Internal Revenue Bulletin 1996-20 (PDF rendition): IRS Notices

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

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Bulletin No. 1996–20
May 13, 1996
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
T.D. 8664, page 7.
Final regulations under section 6049 of the Code
provide rules regarding the reporting on Form 1042–S
of certain bank deposit interest paid to a U.S. bank
account for an individual who is a nonresident alien of
the U.S. and a Canadian resident.
T.D. 8667, page 4.
Final regulations under section 168 of the Code relate
to the lease term of tax-exempt use property. These
regulations also provide guidance regarding certain like-
kind exchanges among related parties involving tax-
exempt use property.
EXEMPT ORGANIZATIONS
Notice 96–30, page 11.
This notice provides relief from filing Form 3115,
Application for Change in Accounting Method, for
501(c) organizations that are changing their federal tax
accounting methods to comply with the provisions of
Statement of Financial Accounting Standards, No. 116,
Accounting for Contributions Received and Contribu-
tions Made (SFAS 116). This notice also discusses how
a not-for-profit organization that changes its federal tax
accounting methods to conform to SFAS 116 should
report any adjustment required by section 481(a).
Rev. Proc. 96–32, page 14.
Low-income housing guidelines. Guidance on qualifica-
tion for tax-exemption under section 501(c)(3) is
provided for organizations that provide low-income
housing. The guidance includes a safe-harbor procedure
to determine qualification.
Announcement 96–43, page 18.
A list is given of organizations now classified as private
foundations.
ADMINISTRATIVE
Rev. Proc. 96–31, page 11.
Changes in computing depreciation or amortization. An
automatic consent procedure is provided for taxpayers
changing their method of accounting for depreciation or
amortization for property for which less than the
allowable depreciation or amortization is claimed. Rev.
Proc. 92–20 modified.
Announcement 96–41, page 18.
The 1996 Form W–4, Employee’s Withholding Al-
lowance Certificate, is now available.
Announcement 96–42, page 18.
Form 8807, Certain Manufacturers and Retailers Excise
Taxes, and Form 8645, Soil and Water Conservation
Plan Certificate, are obsolete. The IRS has determined
that taxpayers may meet the reporting and certification
requirements of these forms by reporting the required
information on other forms.
Finding Lists begin on page 22.

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

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Introduction
The Internal Revenue Bulletin is the authoritative
instrument of the Commissioner of Internal Revenue for
announcing official rulings and procedures of the
Internal Revenue Service and for publishing Treasury
Decisions, Executive Orders, Tax Conventions, legisla-
tion, court decisions, and other items of general
interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscrip-
tion basis. Bulletin contents of a permanent nature 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 substantive rulings necessary to promote a uniform
application of the tax laws, including all rulings that
supersede, revoke, modify, or amend any of those
previously published in the Bulletin. All published
rulings apply retroactively unless otherwise indicated.
Procedures relating solely to matters of internal
management are not published; however, statements of
internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the
Service on the application of the law to the pivotal facts
stated in the revenue ruling. In those based on
positions taken in rulings to taxpayers or technical
advice to Service field offices, identifying details and
information of a confidential nature are deleted to
prevent unwarranted invasions of privacy and to comply
with statutory requirements.
Rulings and procedures reported in the Bulletin do not
have the force and effect of Treasury Department
Regulations, but they may be used as precedents.
Unpublished rulings will not be relied on, used, or cited
as precedents by Service personnel in the disposition of
other cases. In applying published rulings and proce-
dures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be
considered, and Service personnel and others con-
cerned are cautioned against reaching 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 Subpart B, Legislation
and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and
Subparts. Also included in this part are Bank Secrecy
Act Administrative Rulings. Bank Secrecy Act Admin-
istrative Rulings are issued by the Department of the
Treasury’s Office of the Assistant Secretary
(Enforcement).
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemak-
ing and the disbarment and suspension list included in
this part, none of these announcements are consoli-
dated in the Cumulative Bulletins.
The first Bulletin for each month includes an index for
the matters published during the preceding month.
These monthly indexes are cumulated on a quarterly
and semiannual basis, and are published in the first
Bulletin of the succeeding quarterly and semi-annual
period, respectively.
The Bulletin Index-Digest System, a research and
reference service supplementing the Bulletin, may be
obtained from the Superintendent of Documents on a
subscription basis. It consists of four Services: Service
No. 1, Income Tax; Service No. 2, Estate and Gift
Taxes; Service No. 3, Employment Taxes; Service No.
4, Excise Taxes. Each Service consists of a basic
volume and a cumulative supplement that provides (1)
finding lists of items published in the Bulletin, (2)
digests of revenue rulings, revenue procedures, and
other published items, and (3) indexes of Public Laws,
Treasury Decisions, and Tax Conventions.
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, D.C. 20402.

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Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 167.—Depreciation
If a taxpayer changes from claiming less than
the allowable depreciation to claiming the al-
lowable depreciation for property subject to
section 167, is this change a change in method of
accounting. See Rev. Proc. 96–31, page 11.
26 CFR 1.167(e)–1: Change in method.
If a taxpayer changes from claiming less than
the allowable depreciation to claiming the al-
lowable depreciation, is this change a change in
method of accounting. See Rev. Proc. 96–31,
page 11.
Section 168.—Accelerated Cost
Recovery System
26 CFR 1.168(h)(1): Like-kind exchanges
involving tax-exempt use property.
T.D. 8667
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Lease Term; Exchanges of Tax-
Exempt Use Property
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations relating to the lease
term of tax-exempt use property. The
final regulations also provide guidance
regarding certain like-kind exchanges
among related parties involving tax-
exempt use property.
DATES: These regulations are effective
April 29, 1996.
For dates of applicability see ‘‘Effec-
tive dates’’ section under the ‘‘SUP-
PLEMENTARY INFORMATION’’
p o r t i o n o f t h e p r e a m b l e a n d
§§1.168(h)–1(e) and 1.168(i)–2(g).
FOR FURTHER INFORMATION
CONTACT: John M. Aramburu of the
Office of Assistant Chief Counsel
(Income Tax and Accounting) at (202)
622-4960 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final regula-
tions under section 168 of the Internal
Revenue Code of 1986 (Code). The
regulations provide guidance relating to
certain exchanges of tax-exempt use
property among related parties and the
determination of lease term under
certain circumstances. Proposed regula-
tions (IA–18–95 [1995–1 C.B. 955])
were published in the Federal Register
on April 21, 1995 (60 FR 19868). The
IRS received a number of comments on
the proposed regulations. A scheduled
public hearing was cancelled because
there were no requests to testify. After
consideration of all the comments, the
regulations proposed by IA–18–95 are
adopted as revised by this Treasury
decision. The revisions are discussed
below.
Overview
Under section 168, property used in
a trade or business, or held for the
production of income, generally may be
depreciated under the general deprecia-
tion system (GDS) using accelerated
methods over relatively short recovery
periods. However, certain property,
including ‘‘tax-exempt use property,’’
must be depreciated under the alterna-
tive depreciation system (ADS) de-
scribed in section 168(g). Section
168(h)(1)(A) generally defines tax-
exempt use property to include tangible
property (other than nonresidential real
property) leased to a tax-exempt entity.
For this purpose, certain foreign en-
tities and persons are considered tax-
exempt entities.
Congress subjected tax-exempt use
property to a slower depreciation sys-
tem than GDS to prevent tax-exempt
entities from indirectly claiming tax
benefits (in the form of reduced
rentals) ‘‘from investment incentives
for which they [would] not qualify
directly, and effectively gain[ing] the
advantage of taking income tax deduc-
tions and credits while having no
corresponding liability to pay any tax
on income from the property.’’ S. Rep.
No. 169 (Vol. 1), 98th Cong., 2d Sess.
123 (1984).
In particular, section 168(g)(3)(A)
provides that tax-exempt use property
subject to a lease must be depreciated
using the straight-line method over a
period equal to the greater of the
property’s class life or 125 percent of
the lease term. Under section 168(i)(3),
options to renew generally must be
taken into account in determining the
lease term and the periods of certain
successive leases must be aggregated
with the period of an original lease.
Lease term
The proposed regulations generally
include an additional period of time
during which a lessee may not continue
to be the lessee in the lease term if the
lessee (or a related person) has agreed
that one or both of them will or could
be obligated to make a payment of
rent, or a payment in the nature of rent,
with respect to such period. The ar-
rangements described in the proposed
regulations are frequently referred to as
‘‘replacement leases.’’ One commenta-
tor requested that the portion of the
proposed regulations dealing with re-
placement leases be withdrawn. The
commentator argued that Congress
would not have intended that the term
of the replacement lease be taken into
account in determining lease term. The
IRS and Treasury believe that the
proposed regulations are consistent
with Congressional intent, and thus the
final regulations retain this portion of
the proposed regulations.
Another commentator indicated that
application of the proposed regulations
was unclear where property is subject
to multiple leases, possibly involving
multiple parties. The final regulations
clarify that if property is subject to
more than one lease (including any
sublease) entered into as part of a
single transaction (or a series of related
transactions), the lease term shall in-
clude all periods described in one or
more of such leases. Thus, for example,
if one taxable corporation leases prop-
erty to another taxable corporation for
a 20-year term and, as part of the same
transaction, the lessee subleases the
property to a tax-exempt entity for a
10-year term, then the lease term of the
property is 20 years, and during the
period of tax-exempt use it must be
depreciated using the straight line
method over the greater of its class life
or 25 years.
Finally, the final regulations provide
that lease term also includes any period

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during which the lessee (or a related
party) has assumed or retained any risk
of loss with respect to the property
(including, for example, by holding a
note secured by the property). The IRS
and Treasury believe that such an
arrangement is generally similar to the
replacement leases described in the
proposed regulations. As in the case of
a replacement lease, the lessee is
assuming risk with respect to the value
of the property at the termination of the
initial lease term. In addition, the term
of the debt provides an objective
indication that the useful life of the
property exceeds the original term of
the lease, in which case failure to
include the term of the debt in the
lease term could allow a tax-exempt
lessee to benefit from depreciation
deductions that exceed economic de-
preciation, which would be contrary to
Congressional intent.
Like-kind exchanges
The proposed regulations also ad-
dress certain transactions between re-
lated persons that are designed to
circumvent the tax-exempt use property
rules through the use of a like-kind
exchange described in section 1031.
The proposed regulations provide that
property (tainted property) transferred
directly or indirectly to the taxpayer by
a related person (the related party) as
part of, or in connection with, a
transaction described in section 1031
where the related party receives tax-
exempt use property (related tax-
exempt use property) will, if the tainted
property is subject to an allowance for
depreciation, be treated in the same
manner as the related tax-exempt use
property for purposes of determining
the allowable depreciation deduction
under section 167(a). Under this rule,
the tainted property is depreciated by
the taxpayer over the remaining recov-
ery period of, and using the same
depreciation method and convention as
that of, the related tax-exempt use
property.
The rule applies only with respect to
direct or indirect transfers of property
involving related persons where (1)
section 1031 applies to any party, and
(2) a principal purpose of the transfer
is to avoid or limit the application of
ADS. For purposes of this rule, a
person is related to another person if
they bear a relationship specified in
section 267(b) or section 707(b)(1). An
exchange between members of a con-
solidated group in a taxable year
beginning on or after July 12, 1995,
will not be subject to this provision
because section 1031 does not apply to
i n t e r c o m p a n y t r a n s a c t i o n s . S e e
§1.1502–80(f).
No comments were received with
respect to the treatment of like-kind
exchanges under the proposed regula-
tions. Accordingly, these provisions of
the proposed regulations are adopted
without modification by this Treasury
decision.
Effective dates
The definition of lease term is
generally applicable to leases entered
into on or after April 20, 1995. The
changes made by the final regulations
apply to leases entered into after April
26, 1996. The treatment of like-kind
exchanges is applicable to transfers
made on or after April 20, 1995. No
inference is intended by these effective
dates as to the treatment of any trans-
action under prior law. The regulations
do not preclude the application of
common law doctrines (such as the
substance over form or step transaction
doctrines) and other authorities to
transactions described in the regulations
(e.g., as to whether a particular transac-
tion should be characterized as a lease
or a conditional sale for federal income
tax purposes).
Special analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It has also been
determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) and the Regulatory Flex-
ibility Act (5 U.S.C. chapter 6) do not
apply to these regulations, and there-
fore, a Regulatory Flexibility Analysis
is not required. Pursuant to section
7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking
preceding these regulations was submit-
ted to the Small Business Administra-
tion for comment on its impact on
small business.
Drafting Information
The principal author of these regula-
tions is John M. Aramburu of the
Office of Assistant Chief Counsel
(Income Tax and Accounting). How-
ever, other personnel from the IRS and
Treasury Department participated in
their development.
******
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding entries
in numerical order to read as follows:
Authority: 26 U.S.C. 7805 ** *
Section 1.168(h)–1 also issued under
26 U.S.C. 168. ** *
Section 1.168(i)–2 also issued under
26 U.S.C. 168. ** *
Par. 2. Sections 1.168(h)–1 and
1.168(i)–2 are added to read as follows:
§1.168(h)–1 Like-kind exchanges
involving tax-exempt use property.
(a)Scope. (1) This section applies
with respect to a direct or indirect
transfer of property among related
persons, including transfers made
through a qualified intermediary (as
defined in §1.1031(k)–1(g)(4)) or other
unrelated person, (a transfer) if—
(i)Section 1031 applies to any party
to the transfer or to any related
transaction; and
(ii)A principal purpose of the trans-
fer or any related transaction is to
avoid or limit the application of the
alternative depreciation system (within
the meaning of section 168(g)).
(2)For purposes of this section, a
person is related to another person if
they bear a relationship specified in
section 267(b) or section 707(b)(1).
(b)Allowable depreciation deduction
for property subject to this section—(1)
In general. Property (tainted property)
transferred directly or indirectly to a
taxpayer by a related person (related
party) as part of, or in connection with,
a transaction in which the related party
receives tax-exempt use property (re-
lated tax-exempt use property) will, if
the tainted property is subject to an
allowance for depreciation, be treated
in the same manner as the related tax-
exempt use property for purposes of
determining the allowable depreciation

