Internal Revenue Bulletin 1997-52 (PDF rendition): IRS Revenue Rulings

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

INCOME TAX
Rev. Rul. 97–53, page 13.
Interest rates; underpayments and overpayments.The
rate of interest determined under section 6621 of the Code
for the calendar quarter beginning January 1, 1998, will be
8 percent for overpayments, 9 percent for underpayments,
and 11 percent for large corporate underpayments. The rate
of interest paid on the portion of a corporate overpayment
exceeding $10,000 is 6.5 percent.
Rev. Rul. 97–54, page 8.
Line pack gas; cushion gas.The cost of recoverable line
pack gas or cushion gas is a capital expenditure and is not
depreciable. The cost of nonrecoverable line pack gas or
cushion gas is a capital expenditure and is depreciable.
Rev. Rul. 97–55, page 7.
Certain cost-sharing payments.The Wetlands Reserve
Program, the Environmental Quality Incentives Program, and
the Wildlife Habitat Incentives Program are substantially sim-
ilar to the type of programs described in section 126(a)(1)
through (8) of the Code so that cost-share payments made
under such programs and in connection with small water-
sheds are within the scope of section 126(a)(9) and,
thereby, cost-share payments received under the programs
are eligible for exclusion from gross income to the extent
permitted by section 126.
Rev. Rul. 97–56, page 10.
Section 1274A inflation-adjusted numbers for 1998.
This ruling provides the dollar amounts, increased by the
1998 inflation adjustment, for section 1274A of the Code.
Rev. Rul. 96–63 supplemented and superseded.
Rev. Rul. 97–57, page 16.
CPI adjustment for below-market loans—1998.The
amount that section 7872(g) of the Code permits a taxpayer
to lend to a qualified continuing care facility without incurring
imputed interest is published and adjusted for inflation for
years 1987–1998. Rev. Rul. 96–64 supplemented and su-
perseded.
EXEMPT ORGANIZATIONS
Announcement 97–125, page 60.
A list is provided of organizations now classified as private
foundations.
Announcement 97–126, page 61.
A list is provided of organizations that no longer qualify as
organizations for which contributions are deductible under
section 170 of the Code.
EMPLOYMENT TAX
Page 12.
Railroad retirement; rate determination; quarterly.The
Railroad Retirement Board has determined that the rate of
tax imposed by section 3221 of the Code shall be 35 cents
for the quarter beginning October 1, 1997, and 35 cents for
the quarter beginning January 1, 1998.
Page 59.
Social security contribution and benefit base; domes-
tic employee coverage threshold.The Commissioner of
the Social Security Administration has announced the OASDI
contribution and benefit base for remuneration paid in 1998
and self-employment income earned in taxable years begin-
ning in 1998. The Commissioner has also determined the
domestic employee coverage threshold amount for 1998.
Internal Revenue
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Bulletin No. 1997–52
December 29, 1997
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Announcement Relating to Court Decisions begins on page 5.
Finding Lists begin on page 63.
Announcement of Declaratory Judgment Proceedings Under Section 7428 begins on page 61.
Continued on page 4.

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

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

ADMINISTRATIVE
Rev. Proc. 97-56, page 18.
Penalties; substantial understatement.Guidance is pro-
vided concerning when information shown on a return in
accordance with the applicable forms and instructions will be
adequate disclosure for purposes of reducing an understate-
ment of income tax under section 6662(d) of the Code.
Rev. Proc. 97–57, page 20.
Cost-of-living adjustments for 1998.The Service provides
cost-of-living adjustments for the tax rate tables for individuals,
estates, and trusts, the standard deduction amounts, the per-
sonal exemption, and several other items that use the adjust-
ment method provided for the tax rate tables. The Service
also provides the adjustment for eligible long-term care pre-
miums and another item that uses the adjustment method pro-
vided for eligible long-term care premiums.
Rev. Proc. 97–58, page 24.
Optional standard mileage rates. This procedure an-
nounces 32.5 cents as the optional rate for deducting or ac-
counting for expenses for business use of an automobile,
14 cents as the optional rate for deducting or accounting for
use of an automobile as a charitable contribution, and 10
cents as the optional rate for deducting or accounting for
use of an automobile as a medical or moving expense for
1998. It provides rules for substantiating the deductible ex-
penses of using an automobile for business, moving, med-
ical, or charitable purposes. Rev. Proc. 96–63 superseded.
Rev. Proc. 97–59, page 31.
Per diem allowances. This procedure provides optional
rules for deeming substantiated the amount of certain reim-
bursed traveling expenses of an employee as well as for de-
termining the amount of deductible meals while traveling
away from home. Rev. Proc. 96–64 superseded.
Rev. Proc. 97–60, page 38.
Electronic filing program; Form 1040. Participants in
the 1998 Electronic Filing Program for the Form 1040 Se-
ries are informed of their obligations to the Service, taxpay-
ers, and other participants.
Rev. Proc. 97–61, page 50.
On-line filing program; Form 1040. Participants in the
1998 On-Line Filing Program for the Form 1040 Series are
informed of their obligations to the Service, taxpayers, and
other participants.
Notice 97–77, page 18.
Partnership magnetic media filing requirement. Guid-
ance is provided to partnerships having more than 100 part-
ners regarding the requirement to file partnership tax returns
on magnetic media.
Announcement 97–124, page 60.
The Service will extend the due date for federal tax deposits
due to the extra federal holiday.
December 29, 199741997–52 I.R.B.
HIGHLIGHTS
OF THIS ISSUE—Continued

1997–52 I.R.B.5December 29, 1997
It is the policy of the Internal Revenue
Service to announce at an early date
whether it will follow the holdings in cer-
tain cases. An Action on Decision is the
document making such an announcement.
An Action on Decision will be issued at
the discretion of the Service only on un-
appealed issues decided adverse to the
government. Generally, an Action on De-
cision is issued where its guidance would
be helpful to Service personnel working
with the same or similar issues. Unlike a
Treasury Regulation or a Revenue Ruling,
an Action on Decision is not an affirma-
tive statement of Service position. It is not
intended to serve as public guidance and
may not be cited as precedent.
Actions on Decisions shall be relied
upon within the Service only as conclu-
sions applying the law to the facts in the
particular case at the time the Action on
Decision was issued. Caution should be
exercised in extending the recommenda-
tion of the Action on Decision to similar
cases where the facts are different. More-
over, the recommendation in the Action
on Decision may be superseded by new
legislation, regulations, rulings, cases, or
Actions on Decisions.
Prior to 1991, the Service published ac-
quiescence or nonacquiescence only in
certain regular Tax Court opinions. The
Service has expanded its acquiescence
program to include other civil tax cases
where guidance is determined to be help-
ful. Accordingly, the Service now may ac-
quiesce or nonacquiesce in the holdings
of memorandum Tax Court opinions, as
well as those of the United States District
Courts, Claims Court, and Circuit Courts
of Appeal. Regardless of the court decid-
ing the case, the recommendation of any
Action on Decision will be published in
the Internal Revenue Bulletin.
The recommendation in every Action
on Decision will be summarized as ac-
quiescence, acquiescence in result only,
or nonacquiescence. Both “acquies-
cence” and “acquiescence in result only”
mean that the Service accepts the holding
of the court in a case and that the Service
will follow it in disposing of cases with
the same controlling facts. However, “ac-
quiescence” indicates neither approval
nor disapproval of the reasons assigned
by the court for its conclusions; whereas,
“acquiescence in result only” indicates
disagreement or concern with some or all
of those reasons. Nonacquiescence signi-
fies that, although no further review was
sought, the Service does not agree with
the holding of the court and, generally,
will not follow the decision in disposing
of cases involving other taxpayers. In ref-
erence to an opinion of a circuit court of
appeals, a nonacquiescence indicates that
the Service will not follow the holding on
a nationwide basis. However, the Service
will recognize the precedential impact of
the opinion on cases arising within the
venue of the deciding circuit.
The announcements published in the
weekly Internal Revenue Bulletins are
consolidated semiannually and annually.
The semiannual consolidation appears in
the first Bulletin for July and in the Cu-
mulative Bulletin for the first half of the
year, and the annual consolidation ap-
pears in the first Bulletin for the follow-
ing January and in the Cumulative Bul-
letin for the last half of the year.
The Commissioner ACQUIESCESin
the following decisions:
Pacific Enterprises and Subsidiaries
v. Commissioner,
101 T.C. 1 (1993)
1
William R. Jackson v. Commissioner,
108 T.C. 130 (1997)
2
The Commissioner does not ACQUI-
ESCEin the following decision:
Transwestern Pipeline Co. v. United
States,
639 F.2d 679 (Ct.Cl. 1980)
3
Announcement Relating to Court Decisions
1
Acquiescence relating to whether the cost of recoverable cushion gas and recoverable line pack gas, the gas used to maintain adequate pressure in a gas storage
facility and a pipeline, respectively, is properly treated as (i) merchandise and thus included in inventory; (ii) a depreciable capital asset; or (iii) a nondepreciable cap-
ital asset.
2
Acquiescence in result only relating to whether Termination Payments from an insurance company to a former insurance agent constitute net earnings from self-
employment within the meaning of section 1402(a) of the Internal Revenue Code (the Code) so as to be subject to tax under the Self-Employment Contributions Act
(SECA).
3
Nonacquiescence relating to whether the cost of recoverable line pack gas, the gas used to charge and operate an interstate natural gas pipeline system, is properly
treated as (i) merchandise and thus included in inventory; (ii) a depreciable capital asset, or (iii) a nondepreciable capital asset.

