements. See Q&A–14 and Q&A–15
of this section. Except to the extent spe-
cifically indicated, these regulations ap-
ply both to section 4980F and to section
204(h).
Q–3. What is an“applicable pension
plan”to which section 4980F and section
204(h) apply?
A–3. (a)In general. Section 4980F and
section 204(h) apply to an applicable pen-
2003–19 I.R.B.883May 12, 2003

sion plan. For purposes of section 4980F,
anapplicable pension planmeans a de-
fined benefit plan qualifying under sec-
tion 401(a) or 403(a) of the Internal
Revenue Code, or an individual account
plan that is subject to the funding stan-
dards of section 412 of the Internal Rev-
enue Code. For purposes of section 204(h),
anapplicable pension planmeans a de-
fined benefit plan that is subject to part 2
of subtitle B of title I of ERISA, or an in-
dividual account plan that is subject to such
part 2 and to the funding standards of sec-
tion 412 of the Internal Revenue Code. Ac-
cordingly, individual account plans that are
not subject to the funding standards of sec-
tion 412 of the Internal Revenue Code, such
as profit-sharing and stock bonus plans and
contracts under section 403(b) of the In-
ternal Revenue Code, are not applicable
pension plans to which section 4980F or
section 204(h) apply. Similarly, a defined
benefit plan that neither qualifies under sec-
tion 401(a) or 403(a) of the Internal Rev-
enue Code nor is subject to part 2 of subtitle
B of title I of ERISA is not an applicable
pension plan. Further, neither a govern-
mental plan (within the meaning of sec-
tion 414(d) of the Internal Revenue Code),
nor a church plan (within the meaning of
section 414(e) of the Internal Revenue
Code) with respect to which no election has
been made under section 410(d) of the In-
ternal Revenue Code is an applicable pen-
sion plan.
(b)Section 204(h) notice not required for
small plans covering no employees. Sec-
tion 204(h) notice is not required for a plan
under which no employees are partici-
pants covered under the plan, as described
in§2510.3–3(b) of the Department of La-
bor regulations, and which has fewer than
100 participants.
Q–4. What is“section 204(h) notice”and
what is a“section 204(h) amendment”?
A–4. (a)Section 204(h) noticeis no-
tice that complies with section 4980F(e) of
the Internal Revenue Code, section
204(h)(1) of ERISA, and this section.
(b) Asection 204(h) amendmentis an
amendment for which section 204(h) no-
tice is required under this section.
Q–5. For which amendments is sec-
tion 204(h) notice required?
A–5. (a)Significant reduction in the rate
of future benefit accrual. Section 204(h) no-
tice is required for an amendment to an ap-
plicable pension plan that provides for a
significant reduction in the rate of future
benefit accrual.
(b)Early retirement benefits and
retirement-type subsidies. Section 204(h) no-
tice is also required for an amendment to
an applicable pension plan that provides for
the significant reduction of an early retire-
ment benefit or retirement-type subsidy. For
purposes of this section,early retirement
benefitandretirement-type subsidymean
early retirement benefits and retirement-
type subsidies within the meaning of sec-
tion 411(d)(6)(B)(i).
(c)Elimination or cessation of ben-
efits. For purposes of this section, the terms
reduceorreductioninclude eliminate or
cease or elimination or cessation.
(d)Delegation of authority to Commis-
sioner. The Commissioner may provide in
revenue rulings, notices, or other guid-
ance published in the Internal Revenue Bul-
letin (see§601.601(d)(2) of this chapter) that
section 204(h) notice need not be provided
for plan amendments otherwise described
in paragraph (a) or (b) of this Q&A–5 that
the Commissioner determines to be nec-
essary or appropriate, as a result of changes
in the law, to maintain compliance with the
requirements of the Internal Revenue Code
(including requirements for tax qualifica-
tion), ERISA, or other applicable federal
law.
Q–6. What is an amendment that re-
duces the rate of future benefit accrual or
reduces an early retirement benefit or
retirement-type subsidy for purposes of de-
termining whether section 204(h) notice is
required?
A–6. (a)In general. For purposes of de-
termining whether section 204(h) notice is
required, an amendment reduces the rate of
future benefit accrual or reduces an early
retirement benefit or retirement-type sub-
sidy only as provided in paragraph (b) or
(c) of this Q&A–6.
(b)Reduction in rate of future benefit
accrual—(1)Defined benefit plans. For pur-
poses of section 4980F and section 204(h),
an amendment to a defined benefit plan re-
duces the rate of future benefit accrual only
if it is reasonably expected that the amend-
ment will reduce the amount of the fu-
ture annual benefit commencing at normal
retirement age (or at actual retirement age,
if later) for benefits accruing for a year. For
this purpose, the annual benefit commenc-
ing at normal retirement age is the ben-
efit payable in the form in which the terms
of the plan express the accrued benefit (or,
in the case of a plan in which the accrued
benefit is not expressed in the form of an
annual benefit commencing at normal re-
tirement age, the benefit payable in the form
of a single life annuity commencing at nor-
mal retirement age that is the actuarial
equivalent of the accrued benefit expressed
under the terms of the plan, as determined
in accordance with section 411(c)(3) of the
Internal Revenue Code).
(2)Individual account plans. For pur-
poses of section 4980F and section 204(h),
an amendment to an individual account plan
reduces the rate of future benefit accrual
only if it is reasonably expected that the
amendment will reduce the amount of con-
tributions or forfeitures allocated for any fu-
ture year. Changes in the investments or
investment options under an individual ac-
count plan are not taken into account for
this purpose.
(3)Determination of rate of future ben-
efit accrual. The rate of future benefit ac-
crual for purposes of this paragraph (b) is
determined without regard to optional forms
of benefit within the meaning of
§1.411(d)–4, Q&A–1(b) of this chapter
(other than the annual benefit described in
paragraph (b)(1) of this Q&A–6). The rate
of future benefit accrual is also determined
without regard to ancillary benefits and
other rights or features as defined in
§1.401(a)(4)–4(e) of this chapter.
(c)Reduction of early retirement ben-
efits or retirement-type subsidies. For pur-
poses of section 4980F and section 204(h),
an amendment reduces an early retirement
benefit or retirement-type subsidy only if
it is reasonably expected that the amend-
ment will eliminate or reduce an early re-
tirement benefit or retirement-type subsidy.
Q–7. What plan provisions are taken into
account in determining whether an amend-
ment is a section 204(h) amendment?
A–7. (a)Plan provisions taken into
account—(1)In general. All plan provi-
sions that may affect the rate of future ben-
efit accrual, early retirement benefits, or
retirement-type subsidies of participants or
alternate payees must be taken into ac-
count in determining whether an amend-
ment is a section 204(h) amendment. For
example, plan provisions that may affect the
rate of future benefit accrual include the dol-
lar amount or percentage of compensa-
tion on which benefit accruals are based;
May 12, 20038842003–19 I.R.B.

the definition of service or compensation
taken into account in determining an em-
ployee’s benefit accrual; the method of de-
termining average compensation for
calculating benefit accruals; the defini-
tion of normal retirement age in a defined
benefit plan; the exclusion of current par-
ticipants from future participation; ben-
efit offset provisions; minimum benefit
provisions; the formula for determining the
amount of contributions and forfeitures al-
located to participants’accounts in an in-
dividual account plan; in the case of a plan
using permitted disparity under section
401(l) of the Internal Revenue Code, the
amount of disparity between the excess ben-
efit percentage or excess contribution per-
centage and the base benefit percentage or
base contribution percentage (all as de-
fined in section 401(l) of the Internal Rev-
enue Code); and the actuarial assumptions
used to determine contributions under a tar-
get benefit plan (as defined in§1.401(a)(4)–
8(b)(3)(i) of this chapter). Plan provisions
that may affect early retirement benefits or
retirement-type subsidies include the right
to receive payment of benefits after sev-
erance from employment and before nor-
mal retirement age and actuarial factors used
in determining optional forms for distribu-
tion of retirement benefits.
(2)Provisions incorporated by refer-
ence in plan. If all or a part of a plan’s rate
of future benefit accrual, or an early re-
tirement benefit or retirement-type sub-
sidy provided under the plan, depends on
provisions in another document that are ref-
erenced in the plan document, a change in
the provisions of the other document is an
amendment of the plan.
(b)Plan provisions not taken into ac-
count. Plan provisions that do not affect the
rate of future benefit accrual of partici-
pants or alternate payees are not taken into
account in determining whether there has
been a reduction in the rate of future ben-
efit accrual. Further, any benefit that is not
a section 411(d)(6) protected benefit as de-
scribed in§1.411(d)–4, Q&A–1(d) of this
chapter, or that is a section 411(d)(6) pro-
tected benefit that may be eliminated or re-
duced as permitted under§1.411(d)–4,
Q&A–2(a) or (b) of this chapter, is not
taken into account in determining whether
an amendment is a section 204(h) amend-
ment. Thus, for example, provisions relat-
ing to vesting schedules or the right to make
after-tax contributions or elective defer-
rals are not taken into account.
(c)Examples. The following examples
illustrate the rules in this Q&A–7:
Example 1. (i)Facts. A defined benefit plan pro-
vides a normal retirement benefit equal to 50% of high-
est 5-year average pay multiplied by a fraction (not
in excess of one), the numerator of which equals the
number of years of participation in the plan and the
denominator of which is 20. A plan amendment is
adopted that changes the numerator or denominator
of that fraction.
(ii)Conclusion. The plan amendment must be
taken into account in determining whether there has
been a reduction in the rate of future benefit ac-
crual.
Example 2. (i)Facts. Plan C is a multiemployer
defined benefit plan subject to several collective bar-
gaining agreements. The specific benefit formula un-
der Plan C that applies to an employee depends on
the hourly rate of contribution of the employee’s em-
ployer, which is set forth in the provisions of the col-
lective bargaining agreements that are referenced in
the Plan C document. Collective Bargaining Agree-
ment A between Employer B and the union repre-
senting employees of Employer B is renegotiated to
provide that the hourly contribution rate for an em-
ployee of B who is subject to the Collective Bargain-
ing Agreement A will decrease. That decrease will
result in a decrease in the rate of future benefit ac-
crual for employees of B.
(ii)Conclusion. Under paragraph (a)(2) of this
Q&A–7, the change to Collective Bargaining Agree-
ment A is a plan amendment that is a section 204(h)
amendment if the reduction in the rate of future ben-
efit accrual is significant.
Q–8. What is the basic principle used in
determining whether a reduction in the rate
of future benefit accrual or a reduction in
an early retirement benefit or retirement-
type subsidy is significant for purposes of
section 4980F and section 204(h)?
A–8. (a)General rule. Whether an
amendment reducing the rate of future ben-
efit accrual or reducing an early retire-
ment benefit or retirement-type subsidy
provides for a reduction that is signifi-
cant for purposes of section 4980F and sec-
tion 204(h) is determined based on
reasonable expectations taking into ac-
count the relevant facts and circumstances
at the time the amendment is adopted.
(b)Application for determining signifi-
cant reduction in the rate of future ben-
efit accrual. For a defined benefit plan, the
determination of whether an amendment
provides for a significant reduction in the
rate of future benefit accrual is made by
comparing the amount of the annual ben-
efit commencing at normal retirement age
(or at actual retirement age, if later), as de-
termined under Q&A–6(b)(1) of this sec-
tion, under the terms of the plan as amended
with the amount of the annual benefit com-
mencing at normal retirement age (or at ac-
tual retirement age, if later), as determined
under Q&A–6(b)(1) of this section, under
the terms of the plan prior to amendment.
For an individual account plan, the deter-
mination of whether an amendment pro-
vides for a significant reduction in the rate
of future benefit accrual is made in accor-
dance with Q&A–6(b)(2) of this section by
comparing the amounts to be allocated in
the future to participants’accounts under
the terms of the plan as amended with the
amounts to be allocated in the future to par-
ticipants’accounts under the terms of the
plan prior to amendment. An amendment
to convert a money purchase pension plan
to a profit-sharing or other individual ac-
count plan that is not subject to section 412
of the Internal Revenue Code is, in all cases,
deemed to be an amendment that provides
for a significant reduction in the rate of fu-
ture benefit accrual.
(c)Application to certain amendments
reducing early retirement benefits or
retirement-type subsidies. Because sec-
tion 204(h) notice is required only for re-
ductions that are significant, section 204(h)
notice is not required for an amendment that
reduces an early retirement benefit or
retirement-type subsidy if the amendment
is permitted under the third sentence of sec-
tion 411(d)(6)(B) of the Internal Revenue
Code and regulations thereunder (relating
to the elimination or reduction of benefits
or subsidies which create significant bur-
dens or complexities for the plan and plan
participants unless the amendment adversely
affects the rights of any participant in a
more thande minimismanner).
(d)Example. The following example il-
lustrates the rules in this Q&A–8:
Example. (i)Facts. Pension Plan A is a defined
benefit plan that provides a rate of benefit accrual of
1% of highest-five years’pay multiplied by years of
service, payable annually for life commencing at nor-
mal retirement age (or at actual retirement age, if later).
Plan A is amended, effective January 1, 2008, to pro-
vide that any participant who separates from service
after December 31, 2007, and before January 1, 2013,
will have the same number of years of service he or
she would have had if his or her service continued to
December 31, 2012.
(ii)Conclusion. While the amendment will re-
sult in a reduction in the annual rate of future ben-
efit accrual from 2009 through 2012 (because under
the amendment, benefits based upon an additional five
years of service accrue on January 1, 2008, and no
additional service is credited after January 1, 2008,
until January 1, 2013), the amendment does not re-
sult in a reduction that is significant because the
amount of the annual benefit commencing at nor-
mal retirement age (or at actual retirement age, if later)
2003–19 I.R.B.885May 12, 2003