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deduction under section 167(a). Under
this paragraph (b), the tainted property
is depreciated by the taxpayer over the
remaining recovery period of, and
using the same depreciation method
and convention as that of, the related
tax-exempt use property.
(2)Limitations—(i) Taxpayer’s basis
in related tax-exempt use property. The
rules of this paragraph (b) apply only
with respect to so much of the tax-
payer’s basis in the tainted property as
does not exceed the taxpayer’s adjusted
basis in the related tax-exempt use
property prior to the transfer. Any
excess of the taxpayer’s basis in the
tainted property over its adjusted basis
in the related tax-exempt use property
prior to the transfer is treated as
property to which this section does not
apply. This paragraph (b)(2)(i) does not
apply if the related tax-exempt use
property is not acquired from the tax-
payer (e.g., if the taxpayer acquires the
tainted property for cash but section
1031 nevertheless applies to the related
party because the transfer involves a
qualified intermediary).
(ii)Application of section 168(i)(7).
This section does not apply to so much
of the taxpayer’s basis in the tainted
property as is subject to section
168(i)(7).
(c)Related tax-exempt use property.
(1) For purposes of paragraph (b) of
this section, related tax-exempt use
property includes—
(i)Property that is tax-exempt use
property (as defined in section 168(h))
at the time of the transfer; and
(ii)Property that does not become
tax-exempt use property until after the
transfer if, at the time of the transfer, it
was intended that the property become
tax-exempt use property.
(2)For purposes of determining the
remaining recovery period of the re-
lated tax-exempt use property in the
circumstances described in paragraph
(c)(1)(ii) of this section, the related tax-
exempt use property will be treated as
having, prior to the transfer, a lease
term equal to the term of any lease that
causes such property to become tax-
exempt use property.
(d)Examples. The following exam-
ples illustrate the application of this
section. The examples do not address
common law doctrines or other au-
thorities that may apply to recharacter-
ize or alter the effects of the trans-
actions described therein. Unless
otherwise indicated, parties to the
transactions are not related to one
another.
Example 1. (i) X owns all of the stock of two
subsidiaries, B and Z. X, B and Z do not file a
consolidated federal income tax return. On May
5, 1995, B purchases an aircraft (FA) for $1
million and leases it to a foreign airline whose
income is not subject to United States taxation
and which is a tax-exempt entity as defined in
section 168(h)(2). On the same date, Z owns an
aircraft (DA) with a fair market value of $1
million, which has been, and continues to be,
leased to an airline that is a United States
taxpayer. Z’s adjusted basis in DA is $0. The
next day, at a time when each aircraft is still
worth $1 million, B transfers FA to Z (subject to
the lease to the foreign airline) in exchange for
DA (subject to the lease to the airline that is a
United States taxpayer). Z realizes gain of $1
million on the exchange, but that gain is not
recognized pursuant to section 1031(a) because
the exchange is of like-kind properties. Assume
that a principal purpose of the transfer of DA to
B or of FA to Z is to avoid the application of the
alternative depreciation system. Following the
exchange, Z has a $0 basis in FA pursuant to
section 1031(d). B has a $1 million basis in DA.
(ii)B has acquired property from Z, a related
person; Z’s gain is not recognized pursuant to
section 1031(a); Z has received tax-exempt use
property as part of the transaction; and a
principal purpose of the transfer of DA to B or
of FA to Z is to avoid the application of the
alternative depreciation system. Accordingly, the
transaction is within the scope of this section.
Pursuant to paragraph (b) of this section, B must
recover its $1 million basis in DA over the
remaining recovery period of, and using the same
depreciation method and convention as that of,
FA, the related tax-exempt use property.
(iii)If FA did not become tax-exempt use
property until after the exchange, it would still
be related tax-exempt use property and paragraph
(b) of this section would apply if, at the time of
the exchange, it was intended that FA become
tax-exempt use property.
Example 2. (i) X owns all of the stock of two
subsidiaries, B and Z. X, B and Z do not file a
consolidated federal income tax return. B and Z
each own identical aircraft. B’s aircraft (FA) is
leased to a tax-exempt entity as defined in
section 168(h)(2) and has a fair market value of
$1 million and an adjusted basis of $500,000.
Z’s aircraft (DA) is leased to a United States
taxpayer and has a fair market value of $1
million and an adjusted basis of $10,000. On
May 1, 1995, B and Z exchange aircraft, subject
to their respective leases. B realizes gain of
$500,000 and Z realizes gain of $990,000, but
neither person recognizes gain because of the
operation of section 1031(a). Moreover, assume
that a principal purpose of the transfer of DA to
B or of FA to Z is to avoid the application of the
alternative depreciation system.
(ii)As in Example 1, B has acquired property
from Z, a related person; Z’s gain is not
recognized pursuant to section 1031(a); Z has
received tax-exempt use property as part of the
transaction; and a principal purpose of the
transfer of DA to B or of FA to Z is to avoid the
application of the alternative depreciation system.
Thus, the transaction is within the scope of this
section even though B has held tax-exempt use
property for a period of time and, during that
time, has used the alternative depreciation system
with respect to such property. Pursuant to
paragraph (b) of this section, B, which has a
substituted basis determined pursuant to section
1031(d) of $500,000 in DA, must depreciate the
aircraft over the remaining recovery period of
FA, using the same depreciation method and
convention. Z holds tax-exempt use property
with a basis of $10,000, which must be
depreciated under the alternative depreciation
system.
(iii)Assume the same facts as in paragraph (i)
of this Example 2, except that B and Z are
members of an affiliated group that files a
consolidated federal income tax return. Of B’s
$500,000 basis in DA, $10,000 is subject to
section 168(i)(7) and therefore not subject to this
section. The remaining $490,000 of basis is
subject to this section. But see §1.1502–80(f)
making section 1031 inapplicable to intercom-
pany transactions occurring in consolidated re-
turn years beginning on or after July 12, 1995.
(e)Effective date. This section ap-
plies to transfers made on or after April
20, 1995.
§1.168(i)–2 Lease term.
(a)In general. For purposes of
section 168, a lease term is determined
under all the facts and circumstances.
Paragraph (b) of this section and
§1.168(j)–1T, Q&A 17, describe certain
circumstances that will result in a
period of time not included in the
stated duration of an original lease
(additional period) nevertheless being
included in the lease term. These rules
do not prevent the inclusion of an
additional period in the lease term in
other circumstances.
(b)Lessee retains financial obliga-
tion—(1) In general. An additional
period of time during which a lessee
may not continue to be the lessee will
nevertheless be included in the lease
term if the lessee (or a related
person)—
(i)Has agreed that one or both of
them will or could be obligated to
make a payment of rent or a payment
in the nature of rent with respect to
such period; or
(ii)Has assumed or retained any risk
of loss with respect to the property for
such period (including, for example, by
holding a note secured by the
property).
(2)Payments in the nature of rent.
For purposes of paragraph (b)(1)(i) of
this section, a payment in the nature of
rent includes a payment intended to
substitute for rent or to fund or sup-
plement the rental payments of another.
For example, a payment in the nature
of rent includes a payment of any kind
(whether denominated as supplemental

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rent, as liquidated damages, or other-
wise) that is required to be made in the
event that—
(i)The leased property is not leased
for the additional period;
(ii)The leased property is leased for
the additional period under terms that
do not satisfy specified terms and
conditions;
(iii)There is a failure to make a
payment of rent with respect to such
additional period; or
(iv)Circumstances similar to those
described in paragraph (b)(2)(i), (ii), or
(iii) of this section occur.
(3)De minimis rule. For the pur-
poses of this paragraph (b), obligations
to make de minimis payments will be
disregarded.
(c)Multiple leases or subleases. If
property is subject to more than one
lease (including any sublease) entered
into as part of a single transaction (or a
series of related transactions), the lease
term includes all periods described in
one or more of such leases. For
example, if one taxable corporation
leases property to another taxable cor-
poration for a 20-year term and, as part
of the same transaction, the lessee
subleases the property to a tax-exempt
entity for a 10-year term, then the lease
term of the property for purposes of
section 168 is 20 years. During the
period of tax-exempt use, the property
must be depreciated under the alterna-
tive depreciation system using the
straight line method over the greater of
its class life or 25 years (125 percent
of the 20-year lease term).
(d)Related person. For purposes of
paragraph (b) of this section, a person
is related to the lessee if such person is
described in section 168(h)(4).
(e)Changes in status. Section
168(i)(5) (changes in status) applies if
an additional period is included in a
lease term under this section and the
leased property ceases to be tax-exempt
use property for such additional period.
(f)Example. The following example
illustrates the principles of this section.
The example does not address common
law doctrines or other authorities that
may apply to cause an additional
period to be included in the lease term
or to recharacterize a lease as a
conditional sale or otherwise for federal
income tax purposes. Unless otherwise
indicated, parties to the transactions are
not related to one another.
Example. Financial obligation with respect to
an additional period—(i) Facts. X, a taxable
corporation, and Y, a foreign airline whose
income is not subject to United States taxation,
enter into a lease agreement under which X
agrees to lease an aircraft to Y for a period of 10
years. The lease agreement provides that, at the
end of the lease period, Y is obligated to find a
subsequent lessee (replacement lessee) to enter
into a subsequent lease (replacement lease) of the
aircraft from X for an additional 10-year period.
The provisions of the lease agreement require
that any replacement lessee be unrelated to Y
and that it not be a tax-exempt entity as defined
in section 168(h)(2). The provisions of the lease
agreement also set forth the basic terms and
conditions of the replacement lease, including its
duration and the required rental payments. In the
event Y fails to secure a replacement lease, the
lease agreement requires Y to make a payment to
X in an amount determined under the lease
agreement.
(ii)Application of this section. The lease
agreement between X and Y obligates Y to make
a payment in the event the aircraft is not leased
for the period commencing after the initial 10-
year lease period and ending on the date the
replacement lease is scheduled to end. Accord-
ingly, pursuant to paragraph (b) of this section,
the term of the lease between X and Y includes
such additional period, and the lease term is 20
years for purposes of section 168.
(iii)Facts modified. Assume the same facts as
in paragraph (i) of this Example, except that Y is
required to guarantee the payment of rentals
under the 10-year replacement lease and to make
a payment to X equal to the present value of any
excess of the replacement lease rental payments
specified in the lease agreement between X and
Y, over the rental payments actually agreed to be
paid by the replacement lessee. Pursuant to
paragraph (b) of this section, the term of the
lease between X and Y includes the additional
period, and the lease term is 20 years for
purposes of section 168.
(iv)Changes in status. If, upon the conclusion
of the stated duration of the lease between X and
Y, the aircraft either is returned to X or leased to
a replacement lessee that is not a tax-exempt
entity as defined in section 168(h)(2), the
subsequent method of depreciation will be
determined pursuant to section 168(i)(5).
(g)Effective date—(1) In general.
Except as provided in paragraph (g)(2)
of this section, this section applies to
leases entered into on or after April 20,
1995.
(2)Special rules. Paragraphs (b)(1)-
(ii) and (c) of this section apply to
leases entered into after April 26, 1996.
Margaret Milner Richardson,
Commissioner of Internal Revenue
Approved March 26, 1996.
Leslie Samuels,
Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on
April 26, 1996, 8:45 a.m., and published in the
issue of the Federal Register for April 29,
1996, 61 F.R. 18675)
Section 168.—Accelerated Cost
Recovery System
If a taxpayer changes from claiming less than
the allowable depreciation to claiming the
allowable depreciation for property subject to
section 168, is this change a change in method of
accounting. See Rev. Proc. 96–31, page 11.
Section 197.—Amortization of
Goodwill and Certain Other
Intangibles
If a taxpayer changes from claiming less than
the allowable amortization to claiming the
allowable amortization for an amortizable section
197 intangible, is this change a change in method
of accounting. See Rev. Proc. 96–31, page 11.
Section 446.—General Rule for
Methods of Accounting
If a taxpayer changes from claiming less than
the allowable depreciation or amortization to
claiming the allowable depreciation or amortiza-
tion, is this change a change in method of
accounting. See Rev. Proc. 96–31, page 11.
26 CFR 1.446–1: General rule for methods of
accounting.
If a taxpayer changes from claiming less than
the allowable depreciation or amortization to
claiming the allowable depreciation or amortiza-
tion, is this change a change in method of
accounting. See Rev. Proc. 96–31, page 11.
Section 6049.—Returns Regarding
Payments of Interest
26 CFR 1.6049–4: Return of information as to
interest paid and original issue discount
includible in gross income after December 31,
1982.
T.D. 8664
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 31 and 602
Information Reporting and Backup
Withholding
Agency: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations that provide rules