1997–52 I.R.B.7December 29, 1997
Section 1.—Tax Imposed
26 CFR 1.1–1: Income tax on individuals.
The Service provides adjusted tax tables for indi-
viduals, trusts, and estates for taxable years begin-
ning in 1998 to reflect changes in the cost of living.
Also adjusted is the amount of certain reductions al-
lowed against the unearned income of minor chil-
dren in computing the “kiddie tax,” either on the
child’s return or, in the alternative, on a parent’s re-
turn. The amounts used to determine whether a par-
ent may elect to report the “kiddie tax” on the par-
ent’s return are also adjusted. See Rev. Proc. 97–57,
page 20.
Section 32.—Earned Income
26 CFR 1.32–2: Earned income credit for taxable
years beginning after December 31, 1978.
The Service provides inflation adjustments to the
limitations on the earned income tax credit for tax-
able years beginning in 1998. See Rev. Proc. 97–57,
page 20.
Section 62.—Adjusted Gross
Income Defined
26 CFR 1.62–2: Reimbursements and other expense
allowance arrangements.
Rules under which a reimbursement or other ex-
pense allowance arrangement for the cost of operat-
ing an automobile for business purposes will satisfy
the requirements of section 62(c) of the Code as to
business connection, substantiation, and returning
amounts in excess of expenses. See Rev. Proc.
97–58, page 24.
Rules are set forth under which a reimbursement
or other expense allowance arrangement for the cost
of lodging, meals, and incidental expenses or meal
and incidental expenses incurred by an employee
while traveling away from home will satisfy the re-
quirements of § 62(c) of the Code as to substantia-
tion of the amount of expenses. See Rev. Proc.
97–59, page 31.
Section 63.—Taxable Income
Defined
26 CFR 1.63–1:Change of treatment with respect
to the zero bracket amount and itemized deductions.
The Service provides inflation adjustments to the
standard deduction amounts (including the limita-
tion in the case of certain dependents, and the addi-
tional standard deduction for the aged or blind) for
taxable years beginning in 1998. See Rev. Proc.
97–57, page 20.
Section 68.—Overall Limitation
on Itemized Deductions
The Service provides inflation adjustments to the
overall limitation on itemized deductions for taxable
years beginning in 1998. See Rev. Proc. 97–57,
page 20.
Section 126.—Certain
Cost-Sharing Payments
26 CFR 16A.126–1: Certain cost-sharing
payments—In general (Temporary).
Certain cost-sharing payments.The
Wetlands Reserve Program, the Environ-
mental Quality Incentives Program, and
the Wildlife Habitat Incentives Program
are substantially similar to the type of
programs described in section 126(a)(1)
through (8) of the Code so that cost-share
payments made under such programs and
in connection with small watersheds are
within the scope of section 126(a)(9) and,
thereby, cost-share payments received
under the programs are eligible for exclu-
sion from gross income to the extent per-
mitted by section 126.
Rev. Rul. 97–55
ISSUE
Are the Wetlands Reserve Program, the
Environmental Quality Incentives Pro-
gram, and the Wildlife Habitat Incentives
Program substantially similar to the type
of programs described in § 126(a)(1)
through (8) of the Internal Revenue Code
so that cost-share payments made under
such programs and in connection with
small watersheds are within the scope of §
126(a)(9) and, thereby, cost-share pay-
ments received under the programs are el-
igible for exclusion from gross income to
the extent permitted by § 126?
FACTS
The Wetlands Reserve Program
(WRP), authorized by Title XII of the
Food Security Act of 1985, Pub. L. No.
99–198, 99 Stat. 1504, reauthorized by
the Federal Agriculture Improvement and
Reform Act of 1996 (the 1996 Farm Act),
Pub. L. No. 104–127, 110 Stat. 995, is a
voluntary wetlands conservation program
to restore and protect wetlands on private
property. Landowners who participate in
the WRPmay sell a conservation ease-
ment or enter into a restoration cost-share
agreement with the Department of Agri-
culture to restore and protect wetlands.
Under a restoration cost-share agreement,
a landowner agrees to undertake approved
conservation-related improvements on the
property in return for a cost-share pay-
ment, generally between 75 and 100 per-
cent of the costs for restoring the wetland.
Aconservation easement and a restoration
cost-share agreement may be combined in
one agreement with the Department of
Agriculture but separate payments are
made for the easement and for the cost-
share agreement.
The 1996 Farm Act also establishes the
Environmental Quality Incentives Pro-
gram (EQIP) and the Wildlife Habitat In-
centives Program (WHIP). EQIPand
WHIPare administered by the Depart-
ment of Agriculture. EQIPcombines the
functions of the Agricultural Conserva-
tion Program (ACP), the Great Plains
Conservation Program (GPCP), the
Water Quality Incentives Program
(WQIP), and the Colorado River Basin
Salinity Control Program (CRBSCP).
ACPand GPCPare programs enumerated
in § 126(a)(1) through (8) and the Com-
missioner determined in § 16A.126–
1(d)(1)(D) that CRBSCPwas within the
scope of § 126(a)(9). WQIPwas funded
through and administered under ACP.
WHIPwas established to help partici-
pants develop habitat for upland wildlife,
wetland wildlife, threatened and endan-
gered species, fish, and other types of
wildlife. Under WHIP, landowners enter
into wildlife habitat development cost-
share contracts for a minimum of 10
years.
The Secretary of Agriculture has made
the requisite determinations under
§ 126(b)(1)(A) that cost-share payments
made under WRP, EQIP, and WHIPare
primarily for purposes of conservation.
LAWAND ANALYSIS
Under § 126(a), gross income does not
include the excludable portion of pay-
ments made to taxpayers by federal and
state governments for a share of the cost
of improvements to property under cer-
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

December 29, 199781997–52 I.R.B.
tain conservation programs set forth in
§ 126(a)(1) through (8). Under § 126-
(a)(9), programs affecting small water-
sheds are eligible for § 126 treatment if
they are administered by the Secretary of
Agriculture and are determined by the
Secretary of the Treasury or the Secre-
tary’s delegate to be substantially similar
to the type of programs described in
§ 126(a)(1) through (8). Even if the Sec-
retary of the Treasury determines that a
particular program is within the scope of
§ 126(a)(9), not all cost-share payments
under such program will qualify for the
exclusion under § 126. In addition to the
determination requirement, the specific
project must be with respect to a small
watershed and then only the “excludable
portion” of any payment can qualify for
exclusion. See §§ 126(b)(1), 16A.126–
1(b)(5) and 16A.126–1(d)(3) for the defi-
nitions of “excludable portion” and
“small watershed.”
HOLDING
The Commissioner has determined that
WRP, EQIP, and WHIPare substantially
similar to the type of programs described
in § 126(a)(1) through (8) so that cost-
share payments made under such pro-
grams and in connection with small
watersheds are within the scope of
§ 126(a)(9) and, thereby, cost-share pay-
ments received under the programs are el-
igible for exclusion from gross income to
the extent permitted by § 126. See
§ 16A.126–1 to determine what portion, if
any, of the cost-share payments are ex-
cludable from gross income under § 126.
DRAFTING INFORMATION
The principal authors of this revenue
ruling are Leslie Finlow and Lisa Shuman
of the Office of Assistant Chief Counsel
(Passthroughs and Special Industries).
For further information regarding this
revenue ruling contact Ms. Shuman at
(202) 622-3120 (not a toll-free call).
Section 132.—Certain Fringe
Benefits
The Service provides inflation adjustments to the
limitation on the exclusion of income for a qualified
transportation fringe for taxable years beginning in
1998. See Rev. Proc. 97–57, page 20.
Section 135.—Income From
United States Savings Bonds
Used To Pay Higher Education
Tuition and Fees
The Service provides an inflation adjustment to
the limitation on the exclusion of income from
United States savings bonds for taxpayers who pay
qualified higher education expenses for taxable
years beginning in 1998. See Rev. Proc. 97–57,
page 20.
Section 151.—Allowance of
Deductions for Personal
Exemptions
26 CFR 1.151–4: Amount of deduction for each
exemption under section 151.
The Service provides inflation adjustments to the
personal exemption and to the threshold amounts of
adjusted gross income above which the exemption
amount phases out for taxable years beginning in
1998. See Rev.Proc. 97–57, page 20.
Section 162.—Trade or
Business Expenses
26 CFR 1.162–17: Reporting and substantiation of
certain business expenses of employees.
Rules are set forth for substantiating the amount
of a deduction or expense for business use of an au-
tomobile that most nearly represents current costs.
See Rev. Proc. 97–58, page 24.
Rules are set forth for substantiating the amount
of a deduction or expense for lodging, meals, and in-
cidental expenses or meal and incidental expenses
incurred while traveling away from home that most
nearly represents current costs. See Rev. Proc.
97–59, page 31.
Section 167.—Depreciation
26 CFR 1.167(a) –1: Depreciation in general.
The cost of recoverable line pack gas or cushion
gas is not depreciable, and the cost of nonrecover-
able line pack gas or cushion gas is depreciable. See
Rev. Rul. 97–54, on this page.
Section 170.—Charitable, Etc.,
Contributions and Gifts
26 CFR 1.170–1: Charitable, etc., contributions
and gifts; allowance of deductions.
The Service provides inflation adjustments to the
“insubstantial benefit” guidelines for calendar year
1998. Under the guidelines, a charitable contribution
is fully deductible even though the contributor re-
ceives “insubstantial benefits” from the charity. See
Rev. Proc. 97–57, page 20.
26 CFR 1.170A–1: Charitable, etc., contributions
and gifts; allowance of deduction.
Rules are set forth for substantiating the amount
of a deduction or expense for charitable use of an
automobile. See Rev. Proc. 97–58, page 24.
Section 213.—Medical, Dental,
Etc., Expenses
The Service provides an inflation adjustment to
the limitation on the amount of eligible long-term
care premiums includible in the term “medical care”
for taxable years beginning in 1998. See Rev. Proc.
97–57, page 20.
26 CFR 1.213–1: Medical, dental, etc., expenses.
Rules are set forth for substantiating the amount
of a deduction or expense for use of an automobile
to obtain medical services. See Rev. Proc. 97–58,
page 24.
Section 217.—Moving Expenses
26 CFR 1.217–2: Moving expenses.
Rules are set forth for substantiating the amount
of a deduction or expense for use of an automobile
as part of a move. See Rev. Proc. 97–58, page 24.
Section 263.—Capital
Expenditures
26 CFR 1.263(a)–1: Capital expenditures;
in general.
The cost of recoverable and nonrecoverable line
pack gas or cushion gas is a capital expenditure. See
Rev. Rul. 97–54, on this page.
26 CFR 1.263(a)–1: Capital expenditures; in
general.
(Also sections 167, 168, 471; 1.167(a)–1, 1.471–1.)
Line pack gas; cushion gas.The cost
of recoverable line pack gas or cushion
gas is a capital expenditure and is not de-
preciable. The cost of nonrecoverable line
pack gas or cushion gas is a capital expen-
diture and is depreciable.
Rev. Rul. 97–54
ISSUES
(1) Is the cost of “line pack gas” or
“cushion gas” a capital expenditure under
§ 263 of the Internal Revenue Code or an