under the terms of the plan as amended is not under
any conditions less than the amount of the annual ben-
efit commencing at normal retirement age (or at ac-
tual retirement age, if later) to which any participant
would have been entitled under the terms of the plan
had the amendment not been made.
Q–9. When must section 204(h) notice
be provided?
A–9. (a)45-day general rule. Except as
described in paragraphs (b), (c), and (d) of
this Q&A–9, section 204(h) notice must be
provided at least 45 days before the effec-
tive date of any section 204(h) amend-
ment. See paragraph (e) of this Q&A–9 for
special rules for amendments permitting par-
ticipant choice.
(b)15-day rule for small plans. Ex-
cept for amendments described in para-
graph (d)(2) of this Q&A–9, section 204(h)
notice must be provided at least 15 days be-
fore the effective date of any section 204(h)
amendment in the case of a small plan. For
purposes of this section, a small plan is a
plan that the plan administrator reason-
ably expects to have, on the effective date
of the section 204(h) amendment, fewer
than 100 participants who have an accrued
benefit under the plan.
(c)15-day rule for multiemployer plans.
Except for amendments described in para-
graph (d)(2) of this Q&A–9, section 204(h)
notice must be provided at least 15 days be-
fore the effective date of any section 204(h)
amendment in the case of a multiemployer
plan. For purposes of this section, a mul-
tiemployer plan means a multiemployer plan
as defined in section 414(f) of the Inter-
nal Revenue Code.
(d)Special timing rule for business
transactions—(1)15-day rule for section
204(h) amendment in connection with an
acquisition or disposition. Except for
amendments described in paragraph (d)(2)
of this Q&A–9, if a section 204(h) amend-
ment is adopted in connection with an ac-
quisition or disposition, section 204(h)
notice must be provided at least 15 days be-
fore the effective date of the section 204(h)
amendment.
(2)Later notice permitted for a sec-
tion 204(h) amendment significantly reduc-
ing early retirement benefit or retirement-
type subsidies in connection with certain
plan transfers, mergers, or consolidations.
If a section 204(h) amendment is adopted
with respect to liabilities that are trans-
ferred to another plan in connection with
a transfer, merger, or consolidation of as-
sets or liabilities as described in section
414(l) of the Internal Revenue Code and
§1.414(l)–1 of this chapter, the amend-
ment is adopted in connection with an ac-
quisition or disposition, and the amendment
significantly reduces an early retirement
benefit or retirement-type subsidy, but does
not significantly reduce the rate of future
benefit accrual, then section 204(h) no-
tice must be provided no later than 30 days
after the effective date of the section 204(h)
amendment.
(3)Definition of acquisition or dispo-
sition. For purposes of this paragraph (d),
see§1.410(b)–2(f) of this chapter for the
definition of acquisition or disposition.
(e)Timing rule for amendments permit-
ting participant choice. In general, sec-
tion 204(h) notice of a section 204(h)
amendment that provides applicable indi-
viduals with a choice between the old and
the new benefit formulas (as described in
Q&A–12 of this section) must be provided
in accordance with the time period appli-
cable under paragraphs (a) through (d) of
this Q&A–9. See Q&A–12 of this sec-
tion for additional guidance regarding sec-
tion 204(h) notice in connection with
participant choice.
Q–10. To whom must section 204(h) no-
tice be provided?
A–10. (a)In general. Section 204(h) no-
tice must be provided to each applicable in-
dividual and to each employee organization
representing participants who are appli-
cable individuals. A special rule is pro-
vided in paragraph (d) of this Q&A–10.
(b)Applicable individual. Applicable in-
dividual means each participant in the plan,
and any alternate payee, whose rate of fu-
ture benefit accrual under the plan is rea-
sonably expected to be significantly
reduced, or for whom an early retirement
benefit or retirement-type subsidy under the
plan may reasonably be expected to be sig-
nificantly reduced, by the section 204(h)
amendment. The determination is made with
respect to individuals who are reasonably
expected to be participants or alternate pay-
ees in the plan at the effective date of the
section 204(h) amendment.
(c)Alternate payee. Alternate payee
means a beneficiary who is an alternate
payee (within the meaning of section
414(p)(8) of the Internal Revenue Code) un-
der an applicable qualified domestic rela-
tions order (within the meaning of section
414(p)(1)(A) of the Internal Revenue Code).
(d)Designees. Section 204(h) notice may
be provided to a person designated in writ-
ing by an applicable individual or by an em-
ployee organization representing participants
who are applicable individuals, instead of
being provided to that applicable indi-
vidual or employee organization. Any des-
ignation of a representative made through
an electronic method that satisfies stan-
dards similar to those of Q&A–13(c)(1) of
this section satisfies the requirement that a
designation be in writing.
(e)Facts and circumstances test.
Whether a participant or alternate payee is
an applicable individual is determined on
a typical business day that is reasonably
proximate to the time the section 204(h) no-
tice is provided (or at the latest date for pro-
viding section 204(h) notice, if earlier),
based on all relevant facts and circum-
stances.
(f)Examples. The following examples
illustrate the rules in this Q&A–10:
Example 1. (i)Facts. A defined benefit plan re-
quires an individual to complete 1 year of service to
become a participant who can accrue benefits, and par-
ticipants cease to accrue benefits under the plan at sev-
erance from employment with the employer. There are
no alternate payees and employees are not repre-
sented by an employee organization. On November
18, 2004, the plan is amended effective as of Janu-
ary 1, 2005, to reduce significantly the rate of fu-
ture benefit accrual. Section 204(h) notice is provided
on November 1, 2004.
(ii)Conclusion. Section 204(h) notice is only re-
quired to be provided to individuals who, based on
the facts and circumstances on November 1, 2004, are
reasonably expected to have completed at least 1 year
of service and to be employed by the employer on
January 1, 2005.
Example 2. (i)Facts. The facts are the same as
inExample 1, except that the sole effect of the plan
amendment is to alter the pre-amendment plan pro-
visions under which benefits payable to an employee
who retires after 20 or more years of service are un-
reduced for commencement before normal retire-
ment age. The amendment requires 30 or more years
of service in order for benefits commencing before nor-
mal retirement age to be unreduced, but the amend-
ment only applies for future benefit accruals.
(ii)Conclusion. Section 204(h) notice is only re-
quired to be provided to individuals who, on Janu-
ary 1, 2005, have completed at least 1 year of service
but less than 30 years of service, are employed by the
employer, have not attained normal retirement age, and
will have completed 20 or more years of service be-
fore normal retirement age if their employment con-
tinues to normal retirement age.
Example 3. (i)Facts. A plan is amended to re-
duce significantly the rate of future benefit accrual for
all current employees who are participants. Based on
the facts and circumstances, it is reasonable to ex-
pect that the amendment will not reduce the rate of
future benefit accrual of former employees who are
currently receiving benefits or of former employees
who are entitled to deferred vested benefits.
May 12, 20038862003–19 I.R.B.

(ii)Conclusion. The plan administrator is not re-
quired to provide section 204(h) notice to any former
employees.
Example 4. (i)Facts. The facts are the same as
inExample 3, except that the plan covers two groups
of alternate payees. The alternate payees in the first
group are entitled to a certain percentage or portion
of the former spouse’s accrued benefit and, for this
purpose, the accrued benefit is determined at the time
the former spouse begins receiving retirement ben-
efits under the plan. The alternate payees in the sec-
ond group are entitled to a certain percentage or portion
of the former spouse’s accrued benefit and, for this
purpose, the accrued benefit was determined at the time
the qualified domestic relations order was issued by
the court.
(ii)Conclusion. It is reasonable to expect that the
benefits to be received by the second group of alter-
nate payees will not be affected by any reduction in
a former spouse’s rate of future benefit accrual. Ac-
cordingly, the plan administrator is not required to pro-
vide section 204(h) notice to the alternate payees in
the second group.
Example 5. (i)Facts. A plan covers hourly em-
ployees and salaried employees. The plan provides the
same rate of benefit accrual for both groups. The em-
ployer amends the plan to reduce significantly the rate
of future benefit accrual of the salaried employees only.
At that time, it is reasonable to expect that only a small
percentage of hourly employees will become sala-
ried in the future.
(ii)Conclusion. The plan administrator is not re-
quired to provide section 204(h) notice to the par-
ticipants who are currently hourly employees.
Example 6. (i)Facts. A plan covers employees in
Division M and employees in Division N. The plan
provides the same rate of benefit accrual for both
groups. The employer amends the plan to reduce sig-
nificantly the rate of future benefit accrual of em-
ployees in Division M. At that time, it is reasonable
to expect that in the future only a small percentage
of employees in Division N will be transferred to Di-
vision M.
(ii)Conclusion. The plan administrator is not re-
quired to provide section 204(h) notice to the par-
ticipants who are employees in Division N.
Example 7. (i)Facts. The facts are the same facts
as inExample 6, except that at the time the amend-
ment is adopted, it is expected that thereafter Divi-
sion N will be merged into Division M in connection
with a corporate reorganization (and the employees
in Division N will become subject to the plan’s
amended benefit formula applicable to the employ-
ees in Division M).
(ii)Conclusion. In this case, the plan administra-
tor must provide section 204(h) notice to the partici-
pants who are employees in Division M and to the
participants who are employees in Division N.
Example 8. (i)Facts. A plan is amended to re-
duce significantly the rate of future benefit accrual for
all current employees who are participants. The plan
amendment will be effective on January 1, 2004. The
plan will provide the notice to applicable individu-
als on October 31, 2003. In determining which cur-
rent employees are applicable individuals, the plan
administrator determines that October 1, 2003, is a
typical business day that is reasonably proximate to
the time the section 204(h) notice is provided.
(ii)Conclusion. In this case, October 1, 2003, is
a typical business day that satisfies the requirements
of Q&A–10(e) of this section.
Q–11. What information is required to
be provided in a section 204(h) notice?
A–11. (a)Explanation of notice
requirements—(1)In general. Section
204(h) notice must include sufficient in-
formation to allow applicable individuals to
understand the effect of the plan amend-
ment. In order to satisfy this rule, a plan ad-
ministrator providing section 204(h) notice
must satisfy each of the following require-
ments of this paragraph (a).
(2)Information in section 204(h) no-
tice. The information in a section 204(h) no-
tice must be written in a manner calculated
to be understood by the average plan par-
ticipant and to apprise the applicable indi-
vidual of the significance of the notice.
(3)Required narrative description of
amendment—(i)Reduction in rate of fu-
ture benefit accrual. In the case of an
amendment reducing the rate of future ben-
efit accrual, the notice must include a de-
scription of the benefit or allocation formula
prior to the amendment, a description of the
benefit or allocation formula under the plan
as amended, and the effective date of the
amendment.
(ii)Reduction in early retirement ben-
efit or retirement-type subsidy. In the case
of an amendment that reduces an early re-
tirement benefit or retirement-type sub-
sidy (other than as a result of an amendment
reducing the rate of future benefit accrual),
the notice must describe how the early re-
tirement benefit or retirement-type sub-
sidy is calculated from the accrued benefit
before the amendment, how the early re-
tirement benefit or retirement-type sub-
sidy is calculated from the accrued benefit
after the amendment, and the effective date
of the amendment. For example, if, for a
plan with a normal retirement age of 65, the
change is from an unreduced normal re-
tirement benefit at age 55 to an unreduced
normal retirement benefit at age 60 for ben-
efits accrued in the future, with an actu-
arial reduction to apply for benefits accrued
in the future to the extent that the early re-
tirement benefit begins before age 60, the
notice must state the change and specify the
factors that apply in calculating the actu-
arial reduction (for example, a 5% per year
reduction applies for early retirement be-
fore age 60).
(4)Sufficient information to determine
the approximate magnitude of reduction—
(i)General rule. (A) Section 204(h) no-
tice must include sufficient information for
each applicable individual to determine the
approximate magnitude of the expected re-
duction for that individual. Thus, in any case
in which it is not reasonable to expect that
the approximate magnitude of the reduc-
tion for each applicable individual will be
reasonably apparent from the description of
the amendment provided in accordance with
paragraph (a)(3) of this Q&A–11, further
information is required. The further infor-
mation may be provided by furnishing ad-
ditional narrative information or in other
information that satisfies this paragraph of
this section.
(B) To the extent any expected reduc-
tion is not uniformly applicable to all par-
ticipants, the notice must either identify the
general classes of participants to whom the
reduction is expected to apply, or by some
other method include sufficient informa-
tion to allow each applicable individual re-
ceiving the notice to determine which
reductions are expected to apply to that in-
dividual.
(ii)Illustrative examples—(A)Require-
ment generally. The requirement to in-
clude sufficient information for each
applicable individual to determine the ap-
proximate magnitude of the expected re-
duction for that individual under (a)(4)(i)(A)
of this Q&A–11 is deemed satisfied if the
notice includes one or more illustrative ex-
amples showing the approximate magni-
tude of the reduction in the examples, as
provided in this paragraph (a)(4)(ii). Illus-
trative examples are in any event required
to be provided for any change from a tra-
ditional defined benefit formula to a cash
balance formula or a change that results in
a period of time during which there are no
accruals (or minimal accruals) with re-
gard to normal retirement benefits or an
early retirement subsidy (a wear-away pe-
riod).
(B)Examples must bound the range of
reductions. Where an amendment results in
reductions that vary (either among partici-
pants, as would occur for an amendment
converting a traditional defined benefit for-
mula to a cash balance formula, or over
time as to any individual participant, as
would occur for an amendment that re-
sults in a wear-away period), the illustra-
tive example(s) provided in accordance with
this paragraph (a)(4)(ii) must show the ap-
proximate range of the reductions. How-
2003–19 I.R.B.887May 12, 2003

ever, any reductions that are likely to occur
in only ade minimisnumber of cases are
not required to be taken into account in de-
termining the range of the reductions if a
narrative statement is included to that ef-
fect and examples are provided that show
the approximate range of the reductions in
other cases. Amendments for which the
maximum reduction occurs under identi-
fiable circumstances, with proportionately
smaller reductions in other cases, may be
illustrated by one example illustrating the
maximum reduction, with a statement that
smaller reductions also occur. Further, as-
suming that the reduction varies from small
to large depending on service or other fac-
tors, two illustrative examples may be pro-
vided showing the smallest likely reduction
and the largest likely reduction.
(C)Assumptions used in examples. The
examples provided under this paragraph
(a)(4)(ii) are not required to be based on any
particular form of payment (such as a life
annuity or a single sum), but may be based
on whatever form appropriately illustrates
the reduction. The examples generally may
be based on any reasonable assumptions (for
example, assumptions relating to the rep-
resentative participant’s age, years of ser-
vice, and compensation, along with any
interest rate and mortality table used in the
illustrations, as well as salary scale as-
sumptions used in the illustrations for
amendments that alter the compensation
taken into account under the plan), but the
section 204(h) notice must identify those as-
sumptions. However, if a plan’s benefit pro-
visions include a factor that varies over time
(such as a variable interest rate), the de-
termination of whether an amendment is
reasonably expected to result in a wear-
away period must be based on the value of
the factor applicable under the plan at a time
that is reasonably close to the date sec-
tion 204(h) notice is provided, and any
wear-away period that is solely a result of
a future change in the variable factor may
be disregarded. For example, to determine
whether a wear-away occurs as a result of
a section 204(h) amendment that converts
a defined benefit plan to a cash balance
pension plan that will credit interest based
on a variable interest factor specified in the
plan, the future interest credits must be pro-
jected based on the interest rate applicable
under the variable factor at the time sec-
tion 204(h) notice is provided.
(D)Individual statements. This para-
graph (a)(4)(ii) may be satisfied by pro-
viding a statement to each applicable
individual projecting what that individu-
al’s future benefits are reasonably expected
to be at various future dates and what that
individual’s future benefits would have been
under the terms of the plan as in effect be-
fore the section 204(h) amendment, pro-
vided that the statement includes the same
information required for examples under
paragraphs (a)(4)(ii)(A) through (C) of this
Q&A–11, including showing the approxi-
mate range of the reductions for the indi-
vidual if the reductions vary over time and
identification of the assumptions used in the
projections.
(5)No false or misleading informa-
tion. A section 204(h) notice may not in-
clude materially false or misleading
information (or omit information so as to
cause the information provided to be mis-
leading).
(6)Additional information when reduc-
tion not uniform—(i)In general.Ifan
amendment by its terms affects different
classes of participants differently (e.g., one
new benefit formula will apply to Divi-
sion A and another to Division B), then the
requirements of paragraph (a) of this
Q&A–11 apply separately with respect to
each such general class of participants. In
addition, the notice must include suffi-
cient information to enable an applicable in-
dividual who is a participant to understand
which class he or she is a member of.
(ii)Option for different section 204(h)
notices. If a section 204(h) amendment af-
fects different classes of applicable indi-
viduals differently, the plan administrator
may provide to differently affected classes
of applicable individuals a section 204(h)
notice appropriate to those individuals. Such
section 204(h) notice may omit informa-
tion that does not apply to the applicable
individuals to whom it is furnished, but
must identify the class or classes of appli-
cable individuals to whom it is provided.
(b)Examples. The following examples
illustrate the requirements of paragraph (a)
of this Q&A–11. In each example, it is as-
sumed that the actual notice provided is
written in a manner calculated to be un-
derstood by the average plan participant and
to apprise the applicable individual of the
significance of the notice in accordance with
paragraph (a)(2) of this Q&A–11. The ex-
amples are as follows:
Example 1. (i)Facts. Plan A provides that a par-
ticipant is entitled to a normal retirement benefit of
2% of the participant’s average pay over the 3 con-
secutive years for which the average is the highest
(highest average pay) multiplied by years of ser-
vice. Plan A is amended to provide that, effective Janu-
ary 1, 2004, the normal retirement benefit will be 2%
of the participant’s highest average pay multiplied by
years of service before the effective date, plus 1% of
the participant’s highest average pay multiplied by
years of service after the effective date. The plan ad-
ministrator provides notice that states:“Under the
Plan’s current benefit formula, a participant’s nor-
mal retirement benefit is 2% of the participant’sav-
erage pay over the 3 consecutive years for which the
average is the highest multiplied by the participant’s
years of service. This formula is being changed by a
plan amendment. Under the Plan as amended, a par-
ticipant’s normal retirement benefit will be the sum
of 2% of the participant’s average pay over the 3 con-
secutive years for which the average is the highest mul-
tiplied by years of service before the January 1, 2004,
effective date, plus 1% of the participant’s average pay
over the 3 consecutive years for which the average is
the highest multiplied by the participant’s years of ser-
vice after December 31, 2003. This change is effec-
tive on January 1, 2004.”The notice does not contain
any additional information.
(ii)Conclusion. The notice satisfies the require-
ments of paragraph (a) of this Q&A–11.
Example 2. (i)Facts. Plan B provides that a par-
ticipant is entitled to a normal retirement benefit at
age 64 of 2.2% of the participant’s career average pay
multiplied by years of service. Plan B is amended to
cease all accruals, effective January 1, 2004. The plan
administrator provides notice that includes a descrip-
tion of the old benefit formula, a statement that, af-
ter December 31, 2003, no participant will earn any
further accruals, and the effective date of the amend-
ment. The notice does not contain any additional in-
formation.
(ii)Conclusion. The notice satisfies the require-
ments of paragraph (a) of this Q&A–11.
Example 3. (i)Facts. Plan C provides that a par-
ticipant is entitled to a normal retirement benefit at
age 65 of 2% of career average compensation mul-
tiplied by years of service. Plan C is amended to pro-
vide that the normal retirement benefit will be 1% of
average pay over the 3 consecutive years for which
the average is the highest multiplied by years of ser-
vice. The amendment only applies to accruals for years
of service after the amendment, so that each employ-
ee’s accrued benefit is equal to the sum of the ben-
efit accrued as of the effective date of the amendment
plus the accrued benefit equal to the new formula ap-
plied to years of service beginning on or after the ef-
fective date. The plan administrator provides notice
that describes the old and new benefit formulas and
also explains that for an individual whose compen-
sation increases over the individual’s career such that
the individual’s highest 3-year average exceeds the in-
dividual’s career average, the reduction will be less
or there may be no reduction. The notice does not con-
tain any additional information.
(ii)Conclusion. The notice satisfies the require-
ments of paragraph (a) of this Q&A–11.
Example 4. (i)Facts. (A) Plan D is a defined ben-
efit pension plan under which each participant ac-
crues a normal retirement benefit, as a life annuity
beginning at the normal retirement age of 65, equal
May 12, 20038882003–19 I.R.B.