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regarding the reporting on Form 1042–
S of certain bank deposit interest paid
with respect to a United States bank
account to an individual who is a
nonresident alien of the United States
and a resident of Canada. The IRS has
determined that information concerning
those deposits would be of significant
use in furthering its compliance efforts,
which include exchange of tax informa-
tion with Canada.
EFFECTIVE DATE: January 1, 1997.
FOR FURTHER INFORMATION
CONTACT: Teresa Burridge Hughes,
(202) 622-3880 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in this final regulation has been
reviewed and approved by the Office of
Management and Budget in accordance
with the requirements of the Paperwork
Reduction Act (44 U.S.C. 3507) under
control number 1545–0096. Responses
to this collection of information are
mandatory.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information
displays a valid control number.
The estimated annual burden per
respondent/recordkeeper is approxi-
mately .10 hour, depending on individ-
ual circumstances.
Comments concerning the accuracy
of this burden estimate and suggestions
for reducing this burden should be
directed to the Internal Revenue Serv-
ice, Attn: IRS Reports Clearance Of-
ficer, PC:FP, Washington DC 20224,
and the Office of Management and
Budget, Attn: Desk Officer for the
Department of the Treasury, Office of
Information and Regulatory Affairs,
Washington, DC 20503.
Books or records relating to this
collection of information must be re-
tained 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 final regula-
tions to be added to the Income Tax
Regulations (26 CFR part 1) under
section 6049 of the Internal Revenue
Code (Code). The final regulations
provide rules regarding reporting on
Form 1042–S of certain bank deposit
interest paid with respect to a United
States bank account to a nonresident
alien individual who is a resident of
Canada.
Proposed regulations on this subject
were set forth, at §§1.6049–5(e)(2),
1.6049–6(e)(6), and 31.3406(a)–3(b)(1),
in a notice of proposed rulemaking
published in the Federal Register (53
FR 5991) on February 29, 1988
[INTL–52–86 (1988–1 C.B. 892)]. The
IRS received comments on the pro-
posed regulations and held a public
hearing on June 15, 1989. Having
considered the comments and the state-
ments made at the hearing, the IRS and
the Treasury Department adopt the
proposed regulations as modified by
this Treasury decision.
Explanation of Provisions
A.Reporting of payments to
Canadians
This Treasury decision requires re-
porting on a Form 1042–S of certain
interest paid on deposits maintained at
a bank’s office within the United States
when paid to a nonresident alien
individual who is a resident of Canada.
However, interest on certain bearer
certificates of deposit targeted to for-
eign persons is excepted from the
reporting requirement if the interest is
paid outside the United States. This
final regulation makes an exception to
the current rule, based on §1.6049–
5(b), that certain interest amounts paid
to non-U.S. persons is not subject to
reporting if a statement certifying non-
U.S. status is furnished to the payor or
middleman on a Form W–8 (Certificate
of Foreign Status), as described in
§1.6049–5(b)(2)(iv). However, although
bank deposit interest paid to Canadians
is made subject to reporting under this
final regulation, backup withholding
under section 3406 is not required.
Further, in response to suggestions
from commentators that segregating
interest amounts on the basis of re-
sidence would be burdensome, this
final regulation allows payors volun-
tarily to report on a Form 1042–S
payments to all foreign persons receiv-
ing bank deposit interest without segre-
gating on the basis of residency.
The payor determines whether a
payee is a Canadian resident based on
the address in the country of permanent
residence required to be provided on
the Form W–8. However, if the payor
has actual knowledge that the payee is
a U.S. person, Form 1099 reporting
provisions apply.
See proposed regulations published
elsewhere in this issue of the Federal
Register regarding proposed changes to
the notice of proposed rulemaking
published in the Federal Register on
February 29, 1988.
B.Comments on Canadian reporting
provisions
Commentors stated that imposing
information reporting with respect to
deposits of nonresident aliens may
undercut the competitiveness of U.S.
banks. The IRS and Treasury con-
sidered these comments but, in light of
our obligations under the United States-
Canada income tax treaty and the
reporting by Canadian banks of U.S.
depositor interest to Canadian tax au-
thorities, have decided to finalize these
proposed regulations.
In response to comments that the
reporting requirement be delayed, or at
least that a transition period be al-
lowed, because of the time required to
identify Canadian account holders and
to modify processing systems for re-
porting purposes, the new reporting
requirement will be phased in over a
three-year period, starting with pay-
ments made on or after January 1,
1997. On or after that date, payors will
identify Canadian account holders as
Forms W–8 are received from new
depositors or renewed by existing
depositors. Upon identifying account
holders as Canadians, payors must
begin reporting bank deposit interest
paid to those persons.
Commentors also requested that the
IRS develop and permit Form 1042–S
reporting on magnetic diskette, as is
allowed for Form 1099 filings; permit
the Form 1042–S to be the transmittal
document for the Form 1042–S filing;
and allow financial institutions to file
separate tapes or diskettes for each area
of the bank, rather than bank-wide.
These filing changes have previously
been made by the IRS and require no
further action.

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Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It also has been
determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) and the Regulatory Flex-
ibility Act (5 U.S.C. chapter 6) do not
apply to these regulations, and, there-
fore, a Regulatory Flexibility Analysis
is not required.
Drafting Information
The principal author of these regula-
tions is Teresa Burridge Hughes, Office
of Associate Chief Counsel (Interna-
tional). However, other personnel from
the IRS and Treasury Department
participated in their development.
******
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 31 and
602 are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority for part 1
is amended by adding entries in numer-
ical order to read as follows:
Authority: 26 U.S.C. 7805 ** *
Sections 1.6049–4 also issued under
26 U.S.C. 6049(a), (b), (c), and (d).
Section 1.6049–5 also issued under
26 U.S.C. 6049(a), (b), (c), and (d).
* * *
Par. 2. Section 1.6049–4 is amended
by:
1.Removing the reference ‘‘(b)(3)’’
and adding ‘‘(b)(3) and (b)(5)’’ in its
place in the first sentence of paragraphs
(b)(1) and (b)(2) introductory text.
2.Revising the first sentence of
paragraphs (b)(3) and (b)(4).
3.Adding paragraph (b)(5).
4.Removing the authority citation at
the end of the section.
The revisions and addition read as
follows:
§1.6049–4 Return of information as
to interest paid and original issue
discount includible in gross income
after December 31, 1982.
******
(b) * * *
(3) * ** Except as provided in
paragraph (b)(5) of this section, every
person acting as a middleman (as
defined in paragraph (f)(4) of this
section) shall make an information
return on Forms 1096 and 1099 for the
calendar year. ** *
(4) * ** Except as provided in
paragraph (b)(5) of this section, every
person carrying on the banking busi-
ness who makes payments of interest to
another person (whether or not ag-
gregating $10 or more) during a
calendar year with respect to a certifi-
cate of deposit issued in bearer form
shall make an information return on
Forms 1096 and 1099. ** *
(5)Interest payments to Canadian
nonresident alien individuals—(i) Gen-
eral rule. In the case of interest paid to
a Canadian nonresident alien individual
(as described in §1.6049–8(a)), the
payor or middleman shall make an
information return on Form 1042–S for
the calendar year in which the interest
is paid. The payor or middleman shall
prepare and transmit Form 1042–S at
the time and in the manner prescribed
by section 1461 and the regulations
under that section and by the form and
its accompanying instructions. See
§1.6049–6(e)(4) for furnishing a copy
of the Form 1042–S to the payee. To
determine whether an information re-
turn is required for original issue
discount, see §§1.6049–5(c) and
1.6049–8(a).
( i i )E f f e c t i v e d a t e. P a r a g r a p h
(b)(5)(i) of this section shall be effec-
tive for payments made after December
31, 1996 with respect to a Form W–8
(Certificate of Foreign Status) furnished
to the payor or middleman after that
date.
******
Par. 3. Section 1.6049–5 is amended
by:
1.Revising the introductory text of
paragraph (b)(1).
2.Revising the last sentence in
paragraph (c).
3.Removing authority citation at the
end of the section.
The revisions read as follows:
§1.6049–5 Interest and original issue
discount subject to reporting after
December 31, 1982.
******
(b) * ** (1) ** * Subject to the
provisions of §1.6049–8, the term
interest does not include:
******
(c) * ** Original issue discount on
an obligation (including an obligation
with a maturity of not more than 6
months from the date of original issue)
held by a nonresident alien individual
or foreign corporation is interest de-
scribed in paragraph (b)(1)(vi)(A) or
(B) of this section and, therefore is not
interest subject to reporting under
section 6049 unless it is described in
§1.6049–8(a) (relating to bank deposit
interest paid to a Canadian nonresident
alien individual).
Par. 4. Section 1.6049–6 is amended
by:
1.Redesignating paragraph (e)(4) as
paragraph (e)(5).
2.Adding new paragraph (e)(4).
The addition reads as follows:
§1.6049–6 Statements to recipients of
interest payments and holders of
obligations for attributed original
issue discount.
******
(e) * * *
(4)Special rule for amounts de-
scribed in §1.6049–8(a) paid after
December 31, 1996. In the case of
amounts described in §1.6049–8(a) (re-
lating to payments of interest to Cana-
dian nonresident alien individuals) paid
after December 31, 1996, any person
who makes a Form 1042–S under
section 6049(a) and §1.6049–4(b)(5)
shall furnish a statement to the recip-
ient. The statement shall include a copy
of the Form 1042–S required to be
prepared pursuant to §1.6049–4(b)(5)
and a statement to the effect that the
information on the Form is being
furnished to the United States Internal
Revenue Service and may be furnished
to Canada.
******
Par. 5. Section 1.6049–8 is added to
read as follows:
§1.6049–8 Interest and original issue
discount paid to residents of Canada.
(a)Interest subject to reporting re-
quirement. For purposes of §§1.6049–4,
1.6049–6 and this section and except as
provided in paragraph (b) of this

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section, the term interest means interest
paid to a Canadian nonresident alien
individual after December 31, 1996,
where the interest is described in
section 871(i)(2)(A) with respect to a
deposit maintained at an office within
the United States. For purposes of the
regulations under section 6049, a Cana-
dian nonresident alien individual is an
individual who resides in Canada and
is not a United States citizen. The
payor or middleman may rely upon the
permanent residence address (as de-
fined in section 1441 and the regula-
tions under that section) as stated on
the Form W–8 (described in section
6049 and the regulations under that
section) in order to determine whether
the payment is made to a Canadian
nonresident alien individual. Amounts
described in this paragraph (a) are not
subject to backup withholding under
section 3406. See §31.3406(g)–1(d) of
this chapter.
(b)Interest excluded from reporting
requirement. The term interest does not
include an amount that is paid by the
issuer or its agent outside the United
States with respect to an obligation that
is described in paragraph (b)(1) or (2)
of this section.
(1)(i)The obligation is not in regis-
tered form (within the meaning of
section 163(f) and the regulations
thereunder); is part of a larger single
public offering of securities; and is
described in section 163(f)(2)(B).
(ii)Unless it has actual knowledge
to the contrary, a middleman may treat
an obligation as if it is described in
section 163(f)(2)(B) if the obligation or
coupon therefrom, whichever is pre-
sented for payment, contains the state-
ment described in section 163(f)(2)(B)-
(ii)(II) and the regulations thereunder.
(2)(i)The obligation has a face or
principal amount of not less than
$500,000, and satisfies the require-
m e n t s d e s c r i b e d i n p a r a g r a p h s
(b)(2)(i)(A), (B), and (C) of this
section.
(A)The obligation satisfies the re-
quirements of sections 163(f)(2)(B)(i)
and (ii)(I) and the regulations there-
under (as if it were a registration-
required obligation within the meaning
of section 163(f)(2)(A)) and is issued
in accordance with the procedures of
§1.163–5(c)(2)(i)(D)).
(B)If the obligation is in registered
form, it is registered in the name of an
exempt recipient described in §1.6049–
4(c)(1)(ii).
(C)The obligation has on its face
and on any detachable coupons the fol-
lowing statement (or a similar state-
ment having the same effect): ‘‘By
accepting this obligation or coupon, the
holder represents and warrants that it is
not a United States person (other than
an exempt recipient described in the
regulations under section 6049(b)(4) of
the Internal Revenue Code and the
regulations thereunder) and that it is
not acting for or on behalf of a United
States person (other than an exempt
recipient described in the regulations
under section 6049(b)(4) of the Internal
Revenue Code and the regulations
thereunder).’’
(ii)Unless the middleman has actual
knowledge to the contrary, it may treat
an obligation as satisfying the require-
ments of sections 163(f)(2)(B)(i) and
(ii)(I) and the regulations thereunder if
the obligation or a coupon therefrom,
whichever is presented for payment,
contains the statement in paragraph
(b)(2)(i)(C) of this section.
PART 31—EMPLOYMENT TAXES
AND COLLECTION OF INCOME
TAX AT SOURCE
Par. 6. The authority for part 31
continues to read in part as follows:
Authority: 26 U.S.C. 7805 ** *
Par. 7. Section 31.3406(g)–1 is
amended by adding paragraph (d) to
read as follows:
§31.3406(g)–1 Exception for payments
to certain payees and certain other
payments.
******
(d)Reportable payments made to
Canadian nonresident alien individuals.
A payment of interest made to a
Canadian nonresident alien individual
under §1.6049–8(a) of this chapter is
not subject to withholding under sec-
tion 3406.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 8. The authority for part 602
continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 9.Section 602.101, paragraph
(c) is amended by removing the entry
‘‘§31.3406(a)–1 – §31.3406(i)–1’’ and
adding entries to the table in numerical
order to read as follows:
§602.101 OMB Control numbers.
******
(c)* * *
CFR part or sectionCurrent OMB
where identifiedcontrol number
and described
******
1.6049–6............... 1545–0096
******
31.3406(a)–1............ 1545–0112
31.3406(a)–2............ 1545–0112
31.3406(a)–3............ 1545–0112
31.3406(a)–4............ 1545–0112
31.3406(b)(2)–1.......... 1545–0112
31.3406(b)(2)–2.......... 1545–0112
31.3406(b)(2)–3.......... 1545–0112
31.3406(b)(2)–4.......... 1545–0112
31.3406(b)(2)–5.......... 1545–0112
31.3406(b)(3)–1.......... 1545–0112
31.3406(b)(3)–2.......... 1545–0112
31.3406(b)(3)–3.......... 1545–0112
31.3406(b)(3)–4.......... 1545–0112
31.3406(b)(4)–1.......... 1545–0112
31.3406(c)–1............ 1545–0112
31.3406(d)–1............ 1545–0112
31.3406(d)–2............ 1545–0112
31.3406(d)–3............ 1545–0112
31.3406(d)–4............ 1545–0112
31.3406(e)–1............ 1545–0112
31.3406(f)–1............ 1545–0112
31.3406(g)–1............ 1545–0096
1545–0112
31.3406(g)–2............ 1545–0112
31.3406(g)–3............ 1545–0112
31.3406(h)–1............ 1545–0112
31.3406(h)–2............ 1545–0112
31.3406(h)–3............ 1545–0112
31.3406(i)–1............ 1545–0112
******
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved March 27, 1996.
Leslie Samuels,
Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on
April 15, 1996, 10:24 a.m., and published in
the issue of the Federal Register for April 22,
1996, 61 F.R. 17572)