1997–52 I.R.B.9December 29, 1997
amount that is included in inventory
under § 471?
(2) If the cost of “line pack gas” or
“cushion gas” is a capital expenditure
under § 263, is that cost depreciable under
§§ 167 and 168?
FACTS
“Line pack gas” is the minimum vol-
ume of natural gas necessary to provide
the pressure to facilitate the flow of gas
through a pipeline. “Cushion gas” is the
minimum volume of natural gas neces-
sary to provide the pressure to facilitate
the flow of gas from a storage reservoir to
a pipeline. Recoverable line pack gas and
recoverable cushion gas will be available
for sale or other use upon the abandon-
ment of the pipeline or storage reservoir,
respectively. Unrecoverable line pack gas
and unrecoverable cushion gas will not be
available for sale or other use upon the
abandonment of the pipeline or storage
reservoir, but will become obsolete with
that abandonment.
LAWAND ANALYSIS
Section 263(a) provides that no deduc-
tion shall be allowed for amounts paid out
for permanent improvements or better-
ments made to increase the value of any
property or estate.
Section 1.263(a)–2 of the Income Tax
Regulations provides that a “capital ex-
penditure” includes the cost of acquisition,
construction, or erection of buildings, ma-
chinery and equipment, furniture and fix-
tures, and similar property having a useful
life substantially beyond the tax year.
Section 167(a) provides that there shall
be allowed as a depreciation deduction a
reasonable allowance for the exhaustion,
wear and tear (including a reasonable al-
lowance for obsolescence) of property
used in a trade or business or held for the
production of income.
Generally, for tangible property, the de-
preciation deduction under § 167(a) is de-
termined under § 168 by using the applic-
able depreciation method, the applicable
recovery period, and the applicable con-
vention.
Section 471 provides that whenever, in
the opinion of the Secretary, the use of in-
ventories is necessary in order clearly to
determine the income of any taxpayer, in-
ventories shall be taken by that taxpayer,
on the basis the Secretary may prescribe as
conforming as nearly as may be to the best
accounting practice in the trade or business
and as most clearly reflecting income.
Section 1.471–1 provides that in order
to reflect income correctly, inventories at
the beginning and end of each tax year are
necessary in every case in which the pro-
duction, purchase, or sale of merchandise
is an income-producing factor. Invento-
ries should include all finished and partly
finished goods and, in the case of raw ma-
terials and supplies, only those that have
been acquired for sale or that will physi-
cally become a part of merchandise in-
tended for sale.
Rev. Rul. 68–620, 1968–2 C.B. 199,
amplifiedby Rev. Rul. 78–352, 1978–2
C.B. 168, holds that line pack gas is mer-
chandise in transit that is intended to be
sold to customers and therefore must be
included in the inventory of the taxpayer.
Rev. Rul. 75–233, 1975–1 C.B. 95,
holds that the cost of unrecoverable cush-
ion gas is a capital expenditure under
§ 263, which is recoverable through an an-
nual depreciation deduction under § 167.
With respect to both line pack gas and
cushion gas, several court decisions have
considered the capital expenditure-ver-
sus-inventory issue, as well as the depre-
ciation issue. In Pacific Enterprises v.
Commissioner, 101 T.C. 1 (1993), the
United States Tax Court held that the
costs of line pack gas and cushion gas are
capital expenditures. Accord Transwest-
ern Pipeline Co. v. United States, 639
F.2d 679 (Ct.Cl. 1980), regarding line
pack gas; Arkla, Inc. v. United States, 765
F.2d 487 (5th Cir. 1985), regarding cush-
ion gas. The United States Court of Ap-
peals for the Fifth Circuit in Arklafurther
held that recoverable cushion gas was not
subject to depreciation because it was not
subject to exhaustion, wear, tear, or obso-
lescence. Accord Washington Energy Co.
v. United States, 94 F.3d 1557 (Fed. Cir.
1996). The Fifth Circuit in Arkladistin-
guished unrecoverable cushion gas as
being subject to depreciation because that
gas will become obsolete along with the
storage facility. AccordRev. Rul. 75-
233. Finally, in Arkla, Inc. v. United
States, 37 F.3d 621 (Fed. Cir. 1994), the
United States Court of Appeals for the
Federal Circuit held that line pack gas
and cushion gas are treated the same for
purposes of depreciation. Accord Wash-
ington Energy Co. v. United States, 94
F.3d 1557.
Line pack gas or cushion gas is recov-
erable if it will be available for sale or
other use upon abandonment of a pipeline
or storage reservoir. See Arkla, Inc. v.
United States, 765 F.2d at 490. The Ser-
vice will treat line pack gas or cushion gas
as being available for sale or other use to
the extent that such gas will be recovered
from an abandoned pipeline or storage
reservoir pursuant to a plan, a require-
ment of law, or economic feasibility,
whichever method projects the greatest
actual recovery of such gas.
The Service will follow the court deci-
sions cited in this revenue ruling to the
extent they hold that the cost of line pack
gas or cushion gas is a capital expendi-
ture, the cost of recoverable line pack gas
or recoverable cushion gas is not depre-
ciable, and the cost of unrecoverable line
pack gas or unrecoverable cushion gas is
depreciable.
HOLDINGS
(1) The cost of line pack gas or cushion
gas is a capital expenditure under § 263.
(2) The cost of recoverable line pack
gas or recoverable cushion gas is not de-
preciable, but the cost of unrecoverable
line pack gas or unrecoverable cushion
gas is depreciable under §§ 167 and 168.
The Service will treat line pack gas or
cushion gas as recoverable to the extent
that such gas will be recovered from an
abandoned pipeline or storage reservoir
pursuant to a plan, a requirement of law,
or economic feasibility, whichever
method projects the greatest actual recov-
ery of such gas.
APPLICATION
Any change in a taxpayer’s treatment
of the costs of line pack gas or cushion
gas to conform with this revenue ruling is
a change in method of accounting to
which the provisions of §§ 446 and 481
and the regulations thereunder apply. A
taxpayer wanting to change its method of
accounting for the cost of line pack gas or
cushion gas to conform with this revenue
ruling must follow the automatic change
in accounting method provisions of Rev.
Proc. 97–37, 1997–33 I.R.B. 18.

December 29, 1997101997–52 I.R.B.
EFFECTON OTHER DOCUMENTS
Rev. Rul. 68–620 and Rev. Rul. 78–352
are revoked. Rev. Rul. 75–233 is super-
seded. Rev. Proc. 97–37 is amplified to
include this change in the Appendix.
PROSPECTIVE APPLICATION
The Service will not require a taxpayer
to change its method of accounting to
comply with the holding that the cost of
line pack gas or recoverable cushion gas
is a capital expenditure for any taxable
year beginning before December 29,
1997. In addition, the Service will not re-
quire a taxpayer to change its method of
accounting to comply with the holding for
determining the amount of recoverable
line pack gas or recoverable cushion gas
for any taxable year beginning before De-
cember 29, 1997, provided the method
used by the taxpayer projects recoverable
line pack gas or recoverable cushion gas
in an amount equal to or greater than an
amount that would be projected using an
economic feasibility of recovery standard.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Jennifer L. Nuding of the Office
of Assistant Chief Counsel (Income Tax
and Accounting). For further information
concerning this revenue ruling, contact
Ms. Nuding at (202) 622-4970 (not a toll-
free call).
Section 267.—Losses, Expenses,
and Interest With Respect to
Transactions Between Related
Taxpayers
26 CFR 1.267(a)–1: Deductions disallowed.
When a payor provides a per diem allowance to
an employee who is a related party, the rules set forth
for the deemed substantiation to the payor of the
amount of the employee’s ordinary and necessary
business expenses for lodging, meal, and/or inciden-
tal expenses incurred while traveling away from
home, do not apply. See Rev. Proc. 97–59, page 31.
Section 274.—Disallowance of
Certain Entertainment, Etc.,
Expenses
26 CFR 1.274(d)–1(a): Substantiation requirements.
Simplified optional method for substantiating the
amount of a deduction or expense for business use
of an automobile. See Rev. Proc. 97–58, page 24.
26 CFR 1.274–5T: Substantiation requirements
(temporary).
Simplified optional method for substantiating the
amount of a deduction or expense for business use
of an automobile. See Rev. Proc. 97–58, page 24.
26 CFR 1.274(d)–1(a): Substantiation
requirements.
Rules are set forth for substantiating the amount
of ordinary and necessary business expense of an
employee for lodging, meals, and incidental ex-
penses or meal and incidental expenses incurred
while traveling away from home when a payor pro-
vides a per diem allowance under a reimbursement
or other expense allowance arrangement to pay for
such expenses. See Rev. Proc. 97–59, page 31.
26 CFR 1.274–5T: Substantiation requirements
(temporary).
Rules are set forth for substantiating the amount
of ordinary and necessary business expense of an
employee for lodging, meals, and incidental ex-
penses or meal and incidental expenses incurred
while traveling away from home when a payor pro-
vides a per diem allowance under a reimbursement
or other expense allowance arrangement to pay for
such expenses. Rules are also set forth for an op-
tional method for employees and self-employed in-
dividuals to use in computing the deductible costs of
business meal and incidental expenses paid or in-
curred while traveling away from home. See Rev.
Proc. 97–59, page 31.
Section 471—General Rule for
Inventories
26 CFR 1.471–1: Need for inventories.
The cost of recoverable and nonrecoverable line
pack gas or cushion gas is a capital expenditure.
Line pack gas or cushion gas in not inventory. See
Rev. Rul. 97–54, page 8.
Section 483.—Interest on
Certain Deferred Payments
26 CFR 1.483–1: Computation of interest on cer-
tain deferred payments.
As defined by section 1274A, the definitions for
both “qualified debt instruments” and “cash method
debt instruments” have dollar ceilings on the stated
principal amount. The limits to the stated principal
amount are adjusted for inflation for sales or ex-
changes occurring in the 1998 calendar year. See
Rev. Rul. 97–56, page 11.
Section 512.—Unrelated
Business Taxable Income
The Service provides an inflation adjustment to
the maximum amount of annual dues that can be
paid to certain agricultural or horticultural organiza-
tions without any portion being treated as unrelated
trade or business income by reason of any benefits
or privileges available to members for taxable years
beginning in 1998. See Rev. Proc. 97–57, page 20.
Section 513.—Unrelated Trade
or Business
The Service provides an inflation adjustment to
the maximum amount of a “low cost article” for tax-
able years beginning in 1998. Funds raised through a
charity’s distribution of “low cost articles” will not
be treated as unrelated business income to the char-
ity. See Rev. Proc. 97–57, page 20.
Section 877.—Expatriation to
Avoid Tax
The Service provides an inflation adjustment to
amounts used to determine whether an individual’s
loss of United States citizenship had the avoidance
of United States taxes as one of its principal pur-
poses for calendar year 1998. See Rev. Proc. 97–57,
page 20.
Section 1274.—Determination
of Issue Price in the Case of
Certain Debt Instruments Issued
for Property
26 CFR 1.1274A–1: Special rules for certain trans-
actions where stated principal amount does not ex-
ceed $2,800,000.
As defined by section 1274A, the definitions for
both “qualified debt instruments” and “cash method
debt instruments” have dollar ceilings on the stated
principal amount. The limits to the stated principal
amount are adjusted for inflation for sales or ex-
changes occurring in the 1998 calendar year. See
Rev. Rul. 97–56, page 10.
Section 1274A.—Special Rules
for Certain Transactions Where
Stated Principal Amount Does
Not Exceed $2,800,000
(Also §§ 1274, 483; 1.1274A–1)
Section 1274Ainflation-adjusted
numbers for1998.This ruling provides
the dollar amounts, increased by the 1998
inflation adjustment, for section 1274Aof
the Code. Rev. Rul. 96–63 supplemented
and superseded.
Rev. Rul. 97–56
This revenue ruling provides the dollar
amounts, increased by the 1998 inflation
adjustment, for § 1274Aof the Internal
Revenue Code.