to the participant’s number of years of service mul-
tiplied by 1.5 percent multiplied by the participant’s
average pay over the 3 consecutive years for which
the average is the highest. Plan D provides early re-
tirement benefits for former employees beginning at
or after age 55 in the form of an early retirement an-
nuity that is actuarially equivalent to the normal re-
tirement benefit, with the reduction for early
commencement based on reasonable actuarial as-
sumptions that are specified in Plan D. Plan D pro-
vides for the suspension of benefits of participants who
continue in employment beyond normal retirement age,
in accordance with section 203(a)(3)(B) of ERISA and
regulations thereunder issued by the Department of La-
bor. The pension of a participant who retires after age
65 is calculated under the same normal retirement ben-
efit formula, but is based on the participant’s ser-
vice credit and highest 3-year pay at the time of late
retirement with any appropriate actuarial increases.
(B) Plan D is amended, effective July 1, 2005, to
change the formula for all future accruals to a cash
balance formula under which the opening account bal-
ance for each participant on July 1, 2005, is zero, hy-
pothetical pay credits equal to 5 percent of pay are
credited to the account thereafter, and hypothetical in-
terest is credited monthly based on the applicable in-
terest rate under section 417(e)(3) of the Internal
Revenue Code at the beginning of the quarter. Any
participant who terminates employment with vested
benefits can receive an actuarially equivalent annu-
ity (based on the same reasonable actuarial assump-
tions that are specified in Plan D) commencing at any
time after termination of employment and before the
plan’s normal retirement age of 65. The benefit re-
sulting from the hypothetical account balance is in ad-
dition to the benefit accrued before July 1, 2005 (taking
into account only service and highest 3-year pay be-
fore July 1, 2005), so that it is reasonably expected
that no wear-away period will result from the amend-
ment. The plan administrator expects that, as a gen-
eral rule, depending on future pay increases and future
interest rates, the rate of future benefit accrual after
the conversion is higher for participants who accrue
benefits before approximately age 50 and after ap-
proximately age 70, but is lower for participants who
accrue benefits between approximately age 50 and age
70.
(C) The plan administrator of Plan D announces
the conversion to a cash balance formula on May 16,
2005. The announcement is delivered to all partici-
pants and includes a written notice that describes the
old formula, the new formula, and the effective date.
(D) In addition, the notice states that the Plan D
formula before the conversion provided a normal re-
tirement benefit equal to the product of a partici-
pant’s number of years of service multiplied by 1.5
percent multiplied by the participant’s average pay over
the 3 years for which the average is the highest (high-
est 3-year pay). The notice includes an example show-
ing the normal retirement benefit that will be accrued
after June 30, 2005, for a participant who is age 49
with 10 years of service at the time of the conver-
sion. The plan administrator reasonably believes that
such a participant is representative of the partici-
pants whose rate of future benefit accrual will be re-
duced as a result of the amendment. The example
estimates that, if the participant continues employ-
ment to age 65, the participant’s normal retirement ben-
efit for service from age 49 to age 65 will be $657
per month for life. The example assumes that the par-
ticipant’s pay is $50,000 at age 49. The example states
that the estimated $657 monthly pension accrues over
the 16-year period from age 49 to age 65 and that,
based on assumed future pay increases, this amount
annually would be 9.1 percent of the participant’s high-
est 3-year pay at age 65, which over the 16 years from
age 49 to age 65 averages 0.57 percent per year mul-
tiplied by the participant’s highest 3-year pay. The ex-
ample also states that the sum of the monthly annuity
accrued before the conversion in the 10-year period
from age 39 to age 49 plus the $657 monthly annu-
ity estimated to be accrued over the 16-year period
from age 49 to age 65 is $1,235 and that, based on
assumed future increases in pay, this would be 17.1
percent of the participant’s highest 3-year pay at age
65, which over the employee’s career from age 39 to
age 65 averages 0.66 percent per year multiplied by
the participant’s highest 3-year pay. The notice also
includes two other examples with similar informa-
tion, one of which is intended to show the circum-
stances in which a small reduction may occur and the
other of which shows the largest reduction that the plan
administrator thinks is likely to occur. The notice states
that the estimates are based on the assumption that pay
increases annually after June 30, 2005, at a 4 per-
cent rate. The notice also specifies that the appli-
cable interest rate under section 417(e) for hypothetical
interest credits after June 30, 2005, is assumed to be
6 percent, which is the section 417(e) of the Inter-
nal Revenue Code applicable interest rate under the
plan for 2005.
(ii)Conclusion. The information in the notice, as
described in paragraph (i)(C) and (i)(D) of thisEx-
ample 4, satisfies the requirements of paragraph (a)(3)
of this Q&A–11 with respect to applicable individu-
als who are participants. The requirements of para-
graph (a)(4) of this Q&A–11 are satisfied because, as
noted in paragraph (i)(D) of thisExample 4, the no-
tice describes the old formula and describes the es-
timated future accruals under the new formula in terms
that can be readily compared to the old formula,i.e.,
the notice states that the estimated $657 monthly pen-
sion accrued over the 16-year period from age 49 to
age 65 averages 0.57 percent of the participant’s high-
est 3-year pay at age 65. The requirement in para-
graph (a)(4)(ii) of this Q&A–11 that the examples
include sufficient information to be able to deter-
mine the approximate magnitude of the reduction
would also be satisfied if the notice instead directly
stated the amount of the monthly pension that would
have accrued over the 16-year period from age 49 to
age 65 under the old formula.
Example 5. (i)Facts. The facts are the same as
inExample 4, except that, under the plan as in ef-
fect before the amendment, the early retirement pen-
sion for a participant who terminates employment after
age 55 with at least 20 years of service is equal to the
normal retirement benefit without reduction from age
65 to age 62 and reduced by only 5 percent per year
for each year before age 62. As a result, early retire-
ment benefits for such a participant constitute a
retirement-type subsidy. The plan as in effect after the
amendment provides an early retirement benefit equal
to the sum of the early retirement benefit payable un-
der the plan as in effect before the amendment tak-
ing into account only service and highest 3-year pay
before July 1, 2005, plus an early retirement annu-
ity that is actuarially equivalent to the account bal-
ance for service after June 30, 2005. The notice
provided by the plan administrator describes the old
early retirement annuity, the new early retirement an-
nuity, and the effective date. The notice includes an
estimate of the early retirement annuity payable to the
illustrated participant for service after the conver-
sion if the participant were to retire at age 59 (which
the plan administrator believes is a typical early re-
tirement age) and elect to begin receiving an imme-
diate early retirement annuity. The example states that
the normal retirement benefit expected to be pay-
able at age 65 as a result of service from age 49 to
age 59 is $434 per month for life beginning at age 65
and that the early retirement annuity expected to be
payable as a result of service from age 49 to age 59
is $270 per month for life beginning at age 59. The
example states that the monthly early retirement an-
nuity of $270 is 38 percent less than the monthly nor-
mal retirement benefit of $434, whereas a 15 percent
reduction would have applied under the plan as in ef-
fect before the amendment. The notice also includes
similar information for examples that show the small-
est and largest reduction that the plan administrator
thinks is likely to occur in the early retirement ben-
efit. The notice also specifies the applicable interest
rate, mortality table, and salary scale used in the ex-
ample to calculate the early retirement reductions.
(ii)Conclusion. The information in the notice, as
described in paragraphs (i)(C) and (D) ofExample 4
and paragraph (i) of thisExample 5, satisfies the re-
quirements of paragraph (a)(3) of this Q&A–11 with
respect to applicable individuals who are partici-
pants. The requirements of paragraph (a)(4) of this
Q&A–11 are satisfied because, as noted in para-
graph (i) of thisExample 5, the notice describes the
early retirement subsidy under the old formula and de-
scribes the estimated early retirement pension under
the new formula in terms that can be readily com-
pared to the old formula,i.e., the notice states that the
monthly early retirement pension of $270 is 38 per-
cent less than the monthly normal retirement ben-
efit of $434, whereas a 15 percent reduction would
have applied under the plan as in effect before the
amendment. The requirements of paragraph (a)(4)(ii)
of this Q&A–11 that the examples include suffi-
cient information to be able to determine the approxi-
mate magnitude of the reduction would also be
satisfied if the notice instead directly stated the amount
of the monthly early retirement pension that would be
payable at age 59 under the old formula.
Q–12. What special rules apply if par-
ticipants can choose between the old and
new benefit formulas?
A–12. In any case in which an appli-
cable individual can choose between the
benefit formula (including any early retire-
ment benefit or retirement-type subsidy) in
effect before the section 204(h) amend-
ment (old formula) or the benefit formula
in effect after the section 204(h) amend-
ment (new formula), section 204(h) no-
tice has not been provided unless the
applicable individual has been provided the
information required under Q&A–11 of this
section, and has also been provided suffi-
cient information to enable the individual
to make an informed choice between the old
and new benefit formulas. The informa-
2003–19 I.R.B.889May 12, 2003

tion required under Q&A–11 of this sec-
tion must be provided by the date otherwise
required under Q&A–9 of this section. The
information sufficient to enable the indi-
vidual to make an informed choice must be
provided within a period that is reason-
ably contemporaneous with the date by
which the individual is required to make his
or her choice and that allows sufficient ad-
vance notice to enable the individual to un-
derstand and consider the additional
information before making that choice.
Q–13. How may section 204(h) notice
be provided?
A–13. (a)Delivering section 204(h) no-
tice. A plan administrator (including a per-
son acting on behalf of the plan
administrator, such as the employer or plan
trustee) must provide section 204(h) no-
tice through a method that results in ac-
tual receipt of the notice or the plan
administrator must take appropriate and nec-
essary measures reasonably calculated to en-
sure that the method for providing section
204(h) notice results in actual receipt of the
notice. Section 204(h) notice must be pro-
vided either in the form of a paper docu-
ment or in an electronic form that satisfies
the requirements of paragraph (c) of this
Q&A–13. First class mail to the last known
address of the party is an acceptable de-
livery method. Likewise, hand delivery is
acceptable. However, the posting of no-
tice is not considered provision of section
204(h) notice. Section 204(h) notice may
be enclosed with or combined with other
notice provided by the employer or plan ad-
ministrator (for example, a notice of in-
tent to terminate under title IV of ERISA).
Except as provided in paragraph (c) of this
Q&A–13, a section 204(h) notice is deemed
to have been provided on a date if it has
been provided by the end of that day. When
notice is delivered by first class mail, the
notice is considered provided as of the date
of the United States postmark stamped on
the cover in which the document is mailed.
(b)Example. The following example il-
lustrates the provisions of paragraph (a) of
this Q&A–13:
Example. (i)Facts. Plan A is amended to reduce
significantly the rate of future benefit accrual effec-
tive January 1, 2005. Under Q&A–9 of this section,
section 204(h) notice is required to be provided at least
45 days before the effective date of the amendment.
The plan administrator causes section 204(h) notice
to be mailed to all affected participants. The mail-
ing is postmarked November 16, 2004.
(ii)Conclusion. Because section 204(h) notice is
given 45 days before the effective date of the plan
amendment, it satisfies the timing requirement of
Q&A–9 of this section.
(c)New technologies—(1)General rule.
A section 204(h) notice may be provided
to an applicable individual through an elec-
tronic method (other than an oral commu-
nication or a recording of an oral
communication), provided that all of the fol-
lowing requirements are satisfied:
(i) Either the notice is actually received
by the applicable individual or the plan ad-
ministrator takes appropriate and neces-
sary measures reasonably calculated to
ensure that the method for providing sec-
tion 204(h) notice results in actual receipt
of the notice by the applicable individual.
(ii) The plan administrator provides the
applicable individual with a clear and con-
spicuous statement, in electronic or non-
electronic form, that the applicable
individual has a right to request and ob-
tain a paper version of the section 204(h)
notice without charge and, if such request
is made, the applicable individual is fur-
nished with the paper version without
charge.
(iii) The requirements of this section
must otherwise be satisfied. Thus, for ex-
ample, a section 204(h) notice provided
through an electronic method must be de-
livered on or before the date required un-
der Q&A–9 of this section and must satisfy
the requirements set forth in Q&A–11 of
this section, including the content require-
ments and the requirements that it be writ-
ten in a manner calculated to be understood
by the average plan participant and to ap-
prise the applicable individual of the sig-
nificance of the notice. Accordingly, when
it is not otherwise reasonably evident, the
recipient should be apprised (either in elec-
tronic or in non-electronic form), at the time
the notice is furnished electronically, of the
significance of the notice.
(2)Examples. The following examples
illustrate the requirement in paragraph
(c)(1)(i) of this Q&A–13. In these examples,
it is assumed that the notice satisfies the re-
quirements in paragraphs (c)(1)(ii) and (iii)
of this section. The examples are as follows:
Example 1. (i)Facts. On July 1, 2003, M, a plan
administrator of Company N’s plan, sends notice in-
tended to constitute section 204(h) notice to A, an em-
ployee of Company N and a participant in the plan.
The notice is sent through e-mail to A’s e-mail ad-
dress on Company N’s electronic information sys-
tem. Accessing Company N’s electronic information
system is not an integral part of A’s duties. M sends
the e-mail with a request for a computer-generated no-
tification that the message was received and opened.
M receives notification indicating that the e-mail was
received and opened by A on July 9, 2003.
(ii)Conclusion. With respect to A, although M has
failed to take appropriate and necessary measures rea-
sonably calculated to ensure that the method for pro-
viding section 204(h) notice results in actual receipt
of the notice, M satisfies the requirement of para-
graph (c)(1)(i) of this Q&A–13 on July 9, 2003, which
is when A actually receives the notice.
Example 2. (i)Facts. On August 1, 2003, O, a plan
administrator of Company P’s plan, sends a notice in-
tended to constitute section 204(h) notice of ERISA
to B, who is an employee of Company P and a par-
ticipant in Company P’s plan. The notice is sent
through e-mail to B’s e-mail address on Company P’s
electronic information system. B has the ability to ef-
fectively access electronic documents from B’s e-mail
address on Company P’s electronic information sys-
tem and accessing the system is an integral part of B’s
duties.
(ii)Conclusion. Because access to the system is
an integral part of B’s duties, O has taken appropri-
ate and necessary measures reasonably calculated to
ensure that the method for providing section 204(h)
notice results in actual receipt of the notice. Thus, re-
gardless of whether B actually accesses B’s email on
that date, O satisfies the requirement of paragraph
(c)(1)(i) of this Q&A–13 on August 1, 2003, with re-
spect to B.
(3)Safe harbor in case of consent. The
requirement of paragraph (c)(1)(i) of this
Q&A–13 is deemed to be satisfied with re-
spect to an applicable individual if the sec-
tion 204(h) notice is provided electronically
to an applicable individual, and—
(i) The applicable individual has affir-
matively consented electronically, or con-
firmed consent electronically, in a manner
that reasonably demonstrates the appli-
cable individual’s ability to access the in-
formation in the electronic form in which
the notice will be provided, to receiving sec-
tion 204(h) notice electronically and has not
withdrawn such consent;
(ii) The applicable individual has pro-
vided, if applicable, in electronic or non-
electronic form, an address for the receipt
of electronically furnished documents;
(iii) Prior to consenting, the applicable
individual has been provided, in electronic
or non-electronic form, a clear and con-
spicuous statement indicating—
(A) That the consent can be withdrawn
at any time without charge;
(B) The procedures for withdrawing con-
sent and for updating the address or other
information needed to contact the appli-
cable individual;
(C) Any hardware and software require-
ments for accessing and retaining the docu-
ments; and
May 12, 20038902003–19 I.R.B.