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Part III. Administrative, Procedural, and Miscellaneous
Relief from Filing Form 3115 for a
Change in Methods of Accounting
Required by Statement of Financial
Accounting Standards No. 116
Notice 96–30
The purpose of this Notice is to
provide relief from filing Form 3115,
Application for Change in Accounting
Method, to organizations described in
section 501(c) of the Internal Revenue
Code that are changing their methods
of accounting for federal income tax
purposes to comply with the provisions
of Statement of Financial Accounting
Standards No. 116, Accounting for
Contributions Received and Contribu-
tions Made (SFAS 116).
In SFAS 116 the Financial Account-
ing Standards Board revised certain
generally accepted accounting princi-
ples relating to contributions received
and contributions awarded by not-for-
profit organizations. Not-for-profit or-
ganizations described in section 501(c)
of the Code that change to the methods
of accounting provided in SFAS 116
for federal income tax purposes, will
not be required, in this situation, to file
Form 3115, Application for Change in
Accounting Method.
Not-for-profit organizations de-
scribed in section 501(c) may change
to the methods provided in SFAS 116
for federal income tax purposes for any
tax year beginning after December 15,
1994, by properly reflecting the effect
of the change, in the manner described
below, on a timely filed (including
extensions) Form 990-series return for
the tax year of the change. Any not-
for-profit organization described in sec-
tion 501(c) that is not required to file a
Form 990-series information return for
the tax year of the change may change
to the methods provided in SFAS 116
for federal income tax purposes without
notifying the Service of the change.
A not-for-profit organization that
changes its methods of accounting for
federal income tax purposes to conform
to the methods provided in SFAS 116
should report any adjustment required
by section 481(a) on line 20 of Form
990 or 990–EZ or in Part III of Form
990–PF as a net asset adjustment made
during the year the change is made.
The adjustment should be identified as
the effect of changing to the methods
provided in SFAS 116. The beginning
of year statement of financial position
(balance sheet) should not be restated
to reflect any prior period adjustments.
If the adjustment reflects contributions
not reported under the old methods for
year(s) preceding the year of change
and not reported under the new
methods in the year of change or any
subsequent year, any contributor of an
amount included in the adjustment who
meets the criteria described in the
instructions to line 1 of Form 990 or
990–EZ or line 1 of Part 1 of Form
990–PF should be included in the list
of contributors required to be attached
to Form 990, 990–EZ or 990–PF for
the year of the change.
For further information regarding
this notice, contact John Roman Faron
at (202) 622-7645 (not a toll free call).
26 CFR 601.204: Changes in accounting
periods and in methods of accounting.
(Also Part I, §§167, 168, 197, 446; 1.167(e)–
1, 1.446–1)
Rev. Proc. 96–31
SECTION 1. PURPOSE
This revenue procedure provides an
automatic consent procedure that per-
mits a taxpayer who has claimed less
than the depreciation or amortization
allowable to change the taxpayer’s
method of accounting to claim allow-
able depreciation or amortization. The
omitted depreciation or amortization
from years prior to the year of change
will be taken into account through a
§ 481(a) adjustment. The taxpayer has
the option of either making the method
change under this revenue procedure or
requesting permission to make the
method change under Rev. Proc. 92–
20, 1992–1 C.B. 685 (or any suc-
cessor).
SECTION 2. BACKGROUND
.01A change from not claiming the
depreciation or amortization allowable
(hereafter, depreciation means deprecia-
tion or amortization) to claiming the
depreciation allowable is a change in
method of accounting for which the
consent of the Commissioner of Inter-
nal Revenue is required. Sections
1.167(e)–1(a) and 1.446–1(e)(2)(ii)(b)
of the Income Tax Regulations.
.02To obtain this consent, a Form
3115, Application for Change in Ac-
counting Method, generally must be
filed within 180 days after the begin-
ning of the taxable year in which the
proposed change is to be made. Section
1.446–1(e)(3)(i).
.03The Commissioner is authorized
to prescribe administrative procedures
setting forth the limitations, terms, and
conditions as the Commissioner deems
necessary to obtain consent for effect-
ing a change in method of accounting
and to prevent amounts from being
duplicated or omitted, including the
taxable year or years in which the
§ 481(a) adjustment is to be taken into
account. Section 1.446–1(e)(3)(ii).
.04In computing taxable income,
§ 481(a) of the Internal Revenue Code
requires a taxpayer to take into account
those adjustments necessary to prevent
amounts from being duplicated or
omitted when the taxpayer’s taxable
income is computed under a method of
accounting different from the method
used to compute taxable income for the
preceding taxable year.
.05The basis of depreciable prop-
erty is reduced by the amount of the
depreciation allowed or allowable,
w h i c h e v e r i s g r e a t e r . S e c t i o n
1016(a)(2).
.06Unless otherwise provided in
this revenue procedure, the terms ‘‘tax-
payer’’, ‘‘year of change’’, and ‘‘filed’’
have the meaning given to them by
sections 3.01, 3.03, and 3.04 of Rev.
Proc. 92–20 (or any successor),
respectively.
SECTION 3. SCOPE
.01Application of this revenue pro-
cedure. Except as provided in sections
3.02 and 3.03 of this revenue proce-
dure, this revenue procedure applies to
any taxpayer changing to a permissible
method of accounting for depreciation
for any item of property that: (1) under
the taxpayer’s present method of ac-
counting, the taxpayer has not taken
into account any depreciation al-
lowance or has taken into account some
depreciation but less than the deprecia-
tion allowable (hereafter, referred to as
claimed less than the depreciation
allowable); (2) is subject to §167,

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§ 168, §197, or §168 prior to its
amendment in 1986 (former §168);
and (3) is held by the taxpayer as of
the beginning of the year of change.
.02Non-application of this revenue
procedure. This revenue procedure
does not apply to:
(1)Any property to which §1016-
(a)(3) (generally relating to property
held by a tax-exempt organization)
applies;
(2)Any intangible property subject
to §167, except for property subject to
§ 167(f) (pertaining to certain property
excluded from §197);
(3)Any property for which a tax-
payer is seeking either to revoke a
timely election, or to make a late
election, under §167, §168, former
§ 168, or §13261(g)(2) or (3) of the
Revenue Reconciliation Act of 1993
(the ‘‘1993 Act’’), 1993–3 C.B. 1, 128
(relating to amortizable §197 intang-
ibles). A taxpayer may request consent
to revoke or make the election by sub-
mitting a request for a letter ruling
under Rev. Proc. 96–1, 1996–1 I.R.B. 8
(or any successor);
(4)Except for property subject to
§ 167(f), any property subject to §167
for which a taxpayer is changing only
the estimated useful life of the prop-
erty. A change in the estimated useful
life of property subject to §167 must
be made prospectively. See, e.g.,
§ 1.167(b)–2(c);
(5)Any depreciable property that
changes use but continues to be owned
by the same taxpayer. See, e.g.,
§ 168(i)(5);
(6)Any property for which a tax-
payer has claimed depreciation in ex-
cess of the depreciation allowable;
(7)Any change in method of ac-
counting involving a change from
deducting the cost or other basis of any
property as an expense to capitalizing
and depreciating the cost or other basis;
(8)Any change in method of ac-
counting involving a change from one
permissible method of accounting for
the property to another permissible
method of accounting for the property.
For example, a:
(a)Change from the straight-line
method of depreciation to the income
forecast method of depreciation for
videocassettes. See Rev. Rul. 89–62,
1989–1 C.B. 78; or
(b)Change from charging the de-
preciation reserve with costs of re-
moval and crediting the depreciation
reserve with salvage proceeds to de-
ducting costs of removal as an expense
and including salvage proceeds in
taxable income. See Rev. Rul. 74–455,
1974–2 C.B. 63; or
(9)Any change in method of ac-
counting for an item of income or
deduction other than depreciation even
if a taxpayer’s present method of
accounting may have resulted in the
taxpayer claiming less than the de-
preciation allowable. For example, a
change in accounting method involving
a:
(a)Change in inventory costs (for
example, when property is reclassified
from inventory property to depreciable
property); or
(b)Change in the character of a
transaction from sale to lease.
.03Taxpayer under criminal inves-
tigation or proceeding. If a criminal
investigation or proceeding is pending
concerning (1) any issue directly or
indirectly related to a taxpayer’s federal
tax liability for any taxable year, or (2)
the possibility of false or fraudulent
statements made by the taxpayer re-
garding any issue related to the tax-
payer’s federal tax liability for any
taxable year, this revenue procedure
does not apply to the taxpayer.
.04Procedures available when a
method change may not be made under
this revenue procedure. If a change in
accounting method is not permitted
under this revenue procedure solely by
reason of section 3.02(1), 3.02(2),
3.02(6), 3.02(7), 3.02(8), or 3.02(9) of
this revenue procedure, a taxpayer must
file a Form 3115 in accordance with
the requirements of either Rev. Proc.
92–20 (or any successor) or any other
applicable revenue procedure pertaining
to the method change. Thus, for exam-
ple, if a taxpayer wants to change from
claiming more than the depreciation
allowable on some items of property
but also opts to use this revenue
procedure to change from claiming less
than the depreciation allowable on
other items of property, the taxpayer
must file two Forms 3115—one Form
3115 under Rev. Proc. 92–20 (or any
successor) for the over-depreciated
property and one Form 3115 under this
revenue procedure for the under-
depreciated property. The taxpayer,
however, files one Form 3115 if the
taxpayer uses Rev. Proc. 92–20 (or any
successor) to change the method of
accounting for both the under- and
over-depreciated properties.
SECTION 4. CONSENT TO
CHANGE
.01Consent granted. The consent of
the Commissioner under §1.446–1(e)-
(2)(i) is granted to any taxpayer within
the scope of this revenue procedure to
make a method change to a permissible
method of accounting for depreciation
for any item of property within the
scope of this revenue procedure. This
consent is granted, however, only if the
taxpayer complies with section 5 of
this revenue procedure. If the taxpayer
does not comply with section 5 of this
revenue procedure, the taxpayer will be
deemed to have initiated a change in
method of accounting without obtaining
the consent of the Commissioner re-
quired under §446(e).
.02Effect of consent. The consent
that is granted under this revenue
procedure does not constitute an opin-
ion of the Commissioner regarding the
propriety of a taxpayer’s proposed
method of accounting. Consequently, if
the proposed method of accounting is
an impermissible method of accounting,
the Service may change the taxpayer’s
proposed method of accounting to a
permissible method of accounting in
any open year.
SECTION 5. MANNER OF
EFFECTING AUTOMATIC
CHANGE
.01 General procedure.
(1)Complete and file a current
Form 3115. A taxpayer makes a
change in method of accounting under
this revenue procedure by completing
and filing a current Form 3115 in
duplicate. The original of the Form
3115 must be filed with the Office of
Associate Chief Counsel (Domestic)
(national office) on or before 180 days
after the beginning of the year of
change and addressed to the Commis-
sioner of Internal Revenue, Attn:
CC:DOM:P&SI:6, Room 5112, P.O.
Box 7604, Ben Franklin Station, Wash-
ington, DC 20044. In addition, a copy
of the Form 3115 must be attached to
the taxpayer’s timely filed (including
extensions) federal income tax return
for the year of change.
The 180-day filing period begins on
the first day of any taxable year. If the
taxable year is a short taxable year
(less than 12 full months), the original
of the Form 3115 must be filed with
the national office no later than 180