1997–52 I.R.B.11December 29, 1997
BACKGROUND
In general, §§ 483 and 1274 of the
Code determine the principal amount of a
debt instrument given in consideration for
the sale or exchange of nonpublicly
traded property. In addition, any interest
on a debt instrument subject to § 1274 is
taken into account under the original issue
discount provisions of the Code. Section
1274A, however, modifies the rules under
§§ 483 and 1274 for certain types of debt
instruments.
In the case of a “qualified debt instru-
ment,” the discount rate used for purposes
of §§ 483 and 1274 of the Code may not
exceed 9 percent, compounded semiannu-
ally. Section 1274A(b) defines a quali-
fied debt instrument as any debt
instrument given in consideration for the
sale or exchange of property (other than
new § 38 property within the meaning of
§ 48(b), as in effect on the day before the
date of enactment of the Revenue Recon-
ciliation Act of 1990) if the stated princi-
pal amount of the instrument does not ex-
ceed the amount specified in § 1274A(b).
For debt instruments arising out of sales
or exchanges before January 1, 1990, this
amount is $2,800,000.
In the case of a “cash method debt in-
strument,” as defined in § 1274A(c) of
the Code, the borrower and lender may
elect to use the cash receipts and dis-
bursements method of accounting. In
particular, for any cash method debt in-
strument, § 1274 does not apply, and in-
terest on the instrument is accounted for
by both the borrower and the lender
under the cash method of accounting. A
cash method debt instrument is a quali-
fied debt instrument that meets the fol-
lowing additional requirements: (A) In
the case of instruments arising out of
sales or exchanges before January 1,
1990, the stated principal amount does
not exceed $2,000,000, (B) The lender
does not use an accrual method of ac-
counting and is not a dealer with respect
to the property sold or exchanged, (C)
Section 1274 would have applied to the
debt instrument but for an election under
§ 1274A(c); and (D) An election under
§ 1274A(c) is jointly made with respect
to the debt instrument by the borrower
and lender. Section 1.1274A–1(c)(1) of
the Income Tax Regulations provides
rules concerning the time for, and manner
of, making this election.
Section 1274A(d)(2) of the Code pro-
vides that, for any debt instrument arising
out of a sale or exchange during any cal-
endar year after 1989, the dollar amounts
stated in § 1274A(b) and § 1274A(c)-
(2)(A) are increased by the inflation
adjustment for the calendar year. Any in-
crease due to the inflation adjustment is
rounded to the nearest multiple of $100
(or, if the increase is a multiple of $50 and
not of $100, the increase is increased to
the nearest multiple of $100). The infla-
tion adjustment for any calendar year is
the percentage (if any) by which the CPI
for the preceding calendar year exceeds
the CPI for calendar year 1988. Section
1274A(d)(2)(B) defines the CPI for any
calendar year as the average of the Con-
sumer Price Index as of the close of the
12-month period ending on September 30
of that calendar year.
INFLATION-ADJUSTED AMOUNTS
For debt instruments arising out of
sales or exchanges after December 31,
1989, the inflation-adjusted amounts
under § 1274Aare shown in Table 1.
Rev. Rul. 97–56 Table 1
Inflation-Adjusted Amounts Under § 1274A
Calendar Year1274A(b) Amount1274A(c)(2)(A) Amount
of Sale(qualified debt (cash method debt
or Exchange instrument) instrument)
1990$2,933,200$2,095,100
1991$3,079,600$2,199,700
1992$3,234,900$2,310,600
1993$3,332,400$2,380,300
1994$3,433,500$2,452,500
1995$3,523,600$2,516,900
1996$3,622,500$2,587,500
1997$3,723,800$2,659,900
1998$3,823,100$2,730,800
Note:These inflation adjustments were computed using the All-Urban, Consumer
Price Index, 1982-1984 base, published by the Bureau of Labor Statistics.
EFFECTON OTHER DOCUMENTS
Rev. Rul. 96-63, 1996-2 C.B. 83, is
supplemented and superseded.
DRAFTING INFORMATION
The principal author of this revenue
ruling is David B. Silber of the Office of
the Assistant Chief Counsel (Financial In-
stitutions and Products). For further in-
formation regarding this revenue ruling
contact Mr. Silber on (202) 622-3930 (not
a toll-free call).

December 29, 1997121997–52 I.R.B.
Section 3221.—Rate of Tax
Determination of Quarterly Rate
of Excise Tax for Railroad
Retirement Supplemental
Annuity Program
In accordance with directions in Sec-
tion 3221(c) of the Railroad Retirement
Tax Act (26 U.S.C., Section 3221(c)), the
Railroad Retirement Board has deter-
mined that the excise tax imposed by such
Section 3221(c) on every employer, with
respect to having individuals in his em-
ploy, for each work-hour for which com-
pensation is paid by such employer for
services rendered to him during the quar-
ter beginning October 1, 1997, shall be at
the rate of 35 cents.
In accordance with directions in Sec-
tion 15(a) of the Railroad Retirement Act
of 1974, the Railroad Retirement Board
has determined that for the quarter begin-
ning October 1, 1997, 31.4 percent of the
taxes collected under Sections 3211(b)
and 3221(c) of the Railroad Retirement
Tax Act shall be credited to the Railroad
Retirement Account and 68.6 percent of
the taxes collected under such Sections
3211 (b) and 3221(c) plus 100 percent of
the taxes collected under Section 3221(d)
of the Railroad Retirement Tax Act shall
be credited to the Railroad Retirement
Supplemental Account.
Dated: August 25, 1997.
By Authority of the Board.
Beatrice Ezerski,
Secretary to the Board.
(Filed by the Office of the Federal Register on Sep-
tember 2, 1997, 8:45 a.m., and published in the issue
of the Federal Register for September 3, 1997, 62
F.R. 46526)
In accordance with directions in Sec-
tion 3221(c) of the Railroad Retirement
Tax Act (26 U.S.C., Section 3221(c)), the
Railroad Retirement Board has deter-
mined that the excise tax imposed by such
Section 3221(c) on every employer, with
respect to having individuals in his em-
ploy, for each work-hour for which com-
pensation is paid by such employer for
services rendered to him during the quar-
ter beginning January 1, 1998, shall be at
the rate of 35 cents.
In accordance with directions in Sec-
tion 15(a) of the Railroad Retirement Act
of 1974, the Railroad Retirement Board
has determined that for the quarter begin-
ning January 1, 1998, 31.6 percent of the
taxes collected under Sections 3211(b)
and 3221(c) of the Railroad Retirement
Tax Act shall be credited to the Railroad
Retirement Account and 68.4 percent of
the taxes collected under such Sections
3211 (b) and 3221(c) plus 100 percent of
the taxes collected under Section 3221(d)
of the Railroad Retirement Tax Act shall
be credited to the Railroad Retirement
Supplemental Account.
Dated: December 2, 1997.
By Authority of the Board.
Beatrice Ezerski,
Secretary to the Board.
(Filed by the Office of the Federal Register on De-
cember 9, 1997, 8:45 a.m., and published in the
issue of the Federal Register for December 10, 1997,
62 F.R. 65108)
Section 4001.—Passenger
Vehicles
The Service provides an inflation adjustment to
the price above which a passenger vehicle becomes
subject to an excise tax for transactions occurring in
calendar year 1998. See Rev. Proc. 97–57, page 20.
Section 4003.—Special Rules
The Service provides an inflation adjustment to
the price above which a passenger vehicle becomes
subject to an excise tax for transactions occurring in
calendar year 1998. (Price includes the price of in-
stallation of parts or accessories on a passenger ve-
hicle within six months of the date after the vehicle
was first placed in service.) See Rev. Proc. 97–57,
page 20.
Section 6012.—Persons
Required To Make Returns of
Income
26 CFR 1.6012–1:Individuals required to make re-
turns of income.
The Service provides adjusted tax tables for indi-
viduals and trusts and estates for taxable years be-
ginning in 1998 to reflect changes in the cost of liv-
ing. See Rev. Proc. 97–57, page 20.
26 CFR 1.6012–5: Composite return in lieu of
specified form.
For the requirements for participation in the 1998
Electronic Filing Program for the Form 1040 Series,
see Rev. Proc. 97–60, page 38.
26 CFR 1.6012–5: Composite return in lieu of
specified form.
For the requirements for participation in the 1998
On-Line Filing Program for the Form 1040 Series,
see Rev. Proc. 97–61, page 50.
Section 6013.—Joint Returns of
Income Tax by Husband and
Wife
26 CFR 1.6013–1: Joint returns.
The Service provides adjusted tax tables for indi-
viduals for taxable years beginning in 1998 to reflect
changes in the cost of living. See Rev. Proc. 97–57,
page 20.
Section 6033.—Returns by
Exempt Organizations
The Service provides an inflation adjustment to
the amount of dues certain exempt organizations can
charge and still be excepted from the reporting re-
quirements for exempt organizations with nonde-
ductible lobbying expenditures for taxable years be-
ginning in 1998. See Rev. Proc. 97–57, page 20.
Section 6039F.—Notice of
Large Gifts Received From
Foreign Persons
The Service provides an inflation adjustment to
the amount of gifts in a taxable year from certain
foreign person(s) that may trigger a reporting re-
quirement for a United States person for taxable
years beginning in 1998. See Rev. Proc. 97–57,
page 20.
Section 6061.—Signing of
Returns and Other Documents
26 CFR 1.6061–1:Signing of returns and other
documents by individuals.
For the requirements for participation in the 1998
Electronic Filing Program for the Form 1040 Series,
see Rev. Proc. 97–60, page 38.
26 CFR 1.6061–1:Signing of returns and other
documents by individuals.
For the requirements for participation in the 1998
On-Line Filing Program for the Form 1040 Series,
see Rev. Proc. 97–61, page 50.
Section 6334.—Property
Exempt From Levy
The Service provides inflation adjustments to the
value of certain property exempt from levy; for ex-
ample, fuel, provisions, and personal effects as well
as books and tools of a trade, business, or profession
for calendar year 1998. See Rev. Proc. 97–57,
page 20.