(D) The information required by para-
graph (c)(1)(ii) of this Q&A–13; and
(iv) After consenting, if a change in
hardware or software requirements needed
to access or retain electronic records cre-
ates a material risk that the applicable in-
dividual will be unable to access or retain
the section 204(h) notice—
(A) The applicable individual is pro-
vided with a statement of the revised hard-
ware and software requirements for access
to and retention of the section 204(h) no-
tice and is given the right to withdraw con-
sent without the imposition of any fees for
such withdrawal and without the imposi-
tion of any condition or consequence that
was not disclosed at the time of the ini-
tial consent; and
(B) The requirement of paragraph
(c)(3)(i) of this Q&A–13 is again com-
plied with.
Q–14. What are the consequences if a
plan administrator fails to provide section
204(h) notice?
A–14. (a)Egregious failures—(1)Ef-
fect of egregious failure to provide sec-
tion 204(h) notice. Section 204(h)(6)(A) of
ERISA provides that, in the case of any
egregious failure to meet the notice re-
quirements with respect to any plan amend-
ment, the plan provisions are applied so that
all applicable individuals are entitled to the
greater of the benefit to which they would
have been entitled without regard to the
amendment, or the benefit under the plan
with regard to the amendment. For a spe-
cial rule applicable in the case of a plan ter-
mination, see Q&A–17(b) of this section.
(2)Definition of egregious failure. For
purposes of section 204(h) of ERISA and
this Q&A–14, there is an egregious fail-
ure to meet the notice requirements if a fail-
ure to provide required notice is within the
control of the plan sponsor and is either an
intentional failure or a failure, whether or
not intentional, to provide most of the in-
dividuals with most of the information they
are entitled to receive. For this purpose, an
intentional failure includes any failure to
promptly provide the required notice or in-
formation after the plan administrator dis-
covers an unintentional failure to meet the
requirements. A failure to give section
204(h) notice is deemed not to be egre-
gious if the plan administrator reasonably
determines, taking into account section
4980F, section 204(h), these regulations,
other administrative pronouncements, and
relevant facts and circumstances, that the
reduction in the rate of future benefit ac-
crual resulting from an amendment is not
significant (as described in Q&A–8 of this
section), or that an amendment does not sig-
nificantly reduce an early retirement ben-
efit or retirement-type subsidy.
(3)Example. The following example il-
lustrates the provisions of this paragraph (a):
Example. (i)Facts. Plan A is amended to reduce
significantly the rate of future benefit accrual effec-
tive January 1, 2003. Section 204(h) notice is re-
quired to be provided 45 days before January 1, 2003.
Timely section 204(h) notice is provided to all ap-
plicable individuals (and to each employee organiza-
tion representing participants who are applicable
individuals), except that the employer intentionally fails
to provide section 204(h) notice to certain partici-
pants until May 16, 2003.
(ii)Conclusion. The failure to provide section
204(h) notice is egregious. Accordingly, for the pe-
riod from January 1, 2003, through June 30, 2003
(which is the date that is 45 days after May 16, 2003),
all participants and alternate payees are entitled to the
greater of the benefit to which they would have been
entitled under Plan A as in effect before the amend-
ment or the benefit under the plan as amended.
(b)Effect of non-egregious failure to pro-
vide section 204(h) notice. If an egregious
failure has not occurred, the amendment
with respect to which section 204(h) no-
tice is required may become effective with
respect to all applicable individuals. How-
ever, see section 502 of ERISA for civil en-
forcement remedies. Thus, where there is
a failure, whether or not egregious, to pro-
vide section 204(h) notice in accordance
with this section, individuals may have re-
course under section 502 of ERISA.
(c)Excise taxes. See section 4980F and
Q&A–15 of this section for excise taxes that
may apply to a failure to notify applicable
individuals of a pension plan amendment
that provides for a significant reduction in
the rate of future benefit accrual or elimi-
nates or significantly reduces an early re-
tirement benefit or retirement-type subsidy,
regardless of whether or not the failure is
egregious.
Q–15. What are some of the rules that
apply with respect to the excise tax under
section 4980F?
A–15. (a)Person responsible for ex-
cise tax. In the case of a plan other than a
multiemployer plan, the employer is re-
sponsible for reporting and paying the ex-
cise tax. In the case of a multiemployer
plan, the plan is responsible for reporting
and paying the excise tax.
(b)Excise tax inapplicable in certain
cases. Under section 4980F(c)(1) of the In-
ternal Revenue Code, no excise tax is im-
posed on a failure for any period during
which it is established to the satisfaction of
the Commissioner that the employer (or
other person responsible for the tax) exer-
cised reasonable diligence, but did not know
that the failure existed. Under section
4980F(c)(2) of the Internal Revenue Code,
no excise tax applies to a failure to pro-
vide section 204(h) notice if the employer
(or other person responsible for the tax) ex-
ercised reasonable diligence and corrects the
failure within 30 days after the employer
(or other person responsible for the tax) first
knew, or exercising reasonable diligence
would have known, that such failure ex-
isted. For purposes of section 4980F(c)(1)
of the Internal Revenue Code, a person has
exercised reasonable diligence, but did not
know that the failure existed if and only
if—
(1) The person exercised reasonable dili-
gence in attempting to deliver section 204(h)
notice to applicable individuals by the lat-
est date permitted under this section; and
(2) At the latest date permitted for de-
livery of section 204(h) notice, the per-
son reasonably believes that section 204(h)
notice was actually delivered to each ap-
plicable individual by that date.
(c)Example. The following example il-
lustrates the provisions of paragraph (b) of
this Q&A–15:
Example. (i)Facts. Plan A is amended to reduce
significantly the rate of future benefit accrual. The em-
ployer sends out a section 204(h) notice to all af-
fected participants and other applicable individuals and
to any employee organization representing appli-
cable individuals, including actual delivery by hand
to employees at worksites and by first-class mail for
any other applicable individual and to any employee
organization representing applicable individuals. How-
ever, although the employer exercises reasonable dili-
gence in seeking to deliver the notice, the notice is
not delivered to any participants at one worksite due
to a failure of an overnight delivery service to pro-
vide the notice to appropriate personnel at that site for
them to timely hand deliver the notice to affected em-
ployees. The error is discovered when the employer
subsequently calls to confirm delivery. Appropriate sec-
tion 204(h) notice is then promptly delivered to all af-
fected participants at the worksite.
(ii)Conclusion. Because the employer exercised
reasonable diligence, but did not know that a failure
existed, no excise tax applies, assuming that partici-
pants at the worksite receive section 204(h) notice
within 30 days after the employer first knew, or ex-
ercising reasonable diligence would have known, that
the failure occurred.
Q–16. How do section 4980F and sec-
tion 204(h) apply when a business is sold?
A–16. (a)Generally. Whether section
204(h) notice is required in connection with
2003–19 I.R.B.891May 12, 2003

the sale of a business depends on whether
a plan amendment is adopted that signifi-
cantly reduces the rate of future benefit ac-
crual or significantly reduces an early
retirement benefit or retirement-type sub-
sidy.
(b)Examples. The following examples
illustrate the rules of this Q&A–16:
Example 1.(i)Facts. Corporation Q maintains Plan
A, a defined benefit plan that covers all employees
of Corporation Q, including employees in its Divi-
sion M. Plan A provides that participating employ-
ees cease to accrue benefits when they cease to be
employees of Corporation Q. On January 1, 2006, Cor-
poration Q sells all of the assets of Division M to Cor-
poration R. Corporation R maintains Plan B, which
covers all of the employees of Corporation R. Un-
der the sale agreement, employees of Division M be-
come employees of Corporation R on the date of the
sale (and cease to be employees of Corporation Q),
Corporation Q continues to maintain Plan A follow-
ing the sale, and the employees of Division M be-
come participants in Plan B.
(ii)Conclusion. No section 204(h) notice is re-
quired because no plan amendment was adopted that
reduced the rate of future benefit accrual. The em-
ployees of Division M who become employees of Cor-
poration R ceased to accrue benefits under Plan A
because their employment with Corporation Q ter-
minated.
Example 2. (i)Facts. Subsidiary Y is a wholly
owned subsidiary of Corporation S. Subsidiary Y main-
tains Plan C, a defined benefit plan that covers em-
ployees of Subsidiary Y. Corporation S sells all of the
stock of Subsidiary Y to Corporation T. At the effec-
tive date of the sale of the stock of Subsidiary Y, in
accordance with the sale agreement between Corpo-
ration S and Corporation T, Subsidiary Y amends Plan
C so that all benefit accruals cease.
(ii)Conclusion. Section 204(h) notice is required
to be provided because Subsidiary Y adopted a plan
amendment that significantly reduced the rate of fu-
ture benefit accrual in Plan C.
Example 3. (i)Facts. As a result of an acquisi-
tion, Corporation U maintains two defined benefit
plans: Plan D covers employees of Division N and
Plan E covers the rest of the employees of Corpora-
tion U. Plan E provides a significantly lower rate of
future benefit accrual than Plan D. Plan D is merged
with Plan E, and all of the employees of Corpora-
tion U will accrue benefits under the merged plan in
accordance with the benefit formula of former Plan
E.
(ii)Conclusion. Section 204(h) notice is required.
Example 4. (i)Facts. The facts are the same as
inExample 3, except that the rate of future benefit ac-
crual in Plan E is not significantly lower. In addi-
tion, Plan D has a retirement-type subsidy that Plan
E does not have and the Plan D employees’rights to
the subsidy under the merged plan are limited to ben-
efits accrued before the merger.
(ii)Conclusion. Section 204(h) notice is required
for any participants or beneficiaries for whom the re-
duction in the retirement-type subsidy is significant
(and for any employee organization representing such
participants).
Example 5. (i)Facts. Corporation V maintains sev-
eral plans, including Plan F, which covers employ-
ees of Division P. Plan F provides that participating
employees cease to accrue further benefits under the
plan when they cease to be employees of Corpora-
tion V. Corporation V sells all of the assets of Divi-
sion P to Corporation W, which maintains Plan G for
its employees. Plan G provides a significantly lower
rate of future benefit accrual than Plan F. Plan F is
merged with Plan G as part of the sale, and employ-
ees of Division P who become employees of Corpo-
ration W will accrue benefits under the merged plan
in accordance with the benefit formula of former Plan
G.
(ii)Conclusion. No section 204(h) notice is re-
quired because no plan amendment was adopted that
reduces the rate of future benefit accrual or elimi-
nates or significantly reduces an early retirement ben-
efit or retirement-type subsidy. Under the terms of Plan
F as in effect prior to the merger, employees of Di-
vision P cease to accrue any further benefits (includ-
ing benefits with respect to early retirement benefits
and any retirement-type subsidy) under Plan F after
the date of the sale because their employment with
Corporation V terminated.
Q–17. How are amendments to cease ac-
cruals and terminate a plan treated under
section 4980F and section 204(h)?
A–17. (a)General rule—(1)Rule.An
amendment providing for the cessation of
benefit accruals on a specified future date
and for the termination of a plan is sub-
ject to section 4980F and section 204(h).
(2)Example. The following example il-
lustrates the rule of paragraph (a)(1) of this
Q&A–17:
Example. (i)Facts. An employer adopts an amend-
ment that provides for the cessation of benefit accru-
als under a defined benefit plan on December 31, 2003,
and for the termination of the plan pursuant to title
IV of ERISA as of a proposed termination date that
is also December 31, 2003. As part of the notice of
intent to terminate required under title IV in order to
terminate the plan, the plan administrator gives sec-
tion 204(h) notice of the amendment ceasing accru-
als, which states that benefit accruals will cease“on
December 31, 2003, whether or not the plan is ter-
minated on that date.”However, because all the re-
quirements of title IV for a plan termination are not
satisfied, the plan cannot be terminated until a date
that is later than December 31, 2003.
(ii)Conclusion. Nonetheless, because section
204(h) notice was given stating that the plan was
amended to cease accruals on December 31, 2003, sec-
tion 204(h) does not prevent the amendment to cease
accruals from being effective on December 31, 2003.
The result would be the same had the section 204(h)
notice informed the participants that the plan was
amended to provide for a proposed termination date
of December 31, 2003, and to provide that“benefit
accruals will cease on the proposed termination date
whether or not the plan is terminated on that date.”
However, neither section 4980F nor section 204(h)
would be satisfied with respect to the December 31,
2003, effective date if the section 204(h) notice had
merely stated that benefit accruals would cease“on
the termination date”or“on the proposed termina-
tion date.”
(3)Additional requirements under title
IV of ERISA. See 29 CFR 4041.23(b)(4) and
4041.43(b)(5) for special rules applicable
to plans terminating under title IV of
ERISA.
(b)Terminations in accordance with title
IV of ERISA. A plan that is terminated in
accordance with title IV of ERISA is
deemed to have satisfied section 4980F and
section 204(h) not later than the termina-
tion date (or date of termination, as appli-
cable) established under section 4048 of
ERISA. Accordingly, neither section 4980F
nor section 204(h) would in any event re-
quire that any additional benefits accrue af-
ter the effective date of the termination.
(c)Amendment effective before termi-
nation date of a plan subject to title IV of
ERISA. To the extent that an amendment
providing for a significant reduction in the
rate of future benefit accrual or a signifi-
cant reduction in an early retirement ben-
efit or retirement-type subsidy has an
effective date that is earlier than the ter-
mination date (or date of termination, as ap-
plicable) established under section 4048 of
ERISA, that amendment is subject to sec-
tion 4980F and section 204(h). Accord-
ingly, the plan administrator must provide
section 204(h) notice (either separately, with,
or as part of the notice of intent to termi-
nate) with respect to such an amendment.
Q–18. What are the effective dates of
section 4980F, section 204(h), as amended
by EGTRRA, and these regulations?
A–18. (a)Statutory effective date—(1)
General rule. Section 4980F and section
204(h), as amended by EGTRRA, apply to
plan amendments taking effect on or af-
ter June 7, 2001 (statutory effective date),
which is the date of enactment of
EGTRRA.
(2)Transition rule. For amendments ap-
plying after the statutory effective date in
paragraph (a)(1) of this Q&A–18 and prior
to the regulatory effective date in para-
graph (c) of this Q&A–18, the require-
ments of section 4980F(e)(2) and (3) of the
Internal Revenue Code and section 204(h),
as amended by EGTRRA, are treated as sat-
isfied if the plan administrator makes a rea-
sonable, good faith effort to comply with
those requirements.
(3)Special notice rule—(i)In general.
Notwithstanding Q&A–9 of this section,
section 204(h) notice is not required by sec-
tion 4980F(e) of the Internal Revenue Code
or section 204(h), as amended by EGTRRA,
to be provided prior to September 7, 2001
May 12, 20038922003–19 I.R.B.