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days after the beginning of the short
taxable year or, if earlier, no later than
the last day of the short taxable year.
In completing the current Form 3115
(Rev. February 1996), the taxpayer must
complete Schedule D, Part II, Change in
Depreciation or Amortization (page 7 of
the Form 3115), and any other applica-
ble schedule. With respect to Parts I
through III on pages 1 and 2 of the
current Form 3115, the taxpayer must
provide only the information requested
on the following lines:
(a)Part I, Eligibility To Re-
quest Change (page 1)-lines 1, 2a and
b, and 6;
(b) Part II, Description of
Change (page 2)-line 8 and to the
extent not provided elsewhere on the
Form 3115, lines 10, 11, 12, 13, 17,
18a and b, and 19; and
(c)Part III, Section 481(a) Ad-
justment (page 2)-lines 20, 22, 23, and
25.
(2)Label. The taxpayer should
type or legibly print at the top of the
Form 3115: ‘‘AUTOMATIC METHOD
CHANGE UNDER REV. PROC. 96–
31.’’
(3)No user fee and acknowledg-
ment. No user fee is required for a
Form 3115 filed under this revenue
procedure and a Form 3115 filed
pursuant to this revenue procedure will
not be acknowledged.
.02Permissible method of account-
ing for depreciation must be used. A
taxpayer must change to a permissible
method of accounting for depreciation
for the item of property. This method is
the same method that determines the
depreciation allowable for the item of
property (as determined under section 7
of this revenue procedure).
.03Year of change. The year of
change is the taxable year for which
the original of the Form 3115 is
considered timely filed with the na-
tional office under section 5.01(1) of
this revenue procedure.
.04Section 481(a) adjustment.
(1)In general. A change in
method of accounting under this reve-
nue procedure is treated as a voluntary
change in method of accounting that is
initiated by the taxpayer and, therefore,
the §481(a) adjustment is not restricted
to post-1953 items.
(2)Amount of §481(a) adjust-
ment. The §481(a) adjustment is a
negative §481(a) adjustment (decrease
in taxable income) to prevent the
omission of the allowable but un-
claimed depreciation for open and
closed years prior to the year of
change. This negative §481(a) adjust-
ment equals the difference between the
total amount of depreciation taken into
account in computing taxable income
for the property under the taxpayer’s
present method of accounting, and the
total amount of depreciation allowable
for the property under the taxpayer’s
proposed method of accounting (as
determined under section 7 of this
revenue procedure), for any taxable
year prior to the year of change. The
amount of the negative §481(a) adjust-
ment, however, must be offset by any
allowable but unclaimed depreciation
that is required to be capitalized under
any provision of the Code (for exam-
ple, §263A) as of the beginning of the
year of change.
(3)Section 481(a) adjustment
period. A taxpayer must take the entire
negative §481(a) adjustment into ac-
count in computing the taxable income
in the year of change.
.05Basis adjustment. The basis of
depreciable property to which this
revenue procedure applies must reflect
the reductions required by §1016(a)(2)
for the depreciation allowable for the
property (as determined under section 7
of this revenue procedure).
SECTION 6. REVIEW OF FORM
3115
The Form 3115 will be subject to
review by the national office. In
addition, the facts underlying the
method change, including the amount
of any §481(a) adjustment and any
§ 1016(a)(2) adjustment to the basis of
the property, will be subject to verifica-
tion by the district director. If the Form
3115 is reviewed and the taxpayer’s
proposed method of accounting appears
to be an impermissible method of
accounting for depreciation or the
taxpayer or property appears to be
outside the scope of this revenue
procedure, the national office or the
district director will notify the tax-
payer, in writing, that consent is not
granted under this revenue procedure.
The taxpayer then may complete and
file a new Form 3115 under this
revenue procedure or Rev. Proc. 92–20
(or any successor), as applicable. The
year of change for this new Form 3115
will be determined in accordance with
the requirements of such revenue
procedure.
SECTION 7. MEANING OF
DEPRECIATION ALLOWABLE
.01In general. This section 7 dis-
cusses the amount of the depreciation
allowable determined under § 167,
§ 168, §197, or former §168. This
amount, however, may be limited under
other provisions of the Code (for
example, §280F).
.02Section 167 property. Generally,
for any taxable year, the depreciation
allowable for property subject to §167
is determined either: (1) under the
depreciation method adopted by a tax-
payer for the property; or (2) if this
depreciation method does not result in
a reasonable allowance for depreciation
or a taxpayer has not adopted a de-
preciation method for the property,
under the straight-line depreciation
method. For determining the estimated
useful life and salvage value of the
property, see §1.167(a)–1(b) and (c),
respectively. The depreciation allow-
able for any taxable year for property
subject to §167(f) (pertaining to cer-
tain property excluded from §197) is
determined by using the depreciation
method and useful life prescribed in
§ 167(f).
.03Section 168 property. The de-
preciation allowable for any taxable
year for property subject to §168 is
determined by using either: (1) the
g e n e r a l d e p r e c i a t i o n s y s t e m i n
§ 168(a); or (2) the alternative de-
preciation system in §168(g) if the
property is required to be depreciated
under the alternative depreciation sys-
tem pursuant to §168(g)(1) or other
provisions of the Code (for example,
property described in §263A(e)(2)(A)
or §280F(b)(1)). Property required to
be depreciated under the alternative
depreciation system pursuant to
§ 168(g)(1) includes property in a class
for which the taxpayer made a timely
election under §168(g)(7).
.04Section 197 property. The de-
preciation allowable for any taxable
year for an amortizable §197 intang-
ible (including any property for which
a timely election under §13261(g)(2)
of the 1993 Act was made) is deter-
mined by using the straight-line method
over a 15-year period.
.05Former §168 property. The de-
preciation allowable for any taxable
year for property subject to former
§ 168 is determined by using either: (1)
the accelerated method of cost recovery
applicable to the property (for example,

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for 5-year property, the recovery
method under former §168(b)(1)); or
(2) the straight-line method applicable
to the property if the property is
required to be depreciated under the
straight-line method (for example,
property described in former §168(f)-
(12) or former §280F(b)(2)) or if the
taxpayer elected to determine the de-
preciation allowance under the optional
straight-line percentage (for example,
the straight-line method in former
§ 168(b)(3)).
SECTION 8. EFFECTIVE DATE
.01In general. This revenue proce-
dure is effective May 13, 1996.
.02Form 3115 already pending with
the Service.
(1)In general. The provisions of
this revenue procedure apply to a
taxpayer with a Form 3115 (including a
Form 3115 filed under the early ap-
plication provision of section 5.01(3) of
Rev. Proc. 92–20) timely filed with the
Service as of May 13, 1996, for a
method change for depreciation to
which this revenue procedure applies.
Therefore, the taxpayer has the option
to make the method change under this
revenue procedure or to request permis-
sion to make the method change under
Rev. Proc. 92–20 (or any successor). In
this regard, the taxpayer must notify
the national office, in writing, on or
before August 15, 1996, as to the
taxpayer’s decision. If the national
office is not notified by August 15,
1996, the Form 3115 will be treated as
filed under Rev. Proc. 92–20.
(2)Manner of effecting automatic
change. If the taxpayer makes the
method change under this revenue
procedure, the taxpayer’s Form 3115
timely filed as of May 13, 1996, will
be treated as being timely filed with
the national office under this revenue
procedure. The original of the Form
3115 will be retained by the national
office. The national office will return a
copy of the Form 3115 to the taxpayer
so that, as required, the taxpayer can
attach the copy to the taxpayer’s timely
filed (including extensions) original
federal income tax return, or to an
amended return, for the year of change.
The receipt of this copy is not an
opinion of the Commissioner regarding
the propriety of the taxpayer’s pro-
posed method of accounting. See sec-
tion 4.02 of this revenue procedure.
If all of the property subject to the
Form 3115 appears to be within the
scope of this revenue procedure and the
taxpayer notifies the national office in
a timely manner that the taxpayer is
making the method change under this
revenue procedure, any user fee sub-
mitted with the Form 3115 will be
returned to the taxpayer.
(3)Year of change. For a taxpayer
with a Form 3115 timely filed as of
May 13, 1996, the taxpayer may make
the method change under this revenue
procedure either for the year of change
originally requested on the Form 3115
(or if this year is a closed year, for the
first subsequent open year) or for the
taxpayer’s taxable year beginning in
1995 or 1996. If the taxpayer modifies
the year of change, the taxpayer must
submit a letter to the national office,
stating the new year of change and any
revised information on the taxpayer’s
Form 3115 to reflect the new year of
change (for example, the revised
§ 481(a) adjustment for the year of
change). This letter must be submitted
on or before August 15, 1996, to the
national office. If the national office is
not notified by August 15, 1996, the
year of change is the one originally
requested on the taxpayer’s Form 3115
(or if this year is a closed year, the
first subsequent open year).
If the taxpayer makes the method
change under this revenue procedure
for under-depreciated property but the
Form 3115 also includes items of
property for which the taxpayer, under
the taxpayer’s present method of ac-
counting, claimed more than the de-
preciation allowable, the year of
change for the over-depreciated prop-
erty will be the same as the year of
change for the under-depreciated
property.
(4)Submission of additional infor-
mation. The additional information re-
quested in section 8.02(1) and (3) of
this revenue procedure must be accom-
panied by the following penalties of
perjury statement: ‘‘Under penalties of
perjury, I declare that I have examined
this request, including accompanying
documents, and to the best of my
knowledge and belief, the facts pre-
sented in support of the requested Form
3115 are true, correct, and complete.’’
This penalties of perjury statement
must be signed and dated by the tax-
payer, not the taxpayer’s representative.
Also, a stamped signature is not
permitted.
The additional information (including
the penalties of perjury statement) must
be addressed to the Commissioner of
Internal Revenue, Attn: CC:DOM:
P&SI:6, Room 5112, P.O. Box 7604,
Ben Franklin Station, Washington, DC
20044.
SECTION 9. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 92–20 is modified.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Kathleen Reed of the
Office of Assistant Chief Counsel
(Passthroughs and Special Industries).
For further information regarding this
revenue procedure, contact Ms. Reed at
(202) 622-3110 (not a toll-free
number).
26 CFR 601.201: Rulings and determination
letters.
(Also Part I, §§501(c)(3); 1.501(c)(3)–1.)
Rev. Proc. 96–32
SECTION 1. PURPOSE
.01 This revenue procedure sets
forth a safe harbor under which organi-
zations that provide low-income hous-
ing will be considered charitable as
described in §501(c)(3) of the Internal
Revenue Code because they relieve the
poor and distressed as described in
§ 1.501(c)(3)–l(d)(2) of the Income Tax
Regulations. This revenue procedure
also describes the facts and circum-
stances test that will apply to determine
whether organizations that fall outside
the safe harbor relieve the poor and
distressed such that they will be
considered charitable organizations de-
scribed in §501(c)(3). It also clarifies
that housing organizations may rely on
other charitable purposes to qualify for
recognition of exemption from federal
income tax as organizations described
in §501(c)(3). These other charitable
purposes are described in §1.501(c)-
(3)–l(d)(2). This revenue procedure
supersedes the application referral de-
scribed in Notice 93–1, 1993–1 C.B.
290.
.02This revenue procedure does not
alter the standards that have long been
applied to determine whether low-
income housing organizations qualify
for tax-exempt status under §501(c)-
(3). Rather, it is intended to expedite

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the consideration of applications for
tax-exempt status filed by such organi-
zations by providing a safe harbor and
by accumulating relevant information
on the existing standards for exemption
in a single document. Low-income
housing organizations that have ruling
or determination letters and have not
materially changed their organizations
or operations from how they were
described in their applications can
continue to rely on those letters.
SEC. 2. BACKGROUND OF SAFE
HARBOR
.01Rev. Rul. 67–138, 1967–1 C.B.
129, Rev. Rul. 70–585, 1970–2 C.B.
115, and Rev. Rul. 76–408, 1976–2
C.B. 145, hold that the provision of
housing for low-income persons ac-
complishes charitable purposes by re-
lieving the poor and distressed. The
Service has long held that poor and
distressed beneficiaries must be needy
in the sense that they cannot afford the
necessities of life. Rev. Ruls. 67–138,
70–585, and 76–408 refer to the needs
of housing recipients and to their
inability to secure adequate housing
under all the facts and circumstances to
determine whether they are poor and
distressed.
.02The existence of a national
housing policy to maintain a commit-
ment to provide decent, safe, and
sanitary housing for every American
family is reflected in several federal
housing acts. See, for example, §2 of
the United States Housing Act of 1937,
42 U.S.C. §1437; §2 of the Housing
Act of 1949, 42 U.S.C. §1441; §2 of
the Housing and Urban Development
Act of 1968, 12 U.S.C. §1701t; and
§§101, 102, and 202 of the Cranston-
Gonzalez National Affordable Housing
Act, 42 U.S.C. §§12701, 12702, and
12721. Not all beneficiaries of these
housing acts, however, are necessarily
poor and distressed within the meaning
of §1.501(c)(3)–l(d)(2).
.03In order to support national
housing policy, the safe harbor con-
tained in this revenue procedure identi-
fies those low-income housing organi-
zations that will, with certainty, be
considered to relieve the poor and
distressed. The safe harbor permits a
limited number of units occupied by
residents with incomes above the low-
income limits in order to assist in the
social and economic integration of the
poorer residents and, thereby, further
the organization’s charitable purposes.
To avoid giving undue assistance to
those who can otherwise afford safe,
decent, and sanitary housing, the safe
harbor requires occupancy by signifi-
cant levels of both very low-income
and low-income families.
.04Low-income housing organiza-
tions that fall outside the safe harbor
may still be considered organizations
that offer relief to the poor and
distressed based on all the surrounding
facts and circumstances. Some of the
facts and circumstances that will be
taken into consideration in determining
whether a low-income housing organi-
zation will be so considered are set
forth in section 4.
.05Low-income housing organiza-
tions may also qualify for tax-exempt
status because they serve a charitable
purpose described in §501(c)(3) other
than relief of the poor and distressed.
Exempt purposes other than relief of
the poor and distressed are discussed in
section 6.
.06To be recognized as exempt
from income tax under §501(c)(3), a
low-income housing organization must
not only serve a charitable purpose but
also meet the other requirements of that
section, including the prohibitions
against inurement and private benefit.
Specific concerns with respect to these
prohibitions are set forth in section 7.
SEC. 3. SAFE HARBOR FOR
RELIEVING THE POOR AND
DISTRESSED
.01An organization will be consid-
ered charitable as described in
§ 501(c)(3) if it satisfies the following
requirements:
(1)The organization establishes
for each project that (a) at least 75
percent of the units are occupied by
residents that qualify as low-income;
and (b) either at least 20 percent of the
units are occupied by residents that
also meet the very low-income limit for
the area or 40 percent of the units are
occupied by residents that also do not
exceed 120 percent of the area’s very
low-income limit. Up to 25 percent of
the units may be provided at market
rates to persons who have incomes in
excess of the low-income limit.
(2)The project is actually oc-
cupied by poor and distressed residents.
For projects requiring construction or
rehabilitation, a reasonable transition
period is allowed for an organization to
place the project in service. Whether an
organization’s transition period is rea-
sonable is determined by reference to
all relevant facts and circumstances.
For projects that do not require sub-
stantial construction or substantial re-
habilitation, a one-year transition
period to satisfy the actual occupancy
requirement will generally be consid-
ered to be reasonable. If a project
operates under a government program
that allows a longer transition period,
this longer period will be used to
determine reasonableness.
(3)The housing is affordable to
the charitable beneficiaries. In the case
of rental housing, this requirement will
ordinarily be satisfied by the adoption
of a rental policy that complies with
government-imposed rental restrictions
or otherwise provides for the limitation
of the tenant’s portion of the rent
charged to ensure that the housing is
affordable to low-income and very low-
income residents. In the case of home-
ownership programs, this requirement
will ordinarily be satisfied by the
adoption of a mortgage policy that
complies with government-imposed
mortgage limitations or otherwise
makes the initial and continuing costs
of purchasing a home affordable to low
and very low-income residents.
(4)If a project consists of multi-
ple buildings and each building does
not separately meet the requirements of
sections 3.01(1), (2), and (3), then the
buildings must share the same grounds.
This requirement does not apply to
organizations that provide individual
homes or individual apartment units
located at scattered sites in the com-
munity exclusively to families with
incomes at or below 80 percent of the
area’s median income.
.02In applying this safe harbor, the
Service will follow the provisions listed
below:
(1)Low-income families and very
low-income families will be identified
in accordance with the income limits
computed and published by the Depart-
ment of Housing and Urban Develop-
ment (‘‘HUD’’) in Income Limits for
Low and Very Low-Income Families
Under the Housing Act of 1937. The
term ‘‘very low-income’’ is defined by
the relevant housing statute as 50
percent of an area’s median income.
The term ‘‘low-income’’ is defined by
the same statute as 80 percent of an
area’s median income. However, these
income limits may be adjusted by HUD