1997–52 I.R.B.13December 29, 1997
Section 6621.— Determination
of Interest Rate
26 CFR 301.6621–1: Interest rate.
Interest rates; underpayments and
overpayments.The rate of interest deter-
mined under section 6621 of the Code for
the calendar quarter beginning January 1,
1998, will be 8 percent for overpayments,
9 percent for underpayments, and 11 per-
cent for large corporate underpayments.
The rate of interst paid on the portion of a
corporate overpayment exceeding
$10,000 is 6.5 percent.
Rev. Rul. 97–53
Section 6621 of the Internal Revenue
Code establishes different rates for inter-
est on tax overpayments and interest on
tax underpayments. Under § 6621(a)(1),
the overpayment rate is the sum of the
federal short-term rate plus 2 percentage
points, except the rate for the portion of a
corporate overpayment of tax exceeding
$10,000 for a taxable period is the sum of
the federal short-term rate plus 0.5 of a
percentage point for interest computations
made after December 31, 1994. Under
§ 6621(a)(2), the underpayment rate is the
sum of the federal short-term rate plus 3
percentage points.
Section 6621(c) provides that for pur-
poses of interest payable under § 6601 on
any large corporate underpayment, the un-
derpayment rate under § 6621(a)(2) is de-
termined by substituting “5 percentage
points” for “3 percentage points.” See
§ 6621(c) and § 301.6621–3 of the Regu-
lations on Procedure and Administration
for the definition of a large corporate un-
derpayment and for the rules for determin-
ing the applicable date. Section 6621(c)
and § 301.6621–3 are generally effective
for periods after December 31, 1990.
Section 6621(b)(1) provides that the
Secretary will determine the federal short-
term rate for the first month in each calen-
dar quarter.
Section 6621(b)(2)(A) provides that the
federal short-term rate determined under
§ 6621(b)(1) for any month applies during
the first calendar quarter beginning after
such month.
Section 6621(b)(2)(B) provides that in
determining the addition to tax under §
6654 for failure to pay estimated tax for
any taxable year, the federal short-term
rate that applies during the third month
following such taxable year also applies
during the first 15 days of the fourth
month following such taxable year.
Section 6621(b)(3) provides that the
federal short-term rate for any month is
the federal short-term rate determined
during such month by the Secretary in ac-
cordance with § 1274(d), rounded to the
nearest full percent (or, if a multiple of
1/2 of 1 percent, the rate is increased to
the next highest full percent).
Notice 88–59, 1988-1 C.B. 546, an-
nounced that, in determining the quar-
terly interest rates to be used for overpay-
ments and underpayments of tax under §
6621, the Internal Revenue Service will
use the federal short-term rate based on
daily compounding because that rate is
most consistent with § 6621 which, pur-
suant to § 6622, is subject to daily com-
pounding.
Rounded to the nearest full percent, the
federal short-term rate based on daily com-
pounding determined during the month of
October 1997 is 6 percent. Accordingly,
an overpayment rate of 8 percent and an
underpayment rate of 9 percent are estab-
lished for the calendar quarter beginning
January 1, 1998. The overpayment rate for
the portion of a corporate overpayment ex-
ceeding $10,000 for the calendar quarter
beginning January 1, 1998, is 6.5 percent.
The underpayment rate for large corporate
underpayments for the calendar quarter be-
ginning January 1, 1998, is 11 percent.
These rates apply to amounts bearing inter-
est during that calendar quarter.
The 9 percent rate also applies to esti-
mated tax underpayments for the first cal-
endar quarter in 1998 and for the first 15
days in April 1998.
Interest factors for daily compound in-
terest for annual rates of 6.5 percent, 8
percent, 9 percent, and 11 percent are
published in Tables 18, 21, 23, and 27 of
Rev. Proc. 95–17, 1995–1 C.B. 556, 572,
575, 577, and 581.
Annual interest rates to be compounded
daily pursuant to § 6622 that apply for
prior periods are set forth in the tables ac-
companying this revenue ruling.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Raymond Bailey of the Office of
Assistant Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue ruling, contact Mr.
Bailey on (202) 622-6226 (not a toll-free
call).
TABLE OF INTERESTRATES
PERIODS BEFORE JUL. 1, 1975 - PERIODS ENDING DEC. 31, 1986
OVERPAYMENTS AND UNDERPAYMENTS – PERIOD
DAILYRATE TABLE
RATEIN 1995-1 C.B.
Before Jul. 1, 19756%Table 2,pg. 557
Jul. 1, 1975—Jan. 31, 19769%Table 4,pg. 559
Feb. 1, 1976—Jan. 31, 19787%Table 3,pg. 558
Feb. 1, 1978—Jan. 31, 19806%Table 2,pg. 557
Feb. 1, 1980—Jan. 31, 198212%Table 5,pg. 560
Feb. 1, 1982—Dec. 31, 198220%Table 6,pg. 560
Jan. 1, 1983—Jun. 30, 198316%Table 37,pg. 591
Jul. 1, 1983—Dec. 31, 198311%Table 27,pg. 581
Jan. 1, 1984—Jun. 30, 198411%Table 75,pg. 629

December 29, 1997141997–52 I.R.B.
TABLE OF INTERESTRATES – Continued
PERIODS BEFORE JUL. 1, 1975 - PERIODS ENDING DEC. 31, 1986
OVERPAYMENTS AND UNDERPAYMENTS – PERIOD
DAILYRATE TABLE
RATEIN 1995-1 C.B.
Jul. 1, 1984—Dec. 31, 198411%Table 75,pg. 629
Jan. 1, 1985—Jun. 30, 198513%Table 31,pg. 585
Jul. 1, 1985—Dec. 31, 198511%Table 27,pg. 581
Jan. 1, 1986—Jun. 30, 198610%Table 25 pg. 579
Jul. 1, 1986—Dec. 31, 19869%Table 23,pg. 577
TABLE OF INTERESTRATES
FROM JAN. 1, 1987 - PRESENT
OVERPAYMENTSUNDERPAYMENTS
RATE TABLE PGRATE TABLE PG
1995-1 C.B.1995-1 C.B.
Jan. 1, 1987—Mar. 31, 19878%21575 9%23577
Apr. 1, 1987—Jun. 30, 19878%21575 9%23577
Jul. 1, 1987—Sep. 30, 19878%21575 9%23577
Oct. 1, 1987—Dec. 31, 19879%23577 10%25579
Jan. 1, 1988—Mar. 31, 198810%73627 11%75629
Apr. 1, 1988—Jun. 30, 19889%71625 10%73627
Jul. 1, 1988—Sep. 30, 19889%71625 10%73627
Oct. 1, 1988—Dec. 31, 198810%73627 11%75629
Jan. 1, 1989—Mar. 31, 198910%25579 11%27581
Apr. 1, 1989—Jun. 30, 198911%27581 12%29583
Jul. 1, 1989—Sep. 30, 198911%27581 12%29583
Oct. 1, 1989—Dec. 31, 198910%25579 11%27581
Jan. 1, 1990—Mar. 31, 199010%25579 11%27581
Apr. 1, 1990—Jun. 30, 199010%25579 11%27581
Jul. 1, 1990—Sep. 30, 199010%25579 11%27581
Oct. 1, 1990—Dec. 31, 199010%25579 11%27581
Jan. 1, 1991—Mar. 31, 199110%25579 11%27581
Apr. 1, 1991—Jun. 30, 19919%23577 10%25579
Jul. 1, 1991—Sep. 30, 19919%23577 10%25579
Oct. 1, 1991—Dec. 31, 19919%23577 10%25579
Jan. 1, 1992—Mar. 31, 19928%69623 9%71625
Apr. 1, 1992—Jun. 30, 19927%67621 8%69623
Jul. 1, 1992—Sep. 30, 19927%67621 8%69623
Oct. 1, 1992—Dec. 31, 19926%65619 7%67621
Jan. 1, 1993—Mar. 31, 19936%17571 7%19573
Apr. 1, 1993—Jun. 30, 19936%17571 7%19573
Jul. 1, 1993—Sep. 30, 19936%17571 7%19573
Oct. 1, 1993—Dec. 31, 19936%17571 7%19573
Jan. 1, 1994—Mar. 31, 19946%17571 7%19573
Apr. 1, 1994—Jun. 30, 19946%17571 7%19573
Jul. 1, 1994—Sep. 30, 19947%19573 8%21575
Oct. 1, 1994—Dec. 31, 19948%21575 9%23577
Jan. 1, 1995—Mar. 31, 19958%21575 9%23577