(the date that is three months after the date
of enactment of EGTRRA).
(ii)Reasonable notice. The require-
ments of section 4980F and section 204(h),
as amended by EGTRRA, do not apply to
any plan amendment that takes effect on or
after June 7, 2001 if, before April 25, 2001,
notice was provided to participants and ben-
eficiaries adversely affected by the plan
amendment (and their representatives) which
was reasonably expected to notify them of
the nature and effective date of the plan
amendment. For purposes of this para-
graph (a)(3)(ii), notice that complies with
§1.411(d)–6 of this chapter, as it appeared
in the April 1, 2001, edition of 26 CFR part
1, is deemed to be notice which was rea-
sonably expected to notify participants and
beneficiaries adversely affected by the plan
amendment (and their representatives) of the
nature and effective date of the plan amend-
ment.
(b)Regulatory effective date—(1)Gen-
eral effective date. Except for Q&A–7(a)(2),
Q&A–1 through Q&A–18 of this section
apply to amendments with an effective date
that is on or after September 1, 2003.
(2)Effective date for Q&A–7(a)(2).
Q&A–7(a)(2) of this section applies to
amendments with an effective date that is
on or after January 1, 2004.
(c)Amendments taking effect prior to
June 7, 2001. For rules applicable to
amendments taking effect prior to June 7,
2001, see§1.411(d)–6 of this chapter, as it
appeared in the April 1, 2001, edition of 26
CFR part 1.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 5. The authority citation for part 602
continues to read as follows:
Authority: 26 U.S.C. 7805.
Par.6.In§602.101, paragraph (b) is
amended by adding the following entry in
numerical order to the table to read as
follows:
§602.101 OMB Control numbers.
*****
(b)***
CFR part or section where
identified and described
Current OMB
Control No.
*****
54.4980F–1 ........................................................................................................................................................... 1545–1780
*****
David A. Mader,
Assistant Deputy Commissioner of
Internal Revenue.
Approved March 27, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register on April 8, 2003,
8:45 a.m., and published in the issue of the Federal Regis-
ter for April 9, 2003, 68 F.R. 17277)
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of May 2003. See Rev. Rul. 2003–45, page
876.
Section 7872.—Treatment of
Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of May 2003. See Rev. Rul. 2003–45, page
876.
2003–19 I.R.B.893May 12, 2003

Part III. Administrative, Procedural, and Miscellaneous
Eligible Deferred
Compensation Plans Under
Section 457
Notice 2003–20
I. PURPOSE AND SCOPE
This notice describes the withholding and
reporting requirements applicable to eli-
gible deferred compensation plans described
in§457(b) of the Internal Revenue Code
(“§457(b) plans”) for periods after De-
cember 31, 2001.
Specifically, this notice addresses—
•income tax withholding and report-
ing with respect to annual deferrals
made to a§457(b) plan;
•income tax withholding and report-
ing with respect to distributions from
a§457(b) plan, including changes for
a§457(b) plan established by a state
or local government employer en-
acted in the Economic Growth and
Tax Relief Reconciliation Act of 2001
(EGTRRA), Pub. L. No. 107–16;
•Federal Insurance Contributions Act
(FICA) payment and reporting with
respect to annual deferrals under a
§457(b) plan;
•employer identification numbers
(EINs) used in connection with trusts
established under§457(g); and
•the application of annual reporting re-
quirements to§457(b) plan admin-
istrators and trustees holding assets of
a§457(b) plan in accordance with
§457(g).
The rules provided in this notice apply
to deferrals and distributions from eligible
§457(b) plans made after December 31,
2001. This notice addresses only report-
ing and withholding rules that apply to
§457(b) plan participants who are or were
employees of state and local governments
or tax-exempt organizations and does not
cover special reporting rules that may ap-
ply to§457(b) plan participants who are
or were independent contractors. Notice
2000–38, 2000–2 C.B. 174, applies to
§457(b) plan distributions made before
January 1, 2002, but see Section IX of this
notice concerning its effective date provi-
sions.
II. BACKGROUND
Section 457 provides rules for nonquali-
fied deferred compensation plans estab-
lished by eligible employers. State and local
governments and tax-exempt organiza-
tions are eligible employers. They can es-
tablish either eligible plans that meet the
requirements of§457(b) or plans that do
not meet the requirements of§457(b) and
that are therefore subject to§457(f).
EGTRRA made numerous revisions to
§457, most of them effective after Decem-
ber 31, 2001. EGTRRA§641(a)(1)(D)(i)
added new§3401(a)(12)(E) which pro-
vides that remuneration paid to an em-
ployee or beneficiary from a§457(b) plan
maintained by a state or local governmen-
tal employer (a governmental§457(b) plan)
is no longer treated as wages for purposes
of income tax withholding under section
3402(a), but is now subject to income tax
withholding under section 3405. This
change is effective for distributions made
after December 31, 2001. However,
EGTRRA did not revise the provision of
Chapter 21 of the Internal Revenue Code
treating amounts deferred under a§457(b)
plan as subject to FICA taxes. See
§3121(v)(2) and (3). FICA taxes include
both the Old Age, Survivors, and Disabil-
ity Insurance (OASDI) tax and the Hospi-
tal Insurance (HI) tax, which are referred
to in federal tax forms as social security and
Medicare tax, respectively. This notice in-
cludes guidance under these new provi-
sions regarding income tax withholding and
reporting upon distributions from govern-
mental§457(b) plans.
Section 1448 of the Small Business Job
Protection Act of 1996 (“SBJPA”), Pub. L.
104–188, 1996–3 C.B. 155, 212, amended
§457 by adding§457(g), which requires
that governmental§457(b) plans hold all
plan assets and income in trust, or in cus-
todial accounts or annuity contracts de-
scribed in§401(f), for the exclusive benefit
of participants and their beneficiaries. Sec-
tion 457(g) does not apply to a§457(b)
plan established by a tax-exempt organi-
zation that is not a state or local govern-
mental entity. Notice 2000–38 provided
guidance in response to inquiries concern-
ing withholding and reporting upon§457(b)
plan distributions in light of this SBJPA
amendment and certain changes made by
the Taxpayer Relief Act of 1997, Pub. L.
No. 105–34.
This notice updates and supersedes No-
tice 2000–38 for contributions and distri-
butions made after December 31, 2001.
III. INCOME TAX WITHHOLDING
AND REPORTING ON ANNUAL
DEFERRALS
As amended by EGTRRA,§457(a)
(1)(A) provides that annual deferrals un-
der a governmental§457(b) plan and any
income attributable to the amounts so de-
ferred are not includible in a participant’s
gross income until that amount is paid to
the participant or beneficiary. Section
457(a)(1)(B) retains the pre-EGTRRA rule
that annual deferrals under a§457(b) plan
of a tax-exempt entity and any income at-
tributable to the amounts so deferred are not
includible in a participant’s gross income
until that amount is paid or made avail-
able to the participant or beneficiary. There-
fore, annual deferrals under a§457(b) plan
are not subject to income tax withholding
at the time of the deferral. However, a par-
ticipant’s annual deferrals during the tax-
able year under a§457(b) plan are reported
on Form W–2,Wage and Tax Statement,in
the manner described in the instructions to
that form.“Annual deferrals,”as used in this
notice, means the amount of compensa-
tion deferred under the plan in accordance
with§457(b), and in compliance with the
annual maximum deferral limitation un-
der the plan, whether by elective deferral
or nonelective employer contribution, dur-
ing a taxable year. Deferrals in a single em-
ployer’s eligible plan or plans in excess of
the§457(b) limitations are not annual de-
ferrals and thus are subject to income tax
withholding rules.
IV. INCOME TAX WITHHOLDING
AND REPORTING ON
GOVERNMENTAL§457(b) PLAN
DISTRIBUTIONS
A. Income Tax Withholding on Gov-
ernmental§457(b) Plan Distributions
“Distributions”from a governmental
§457(b) plan to a participant or benefi-
ciary (including an alternate payee) in-
May 12, 20038942003–19 I.R.B.

clude all amounts that are paid from the
governmental§457(b) plan. See Section V
for provisions regarding income tax with-
holding on distributions from a§457(b)
plan of a non-governmental tax-exempt or-
ganization.
EGTRRA revises Chapter 24 of the
Code, to provide that, effective after De-
cember 31, 2001, distributions to an indi-
vidual from a governmental§457(b) plan
are subject to income tax withholding in ac-
cordance with the income tax withhold-
ing requirements of§3405 applicable to
distributions from qualified plans, annu-
ities, and individual retirement arrange-
ments (IRAs). Thus, EGTRRA extends the
§3405(c) direct rollover and mandatory 20
percent withholding rules to governmen-
tal§457(b) plan distributions that qualify
as eligible rollover distributions as de-
fined under§402(c)(4).
In addition, EGTRRA provides that the
§3405(a) and (b) elective withholding rules
applicable to distributions from qualified
plans,§403(b) annuities, and IRAs that are
not eligible rollover distributions are also
extended to distributions from governmen-
tal§457(b) plans. Thus, periodic distribu-
tions from governmental§457(b) plans that
are not eligible rollover distributions are
subject to withholding under§3405(a) as
if the distribution were wages, and nonpe-
riodic distributions from such plans that are
not eligible rollover distributions are sub-
ject to withholding under§3405(b) at a 10-
percent rate. In either case (periodic or
nonperiodic distributions), the recipient may
elect not to have withholding apply under
§3405(a) or (b) to a distribution that is not
an eligible rollover distribution from a gov-
ernmental§457(b) plan. For additional in-
formation regarding the provisions of§3405
and related sections, see§35.3405–1T of
the Employment Taxes and Collection of In-
come Tax at Source Regulations under the
Tax Equity and Fiscal Responsibility Act
of 1982,§31.3405(c)–1 of the Employ-
ment Taxes and Collection of Income Tax
at Source Regulations, and§§1.401(a)
(31)–1, 1.402(c)–2, and 1.402(f)–1ofthe
Income Tax Regulations.
B. Person Responsible for Income Tax
Withholding on Distributions
EGTRRA amended§3405(d) of the
Code to make plan administrators of eli-
gible governmental plans, rather than the
payor of the designated distribution, gen-
erally liable for withholding under§3405
upon distributions from such plans. How-
ever, under§3405(d)(2)(A), a plan admin-
istrator is not liable for withholding if the
administrator directs the payor to with-
hold income tax under§3405 and pro-
vides the payor with the necessary
information required by regulations at
§35.3405–1T,E2–5. In that case, the payor
is liable for withholding income tax. Sub-
sections C, D, and E of this Section IV pro-
vide additional information on the
withholding, deposit, and reporting obli-
gations of the plan administrator or payor.
C. Reporting Governmental§457(b)
Plan Distributions on Form 1099–R
Distributions to an individual during a
taxable year under a governmental§457(b)
plan are reported on Form 1099–R,Dis-
tributions From Pensions, Annuities, Re-
tirement or Profit-Sharing Plans, IRAs,
Insurance Contracts, etc., in the manner de-
scribed in the instructions to that form. In-
come tax withheld from governmental
§457(b) plan distributions is reported an-
nually on Form 945,Annual Return of With-
held Federal Income Tax.
D. EINs and Income Tax Deposits for
Section 457(g) Trust Accounts
Generally, the income tax withheld on
distributions should be reported on the Form
945 of the person responsible for withhold-
ing, usually the plan administrator, as de-
scribed in section IV–B of this notice. The
income tax withheld must be aggregated
with other amounts reported by that per-
son on Form 945 to determine the fre-
quency of federal tax deposits under
§31.6302–4. This is the same as the first
alternative described in Announcement 84–
40, 1984–17 I.R.B. 31. Alternatively, the
IRS will permit the plan administrator (or
payor) of§457(g) trusts, or custodial ac-
counts or insurance contracts treated as
trusts under§457(g)(3) to use the other two
alternatives contained in Announcement
84–40 for the tax administration of such
withholdings:
1. The plan administrator or payor may
request and use an EIN solely for the pur-
pose of reporting the aggregated withhold-
ing from the distributions of every§457(g)
trust, custodial account, or annuity con-
tract under its control, making deposits and
filing Form 945 accordingly.
2. The plan administrator or payor may
request and use a separate EIN for each
§457(g) trust (or custodial account or in-
surance contract), making deposits and fil-
ing Form 945 accordingly.
The plan administrator or payor exer-
cising any of the above alternatives for de-
positing and reporting the tax withheld from
§457(g) trust distributions must also fol-
low the same option in filing the related in-
formation returns, such as Forms 1099–R
and Form 945. That is, the plan adminis-
trator or payor must use the same name and
EIN on Forms 1099–R as that under which
the tax was deposited and the annual Form
945 return filed. The plan administrator or
payor must aggregate and deposit all taxes
pursuant to§31.6302–4 under the EIN cho-
sen. The above-described options relate only
to trusts, annuity contracts, or custodial ac-
counts established pursuant to§457(g) for
amounts deferred under a governmental
§457(b) plan. For information on the re-
mittance of social security, Medicare, and
FUTA taxes by the employer, see section
VI–D below.
V. INCOME TAX WITHHOLDING
AND REPORTING ON
TAX-EXEMPT EMPLOYERS’
§457(b) PLAN DISTRIBUTIONS
A. Income Tax Withholding on Tax-
Exempt Employer’s§457(b) Plan Dis-
tributions
“Distributions”from a§457(b) plan of
a non-governmental tax-exempt entity to a
participant include all amounts that are paid
or made available under the§457(b) plan.
Distributions to a participant from a tax-
exempt employer’s§457(b) plan are wages
under§3401(a) that are subject to income
tax withholding in accordance with the in-
come tax withholding requirements of
§3402(a). The pension withholding rules
of§3405 do not apply to distributions from
a tax-exempt employer’s§457(b) plan. See
§35.3405–1T, Q&A–23. See Section IV of
this notice for provisions regarding in-
come tax withholding on distributions from
a governmental§457(b) plan.
Income tax withholding on distribu-
tions to a participant under a tax-exempt
employer’s§457(b) plan is calculated in the
same manner as withholding on other types
of wage payments. For guidance on the use
of the flat rate withholding method as a
supplement to regular wage withholding in
cases where the tax-exempt employer or its
agent is paying wages to the participant in
2003–19 I.R.B.895May 12, 2003