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to reflect economic differences, such as
high housing costs, in each area. The
income limits are then tailored to
reflect different family sizes. If HUD’s
program terminates, the Service will
use income limits computed under such
program as is in effect immediately
before such termination. Copies of all
or part of HUD’s publication may be
obtained by calling HUD at (800)
245-2691 (HUD charges a small fee to
cover costs of reproduction).
(2)The retention of the right to
evict tenants for failure to pay rent or
other misconduct, or the right to fore-
close on homeowners for defaulting on
loans will not, in and of itself, cause
the organization to fail to meet the safe
harbor.
(3) An organization originally
meeting the safe harbor will continue to
satisfy the requirements of the safe
harbor if a resident’s income increases
and causes the organization to fail the
safe harbor, provided that the resident’s
income does not exceed 140 percent of
the applicable income limit under the
safe harbor. If the resident’s income
exceeds 140 percent of the qualifying
income limit, the organization will not
fail to meet the safe harbor if it rents
the next comparable non-qualifying unit
to someone under the income limits.
(4)To be considered charitable, an
organization that provides assistance to
the aged or physically handicapped who
are not poor must satisfy the require-
ments set forth in Rev. Rul. 72124,
1972–1 C.B. 145, Rev. Rul. 79–18,
1979–1 C.B. 194, and Rev. Rul. 79–19,
1979–1 C.B. 195. If an organization
meets the safe harbor, then it does not
need to meet the requirements of these
rulings even if all of its residents are
elderly or handicapped residents. How-
ever, an organization may not use a
combination of elderly or handicapped
persons and low-income persons to
establish the 75-percent occupancy re-
quirement of the safe harbor. An
organization with a mix of elderly or
handicapped residents and low-income
residents may still qualify for tax-
exempt status under the facts and
circumstances test set forth in section 4.
SEC. 4. FACTS AND
CIRCUMSTANCES TEST FOR
RELIEVING THE POOR AND
DISTRESSED
.01If the safe harbor contained in
section 3 is not satisfied, an organiza-
tion may demonstrate that it relieves
the poor and distressed by reference to
all the surrounding facts and circum-
stances.
.02 Facts and circumstances that
demonstrate relief of the poor may
include, but are not limited to, the
following:
(1)A substantially greater per-
centage of residents than required by
the safe harbor with incomes up to 120
percent of the area’s very low-income
limit.
(2)Limited degree of deviation
from the safe harbor percentages.
(3)Limitation of a resident’s por-
tion of rent or mortgage payment to
ensure that the housing is affordable to
low-income and very low-income
residents.
(4)Participation in a government
housing program designed to provide
affordable housing.
( 5 ) O p e r a t i o n t h r o u g h a
community-based board of directors,
particularly if the selection process
demonstrates that community groups
have input into the organization’s
operations.
(6)The provision of additional
social services affordable to the poor
residents.
(7)Relationship with an existing
501(c)(3) organization active in low-
income housing for at least five years
if the existing organization demon-
strates control.
(8)Acceptance of residents who,
when considered individually, have
unusual burdens such as extremely high
medical costs which cause them to be
in a condition similar to persons within
the qualifying income limits in spite of
their higher incomes.
(9)Participation in a homeowner-
ship program designed to provide
homeownership opportunities for fam-
ilies that cannot otherwise afford to
purchase safe and decent housing.
(10) Existence of affordability
covenants or restrictions running with
the property.
SEC. 5. EXAMPLES
.01Application of the safe harbor
and the facts and circumstances test is
illustrated by the following examples:
(1)Organization N operates pur-
suant to a government program to
provide low and moderate income
housing projects. Seventy percent of
N’s residents have incomes that do not
exceed the area’s low-income limit.
Fifty percent of N’s residents have
incomes that are at or below the area’s
very low-income limit. Under the pro-
gram, N restricts rents charged to
residents below the income limits to no
more than 30 percent of the applicable
low or very low-income limits for N’s
area. N is close to meeting the safe
harbor. N has a substantially greater
percentage of very low-income re-
sidents than required by the safe
harbor; it participates in a federal
housing program; and it restricts its
rents pursuant to an established govern-
ment program. Although N does not
meet the safe harbor, the facts and
circumstances demonstrate that N re-
lieves the poor and distressed.
(2)Organization O will finance a
housing project using tax-exempt bonds
pursuant to §145(d). O will meet the
20–50 test under §142(d)(l)(A). An-
other 45 percent of the residents will
have incomes at or below 80 percent of
the area’s median income. The final 35
percent of the residents will have
incomes above 80 percent of the area’s
median income. O will restrict rents
charged to residents below the income
limits to no more than 30 percent of
the residents’ incomes. O will provide
social services to project residents and
to other low-income residents in the
neighborhood. Also, O will purchase its
project through a government program
designed to retain low-income housing
stock. O does not meet the safe harbor.
However, the facts and circumstances
demonstrate that O relieves the poor
and distressed.
(3)Organization R provides af-
fordable homeownership opportunities
to purchasers determined to be low-
income under a federal housing pro-
gram. The homes are scattered through-
out a section of R’s community.
Beneficiaries under the program cannot
afford to purchase housing without
assistance. R’s program makes the
initial and continuing costs of mort-
gages affordable to the home buyers by
providing assistance with down pay-
ments and closing costs. Homeowners
assisted by R will have the following
composition: 40 percent will not ex-
ceed 140 percent of the very low-
income limit for the area, 25 percent
will not exceed the low-income limit,
and 35 percent will exceed the low-
income limit but will not exceed 115
percent of the area’s median income. R
does not satisfy the safe harbor. How-

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ever, the facts and circumstances dem-
onstrate that R relieves the poor and
distressed.
(4)Organization U will purchase
existing residential rental housing fi-
nanced using tax-exempt bonds issued
in accordance with §145(d). U will
meet the minimum requirements of the
40–60 test of §142(d)(1)(B). It will
provide the balance of its units to
residents with incomes at or above area
median income levels. U has a
community-based board of directors. U
does not satisfy the safe harbor. More-
over, the facts and circumstances do
not demonstrate that U relieves the
poor and distressed.
(5)Organization V provides rental
housing in a section of the city where
income levels are well below the other
parts of the city. All of V’s residents
are below the very low-income limits
for the area, yet they pay rents that are
above 50 percent of the area’s very
low-income limits. V has not otherwise
demonstrated that the housing is afford-
able to its residents. Although the
residents are all considered poor and
distressed under the safe harbor, V does
not relieve the poverty of the residents.
(6) Organization W provides
homeownership opportunities to pur-
chasers with incomes up to 115 percent
of the area’s median income. W does
not meet the income levels required
under the safe harbor. W’s board of
directors is representative of com-
munity interests, and W provides
classes and counseling services for its
residents. The facts and circumstances
do not demonstrate that W relieves the
poor and distressed.
SEC. 6. EXEMPT PURPOSES
OTHER THAN RELIEVING THE
POOR AND DISTRESSED
.01Relief of the poor and distressed,
whether demonstrated by satisfaction of
the safe harbor described in section 3
of this Revenue Procedure or by
reference to the facts and circumstances
test described in section 4, does not
constitute the only exempt purpose that
a housing organization may have. Such
organizations may qualify for exemp-
tion without having to satisfy the
standards for relief of the poor and
distressed by providing housing in a
way that accomplishes any of the
purposes set forth in §501(c)(3) or
§ 1.501(c)(3)–1(d)(2). Those purposes
include, but are not limited to, the
following:
(1)Combatting community deteri-
oration is an exempt purpose, as
illustrated by Rev. Rul. 68–17, 1968–1
C.B. 247, Rev. Rul. 68–655, 1968–2
C.B. 213, Rev. Rul. 70–585, 1970–2
C.B. 115 (Situation 3), and Rev. Rul.
76–147, 1976–1 C.B. 151. An organi-
zation that combats community deterio-
ration must (1) operate in an area with
actual or potential deterioration, and (2)
directly prevent or relieve that deterio-
ration. Constructing or rehabilitating
housing has the potential to combat
community deterioration.
(2)Lessening the burdens of gov-
ernment is an exempt purpose, as
illustrated by Rev. Ruls. 85–1 and 85–
2, 1985–1 C.B. 178. An organization
lessens the burdens of government if
(a) there is an objective manifestation
by the governmental unit that it con-
siders the activities of the organization
to be the government’s burdens, and
(b) the organization actually lessens the
government’s burdens.
(3)Elimination of discrimination
and prejudice is an exempt purpose, as
illustrated by Rev. Rul. 68–655, 1968–
2 C.B. 213, and Rev. Rul. 70–585,
1970–2 C.B. 115 (Situation 2). These
rulings describe organizations that fur-
ther charitable purposes by assisting
persons in specific racial groups to
acquire housing for the purpose of
stabilizing neighborhoods or reducing
racial imbalances.
(4)Lessening neighborhood ten-
sions is an exempt purpose, as illus-
trated by Rev. Rul. 68–655, 1968–2
C.B. 213, and Rev. Rul. 70–585, 1970–
2 C.B. 115 (Situation 2). It is generally
identified as an additional charitable
purpose by organizations that fight
poverty and community deterioration
associated with overcrowding in lower
income areas in which ethnic or racial
tensions are high.
(5)Relief of the distress of the
elderly or physically handicapped is an
exempt purpose, as illustrated by Rev.
Rul. 72–124, 1972–1 C.B. 145, Rev.
Rul. 79–18, 1979–1 C.B. 194, and Rev.
Rul. 79-19, 1979-1 C.B. 195. An
organization may further a charitable
purpose by meeting the special needs
of the elderly or physically handi-
capped.
SEC. 7. OTHER CONSIDERATIONS
If an organization furthers a chari-
table purpose such as relieving the poor
and distressed, it nevertheless may fail
to qualify for exemption because pri-
vate interests of individuals with a
financial stake in the project are
furthered. For example, the role of a
private developer or management com-
pany in the organization’s activities
must be carefully scrutinized to ensure
the absence of inurement or impermiss-
ible private benefit resulting from real
property sales, development fees, or
management contracts.
SEC. 8. EFFECT ON OTHER
DOCUMENTS
Notice 93–1 is superseded.
SEC. 9. EFFECTIVE DATE
This revenue procedure is effective
on [date of publication].
DRAFTING INFORMATION
The principal authors of this revenue
procedure are Lynn Kawecki and Mar-
vin Friedlander. For further information
regarding this revenue procedure, con-
tact Mr. Kawecki at (202) 622-7305
(not a toll free number).