1997–52 I.R.B.15December 29, 1997
TABLE OF INTERESTRATES – Continued
FROM JAN. 1, 1987 - PRESENT
OVERPAYMENTSUNDERPAYMENTS
RATE TABLE PGRATE TABLE PG
1995-1 C.B.1995-1 C.B.
Apr. 1, 1995—Jun. 30, 19959%23577 10%25579
Jul. 1, 1995—Sep. 30, 19958%21575 9%23577
Oct. 1, 1995—Dec. 31, 19958%21575 9%23577
Jan. 1, 1996—Mar. 31, 19968%69623 9%71625
Apr. 1, 1996—Jun. 30, 19967%67621 8%69623
Jul. 1, 1996—Sep. 30, 19968%69623 9%71625
Oct. 1, 1996—Dec. 31, 19968%69623 9%71625
Jan. 1, 1997—Mar. 31, 19978%21575 9%23577
Apr. 1, 1997—Jun. 30, 19978%21575 9%23577
Jul. 1, 1997—Sep. 30, 19978%21575 9%23577
Oct. 1, 1997—Dec. 31, 19978%21575 9%23577
Jan. 1, 1998—Mar. 31, 19988%21575 9%23577
TABLE OF INTERESTRATES FOR
LARGE CORPORATE UNDERPAYMENTS
FROM JANUARY1, 1991 - PRESENT
RATE TABLE PG
1995-1 C.B.
Jan. 1, 1991—Mar. 31, 199113%31585
Apr. 1, 1991—Jun. 30, 199112%29583
Jul. 1, 1991—Sep. 30, 199112%29583
Oct. 1, 1991—Dec. 31, 199112%29583
Jan. 1, 1992—Mar. 31, 199211%75629
Apr. 1, 1992—Jun. 30, 199210%73627
Jul. 1, 1992—Sep. 30, 199210%73627
Oct. 1, 1992—Dec. 31, 19929%71625
Jan. 1, 1993—Mar. 31, 19939%23577
Apr. 1, 1993—Jun. 30, 1993 9%23577
Jul. 1, 1993—Sep. 30, 19939%23577
Oct. 1, 1993—Dec. 31, 19939%23577
Jan. 1, 1994—Mar. 31, 19949%23577
Apr. 1, 1994—Jun. 30, 19949%23577
Jul. 1, 1994—Sep. 30, 199410%25579
Oct. 1, 1994—Dec. 31, 199411%27581
Jan. 1, 1995—Mar. 31, 199511%27581
Apr. 1, 1995—Jun. 30, 199512%29583
Jul. 1, 1995—Sep. 30, 199511%27581
Oct. 1, 1995—Dec. 31, 199511%27581
Jan. 1, 1996—Mar. 31, 199611%75629
Apr. 1, 1996—Jun. 30, 199610%73627
Jul. 1, 1996—Sep. 30, 199611%75629
Oct. 1, 1996—Dec. 31, 199611%75629
Jan. 1, 1997—Mar. 31, 199711%27581
Apr. 1, 1997—Jun. 30, 199711%27581
Jul. 1, 1997—Sep. 30, 199711%27581
Oct. 1, 1997—Dec. 31, 199711%27581
Jan. 1, 1998—Mar. 31, 199811%27581

December 29, 1997161997–52 I.R.B.
Section 7430.—Awarding of
Costs and Certain Fees
The Service provides an inflation adjustment to
the hourly limit on attorney fees that may be
awarded in a judgment or settlement of an adminis-
trative or judicial proceeding concerning the deter-
mination, collection, or refund of tax, interest, or
penalty for calendar year 1998. See Rev. Proc.
97–57, page 20.
Section 7702B.—Treatment of
Qualified Long-Term Care
Insurance
The Service provides an inflation adjustment to
the stated dollar amount of the per diem limitation
regarding periodic payments received under a quali-
fied long-term care insurance contract or periodic
payments received under a life insurance contract
that are treated as paid by reason of the death of a
chronically ill individual for calendar year 1998. See
Rev. Proc. 97–57, page 20.
Section 7872.—Treatment of
Loans With Below-Market
Interest Rates
CPI adjustment forbelow-market
loans–1998.The amount that section
7872(g) of the Code permits a taxpayer to
lend to a qualified continuing care facility
without incurring imputed interest is pub-
lished and adjusted for inflation for years
1987–1998. Rev. Rul. 96–64 supple-
mented and superseded.
Rev. Rul. 97–57
This revenue ruling publishes the
amount that § 7872(g) of the Internal
Revenue Code permits a taxpayer to lend
to a qualifying continuing care facility
without incurring imputed interest. The
amount is adjusted for inflation for the
years after 1986.
Section 7872 of the Code generally
treats loans bearing a below-market inter-
est rate as if they bore interest at the mar-
ket rate.
Section 7872(g)(1) of the Code pro-
vides that, in general, § 7872 does not
apply for any calendar year to any below-
market loan made by a lender to a quali-
fied continuing care facility pursuant to a
continuing care contract if the lender (or
the lender’s spouse) attains age 65 before
the close of the year.
Section 7872(g)(2) of the Code pro-
vides that, in the case of loans made after
October 11, 1985, and before 1987,
§ 7872(g)(1) applies only to the extent
that the aggregate outstanding amount of
any loan to which § 7872(g) applies (de-
termined without regard to § 7872(g)(2)),
when added to the aggregate outstanding
amount of all other previous loans be-
tween the lender (or the lender’s spouse)
and any qualified continuing care facility
to which § 7872(g)(1) applies, does not
exceed $90,000.
Section 7872(g)(5) of the Code pro-
vides that, for loans made during any cal-
endar year after 1986 to which § 7872-
(g)(1) applies, the $90,000 limit specified
in § 7872(g)(2) is increased by an infla-
tion adjustment. The inflation adjustment
for any calendar year is the percentage (if
any) by which the Consumer Price Index
(CPI) for the preceding calendar year ex-
ceeds the CPI for calendar year 1985.
Section 7872(g)(5) states that the CPI for
any calendar year is the average of the
CPI as of the close of the 12-month period
ending on September 30 of that calendar
year.
Rev. Rul. 96–64, 1996-2 C.B. 199,
publishes the amount specified in §
7872(g)(2) of the Code, increased by the
inflation adjustment, for the years 1987-
97.
Table 1 sets forth the amount specified
in § 7872(g)(2) of the Code. The amount
is increased by the inflation adjustment
for the years 1987–98.
TABLE OF INTERESTRATES FOR CORPORATE
OVERPAYMENTS EXCEEDING $10,000
FROM JANUARY1, 1995 - PRESENT
RATE TABLE PG
1995-1 C.B.
Jan. 1, 1995—Mar. 31, 19956.5%18572
Apr. 1, 1995—Jun. 30, 19957.5%20574
Jul. 1, 1995—Sep. 30, 19956.5%18572
Oct. 1, 1995—Dec. 31, 19956.5%18572
Jan. 1, 1996—Mar. 31, 19966.5%66620
Apr. 1, 1996—Jun. 30, 19965.5%64618
Jul. 1, 1996—Sep. 30, 19966.5%66620
Oct. 1, 1996—Dec. 31, 19966.5%66620
Jan. 1, 1997—Mar. 31, 19976.5%18572
Apr. 1, 1997—Jun. 30, 19976.5%18572
Jul. 1, 1997—Sep. 30, 19976.5%18572
Oct. 1, 1997—Dec. 31, 19976.5%18572
Jan. 1, 1998—Mar. 31, 19986.5%18572

1997–52 I.R.B.17December 29, 1997
EFFECTON OTHER DOCUMENTS
Rev. Rul. 96–64, 1996–2 C.B. 199, is
supplemented and superseded.
DRAFTING INFORMATION
The author of this revenue ruling is
David B. Silber of the Office of Assistant
Chief Counsel (Financial Institutions and
Products). For further information regard-
ing this revenue ruling, contact Mr. Silber
on (202) 622-3930 (not a toll-free call).
REV. RUL. 97–57 TABLE 1
Limit under 7872(g)(2)
YearAmount
Before 1987$ 90,000
1987$ 92,200
1988$ 94,800
1989$ 98,800
1990$103,500
1991$108,600
1992$114,100
1993$117,500
1994$121,100
1995$124,300
1996$127,800
1997$131,300
1998$134,800
Note: These inflation adjustments were computed using the All-Urban, Consumer Price Index 1982-1984 base, published
by the Bureau of Labor Statistics.

December 29, 1997181997–52 I.R.B.
Partnership Magnetic Media
Filing Requirements
Notice 97–77
PURPOSE
This notice provides guidance to part-
nerships having more than 100 partners
regarding the requirement to file partner-
ship tax returns on magnetic media under
§ 6011(e) of the Internal Revenue Code,
as amended by § 1224 of the Taxpayer
Relief Act of 1997 (Act), Pub. L. 105-34,
111 Stat. 788 (August 5, 1997).
BACKGROUND
Section 6011(e)(1) generally provides
that the Secretary will prescribe regula-
tions providing standards for determining
which returns must be filed on magnetic
media or in other machine-readable form.
Section 6011(e)(2) defines the require-
ments of the regulations, and provides
that, in prescribing the regulations under
§ 6011(e)(1), the Secretary will not re-
quire any person to file returns on mag-
netic media unless such person is re-
quired to file at least 250 returns during
the calendar year, and will take into ac-
count (among other relevant factors) the
ability of the taxpayer to comply at rea-
sonable cost with the requirements of
such regulations.
Section 1224 of the Act amended
§ 6011(e)(2) to provide that the Secretary
will require partnerships having more
than 100 partners to file returns on mag-
netic media. Section 1226 of the Act pro-
vides that § 1224 is effective for tax years
ending on or after December 31, 1997.
However, the legislative history of the
Act, as provided in H.R. Conf. Rep. No.
220, 105th Cong., 1st Sess. 675 (1997),
indicates that § 1224 is effective for tax
years beginning after December 31, 1997.
The Tax Technical Corrections Act of
1997, which is currently pending in Con-
gress, provides that the effective date in §
1226 of the Act is for partnership tax
years beginning after December 31, 1997.
H.R. 2645, 105th Cong., 1st Sess. § 11(c)
(1997).
TAX YEARS BEGINNING AFTER
DECEMBER 31, 1997
The Service intends to implement
§ 1224 of the Act by issuing regulations
as required by § 6011(e). The regulations
will address the mandatory magnetic
media filing requirements for Form 1065,
U.S. Partnership Return of Income, for
Schedules K-1, Shareholder’s Share of In-
come, Credits, Deductions, etc., and for
all other related forms and schedules.
These regulations, however, will only ad-
dress the requirements for tax years be-
ginning after December 31, 1997.
TAX YEARS BEGINNING BEFORE
JANUARY1, 1998
The Service will not require magnetic
media filing of partnership tax returns for
partnership tax years beginning before
January 1, 1998. Therefore, a partnership
with more than 100 partners will not be
required to file its partnership tax return
on magnetic media for a tax year ending
December 31, 1997, and no penalties will
be imposed on the partnership for not fil-
ing such partnership tax return on mag-
netic media.
DRAFTING INFORMATION
The principal author of this notice is
Bridget E. Finkenaur of the Office of As-
sistant Chief Counsel (Income Tax and
Accounting). For further information re-
garding this notice, contact Ms. Finkenaur
at (202) 622-4940 (not a toll-free number).
26 CFR 601.105: Examination of returns and
claims for refund, credit or abatement; determina-
tion of correct tax liability.
(Also Part I, § 6662.)
Rev. Proc. 97–56
SECTION 1. PURPOSE
.01 This revenue procedure updates
Rev. Proc. 96-58, 1996–2 C.B. 390 and
identifies circumstances under which the
disclosure on a taxpayer’s return of a po-
sition with respect to an item is adequate
for the purpose of reducing the under-
statement of income tax under § 6662(d)
of the Internal Revenue Code (relating to
the substantial understatement aspect of
the accuracy-related penalty), and for the
purpose of avoiding the preparer penalty
under § 6694(a) (relating to understate-
ments due to unrealistic positions). This
revenue procedure does not apply with re-
spect to any other penalty provision (in-
cluding the negligence or disregard provi-
sions of the § 6662 accuracy-related
penalty).
.02 This revenue procedure applies to
any return filed on 1997 tax forms for a
taxable year beginning in 1997, and to
any return filed on 1997 tax forms in 1998
for short taxable years beginning in 1998.
SEC. 2. CHANGES FROM REV.
PROC. 96-58
Editorial changes only have been made
in this revenue procedure.
SEC. 3. BACKGROUND
.01 If § 6662 applies to any portion of
an underpayment of tax required to be
shown on a return, an amount equal to 20
percent of the portion of the underpay-
ment to which the section applies is
added to the tax. (The penalty rate is 40
percent in the case of certain gross valua-
tion misstatements.) Under § 6662(b)(2),
§ 6662 applies to the portion of an under-
payment that is attributable to a substan-
tial understatement of income tax.
.02 Section 6662(d)(1) provides that
there is a substantial understatement of in-
come tax if the amount of the understate-
ment exceeds the greater of 10 percent of
the amount of tax required to be shown on
the return for the taxable year or $5,000
($10,000 in the case of a corporation
other than an S corporation or a personal
holding company). Section 6662(d)(2)
defines an understatement as the excess of
the amount of tax required to be shown on
the return for the taxable year over the
amount of the tax that is shown on the re-
turn reduced by any rebate (within the
meaning of § 6211(b)(2)).
.03 In the case of an item not attribut-
able to a tax shelter, § 6662(d)(2)(B)(ii)
provides that the amount of the under-
statement is reduced by the portion of the
Part III. Administrative, Procedural, and Miscellaneous