addition to the distribution from the§457(b)
plan, see§31.3402(g)–1(a) and Rev. Rul.
82–46, 1982–1 C.B. 158. If an eligible
payor uses the flat rate of withholding as
an alternative to regular wage withhold-
ing on a lump sum payment,§101(c)(11)
of EGTRRA provides that this flat rate be-
came 27 percent in 2002, then becomes 26
percent in 2004, and 25 percent in 2006 and
thereafter.
B. Person Responsible for Income Tax
Withholding on Distributions
When distributions are made under a tax-
exempt employer’s§457(b) plan, the tax-
exempt organization or other person having
control of the payment of the distribu-
tions, as determined under§3401(d)(1), is
responsible for income tax withholding on
the distributions.
C. Reporting Tax-Exempt Employer’s
§457(b) Plan Distributions on Form
W–2
Distributions to a participant during a
taxable year under a tax-exempt employ-
er’s§457(b) plan are wages and are re-
ported on Form W–2,Wage and Tax
Statement, in the manner described in the
instructions to that form. See also Rev. Rul.
82–46, supra. Income tax withheld from a
tax-exempt employer’s§457(b) plan dis-
tributions is deposited in accordance with
§31.6302–1 and reported quarterly on Form
941,Employer’s Quarterly Federal Tax Re-
turn.
D. Reporting Death Benefit Payments
Distributions to a beneficiary of a de-
ceased participant under a§457(b) plan are
reported on Form 1099–R,Distributions
From Pensions, Annuities, Retirement or
Profit-Sharing Plans, IRAs, Insurance Con-
tracts, etc. See Rev. Rul. 86–109, 1986–2
C.B. 196. No income tax withholding is re-
quired for distributions from§457(b) plans
to beneficiaries. See Rev. Rul. 59–64,
1959–1 C.B. 31. The instructions for Form
1099–R describe how this form is com-
pleted for distributions made to a benefi-
ciary from a nonqualified deferred
compensation plan, such as a§457(b) plan.
VI. FICA AND FUTA TAXES AND
REPORTING
A. Scope
The rules described in this Section VI
relating to FICA (social security and Medi-
care) tax apply to employees of state and
local governments only if they are sub-
ject to social security or Medicare tax un-
der§3121(u) (relating to Medicare),
§3121(b)(7)(E) (relating to agreements en-
tered into pursuant to section 218 of the So-
cial Security Act), or other provisions of the
Code, such as§3121(b)(7)(F) (relating to
state and local government employees who
are not members of a state or local retire-
ment system). As previously noted,
EGTRRA did not revise the provision of
Chapter 21 of the Internal Revenue Code
treating§457(b) plan distributions as
“wages”for purposes of subjecting them to
social security and Medicare taxes. The
FICA rules discussed in this section gen-
erally apply to employees of tax-exempt or-
ganizations, unless a specific exclusion is
applicable. The FICA tax discussed in this
section includes the employer’s share of the
FICA tax imposed under§3111 as well as
the employee’s share imposed under§3101.
Any FICA tax imposed on an employee’s
§457(b) plan deferrals or distributions must
be reported on a Form W–2 for that em-
ployee.
The rules described in this Section VI
relating to the Federal Unemployment Tax
Act (FUTA) do not apply to service for a
state or local governmental entity because
§3306(c)(7) provides a FUTA exemption
for service performed in the employ of a
state or any political subdivision thereof or
any instrumentality of any one or more of
the foregoing. The rules described in this
section relating to FUTA apply to service
for a tax-exempt organization other than a
tax-exempt organization described in
§501(c)(3). See§3306(c)(8).
B. Timing of Social Security, Medi-
care, and FUTA Taxes
Sections 3121(a) (relating to social se-
curity and Medicare) and 3306(b) (relat-
ing to FUTA) define“wages”as all
remuneration for employment, unless spe-
cifically excluded (see section VI–A,
above). If social security, Medicare, or
FUTA taxes apply,§§3121(v)(2) and
3306(r)(2) contain special timing rules that
apply in determining when amounts de-
ferred under a nonqualified deferred com-
pensation plan (including employers’
contributions) are required to be taken into
account. Under these sections, an amount
deferred under a nonqualified deferred com-
pensation plan, including a§457(b) plan,
is required to be taken into account for pur-
poses of social security, Medicare, and
FUTA taxes as of the later of when the ser-
vices are performed or when there is no
substantial risk of forfeiture of the rights to
such amount.
Thus, to the extent a§457(b) plan pro-
vides that annual deferrals are immedi-
ately vested, the annual deferrals are subject
to social security, Medicare, and FUTA
taxes at the time of deferral. However, to
the extent the annual deferrals are subject
to a substantial risk of forfeiture, the an-
nual deferrals (plus earnings thereon) are
generally taken into account for purposes
of social security, Medicare, and FUTA at
the time such amounts are no longer sub-
ject to a substantial risk of forfeiture. For
purposes of social security, Medicare, and
FUTA taxes, the determination of whether
a substantial risk of forfeiture exists is made
in accordance with the principles of§83
and the regulations thereunder. See
§§31.3121(v)(2)–1(e)(3) and 31.3306(r)
(2)–1.
If amounts deferred under a§457(b)
plan are properly taken into account as so-
cial security, Medicare, and FUTA wages
when deferred (or, if later, when they cease
to be subject to a substantial risk of for-
feiture), the amounts subsequently paid or
made available to a participant or benefi-
ciary under the§457(b) plan that are at-
tributable to those deferrals generally are
not subject to social security, Medicare, or
FUTA taxes. See§§3121(v)(2)(B) and
3306(r)(2)(B) and§§31.3121(v)(2)–
1(a)(2)(iii) and 31.3121(v)(2)–1(d)(2). If an
amount deferred for a period is not prop-
erly taken into account, distributions at-
tributable to that amount, including income
on the amounts deferred, may be wages for
FICA purposes when paid or made avail-
able. See§31.3121(v)(2)–1(d)(1)(ii). Ad-
ditional special rules apply to§457(b) plans
in which benefits are not based solely on
a participant’s account balance. See
§31.3121(v)(2)–1(e)(4).
C. Examples
The application of social security and
Medicare tax is illustrated by the follow-
ing examples:
Example 1. (i) State R’s§457(b) plan provides
for elective deferrals from current salary, as well as
a one percent of salary nonelective contribution for
each employee who participates in the plan and who
is employed with State R during the plan year. All em-
ployees who participate in the plan are covered by an
May 12, 20038962003–19 I.R.B.

agreement under section 218 of the Social Security
Act. All deferrals and contributions, including the
state’s contribution, are fully and immediately vested.
(ii) Because these contributions are not subject to
a substantial risk of forfeiture (and the services to
which they relate have already been performed), the
elective deferrals are required to be taken into ac-
count as wages at the time of the deferral and State
R’s nonelective contribution is required to be taken
into account as wages at the time of the contribu-
tion for purposes of the social security and Medi-
care tax.
Example 2—(i) Assume the same facts as inEx-
ample 1, except that the plan has three-year vesting
for State R’s nonelective contribution. Therefore, an
employee’s rights to the nonelective contributions (and
the associated earnings) are subject to a substantial risk
of forfeiture until the employee has been employed
by State R for three years.
(ii) State R’s nonelective contributions (and earn-
ings thereon) are not wages for purposes of the so-
cial security and Medicare tax until the employee has
completed three years of service. At that time, the ag-
gregate amount of State R’s nonelective contribu-
tions, plus earnings thereon, is required to be taken
into account as wages for purposes of the social se-
curity and Medicare tax. Once an individual has met
the vesting requirements, future nonelective contri-
butions by State R are required to be taken into ac-
count as wages for purposes of the social security and
Medicare tax at the time of the contribution. Be-
cause the elective deferrals are not subject to a sub-
stantial risk of forfeiture (and the services to which
they relate have already been performed), the elec-
tive deferrals are required to be taken into account as
wages at the time of deferral.
D. Deposit and Reporting of Social
Security, Medicare and FUTA Taxes
The employer must aggregate and de-
posit social security and Medicare taxes as-
sociated with a§457(b) plan (including the
employer’s share of social security and
Medicare taxes under§3111) with all other
social security and Medicare taxes and with-
held income taxes paid on behalf of its em-
ployees in accordance with§31.6302–1 and
must report these taxes on Form 941. Em-
ployers subject to FUTA must aggregate and
deposit FUTA amounts associated with a
§457(b) plan with all other FUTA amounts
paid on behalf of its employees in accor-
dance with§31.6302(c)–3 and must re-
port these payments on Form 940.
VII. ANNUAL REPORTING FOR
§457 PLANS
A.§457(g) Trusts
A trust described in§457(g) is not re-
quired to file Form 990,Return of Orga-
nization Exempt From Income Tax, Form
1041,U.S. Income Tax Return for Estates
and Trusts, Form 1120,U.S. Corporation
Income Tax Return, or Form 5500,An-
nual Return/Report of Employee Benefit
Plans. See, for example, Rev. Proc. 95–
48, 1995–2 C.B. 418, which provides that
governmental units and affiliates of gov-
ernmental units that are exempt from fed-
eral income tax under§501(a) are not
required to file annual information returns
on Form 990,Return of Organization Ex-
empt From Income Tax. A trust described
in§457(g) may be required to file Form
990–T,Exempt Organization Business In-
come Tax Return. See§§1.6012–2(e) and
1.6012–3(a)(5) for the requirements for fil-
ing Form 990–T.
B. Section 457(b) Plans of Tax-Exempt
Organizations
Annual deferrals and payments to cer-
tain participants in a§457(b) plan of a tax-
exempt organization are reported on the
organization’s Form 990 in the manner de-
scribed in the instructions to that form.
VIII. OTHER INFORMATION
AVAILABLE
Further information regarding the re-
porting, payment and deposit of employ-
ment taxes such as social security, Medicare,
FUTA, and withheld income tax can be
found in Publication 15,Circular E, Em-
ployer’s Tax Guide; Publication 15–A,Em-
ployer’s Supplemental Tax Guide; and
Publication 963,Federal-State Reference
Guide: Social Security Coverage and FICA
Reporting by State and Local Government
Employers. These publications will be re-
vised, as appropriate, to reflect the revi-
sions enacted in EGTRRA.
IX. EFFECTIVE DATE
This notice is applicable with respect to
deferrals and distributions made after De-
cember 31, 2001. However, for deferrals or
distributions made after December 31, 2001,
and before January 1, 2004, the Internal
Revenue Service (IRS) will not assert that
there has been a failure to comply with ap-
plicable reporting and withholding require-
ments if the applicable reporting and
withholding requirements set forth in No-
tice 2000–38 have been satisfied. Thus, for
example, in any case in which a series of
distributions commenced before January 1,
2002, and the distributions are eligible roll-
over distributions (as defined in§402(f)
(2)(A)) that are payable over a specified pe-
riod of less than 10 years, the IRS will not
assert that there has been a failure to com-
ply with applicable withholding require-
ments through December 31, 2003, if the
applicable withholding requirements set
forth in Notice 2000–38 have been satis-
fied.
X. REQUEST FOR COMMENTS
The IRS requests comments concern-
ing this notice, and welcomes comments on
any other useful approaches the Service
might consider regarding the administra-
tion of§457(b) plans. Comments can be
addressed to the Internal Revenue Ser-
vice, Office of Division Counsel/Associate
Chief Counsel (TEGE), CC:TEGE:EB:
QP2, Room 5201,1111Constitution Av-
enue, Washington, D.C. 20224. In addition,
comments may be submitted electroni-
cally via the Internet by sending them in an
e-mail to:notice.comments@irscounsel.
treas.govand specifying that the comments
concern Notice 2003–20.
DRAFTING INFORMATION
The principal author of this notice is
John Tolleris of the Office of the Divi-
sion Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities). How-
ever, other personnel from the IRS and
Treasury participated in its development. For
further information regarding this notice,
contact John Tolleris at (202) 622–6060 (not
a toll-free number).
2003–19 I.R.B.897May 12, 2003

Nonconventional Source Fuel
Credit, Section 29 Inflation
Adjustment Factor, and
Section 29 Reference Price
Notice 2003–27
This notice publishes the nonconven-
tional source fuel credit, inflation adjust-
ment factor, and reference price under§29
of the Internal Revenue Code for calen-
dar year 2002. These are used to deter-
mine the credit allowable on fuel produced
from a nonconventional source under§29.
The calendar year 2002 inflation-adjusted
credit applies to the sales of barrel-of-oil
equivalent of qualified fuels sold by a tax-
payer to an unrelated person during the
2002 calendar year, the domestic produc-
tion of which is attributable to the tax-
payer.
BACKGROUND
Section 29(a) provides for a credit for
producing fuel from a nonconventional
source, measured in barrel-of-oil equiva-
lent of qualified fuels, the production of
which is attributable to the taxpayer and
sold by the taxpayer to an unrelated per-
son during the tax year. The credit is equal
to the product of $3.00 and the appropri-
ate inflation adjustment factor.
Section 29(b)(1) and (2) provides for a
phaseout of the credit. The credit allow-
able under§29(a) must be reduced by an
amount which bears the same ratio to the
amount of the credit (determined without
regard to§29(b)(1)) as the amount by
which the reference price for the calendar
year in which the sale occurs exceeds
$23.50 bears to $6.00. The $3.00 in§29(a)
and the $23.50 and $6.00 must each be ad-
justed by multiplying these amounts by the
2002 inflation adjustment factor. In the case
of gas from a tight formation, the $3.00
amount in§29(a) must not be adjusted.
Section 29(c)(1) defines the term“quali-
fied fuels”to include oil produced from
shale and tar sands; gas produced from
geopressurized brine, Devonian shale, coal
seams, or a tight formation, or biomass; and
liquid, gaseous, or solid synthetic fuels pro-
duced from coal (including lignite), includ-
ing such fuels when used as feedstocks.
Section 29(d)(1) provides that the credit
is to be applied only for sale of qualified
fuels the production of which is within the
United States (within the meaning of
§638(1)) or a possession of the United
States (within the meaning of§638(2)).
Section 29(d)(2)(A) requires that the Sec-
retary, not later than April 1 of each cal-
endar year, determine and publish in the
Federal Register the inflation adjustment
factor and the reference price for the pre-
ceding calendar year.
Section 29(d)(2)(B) defines“inflation ad-
justment factor”for a calendar year as the
fraction the numerator of which is the GNP
implicit price deflator for the calendar year
and the denominator of which is the GNP
implicit price deflator for calendar year
1979. The term“GNP implicit price defla-
tor”means the first revision of the im-
plicit price deflator for the gross national
product as computed and published by the
Department of Commerce.
Section 29(d)(2)(C) defines“reference
price”to mean with respect to a calendar
year the Secretary’s estimate of the an-
nual average wellhead price per barrel for
all domestic crude oil the price of which is
not subject to regulation by the United
States.
Section 29(d)(3) provides that in the case
of a property or facility in which more than
one person has an interest, except to the ex-
tent provided in regulations prescribed by
the Secretary, production from the prop-
erty or facility (as the case may be) must
be allocated among the persons in propor-
tion to their respective interests in the gross
sales from the property or facility.
Section 29(d)(5) provides that the term
“barrel-of-oil equivalent”with respect to any
fuel generally means that amount of the fuel
which has a Btu content of 5.8 million.
INFLATION ADJUSTMENT FACTOR
AND REFERENCE PRICE
The inflation adjustment factor for cal-
endar year 2002 is 2.1169. The reference
price for calendar year 2002 is $22.51.
These amounts will be published in the Fed-
eral Register on April 9, 2003.
PHASEOUT CALCULATION
Because the calendar year 2002 refer-
ence price does not exceed $23.50 multi-
plied by the inflation adjustment factor, the
phaseout of the credit provided for in
§29(b)(1) does not occur for any quali-
fied fuel sold in calendar year 2002.
CREDIT AMOUNT
The nonconventional source fuel credit
under§29(a) is $6.35 per barrel-of-oil
equivalent of qualified fuels ($3.00 x
2.1169). This amount will be published in
the Federal Register on April 9, 2003.
DRAFTING INFORMATION
The principal author of this notice is
Jamie Park of the Office of Associate Chief
Counsel (Passthroughs and Special Indus-
tries). For further information regarding this
notice, contact Ms. Park at (202) 622–
3120 (not a toll-free call).
May 12, 20038982003–19 I.R.B.