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Part IV. Items of General Interest
Announcement 96–41
1996 Form W–4
The IRS has approved the 1996 Form
W–4, Employee’s Withholding Al-
lowance Certificate, for printing. The
form should be available for distribu-
tion by May 1996. Employers may
order Form W–4 by telephone or they
may use other IRS electronic informa-
tion services to get copies.
Request by—Number or
Address
Telephone1-800-TAX-FORM
(1-800-829-3676)
Computer and
modem
703-321-8020
(modem settings
are N, 8, 1)
Internet:
World Wide
Web
FTP
Telnet
www.irs.ustreas.gov
ftp.irs.ustreas.gov
iris.irs.ustreas.gov
Fax703-487-4160
Employers should remind employees
to check their withholding to see if it is
sufficient. Employees may use Publica-
tion 919, ‘‘Is My Withholding Cor-
rect?,’’ for assistance. If an employee
submitted a 1995 Form W–4 for 1996,
he or she is not required to submit a
1996 Form W–4 but should if the
withholding is not adequate.
Obsolete Federal Tax Forms
Announcement 96–42
Form 8807 and Form 8645 are
obsolete. The IRS has determined that
taxpayers may meet the reporting and
certification requirements of these
forms by reporting the required infor-
mation on other forms, as noted below.
Form 8807, Certain Manufacturers
and Retailers Excise Taxes. Beginning
with the second quarter of 1996,
taxpayers must only summarize these
taxes on Form 720, Quarterly Federal
Excise Tax Return. Rates and other
information on these taxes are included
on Form 720 and in the Instructions for
Form 720.
Form 8645, Soil and Water Conser-
vation Plan Certificate. For tax years
beginning after 1995, taxpayers will no
longer need to file Form 8645. How-
ever, the soil and water conversation
expenses reported on the following
forms must be consistent with an
approved plan: Schedule F (Form
1040), Farming Expenses; Form 4835,
Farm Rental Income and Expenses;
Form 1040–SS, U.S. Self-Employment
Tax Return (Virgin Islands, Guam,
American Samoa, and the Northern
Mariana Islands); and Form 1040–PR,
Planilla Para La Declaracion De La
Contribusion Federal Sobre El Trabajo
Por Cuenta Propia-Puerto Rico.
Foundations Status of Certain
Organizations
Announcement 96–43
The following organizations have
failed to establish or have been unable
to maintain their status as public
charities or as operating foundations.
Accordingly, grantors and contributors
may not, after this date, rely on
previous rulings or designations in the
Cumulative List of Organizations (Pub-
lication 78), or on the presumption
arising from the filing of notices under
section 508(b) of the Code. This listing
does not indicate that the organizations
have lost their status as organizations
described in section 501(c)(3), eligible
to receive deductible contributions.
Former Public Charities. The fol-
lowing organizations (which have been
treated as organizations that are not
private foundations described in section
509(a) of the Code) are now classified
as private foundations:
A G Cox Orchestra Booster Club
Inc., Winterville, NC
Ahoskie Civic Association Inc.,
Ahoskie, NC
Aid To Inmate Mothers, Montgomery,
AL
AIDS Service Agency of Orange
County, Chapel Hill, NC
Alabama Rural Heritage Foundation
Inc., Thomaston, AL
Alabamians for Quality Education
Inc., Birmingham, AL
Arcadia Wildlife Preserve Inc.,
Atlanta, GA
Arkansas Housing Partnership Inc.,
Little Rock, AR
Athens Peace Coalition Inc., Athens,
GA
Barefoot Ballet Inc., Atlanta, GA
Bethesda, Oneonta, AL
Black Swan Center, The, Black
Mountain, NC
Bokwes Cultural Group, Durham, NC
Boys and Girls Club of Putnam
County, Cookeville, TN
Calvin Peete Golf Foundation Inc.,
Atlanta, GA
Care-ag Inc., Charlotte, NC
Carolina Hispanic Community Inc.,
Wilmington, NC
Cars for Kids-Southern Style Inc.,
Selmer, TN
Catholic Education Foundation for
Northwest Arkansas Inc.,
Fayetteville, AR
Central Arkansas Fund for Veterans
Inc., North Little Rock, AR
Central Carolinas Citizens Forum,
Charlotte, NC
Chain of Hope Ministries, Clarksville,
TN
Chapel Hill-Carrboro Community
Foundation, Chapel Hill, NC
Charlotte Philharmonic Society-
Orchestra, Charlotte, NC
Chatom Dixie Youth Baseball Inc.,
Chatom, AL
Chelsea Farms Inc., Memphis, TN
Childrens Rights of America National
Fund Inc., Atlanta, GA
Coastal Georgia Soccer Association
Inc., Savannah, GA
Committee for Public Art Inc.,
Hickory, NC
Committee to Feed the Hungry Inc.,
Atlanta, GA
Community Apartments Corporation
of Rutherford City, Raleigh, NC
Community Housing Development
Services Inc., Nashville, TN
Comprehensive Learning Laboratory
Corp., Fayetteville, NC
Confederate Brass Inc., The, Athens,
GA
Conyers Cherry Blossom Festival
Foundation Inc., Conyers, GA
Cornerstone Foundation, The,
Memphis, TN
Creative Childrens Learning Center
Inc., Birmingham, AL

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Creative Educational Consulting
Services Inc., Reidsville, GA
Credit Wise Company Inc., The,
Memphis, TN
Crime Stoppers of Lexington Inc.,
Lexington, TN
Culturally Specific Treatment
Enhancement Programs Inc.,
Atlanta, GA
David Gries Memorial Foundation
Inc., Montgomery, AL
Decatur County Families in Action,
Parsons, TN
Doulos Fellowship Inc., Hertford, NC
Drug Awarness of Newton County
Inc., Covington, GA
Easley Place Inc., Millington, TN
Eastern Correctional Institution
Community Resource, Maury, NC
Easy Riders Therapeutic
Horsemanship Inc., McCalla, AL
Echo 1 Community Outreach
Services, Roanoke, AL
Economic Development Learning
Center, The, Chocowinity, NC
Ecumenical Consulting Associates
Inc., Atlanta, GA
Ed Care Inc., Brentwood, TN
E H Wilbourn Scholarship Fund of
Huntsville-Madison, Gurley, AL
Em-Art Inc., Kennesaw, GA
End of the Line Inc., The, Memphis,
TN
Envistas Corporation, Blue Ridge, GA
Euclid Arts Collective Inc., Decatur,
GA
Exeter Association of Georgia Inc.,
The, Atlanta, GA
Faith & Culture Society Inc., Grand
Rapids, MI
Family Management Inc.,
Montgomery, AL
First Amazing Grace Ministries Inc.,
Atlanta, GA
Flotilla 17–08 Inc., Charlotte, NC
Forrce Inc., Hamlet, NC
Frayser-Raleigh Community Theatre
Inc., Memphis, TN
Friends of Grandfather Mountain,
Sugar Grove, NC
Friends of Gravette Medical Center
Hospital Inc., The, Gravette, AR
Friends of Jazz Inc., Chattanooga,
TN
Frye Regional Medical Center
Auxiliary, Hickory, NC
Georgia Rails Into Trails Society
Inc., Marietta, GA
Georgia Sentencing Alternatives Inc.,
Marietta, GA
Girls Traveling Softball Association
of Georgia, Douglasville, GA
Gospel Team Outreach International
Ministries Inc., Renoldsburg, OH
Granville Residents Opposed to
Waste Inc., Oxford, NC
Great 100 Inc., The, Laurel Hill, NC
Greater Hamilton County Soccer
Council Inc., Chattanooga, TN
Green Hill Church of Christ Child
Care Center Inc., Mount Juliet, TN
Guardian Ad Litem Volunteer
Association Inc., Jacksonville, NC
Healthcare Transportation Foundation
Inc., Birmingham, AL
Help Our Planet Earth Inc., Atlanta,
GA
Hendersonville Filmmakers Club Inc.,
Hendersville, TN
Henry County Horsemans Assoc.,
McDonough, GA
Hickorys Committee for a Secure
Tomorrow Inc., Hickory, NC
Higher Education Addiction
Prevention Prof of NC Inc.,
Greensboro, NC
H O P E in Cobb Inc., Marietta, GA
Hospice of Johnston County Inc.,
Selma, NC
Hospice of Peach County Inc., Fort
Valley, GA
Host Christian Ministries Inc., The,
Gainesville, GA
House of Sunshine Inc., Asheville,
NC
Huntsville Academy and Forum,
Huntsville, TN
Hunstville Folk Dancers, Huntsville,
AL
In Time Ministries Inc., Memphis,
TN
Institute for Advanced Studies in Life
Support Inc., Huntsville, AL
Institute for Urological Research Inc.,
Nashville, TN
Institute for Wholistic Education Inc.,
Raleigh, NC
Jack Fowler Park, Dr., Walnut Cove,
NC
Jackson Community Housing
Resource Board Inc. Community
Counsel, Jackson, TN
Jobs for Stars Inc., Memphis, TN
Keep Saying No Inc., Fayette, AL
Kentucky-Tennessee Water Pollution
Control Assoc., Nashville, TN
Knox County Task Force Against
Domestic Violence, Knoxville, TN
Knoxville Smokies Baseball Team,
Knoxville, TN
Kurt Einstein Foundation Inc., Cary,
NC
L Anguille Arts Council, Forrest
City, AR
LA Sociedad Panamena De Atlanta
Georgia Inc., Stone Mountain, GA
Leadership Lowdes Inc., Valdosta,
GA
Lebanon High School Blue Devil
Booster Club Inc., The, Lebanon,
TN
Life Way Ministries, Hayden, AL
Main Street Camden Inc., Camden,
AR
Masters Place Inc., The, Atlanta, GA
Maury County Public Education
Foundation, Columbia, TN
Mental Health Association of
Columbus Georgia Inc., Columbus,
GA
Mobile Area African American
Summit, Mobile, AL
Mobile Area Teen Resource Center,
Inc., Mobile, AL
Municipal Park Youth Football
Assoc. Inc., Mobile, AL
Music City Endurance Athletes Inc.,
Nashville, TN
National Committee for Drug
Awareness Inc., Atlanta, GA
NC Association of Plumbing,
Heating, Cooling Contractors
Education FDN Inc., Raleigh, NC
Newborns in Need Foundation Inc.,
Auburn, GA
North Carolina Arboretum Society,
The, Asheville, NC
North Carolina Hunger Network,
Raleigh, NC
North Carolina Partners for
Democracy Foundation, Raleigh,
NC
North Fayette County Volunteer Fire
Department, Mason, TN
North Raleigh Athletic Association
Inc., Raleigh, NC
Northwest Flight Attendants
Emergency Fund, Cordova, TN
Northwestern Carolina Education &
Development Association Inc.,
Boone, NC
Old Fort Community Club, Old Fort,
NC
Orleans Care Home, Memphis, TN
Ozark Therapeutic Weight Training
Center Inc., Marby, AR

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Percussionistic Corporation, Durham,
NC
Persian Commuity Center Inc.,
Atlanta, GA
Phoenix House of Raleigh Inc.,
Raleigh, NC
Pickens Respite Inc., Fairfield, AL
Piedmont Aid Corp., High Point, NC
Pinnacle Ministries, Gatlinburg, TN
Police Athletic League of
Chattanooga Inc., Chattanooga, TN
Power Over Panic Inc., Atlanta, GA
Predator Control and Conservation,
Mobile, AL
Progressive Southeast Arkansas
Housing Development Corp., Pine
Bluff, AR
PWA Inc., Ranger, GA
Radio Reading Services Corp.,
Kingsport, TN
Ralph David Abernathy Foundation
Inc., Atlanta, GA
RE Builders Action Council, Little
Rock, AR
Red Carpet Industry FDN Inc.,
Dalton, GA
Reduce Infant Deaths Foundation,
Winston Salem, NC
Region 1 Football Officials
Scholarship Endowment Bowl,
Johnson City, TN
Ricky Fountain Educational
Foundation Inc., Wilmington, NC
R K Enterprise Child Care Food
Program Inc., Decatur, GA
Robeson County Dispute Resolution
Center, Lumberton, NC
ROHI Inc., Bufford, GA
Rolling Hills Lakes Volunteer Fire
Department, Montgomery, AL
Rowan Environmental Action
Partners—REAP, Salisbury, NC
Roy Bolton Patton JR Scholarship
Endowment Fund, Athens, AL
Royal Pavilions of Creedmoor Inc.,
Creedmoor, NC
Ruth Faison Shaw Memorial
Committee, Chapel Hill, NC
Savannah State College Community
Booster Club Inc., Savannah, GA
Serenity Thru Recovery of
Fayetteville Inc., Fayetteville, NC
Shambhala Institute and Foundation
Inc., Asheville, NC
Society for the Advancement of
Social Psychology Inc., Macon, GA
Society of Parrot Breeders and
Exhibitors Inc., Marietta, GA
South Arkansas County Fine Arts
Council Inc., The, Dewitt, AR
Spavinaw Valley Boy Scout Boosters
Inc., Gravette, AR
Spavinaw Valley United Way,
Gravette, AR
SSS Band Backers Inc., Smithfield,
NC
Stiles Foundation, Statesville, NC
Student Awareness for Environment
in North Carolina, Wrightsville
Beach, NC
Sumner County Minority Historical
Corp., The, Gallatin, TN
If an organization listed above sub-
mits information that warrants the
renewal of its classification as a public
charity or as a private operating foun-
dation, the Internal Revenue Service
will issue a ruling or determination
letter with the revised classification as
to foundation status. Grantors and
contributors may thereafter rely upon
such ruling or determination letter as
provided in section 1.509(a)-7 of the
Income Tax Regulations. It is not the
practice of the Service to announce
such revised classification of founda-
tion status in the Internal Revenue
Bulletin.

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Definition of Terms
Revenue rulings and revenue proce-
dures (hereinafter referred to as ‘‘rul-
ings’’) that have an effect on previous
rulings use the following defined terms
to describe the effect:
Amplified describes a situation where
no change is being made in a prior
published position, but the prior posi-
tion 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 princi-
ple also applies to B, the earlier ruling
is amplified. (Compare with modified,
below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in
a prior ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously
published ruling and points out an
essential difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but
not to B, and the new ruling holds that
it applies to both A and B, the prior
ruling is modified because it corrects a
published position. (Compare with am-
plified and clarified, above).
Obsoleted describes a previously
published ruling that is not considered
determinative with respect to future
transactions. This term is most com-
monly 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 substance has
been included in regulations subse-
quently adopted.
Revoked describes situations where
the position in the previously published
ruling is not correct and the correct
position is being stated in the new
ruling.
Superseded describes a situation
where the new ruling does nothing
more than restate the substance and
situation of a previously published
ruling (or rulings). Thus, the term is
used to republish under the 1986 Code
and regulations the same position pub-
lished under the 1939 Code and regula-
tions. 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 and superseded de-
scribes a situation where the substance
of a previously published 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
superseded.
Supplemented is used in situations in
which a list, such as a list of the names
of countries, is published in a ruling
and that list is expanded by adding
further names in subsequent rulings.
After the original ruling has been
supplemented several times, a new
ruling may be published that includes
the list in the original ruling and the
additions, and supersedes all prior
rulings in the series.
Suspended is used in rare situations
to show that the previous published
rulings will not be applied pending
some future action such as the issuance
of new or amended regulations, the
outcome of cases in litigation, or the
outcome of a Service study.
Abbreviations
The following abbreviations in current use and
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 Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. 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.