1997–52 I.R.B.19December 29, 1997
understatement attributable to any item
with respect to which the relevant facts
affecting the item’s tax treatment are ade-
quately disclosed on the return or on a
statement attached to the return, and there
is a reasonable basis for the tax treatment
of such item by the taxpayer.
.04 In general, this revenue procedure
provides guidance in determining when
disclosure is adequate for purposes of
§ 6662(d). For purposes of this revenue
procedure, the taxpayer must furnish all
required information in accordance with
the applicable forms and instructions, and
the money amounts entered on these
forms must be verifiable. Guidance under
§ 6662(d) for returns filed in 1995, 1996,
and 1997 is provided in Rev. Proc. 94–74,
1994–2 C.B. 823; Rev. Proc. 95–55,
1995–2 C.B. 457; and Rev. Proc.96–58,
1996–2 C.B. 390, respectively.
SEC. 4. PROCEDURE
.01 Additional disclosure of facts rele-
vant to, or positions taken with respect to,
issues involving any of the items set forth
below is unnecessary for purposes of re-
ducing any understatement of income tax
under § 6662(d) provided that the forms
and attachments are completed in a clear
manner and in accordance with their in-
structions. The money amounts entered
on the forms must be verifiable, and the
information on the return must be dis-
closed in the manner described below.
For purposes of this revenue procedure, a
number is verifiable if, on audit, the tax-
payer can demonstrate the origin of the
number (even if that number is not ulti-
mately accepted by the Internal Revenue
Service) and the taxpayer can show good
faith in entering that number on the ap-
plicable form.
(1) Form 1040, Schedule A, Itemized
Deductions:
(a) Medical and Dental Expenses:
Complete lines 1 through 4, supplying all
required information.
(b) Taxes: Complete lines 5 through 9,
supplying all required information. Line
8 must list each type of tax and the
amount paid.
(c) Interest Expense: Complete lines
10 through 14, supplying all required in-
formation. This section 4.01(1)(c) does
not apply to (i) amounts disallowed under
§ 163(d) unless Form 4952, Investment
Interest Expense Deduction, is completed,
or (ii) amounts disallowed under § 265.
(d) Contributions: Complete lines 15
through 18, supplying all required infor-
mation. Merely entering the amount of
the donation on Schedule A, however, will
not constitute adequate disclosure if the
taxpayer receives a substantial benefit
from the donation shown. If a contribu-
tion of property other than cash is made
and the amount claimed as a deduction ex-
ceeds $500, a properly completed Form
8283, Noncash Charitable Contributions,
must be attached to the return. This sec-
tion 4.01(1)(d) will not apply to any con-
tribution of $250 or more unless the con-
temporaneous written acknowledgement
requirement of § 170(f)(8) is satisfied.
(e) Casualty and Theft Losses: Com-
plete Form 4684, Casualties and Thefts,
and attach to the return. Each item or arti-
cle for which a casualty or theft loss is
claimed must be listed on Form 4684.
(2) Certain Trade or Business Expenses
(including, for purposes of this section
4.01(2), the following six expenses as
they relate to the rental of property):
(a) Casualty and Theft Losses: The
procedure outlined in section 4.01(1)(e)
above must be followed.
(b) Legal Expenses: The amount
claimed must be stated. This section
4.01(2)(b) does not apply, however, to
amounts properly characterized as capital
expenditures, personal expenses, or nond-
eductible lobbying or political expendi-
tures, including amounts that are required
to be (or that are) amortized over a period
of years.
(c) Specific Bad Debt Charge-off: The
amount written off must be stated.
(d) Reasonableness of Officers’Com-
pensation: Form 1120, Schedule E, Com-
pensation of Officers, must be completed
when required by its instructions. The
time devoted to business must be ex-
pressed as a percentage as opposed to
“part” or “as needed.” This section
4.01(2)(d) does not apply to “golden para-
chute” payments, as defined under § 280G.
This section 4.01(2)(d) will not apply to
the extent that remuneration paid or in-
curred exceeds the $1 million employee re-
muneration limitation, if applicable.
(e) Repair Expenses: The amount
claimed must be stated. This section
4.01(2)(e) does not apply, however, to
any repair expenses properly character-
ized as capital expenditures or personal
expenses.
(f) Taxes (other than foreign taxes):
The amount claimed must be stated.
(3) Form 1120, Schedule M–1, Recon-
ciliation of Income (Loss) per Books With
Income per Return, provided:
(a) The amount of the deviation from
the financial books and records is not the
result of a computation that includes the
netting of items; and
(b) The information provided reason-
ably may be expected to apprise the Inter-
nal Revenue Service of the nature of the
potential controversy concerning the tax
treatment of the item.
(4) Foreign Tax Items:
(a) International Boycott Transactions:
Transactions disclosed on Form 5713, In-
ternational Boycott Report.
(b) Intercompany Transactions: Trans-
actions and amounts shown on Schedule
M (Form 5471), Transactions Between
Controlled Foreign Corporation and
Shareholders or Other Related Persons,
lines 19 and 20, and Form 5472, Part IV,
Monetary Transactions Between Report-
ing Corporations and Foreign Related
Party, lines 7 and 18.
(5) Other:
(a) Moving Expenses: Complete Form
3903, Moving Expenses, or Form 3903-F,
Foreign Moving Expenses, and attach to
the return.
(b) Sale or Exchange of Your Main
Home: Complete Form 2119, Sale of
Your Home, and attach to the return.
(c) Employee Business Expenses:
Complete Form 2106, Employee Busi-
ness Expenses, or Form 2106–EZ, Unre-
imbursed Employee Business Expenses,
and attach to the return. This section
4.01(5)(c) does not apply to club dues, or
to travel expenses for any non-employee
accompanying the taxpayer on a trip.
(d) Fuels Credit: Complete Form
4136, Credit for Federal Tax Paid on
Fuels, and attach to the return.
(e) Investment Credit: Complete
Form 3468, Investment Credit, and at-
tach to the return.

December 29, 1997201997–52 I.R.B.
SECTION 1. PURPOSE
This revenue procedure sets forth infla-
tion adjusted items for 1998.
SECTION 2. CHANGES MADE
FROM PRECEDING YEAR
.01 In preceding years, this revenue
procedure included a detailed description
of each inflation adjusted item in former
section 3, a technical explanation of the
authority for each inflation adjustment in
former section 4 and the inflation factors
used to make the inflation adjustments in
former section 5. To simplify this revenue
procedure, section 3 has been revised, and
sections 4 and 5 have been deleted.
.02 The limitations regarding the
amount of eligible long-term care premi-
ums includible in the term “medical care”
under § 213(d)(10) of the Internal Rev-
enue Code, as enacted by section 322 of
the Health Insurance Portability and Ac-
countability Act of 1996, Pub. L. No.
104–191, 110 Stat. 1936 (1996), are ad-
justed for inflation for tax years beginning
in 1998 (section 3.09).
.03 The value of property exempt from
levy under § 6334(a)(2) (fuel, certain
household items, arms for personal use,
SEC. 5. EFFECTIVE DATE
.01 This revenue procedure applies to
any return filed on 1997 tax forms for a
taxable year beginning in 1997, and to any
return filed on 1997 tax forms in 1998 for
short taxable years beginning in 1998.
SEC. 6. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Marcia Rachy of the Office
of Assistant Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue procedure, contact
Ms. Rachy on (202) 622-6232 (not a toll-
free call).
26 CFR 601.602: Tax forms and instructions.
(Also Part I, §§ 1, 32, 63, 68, 132, 135, 151, 170, 213, 512, 513, 877, 4001, 4003, 6012, 6013, 6033, 6039F, 6334, 7430, 7702B; 1.1–1, 1.32–2, 1.63–1, 1.151–4,
1.170–1, 1.6012–1, 1.6013–1)
Rev. Proc. 97–57
Table of Contents
SECTION 1. PURPOSE
SECTION 2. CHANGES MADE FROM PRECEDING YEAR
SECTION 3. 1998 ADJUSTED ITEMS
Code Section
.01Tax Rate Tables1(a)-(e)
.02Unearned Income of Minor Children Taxed as if Parent’s Income (“Kiddie Tax”)1(g)
.03Earned Income Tax Credit32
.04Standard Deduction63
.05Overall Limitation on Itemized Deductions68
.06Qualified Transportation Fringe132(f)
.07Income from United States Savings Bonds for Taxpayers Who Pay Qualified Higher Education Expenses135
.08Personal Exemption151
.09Eligible Long-Term Care Premiums213(d)(10)
.10Treatment of Dues Paid to Agricultural or Horticultural Organizations.512(d)
.11Insubstantial Benefit Limitations for Contributions Associated with Charitable Fund-Raising Campaigns513(h)
.12Expatriation to Avoid Tax877
.13Luxury Automobile Excise Tax4001 & 4003
.14Reporting Exception for Certain Exempt Organizations with Nondeductible Lobbying Expenditures6033(e)(3)
.15Notice of Large Gifts Received from Foreign Persons6039F
.16Property Exempt from Levy6334
.17Attorney Fee Awards7430
.18Periodic Payments Received under Qualified Long-Term Care Insurance Contracts7702B(d)
SECTION 4. EFFECTIVE DATE
SECTION 5. DRAFTING INFORMATION