Part IV. Items of General Interest
Foundations Status of Certain
Organizations
Announcement 2003–28
The following organizations have failed
to establish or have been unable to main-
tain their status as public charities or as op-
erating foundations. Accordingly, grantors
and contributors may not, after this date,
rely on previous rulings or designations in
the Cumulative List of Organizations (Pub-
lication 78), or on the presumption aris-
ing from the filing of notices under section
508(b) of the Code. This listing doesnot
indicate that the organizations have lost their
status as organizations described in sec-
tion 501(c)(3), eligible to receive deduct-
ible contributions.
Former Public Charities.The follow-
ing organizations (which have been treated
as organizations that are not private foun-
dations described in section 509(a) of the
Code) are now classified as private
foundations:
21st Century Life Skills, Inc.,
Palm City, FL
79th Street Business Association,
Chicago, IL
90 Ways, Inc., Omaha, NE
About Face, West Columbia, SC
Academic Excellence FDN Serving
Esparto Madison & Capay Valley,
Esparto, CA
Advocates for Enhanced Long Term
Care, Rockville, MD
Advocates in Action, Alpena, MI
African Heritage Institute, Inc.,
Worcester, MA
Agency for Sustainable Systems in
Science & Technology, Inc.,
Arcata, CA
Ahlul Bayt Assembly of America, Inc.,
Potomac, MD
AIDS Service Society of Arkansas,
North Little Rock, AR
Al Baqir the Knowledge Expounder,
Long Beach, CA
Al Maun Community Development
Corporation, Atlanta, GA
Alaska Volleyball Association,
Chugiak, AK
Alpha Foundation, Inc., Mobile, AL
Alzheimer Alliance of America,
Bellingham, WA
American Animal Protection Charities,
Inc., Boca Raton, FL
American Center for Law and Justice of
Texas, Inc., Irving, TX
American Friends of Pamela,
South Euclid, OH
American Institute of Natural Education,
Inc., Holliswood, NY
American Library in Ukraine Charitable
Trust, Tulsa, OK
American Medical Society Foundation,
La Jolla, CA
American School for International Tour
Directing, Inc., Scottsdale, AZ
Anash, Inc., Los Angeles, CA
Angels Tough Foundation, Clovis, CA
Arizona Science Teachers Association,
Inc., Tempe, AZ
Attention Deficit Disorder A.D.D.
Crusade, Portland, ME
August Ensemble Corporation,
Carmichael, CA
Band-Aid Foundation, Inc.,
Littleton, CO
Barrio Crisis Center, Dallas, TX
Bay Area Symphonic Band Society,
Webster, TX
Bean Equine Educational Foundation,
El Cajon, CA
Beaverdam Youth League, Inc.,
Beaverdam, VA
Benei Avrohom, Inc., Brooklyn, NY
Black Sisters Sharing, Inglewood, CA
Booth Manor of St. Louis, Inc.,
St. Louis, MO
Boston Dnepropetrovsk Health Care
Foundation, Inc., Boston, MA
Boys and Girls Clubs of the Columbia
Area, Columbia, MO
Buffalo Soldier Memorial Association,
Fort Bliss, TX
Caledonia Animal Rescue, Inc.,
St. Johnsbury, VT
Caliban Foundation, Tacoma, WA
Camden Clinic, San Antonia, TX
Camp Moraine, Inc., Lake Bluff, IL
Career Development & Training Rehab.
& Ind. Living Skills, Inc.,
Mt. Clemens, MI
Caucus of South African Psychiatrists,
Inc., Providence, RI
Celtic Regional Arts Institute of
California, Rolling Hills, CA
Chapel of Hope-Gatesville Area,
Dallas, TX
Cheverly Young Actors Guild,
Cheverly, MD
Chinese American Cancer Foundation,
San Gabriel, CA
Chippewa Falls Committee for the
Twenty-First Century, Inc.,
Chippewa Falls, WI
Choralfest, Inc., Pittsburgh, PA
Christmas in April Broom Country, Inc.,
Binghamton, NY
Citizens for Community Action, Inc.,
Chicago, IL
Clinton House Non-Profit Corporation,
Detroit, MI
Commonwealth Education Organization
Pittsburgh, PA
Community Business Institute Inc., of
Trumbull, Trumbull, CT
Community Counciling Center
Development, Inc., Lakeland, FL
Community Social Services, Inc.,
Darby, PA
Corporation for Clean Air, Tiburon, CA
Coventry Village Main Street
Partnership, Coventry, CT
CRCR Helps Foundation,
Washington, DC
Cued Speech and Language Association
of Utah, Park City, UT
Culmore Community Action Committee,
Inc., Falls Church, VA
Culturelink Fieldwork Project,
Clearlake, CA
Daake Halani Development, Inc.,
Many Farms, AZ
Dade Hialeah Community Development
Corp., Hialeah, FL
Dance Empowerment, Fresno, CA
Darlene Brickey Foundation,
Bakersfield, CA
Daughters of Zion, Inc., Yeadon, PA
David Scruggs Foundation, Dallas, TX
Dayton Youth Baseball League, Inc.,
Dayton, KY
Deep East Texas Council of
Governments Regional 100 Club,
Inc., Jasper, TX
Delusions of Magic, Tempe, AZ
Denison Kiwanis Club Charity, Inc.,
Denison, TX
Dick Sewell Memorial Golf Tournament,
Washington, DC
Disabled Peoples International, Inc.,
W. Hempstead, NY
Donald Ross Society Foundation, Inc.,
W. Hartford, CT
2003–19 I.R.B.899May 12, 2003

Douglas County Fair Association, Inc.,
Ava, MO
E & R Youth Association, Dearborn, MI
Early Festival Association, Early, TX
East Central Community Development
Center, Meridian, MS
East-West Shrine Football Classic and
Pageant, San Mateo, CA
Eclectic Chorale, Highland, CA
Edgecliff Fire Department EMS AUX.,
Ft. Worth, TX
Employment & Housing Ombuds
Service, Minneapolis, MN
Fairfield Hills of South Highlands
Neighborhood Association,
Shreveport, LA
Family Life Awareness Council, Inc.,
Sibley, IA
Family Life Learning Center,
West Dundee, IL
Family Support & Life Management
Services, Inc., Ft. Lauderdale, FL
Far West Texas & Southern NM Trauma
Regional Advisory Council,
El Paso, TX
Federal Bar Association FDN of
Cincinnati, Inc., Cincinnati, OH
Fernald Community Reuse Organization,
Inc., Ross, OH
Filarmonica Protuguesa De Tulare,
Tulare, CA
Filipino-American Heritage Appreciation
Project, San Jose, CA
Folk Traditions Conservancy,
Santa Barbara, CA
Fort Wayne Christian Womens Retreat,
Inc., Fort Wayne, IN
Fred D. Middleton Scholarship
Foundation, Wichita, KS
Freds House, Inc., Chicago, IL
Fretz Park Library Friends, Dallas, TX
Friends and Family Alternative to
Alcohol & Drug Dependency,
Hanford, CA
Friends of Erna Nixon Park, Inc.,
Melbourne, FL
Friends of Utah Golf, Inc.,
Salt Lake City, UT
Friends of Yeshivah Mikdash Shelomo,
Inc., Brooklyn, NY
Garden Grove Police Activities League,
Garden Grove, CA
Garden Variety Shakespeare,
Birmingham, AL
Gatekeepers, Richmond, VA
Genealogy Friends of Gladys Harrington
Library, Inc., Plano, TX
George Washington Carver Scholarship
Fund, Inc., Louisville, KY
Girls Softball Association, Inc.,
Spring Hill, FL
Godchaux-Reserve House Historical
Society, Reserve, LA
Gold Beach Booster Club, Inc.,
Gold Beach, OR
Golden Heart, Dallas, TX
Golden West Aviation, Inc.,
Marysville, CA
Good Days Living, Signal Hill, CA
Good Samaritan Community
Development, Inc., Washington, DC
Grace Foundation, Royal, AR
Greater Ohio Valley Fine Arts &
Cultural Awareness Council,
Woodsfiled, OH
Harriet Tubman Project, Inc.,
Dallas, TX
H. E. A. D. D. U. P., Royal Oak, MI
Hearts and Hands of Jefferson, Inc.,
Lake Hopatcong, NJ
Hinson Road Office Addition Owners
Association, Inc., Little Rock, AR
Hispanic Health Program,
Little Rock, AR
HIV-AIDS Human Rights Project, Inc.,
Red Hook, NY
Hollins Meaux Education & Recreation
Center, Kaplan, LA
Home, Los Angeles, CA
Hope & Health Foundation Corp.,
Sarasota, FL
Hope Foundation for Education Denver
Parents Assoc., Denver, CO
Hospice of Lincoln County, Inc.,
Ruidoso, NM
Hub of Belknap, Grand Rapids, MI
Hutson Weekend Ministries, Inc.,
Lakeview, MI
Immaculate Community Center, Inc.,
Hamtramck, MI
Independent Lifestyles, Inc.,
Asheville, NC
Indiana Friends of Animals, Inc.,
North Vernon, IN
Integrated Business Management
Development Corporation,
Dallas, TX
Intensive Learning Center,
New York, NY
International Dental Technology
Foundation, Los Angeles, CA
International Womens Athletic
Foundation, Inc., Jupiter, FL
Jesus Cares Ministries, Inc.,
Spring Valley, IL
Joliet Cyclones Baseball, Joliet, IL
Kansas Minority Business Development
Council, Inc., Wichita, KS
Kav Lachayim-Line to Life, Inc.,
Brooklyn, NY
Keep Opelika Beautiful, Inc.,
Opelika, AL
Keep Tallahassee Leon County
Beautiful, Inc., Tallahassee, FL
Keren Yecheskial Duvid, Inc.,
Brooklyn, NY
Keystone Team Gymnastics, Inc.,
Dunmore, PA
Kids for Kids, Marks, MS
Kids Money Club, Inc.,
Newport Beach, CA
KWJ Community Outreach,
Pleasantville, NJ
Land of Milk & Honey Foundation for
Horses, Calabasas, CA
Latino Educational and Recreational
Network, Woodburn, OR
Leetonia Little Bears Organization,
Leetonia, OH
Legal Aid Rwanda Ltd., New York, NY
Light is Coming, Inc., Mercer, PA
Louisiana Institute for Education in the
Arts, New Orleans, LA
Love for Life Animal Haven, Inc.,
Brooksville, FL
Lutheran Counseling Services, Inc.,
Dallas, TX
Macon County Commission,
Tuskegee, AL
Management Opportunity of
Neighborhood Service, Inc.,
Purvis, MS
Marine Animal Rescue Society, Inc.,
North Miami, FL
Marine Sanctuaries and Estuarine
Reserves Foundation,
Carmichael, CA
Marjan Foundation, South Gate, CA
Massachusetts Special Technology
Access Center, Inc., Bedford, MA
Masters Services Empowerment
Ministries, Milwaukee, WI
Maxus Community Developers, Inc.,
Phoenix, AZ
Mbegu Community Development
Corporation, Milpitas, CA
Memphis Shelby Crime Commission,
Memphis, TN
Menominee Indian Missionary, Inc.,
Suring, WI
Mercury Foundation, Incorporated,
Washington, DC
May 12, 20039002003–19 I.R.B.

Michigan Greenscapes, Inc.,
Dearborn, MI
Michigan Tradeswomen Association,
Detroit, MI
Might Have Been Known Theatre
Company, St. Paul, MN
Mike Dubose Charities, Bessemer, AL
Millennial Foundation, Inc.,
New York, NY
Mind & Body Foundation, Inc.,
Columbia, MD
Minnesota Metro Alpha Phi Omega
Alumni Association, Eagan, MN
Mississippi Rural Development
Partnership, Inc., Jackson, MS
Missouri Valley Health Span,
Warrensburg, MO
Mitakolapi, Inc., Silver Spring, MD
Mo Valley Magic, Inc., Springfield, MO
Mohona Cultural Group,
Lawrenceville, GA
Monett Downtown Betterment Group,
Inc., Monett, MO
Montbello-Green Valley Ranch-Gateway
Family Presrvtn Family Support,
Denver, CO
Montgomery Area Crime Stopper, Inc.,
Prattville, AL
Moore Fast Pitch Association,
Moore, OK
Moore for a Clean Environment, Inc.,
Southern Pines, NC
Mothers Voices Houston Gulf Coast,
Houston, TX
Mothers Voices Illinois, Chicago, IL
Muldoon Community Development
Corporation, Anchorage, AK
Murrieta Soccer Club Hawks,
Murrieta, CA
National Association of 10 Black
Women South Bay Chapter,
San Jose, CA
National Association of Aides Education
and Training Centers, Detroit, MI
National Right to Compete Legal
Defense Foundation, Inc.,
Albany, NY
National Student Achievement Awards,
Washington, DC
National Suffolk Foundation,
Columbia, MO
Native American Association of
Horsemanship Safety, Flagstaff, AZ
New Beginning Child Nutrition Center,
Inc., East Orange, NJ
New England Therapeutic Recreation
Association, Hollis, NH
New Hanover County Parks Foundation,
Wilmington, NC
New Serenity House, Austin, TX
Newcomers Association,
San Francisco, CA
Non-Profit TV Productions, Inc.,
Miami, FL
North East Texas Intertribal Alliance,
Daingerfield, TX
Northside Senior Citizens Center,
Unadilla, GA
Now More Than Ever, Inc.,
Nashville, TN
NW Alabama Services & Development,
Inc., Muscle Shoals, AL
Oak Grove Optimist Baseball
Association, Inc., Hattieburg, MS
Oddlife Theater Company, Chicago, IL
Ohio Heart & Vascular Research
Foundation, Perrysburg, OH
Omadi Foundation, So. Souix City, NE
Omaha Jaycees Foundation, Inc.,
Omaha, NE
One Per Cent Connecting the
Community, Cincinnati, OH
Open Arms Housing, Inc.,
Washington, DC
Optimist Penny Reapers of Southern
California, Chula Vista, CA
Orchid Mania South Florida, Inc.,
South Miami, FL
Paint it Yellow Productions, Inc.,
Stafford, TX
Peace Community Development
Corporation, Columbus, OH
Peacemakers Evangelistic Team, Inc.,
Dayton, OH
Pearland Enrichment Foundation,
Pearland, TX
Pecan Acres Resident Management
Corp., Petersburg, VA
Peoples Health Care Corporation,
Washington, DC
Performing Arts-LA, Sherman Oaks, CA
Phi Phi Social Action Foundation,
Richmond, VA
Platinum Foundation, Carbondale, IL
Plymouth South High School Panther
Volleyball Booster Club, Inc.,
Manomet, MA
Power Twistars Parents Association,
Frederick, OK
Powhatan Youth Athletic Association,
Inc., Powhatan, VA
Praise & Resurrection Ministries of
Jesus Christ, Oxon Hill, MD
Prevent Child Abuse, Chicago, IL
Project Partnership, Incorporated,
Pawcatuck, CT
Prufrock Childrens Basic Needs Fund,
Los Angeles, CA
Raw, Inc., Hampton, VA
Reagan All Sports Booster Club, Inc.,
Austin, TX
Recovery in Motion, Inc., Vista, CA
Recovery Lifestyles, Inc., Adrian, MI
Red Rose Rising Foundation, Inc.,
New York, NY
Refreshing Spring Alliance, Inc.,
Schenectady, NY
Religious Committee for Community
Justice, Norristown, PA
Reserve Forces Educational Assistance
Foundation, Atlanta, GA
Restoration Community Development
Corp., Annapolis, MD
Richardson Weekend Ministries, Inc.,
Sharpsville, IN
Rl Charity Association, Lewisberry, PA
Saintes Assisted Independent Living at
Zebulon, Inc., Henderson, NC
Santa Rosa Community Service, Inc.,
Milton, FL
Scholarship Foundation of the National
Supermarkets Assn., Inc.,
Flushing, NY
Seattle Magic Basketball Club,
Gig Harbor, WA
Shakespeare Festival, Kalamazoo, MI
Shiloh Ministries, Inc., Slidell, LA
Snug Harbor Foundation, Inc.,
Sky Valley, GA
Southern Chesapeake Adaptive Maritime
Programs Scamp, Norfolk, VA
Southern Nevada Therapeutic Riding
Center, Las Vegas, NV
Southwest Housing Assistance, Inc.,
Desert Hot Springs, CA
Sparrow Association, Glendale, CA
Specially Me, Inc., Sioux Falls, SD
Sportsworks, Jackson, MS
St. Francis House NWA, Inc.,
Springdale, AR
St. Marys Villa, Inc., Knoxville, TN
Star Karts-the Race for the Right to a
Childhood, Ellendale, TN
Starlight Friends, Inc., Euless, TX
T.L. Kirkland 17th District Mission Co.,
Los Angeles, CA
Textilemuseum Associates of Southern
Cal, Inc., Glendale, CA
Theatre Atlantis, Inc., Eugene, OR
Thimble Islands Historical Society, Inc.,
Branford, CT
2003–19 I.R.B.901May 12, 2003