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Numerical Finding List
1
Bulletins 1996–1 through 1996–19
Announcements:
96–1, 1996–2 I.R.B. 57
96–2, 1996–2 I.R.B. 57
96–3, 1996–2 I.R.B. 57
96–4, 1996–3 I.R.B. 50
96–5, 1996–4 I.R.B. 99
96–6, 1996–5 I.R.B. 43
96–7, 1996–5 I.R.B. 44
96–8, 1996–7 I.R.B. 56
96–9, 1996–8 I.R.B. 30
96–10, 1996–8 I.R.B. 30
96–11, 1996–9 I.R.B. 11
96–12, 1996–11 I.R.B. 30
96–13, 1996–12 I.R.B. 33
96–14, 1996–12 I.R.B. 35
96–15, 1996–11 I.R.B. 9
96–16, 1996–13 I.R.B. 22
96–17, 1996–13 I.R.B. 22
96–18, 1996–15 I.R.B. 15
96–19, 1996–15 I.R.B. 15
96–20, 1996–15 I.R.B. 15
96–21, 1996–15 I.R.B. 15
96–22, 1996–15 I.R.B. 16
96–23, 1996–18 I.R.B. 7
96–24, 1996–16 I.R.B. 35
96–25, 1996–17 I.R.B. 13
96–26, 1996–17 I.R.B. 13
96–27, 1996–17 I.R.B. 16
96–28, 1996–17 I.R.B. 16
96–29, 1996–17 I.R.B. 17
96–30, 1996–17 I.R.B. 17
96–31, 1996–17 I.R.B. 18
96–32, 1996–17 I.R.B. 18
96–33, 1996–18 I.R.B. 12
96–34, 1996–18 I.R.B. 13
96–35, 1996–18 I.R.B. 13
96–36, 1996–18 I.R.B. 13
96–37, 1996–18 I.R.B. 14
96–38, 1996–19 I.R.B. 84
96–39, 1996–19 I.R.B. 84
96–40, 1996–19 I.R.B. 85
Delegations Orders:
232 (Rev. 2), 1996–7 I.R.B. 49
239 (Rev. 1), 1996–7 I.R.B. 49
Notices:
96–2, 1996–2 I.R.B. 15
96–1, 1996–3 I.R.B. 30
96–4, 1996–4 I.R.B. 69
96–5, 1996–6 I.R.B. 22
96–6, 1996–5 I.R.B. 27
96–7, 1996–6 I.R.B. 22
96–8, 1996–6 I.R.B. 23
96–9, 1996–6 I.R.B. 26
96–10, 1996–7 I.R.B. 47
96–11, 1996–8 I.R.B. 19
See footnote at the end of list.
Notices—Continued
96–12, 1996–10 I.R.B. 29
96–13, 1996–10 I.R.B. 29
96–14, 1996–12 I.R.B. 11
96–15, 1996–13 I.R.B. 19
96–16, 1996–13 I.R.B. 20
96–17, 1996–13 I.R.B. 20
96–18, 1996–14 I.R.B. 27
96–19, 1996–14 I.R.B. 28
96–20, 1996–14 I.R.B. 30
96–21, 1996–14 I.R.B. 30
96–22, 1996–14 I.R.B. 30
96–23, 1996–16 I.R.B. 23
96–24, 1996–16 I.R.B. 23
96–25, 1996–17 I.R.B. 11
96–26, 1996–18 I.R.B. 4
96–27, 1996–18 I.R.B. 4
96–28, 1996–19 I.R.B. 7
96–29, 1996–19 I.R.B. 7
Proposed Regulations:
DL–1–95, 1996–6 I.R.B. 28
EE–20–95, 1996–5 I.R.B. 15
EE–34–95, 1996–3 I.R.B. 49
EE–35–95, 1996–5 I.R.B. 19
EE–53–95, 1996–5 I.R.B. 23
EE–55–95, 1996–12 I.R.B. 12
EE–106–82, 1996–10 I.R.B. 31
EE–142–87, 1996–12 I.R.B. 13
EE–148–81, 1996–11 I.R.B. 29
IA–3–94, 1996–17 I.R.B. 12
IA–33–95, 1996–4 I.R.B. 99
IA–41–93, 1996–11 I.R.B. 29
INTL–3–95, 1996–6 I.R.B. 29
INTL–9–95, 1996–5 I.R.B. 25
INTL–54–95, 1996–14 I.R.B. 39
INTL–62–90; INTL–32–93; INTL–52–86;
INTL–52–94, 1996–19 I.R.B. 26
PS–2–95, 1996–7 I.R.B. 50
PS–4–96, 1996–18 I.R.B. 5
PS–6–95, 1996–16 I.R.B. 27
Revenue Procedures:
96–1, 1996–1 I.R.B. 8
96–2, 1996–1 I.R.B. 60
96–3, 1996–1 I.R.B. 82
96–4, 1996–1 I.R.B. 94
96–5, 1996–1 I.R.B. 129
96–6, 1996–1 I.R.B. 151
96–7, 1996–1 I.R.B. 185
96–8, 1996–1 I.R.B. 187
96–8A, 1996–9 I.R.B. 10
96–9, 1996–2 I.R.B. 15
96–10, 1996–2 I.R.B. 17
96–11, 1996–2 I.R.B. 18
96–12, 1996–3 I.R.B. 30
96–13, 1996–3 I.R.B. 31
96–14, 1996–3 I.R.B. 41
96–15, 1996–3 I.R.B. 41
96–16, 1996–3 I.R.B. 45
96–17, 1996–4 I.R.B. 69
Revenue Procedures—Continued
96–18, 1996–4 I.R.B. 73
96–19, 1996–4 I.R.B. 80
96–20, 1996–4 I.R.B. 88
96–21, 1996–4 I.R.B. 96
96–22, 1996–5 I.R.B. 27
96–23, 1996–5 I.R.B. 27
96–24, 1996–5 I.R.B. 28
96–24A, 1996–15 I.R.B. 12
96–25, 1996–8 I.R.B. 19
96–26, 1996–8 I.R.B. 22
96–27, 1996–11 I.R.B. 27
96–28, 1996–14 I.R.B. 31
96–29, 1996–16 I.R.B. 24
Revenue Rulings:
96–1, 1996–1 I.R.B. 7
96–2, 1996–2 I.R.B. 5
96–3, 1996–2 I.R.B. 14
96–6, 1996–2 I.R.B. 8
96–4, 1996–3 I.R.B. 16
96–5, 1996–3 I.R.B. 29
96–7, 1996–3 I.R.B. 12
96–8, 1996–4 I.R.B. 62
96–9, 1996–4 I.R.B. 5
96–10, 1996–4 I.R.B. 27
96–11, 1996–4 I.R.B. 28
96–12, 1996–9 I.R.B. 4
96–13, 1996–10 I.R.B. 19
96–14, 1996–6 I.R.B. 20
96–15, 1996–11 I.R.B. 9
96–16, 1996–11 I.R.B. 4
96–17, 1996–13 I.R.B. 5
96–18, 1996–13 I.R.B. 4
96–19, 1996–14 I.R.B. 24
96–20, 1996–15 I.R.B. 5
96–21, 1996–15 I.R.B. 7
96–22, 1996–15 I.R.B. 9
96–23, 1996–15 I.R.B. 11
96–24, 1996–19 I.R.B. 5
96–25, 1996–19 I.R.B. 4
Treasury Decisions:
8630, 1996–3 I.R.B. 19
8631, 1996–3 I.R.B. 7
8632, 1996–4 I.R.B. 6
8633, 1996–4 I.R.B. 20
8634, 1996–3 I.R.B. 17
8635, 1996–3 I.R.B. 5
8636, 1996–4 I.R.B. 64
8637, 1996–4 I.R.B. 29
8638, 1996–5 I.R.B. 5
8639, 1996–5 I.R.B. 12
8640, 1996–2 I.R.B. 10
8641, 1996–6 I.R.B. 4
8642, 1996–7 I.R.B. 4
8643, 1996–11 I.R.B. 4
8644, 1996–7 I.R.B. 16
8645, 1996–8 I.R.B. 4
8646, 1996–8 I.R.B. 10
8647, 1996–9 I.R.B. 7

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Numerical Finding List
1
—Continued
Bulletins 1996–1 through 1996–19
Treasury Decisions—Continued
8648, 1996–10 I.R.B. 23
8649, 1996–9 I.R.B. 5
8650, 1996–10 I.R.B. 5
8651, 1996–11 I.R.B. 24
8652, 1996–11 I.R.B. 11
8653, 1996–12 I.R.B. 4
8654, 1996–11 I.R.B. 14
8655, 1996–12 I.R.B. 9
8656, 1996–13 I.R.B. 9
8657, 1996–14 I.R.B. 4
8658, 1996–14 I.R.B. 13
8659, 1996–16 I.R.B. 4
8660, 1996–17 I.R.B. 4
8661, 1996–17 I.R.B. 7
1
A cumulative list of all Revenue Rulings,
Revenue Procedures, Treasury Decisions, etc.,
published in Internal Revenue Bulletins 1995–
27 through 1995–52 will be found in Internal
Revenue Bulletin 1996–1, dated January 2,
1996.

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Finding List of Current Action on
Previously Published Items
1
Bulletins 1996–1 through 1996–19
*Denotes entry since last publication
Delegation Orders:
232 (Rev. 1)
Superseded by
232 (Rev. 2), 1996–7 I.R.B. 49
239
Amended by
239 (Rev. 1), 1996–7 I.R.B. 49
Revenue Procedures:
65–17
Modified by
96–14, 1996–3 I.R.B. 41
66–49
Modified by
96–15, 1996–3 I.R.B. 41
88–32
Obsoleted by
96–15, 1996–3 I.R.B. 41
88–33
Obsoleted by
96–15, 1996–3 I.R.B. 41
89–19
Superseded by
96–17, 1996–4 I.R.B. 69
89–48
Superseded in part by
96–17, 1996–4 I.R.B. 69
91–22
Modified by
96–1, 1996–1 I.R.B. 8
91–22
Amplified by
96–13, 1996–3 I.R.B. 31
91–23
Superseded by
96–13, 1996–3 I.R.B. 31
91–24
Superseded by
96–14, 1996–3 I.R.B. 41
91–26
Superseded by
96–13, 1996–3 I.R.B. 31
92–20
Modified by
96–1, 1996–1 I.R.B. 8
1
A cumulative finding list for previously
published items mentioned in Internal Revenue
Bulletins 1995–27 through 1995–52 will be
found in Internal Revenue Bulletin 1996–1, dated
January 2, 1996.
Revenue Procedures—Continued
92–85
Modified by
96–1, 1996–1 I.R.B. 8
93–16
Superseded by
96–11, 1996–2 I.R.B. 18
93–46
Superseded in part by
96–17, 1996–4 I.R.B. 69
Superseded by
96–18, 1996–4 I.R.B. 73
94–16
Modified by
96–29, 1996–16 I.R.B. 24
94–18
Superseded in part by
96–17, 1996–4 I.R.B. 69
Superseded by
96–18, 1996–4 I.R.B. 73
94–59
Superseded in part by
96–17, 1996–4 I.R.B. 69
Superseded by
96–18, 1996–4 I.R.B. 73
94–62
Modified by
96–29, 1996–16 I.R.B. 24
94–77
Superseded by
96–28, 1996–14 I.R.B. 31
95–1
Superseded by
96–1, 1996–1 I.R.B. 8
95–2
Superseded by
96–2, 1996–1 I.R.B. 60
95–3
Superseded by
96–3, 1996–1 I.R.B. 82
95–4
Superseded by
96–4, 1996–1 I.R.B. 94
95–5
Superseded by
96–5, 1996–1 I.R.B. 129
95–6
Superseded by
96–6, 1996–1 I.R.B. 151
Revenue Procedures—Continued
95–66
Modified by
96–25, 1996–19 I.R.B. 4
95–7
Superseded by
96–7, 1996–1 I.R.B. 185
95–8
Superseded by
96–8, 1996–1 I.R.B. 187
95–13
Superseded by
96–20, 1996–4 I.R.B. 88
95–20
Superseded by
96–24, 1996–5 I.R.B. 28
95–50
Superseded by
96–3, 1996–1 I.R.B. 82
96–3
Amplified by
96–12, 1996–3 I.R.B. 30
Revenue Rulings:
66–307
Obsoleted by
96–3, 1996–2 I.R.B. 14
72–437
Modified by
96–13, 1996–3 I.R.B. 31
80–80
Obsoleted by
96–3, 1996–2 I.R.B. 14
82–80
Modified by
96–14, 1996–3 I.R.B. 41
92–19
Supplemented in part
96–2, 1996–2 I.R.B. 5
92–75
Clarified by
96–13, 1996–3 I.R.B. 31
95–10
Supplemented and superseded by
96–4, 1996–3 I.R.B. 16
95–11
Supplemented and superseded by
96–5, 1996–3 I.R.B. 29
96–24
Modified and amplified by
96–24A, 1996–15 I.R.B. 12