Three Sisters Animal Foundation,
Denver, CO
Thumb Outreach Minority Services,
Sandusky, MI
Tikvatam, Inc., Brooklyn, NY
Tomorrow, Inc., Lathrup Village, MI
Torrey Pines Pond Foundation,
Del Mar, CA
Tribal Angels, Inc., New York, NY
Triple Play Ballpark, Inc., Newalla, OK
Triton Rainbow Foundation,
Dodge Center, MN
Umoja Literary Group, Vista, CA
United Child Guidance Council, Inc.,
Dallas, TX
United Residents of Taylor Center, Inc.,
Las Cruces, NM
United Resources Management, Inc.,
Beverly Hills, CA
Urban Grasshopper, Inc., Brooklyn, NY
Utah Grizzlies Youth Foundation,
W. Valley City, UT
Values First, Washington, DC
Victory Fellowship, Chicago, IL
Voting Integrity Project, Inc.,
Arlington, VA
Welcome Place, Salt Lake City, UT
West Virginia K-Family Childrens
Festival Foundation, Inc.,
Morgantown, WV
Western Colorado Camp Courage, Inc.,
Eckert, CO
Williamsburg Housing Resident Council,
Williamsburg, KY
Women After Gods Own Heart Ministry,
Fayetteville, GA
Womens Wasatch Lacrosse,
Salt Lake City, UT
Wonderland Opera, Inc., New York, NY
Woodbridge Garden Apartments
Resident Council, Woodbridge, NJ
Woodland Terrace Resident Council,
Washington, DC
Wright Cause, Inc., Brooklyn, NY
Wright County Information Network &
Data Mining Organization, Ava, MO
Yaldei Eretz Yisroel, Inc., Brooklyn, NY
Yaldei Russia, Inc., Brooklyn, NY
Zainab Islamic Foundation, Inc.,
Glen Cove, NY
Zichron Yakov Menachem, Inc.,
Brooklyn, NY
If an organization listed above submits
information that warrants the renewal of its
classification as a public charity or as a pri-
vate operating foundation, the Internal Rev-
enue Service will issue a ruling or
determination letter with the revised clas-
sification as to foundation status. Grant-
ors and contributors may thereafter rely
upon such ruling or determination letter as
provided in section 1.509(a)–7 of the In-
come Tax Regulations. It is not the prac-
tice of the Service to announce such revised
classification of foundation status in the In-
ternal Revenue Bulletin.
May 12, 20039022003–19 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as“rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplifieddescribes 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
withmodified, below).
Clarifiedis 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.
Modifiedis 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
applies to both A and B, the prior ruling
is modified because it corrects a pub-
lished position. (Compare withamplified
andclarified, above).
Obsoleteddescribes 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.
Revokeddescribes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Supersededdescribes 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
period 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
andsupersededdescribes 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.
Supplementedis 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 published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspendedis 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 formerly 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.
2003–19 I.R.B.iMay 12, 2003

Numerical Finding List
1
Bulletins 2003–1 through 2003–18
Announcements:
2003–1, 2003–2 I.R.B.281
2003–2, 2003–3 I.R.B.301
2003–3, 2003–4 I.R.B.361
2003–4, 2003–5 I.R.B.396
2003–5, 2003–5 I.R.B.397
2003–6, 2003–6 I.R.B.450
2003–7, 2003–6 I.R.B.450
2003–8, 2003–6 I.R.B.451
2003–9, 2003–7 I.R.B.490
2003–10, 2003–7 I.R.B.490
2003–11, 2003–10 I.R.B.585
2003–12, 2003–10 I.R.B.585
2003–13, 2003–11 I.R.B.603
2003–14, 2003–11 I.R.B.603
2003–15, 2003–11 I.R.B.605
2003–16, 2003–12 I.R.B.641
2003–17, 2003–15 I.R.B.722
2003–18, 2003–13 I.R.B.675
2003–19, 2003–15 I.R.B.723
2003–20, 2003–15 I.R.B.750
2003–21, 2003–17 I.R.B.846
2003–22, 2003–17 I.R.B.846
2003–23, 2003–16 I.R.B.808
2003–24, 2003–16 I.R.B.810
2003–25, 2003–17 I.R.B.846
2003–26, 2003–18 I.R.B.862
Notices:
2003–1, 2003–2 I.R.B.257
2003–2, 2003–2 I.R.B.257
2003–3, 2003–2 I.R.B.258
2003–4, 2003–3 I.R.B.294
2003–5, 2003–3 I.R.B.294
2003–6, 2003–3 I.R.B.298
2003–7, 2003–4 I.R.B.310
2003–8, 2003–4 I.R.B.310
2003–9, 2003–5 I.R.B.369
2003–10, 2003–5 I.R.B.369
2003–11, 2003–6 I.R.B.422
2003–12, 2003–6 I.R.B.422
2003–13, 2003–8 I.R.B.513
2003–14, 2003–8 I.R.B.515
2003–15, 2003–9 I.R.B.540
2003–16, 2003–10 I.R.B.575
2003–17, 2003–12 I.R.B.633
2003–18, 2003–14 I.R.B.699
2003–19, 2003–14 I.R.B.703
2003–21, 2003–17 I.R.B.817
2003–22, 2003–18 I.R.B.851
2003–23, 2003–17 I.R.B.821
2003–24, 2003–18 I.R.B.853
2003–25, 2003–18 I.R.B.855
2003–26, 2003–18 I.R.B.855
Proposed Regulations:
REG–209500–86, 2003–2 I.R.B.262
REG–104385–01, 2003–12 I.R.B.634
REG–116641–01, 2003–8 I.R.B.518
REG–125638–01, 2003–5 I.R.B.373
Proposed Regulations—Continued:
REG–126016–01, 2003–7 I.R.B.486
REG–126485–01, 2003–9 I.R.B.542
REG–103580–02, 2003–9 I.R.B.543
REG–124069–02, 2003–7 I.R.B.488
REG–131478–02, 2003–13 I.R.B.669
REG–138882–02, 2003–8 I.R.B.522
REG–139768–02, 2003–10 I.R.B.583
REG–141097–02, 2003–16 I.R.B.807
REG–151043–02, 2003–3 I.R.B.300
REG–164464–02, 2003–2 I.R.B.262
Revenue Procedures:
2003–1, 2003–1 I.R.B.1
2003–2, 2003–1 I.R.B.76
2003–3, 2003–1 I.R.B.113
2003–4, 2003–1 I.R.B.123
2003–5, 2003–1 I.R.B.163
2003–6, 2003–1 I.R.B.191
2003–7, 2003–1 I.R.B.233
2003–8, 2003–1 I.R.B.236
2003–9, 2003–8 I.R.B.516
2003–10, 2003–2 I.R.B.259
2003–11, 2003–4 I.R.B.311
2003–12, 2003–4 I.R.B.316
2003–13, 2003–4 I.R.B.317
2003–14, 2003–4 I.R.B.319
2003–15, 2003–4 I.R.B.321
2003–16, 2003–4 I.R.B.359
2003–17, 2003–6 I.R.B.427
2003–18, 2003–6 I.R.B.439
2003–19, 2003–5 I.R.B.371
2003–20, 2003–6 I.R.B.445
2003–21, 2003–6 I.R.B.448
2003–22, 2003–10 I.R.B.577
2003–23, 2003–11 I.R.B.599
2003–24, 2003–11 I.R.B.599
2003–25, 2003–11 I.R.B.601
2003–26, 2003–13 I.R.B.666
2003–27, 2003–13 I.R.B.667
2003–28, 2003–16 I.R.B.759
2003–30, 2003–17 I.R.B.822
2003–31, 2003–17 I.R.B.838
2003–32, 2003–16 I.R.B.803
2003–33, 2003–16 I.R.B.803
2003–34, 2003–18 I.R.B.856
2003–36, 2003–18 I.R.B.859
Revenue Rulings:
2003–1, 2003–3 I.R.B.291
2003–2, 2003–2 I.R.B.251
2003–3, 2003–2 I.R.B.252
2003–4, 2003–2 I.R.B.253
2003–5, 2003–2 I.R.B.254
2003–6, 2003–3 I.R.B.286
2003–7, 2003–5 I.R.B.363
2003–8, 2003–3 I.R.B.290
2003–9, 2003–4 I.R.B.303
2003–10, 2003–3 I.R.B.288
2003–11, 2003–3 I.R.B.285
2003–12, 2003–3 I.R.B.283
2003–13, 2003–4 I.R.B.305
2003–14, 2003–4 I.R.B.302
2003–15, 2003–4 I.R.B.302
Revenue Rulings—Continued:
2003–16, 2003–6 I.R.B.401
2003–17, 2003–6 I.R.B.400
2003–18, 2003–7 I.R.B.467
2003–19, 2003–7 I.R.B.468
2003–20, 2003–7 I.R.B.465
2003–21, 2003–8 I.R.B.509
2003–22, 2003–8 I.R.B.494
2003–23, 2003–8 I.R.B.511
2003–24, 2003–10 I.R.B.557
2003–25, 2003–13 I.R.B.642
2003–26, 2003–10 I.R.B.563
2003–27, 2003–11 I.R.B.597
2003–28, 2003–11 I.R.B.594
2003–29, 2003–11 I.R.B.587
2003–30, 2003–13 I.R.B.659
2003–31, 2003–13 I.R.B.643
2003–32, 2003–14 I.R.B.689
2003–33, 2003–13 I.R.B.642
2003–34, 2003–17 I.R.B.813
2003–35, 2003–14 I.R.B.687
2003–36, 2003–18 I.R.B.849
2003–37, 2003–15 I.R.B.717
2003–38, 2003–17 I.R.B.811
2003–39, 2003–17 I.R.B.811
2003–40, 2003–17 I.R.B.813
2003–41, 2003–17 I.R.B.814
2003–42, 2003–16 I.R.B.754
2003–44, 2003–18 I.R.B.848
Treasury Decisions:
9024, 2003–5 I.R.B.365
9025, 2003–5 I.R.B.362
9026, 2003–5 I.R.B.366
9027, 2003–6 I.R.B.413
9028, 2003–6 I.R.B.415
9029, 2003–6 I.R.B.403
9030, 2003–8 I.R.B.495
9031, 2003–8 I.R.B.504
9032, 2003–7 I.R.B.471
9033, 2003–7 I.R.B.483
9034, 2003–7 I.R.B.453
9035, 2003–9 I.R.B.528
9036, 2003–9 I.R.B.533
9037, 2003–9 I.R.B.535
9038, 2003–9 I.R.B.524
9039, 2003–10 I.R.B.561
9040, 2003–10 I.R.B.568
9041, 2003–8 I.R.B.510
9042, 2003–10 I.R.B.564
9043, 2003–12 I.R.B.611
9044, 2003–14 I.R.B.690
9045, 2003–12 I.R.B.610
9046, 2003–12 I.R.B.614
9047, 2003–14 I.R.B.676
9048, 2003–13 I.R.B.644
9049, 2003–14 I.R.B.685
9050, 2003–14 I.R.B.693
9051, 2003–16 I.R.B.755
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2002–26 through 2002–52 is
in Internal Revenue Bulletin 2003–1, dated January 6, 2003.
May 12, 2003ii2003–19 I.R.B.

Finding List of Current Actions
on Previously Published Items
2
Bulletins 2003–1 through 2003–18
Notices:
97–19
Modified by
Rev. Proc. 2003–1, 2003–1 I.R.B.1
2001–26
Obsoleted by
T.D. 9032, 2003–7 I.R.B.471
2001–46
Modified by
Notice 2003–6, 2003–3 I.R.B.298
2001–69
Modified and superseded by
Notice 2003–1, 2003–2 I.R.B.257
2002–20
Superseded by
Rev. Proc. 2003–36, 2003–18 I.R.B.859
2002–27
Clarified by
Notice 2003–3, 2003–2 I.R.B.258
2002–40
Modified by
Ann. 2003–18, 2003–13 I.R.B.675
2002–46
Modified by
Notice 2003–10, 2003–5 I.R.B.369
Proposed Regulations:
REG–209500–86
Corrected by
Ann. 2003–6, 2003–6 I.R.B.450
REG–103829–99
Corrected by
Ann. 2003–12, 2003–10 I.R.B.585
REG–126485–01
Withdrawn by
REG–126485–01, 2003–9 I.R.B.542
Corrected by
Ann. 2003–25, 2003–17 I.R.B.846
REG–131478–02
Corrected by
Ann. 2003–24, 2003–16 I.R.B.810
REG–143321–02
Corrected by
Ann. 2003–12, 2003–10 I.R.B.585
REG–164464–02
Corrected by
Ann. 2003–6, 2003–6 I.R.B.450
Revenue Procedures:
83–23
Supplemented by
Rev. Proc. 2003–21, 2003–6 I.R.B.448
Revenue Procedures—Continued:
84–37
Modified by
Rev. Proc. 2003–1, 2003–1 I.R.B.1
93–38
Obsoleted by
Rev. Proc. 2003–15, 2003–4 I.R.B.321
97–31
Modified by
Rev. Proc. 2003–9, 2003–8 I.R.B.516
98–13
Obsoleted by
T.D. 9032, 2003–7 I.R.B.471
2002–1
Superseded by
Rev. Proc. 2003–1, 2003–1 I.R.B.1
2002–2
Superseded by
Rev. Proc. 2003–2, 2003–1 I.R.B.76
2002–3
Superseded by
Rev. Proc. 2003–3, 2003–1 I.R.B.113
2002–4
Superseded by
Rev. Proc. 2003–4, 2003–1 I.R.B.123
2002–5
Superseded by
Rev. Proc. 2003–5, 2003–1 I.R.B.163
2002–6
Superseded by
Rev. Proc. 2003–6, 2003–1 I.R.B.191
2002–7
Superseded by
Rev. Proc. 2003–7, 2003–1 I.R.B.233
2002–8
Superseded by
Rev. Proc. 2003–8, 2003–1 I.R.B.236
2002–9
Modified and amplified by
Rev. Proc. 2003–20, 2003–6 I.R.B.445
Rev. Rul. 2003–3, 2003–2 I.R.B.252
2002–20
Supplemented by
Rev. Proc. 2003–26, 2003–13 I.R.B.666
2002–22
Modified by
Rev. Proc. 2003–3, 2003–1 I.R.B.113
2002–29
Modified by
Rev. Proc. 2003–10, 2003–2 I.R.B.259
2002–37
Modified by
Rev. Proc. 2002–34, 2002–18 I.R.B.856
Revenue Procedures—Continued:
2002–39
Modified by
Rev. Proc. 2002–34, 2002–18 I.R.B.856
2002–51
Superseded by
Rev. Proc. 2003–31, 2003–17 I.R.B.838
2002–52
Modified by
Rev. Proc. 2003–1, 2003–1 I.R.B.1
2002–53
Superseded by
Rev. Proc. 2003–30, 2003–17 I.R.B.822
2002–57
Superseded by
Rev. Proc. 2003–28, 2003–16 I.R.B.759
2002–67
Supplemented by
Ann. 2003–3, 2003–4 I.R.B.361
2002–75
Superseded by
Rev. Proc. 2003–3, 2003–1 I.R.B.113
2003–3
Amplified by
Rev. Proc. 2003–14, 2003–4 I.R.B.319
2003–7
Corrected by
Ann. 2003–4, 2003–5 I.R.B396
Revenue Rulings:
53–131
Modified by
Rev. Rul. 2003–12, 2003–3 I.R.B.283
57–190
Obsoleted by
Rev. Rul. 2003–18, 2003–7 I.R.B.467
65–190
Revoked by
Rev. Rul. 2003–3, 2003–2 I.R.B.252
66–118
Distinguished by
Rev. Rul. 2003–41, 2003–17 I.R.B.814
69–372
Revoked by
Rev. Rul. 2003–3, 2003–2 I.R.B.252
92–19
Supplemented in part by
Rev. Rul. 2003–24, 2003–10 I.R.B.557
2003–2
Revoked by
Rev. Rul. 2003–22, 2003–8 I.R.B.494
2
A cumulative list of current actions on previously
published items in Internal Revenue Bulletins
2002–26 through 2002–52 is in Internal Revenue
Bulletin 2003–1, dated January 6, 2003.
2003–19 I.R.B.iiiMay 12, 2003

Treasury Decisions:
9002
Corrected by
Ann. 2003–8, 2003–6 I.R.B.451
9021
Corrected by
Ann. 2003–16, 2003–12 I.R.B.641
9022
Supplemented by
Ann. 2003–7, 2003–6 I.R.B.450
Corrected by
Ann. 2003–11, 2003–10 I.R.B.585
9048
Corrected by
Ann. 2003–23, 2003–16 I.R.B.808
May 12, 2003iv*U.S. Government Printing Office: 2003—496–919/600822003–19 I.R.B.