1997–52 I.R.B.21December 29, 1997
TABLE 1–Section 1(a).—MARRIED INDIVIDUALS FILING JOINTRETURNS AND SURVIVING SPOUSES
If Taxable Income Is:The Tax Is:
Not Over $42,35015% of the taxable income
Over $42,350 but not over $102,300$6,352.50 plus 28% of the excess over $42,350
Over $102,300 but not over $155,950$23,138.50 plus 31% of the excess over $102,300
Over $155,950 but not over $278,450 $39,770 plus 36% of the excess over $155,950
Over $278,450 $83,870 plus 39.6% of the excess over $278,450
TABLE 2 - Section 1(b).—HEADS OF HOUSEHOLDS
If Taxable Income Is:The Tax Is:
Not Over $33,95015% of the taxable income
Over $33,950 but not over $87,700$5,092.50 plus 28% of the excess over $33,950
Over $87,700 but not over $142,000$20,142.50 plus 31% of the excess over $87,700
Over $142,000 but not over $278,450$36,975.50 plus 36% of the excess over $142,000
Over $278,450$86,097.50 plus 39.6% of the excess over $278,450
TABLE 3–Section 1(c).—UNMARRIED INDIVIDUALS (OTHER THAN SURVIVING SPOUSES
AND HEADS OF HOUSEHOLDS)
If Taxable Income Is:The Tax Is:
Not Over $25,35015% of the taxable income
Over $25,350 but not over $61,400$3,802.50 plus 28% of the excess over $25,350
Over $61,400 but not over $128,100$13,896.50 plus 31% of the excess over $61,400
Over $128,100 but not over $278,450$34,573.50 plus 36% of the excess over $128,100
Over $278,450$88,699.50 plus 39.6% of the excess over $278,450
livestock, and poultry) and under §
6334(a)(3) (books and tools of a trade,
business, or profession), as amended by
section 502 of the Taxpayer Bill of Rights
2, Pub. L. No. 104–168, 110 Stat. 1452
(1996), is adjusted for inflation for calen-
dar year 1998 (section 3.16).
.04 The stated dollar amount of the per
diem limitation under § 7702B(d)(4), as
enacted by section 321 of the Health In-
surance Portability and Accountability
Act of 1996, Pub. L. No. 104–191, 110
Stat. 1936 (1996), regarding periodic pay-
ments received under a qualified long-
term care insurance contract or periodic
payments received under a life insurance
contract that are treated as paid by reason
of the death of a chronically ill individual,
is adjusted for inflation for calendar year
1998 (section 3.18).
SECTION 3. 1998 ADJUSTED
ITEMS
.01 Tax Rate Tables. For tax years be-
ginning in 1998, the tax rate tables under
§ 1 are as follows:

December 29, 1997221997–52 I.R.B.
The Internal Revenue Service, in the
instructions for the Form 1040 series, pro-
vides tables showing the amount of the
earned income tax credit for each type of
taxpayer.
(2) Excessive investment income.
For tax years beginning in 1998, the
earned income tax credit is denied under §
32(i) if the aggregate amount of certain
investment income exceeds $2,300.
.04 Standard Deduction.
(1) In general. For tax years begin-
ning in 1998, the standard deduction
amounts under § 63(c)(2) are as follows:
Standard
Filing StatusDeduction
MARRIED INDIVIDUALS
FILING JOINTRETURNS
AND SURVIVING SPOUSES
(§ 1(a))$7,100
HEADS OF HOUSEHOLDS
(§ 1(b))$6,250
UNMARRIED INDIVIDUALS
(OTHER THAN SURVIVING
SPOUSES AND HEADS OF
HOUSEHOLDS) (§ 1(c))$4,250
MARRIED INDIVIDUALS
FILING SEPARATE
RETURNS (§ 1(d))$3,550
(2) Dependent. For tax years begin-
ning in 1998, the standard deduction
amount under § 63(c)(5) for an individual
who may be claimed as a dependent by
.02 Unearned Income of Minor Chil-
dren Taxed as if Parent’s Income (the
“Kiddie Tax”). For tax years beginning
in 1998, the amount in § 1(g)(4)(A)(ii)(I),
which is used to reduce the net unearned
income reported on the child’s return that
is subject to the “kiddie tax,” is $700.
(This amount is the same as the $700
standard deduction amount provided in
section 3.04(2) of this revenue proce-
dure.) In the alternative, the same $700
amount is used for purposes of § 1(g)(7)
(that is, determining whether a parent
may elect to include a child’s gross in-
come in the parent’s gross income and for
calculating the “kiddie tax”).
.03 Earned Income Tax Credit.
(1) In general. For tax years begin-
ning in 1998, the following amounts are
used to determine the earned income tax
credit under § 32(b). The “earned income
amount” is the amount of earned income
at or above which the maximum amount
of the earned income tax credit is al-
lowed. The “threshold phaseout amount”
is the amount of modified adjusted gross
income (or, if greater, earned income)
above which the maximum amount of the
credit begins to phase out. The “com-
pleted phaseout amount” is the amount of
modified adjusted gross income (or if
greater, earned income) at or above which
no credit is allowed.
MaximumThresholdCompleted
NumberAmount ofEarned IncomePhaseoutPhaseout
of Childrenthe Credit Amount Amount Amount
1$2,271$6,680$12,260$26,473
2 or more$3,756$9,390$12,260$30,095
None$ 341$4,460$ 5,570$10,030
TABLE 4–Section 1(d).—MARRIED INDIVIDUALS FILING SEPARATE RETURNS
If Taxable Income Is:The Tax Is:
Not Over $21,17515% of the taxable income
Over $21,175 but not over $51,150$3,176.25 plus 28% of the excess over $21,175
Over $51,150 but not over $77,975$11,569.25 plus 31% of the excess over $51,150
Over $77,975 but not over $139,225$19,885 plus 36% of the excess over $77,975
Over $139,225$41,935 plus 39.6% of the excess over $139,225
TABLE 5–Section 1(e).—ESTATES AND TRUSTS
If Taxable Income Is:The Tax Is:
Not Over $1,70015% of the taxable income
Over $1,700 but not over $4,000$255 plus 28% of the excess over $1,700
Over $4,000 but not over $6,100$899 plus 31% of the excess over $4,000
Over $6,100 but not over $8,350$1,550 plus 36% of the excess over $6,100
Over $8,350$2,360 plus 39.6% of the excess over $8,350

1997–52 I.R.B.23December 29, 1997
another taxpayer may not exceed the
greater of $700, or the sum of $250 and
the individual’s earned income.
(3) Aged and blind. For tax years
beginning in 1998, the additional standard
deduction amounts under § 63(f) for the
aged and for the blind are $850 for each.
These amounts are increased to $1,050 if
the individual is also unmarried and not a
surviving spouse.
.05 Overall Limitation on Itemized De-
ductions. For tax years beginning in
1998, the “applicable amount” of adjusted
gross income under § 68(b), above which
the amount of otherwise allowable item-
ized deductions is reduced under § 68, is
$124,500 (or $62,250 for a separate return
filed by a married individual).
.06 Qualified Transportation Fringe.
For tax years beginning in 1998, the
monthly limitation under § 132(f)(2)(A),
regarding the aggregate fringe benefit ex-
clusion amount for transportation in a
commuter highway vehicle and any tran-
sit pass, is $65. The monthly limitation
under § 132(f)(2)(B) regarding the fringe
benefit exclusion amount for qualified
parking is $175.
.07 Income from United States Savings
Bonds for Taxpayers Who Pay Qualified
Higher Education Expenses. For tax
years beginning in 1998, the exclusion
under § 135, regarding income from
United States savings bonds for taxpayers
who pay qualified higher education ex-
penses, begins to phase out for modified
adjusted gross income above $78,350 for
joint returns and $52,250 for other re-
turns. This exclusion completely phases
out for modified adjusted gross income of
$108,350 or more for joint returns and
$67,250 or more for other returns.
.08 Personal Exemption.
(1) Exemption amount. For tax years
beginning in 1998, the personal exemp-
tion amount under § 151(d) is $2,700.
(2) Phaseout.For tax years begin-
ning in 1998, the personal exemption
amount begins to phase out at, and is
completely phased out after, the following
adjusted gross income amounts:
ThresholdCompleted
PhaseoutPhaseout
Filing StatusAmountAmount After
Code § 1(a)$186,800$309,300
Code § 1(b$155,650$278,150
Code § 1(c)$124,500$247,000
Code § 1(d)$ 93,400$154,650
.09 Eligible Long-Term Care Premi-
ums. For tax years beginning in 1998, the
limitations under § 213(d), regarding eli-
gible long- term care premiums includible
in the term “medical care,” are as follows:
Attained age before
the close of the
taxable year:
40 or less . . . . . . . . . . . . . . . . . . . . . .$ 210
More than 40 but not more than 50 . . .$ 380
More than 50 but not more than 60 . . .$ 770
More than 60 but not more than 70 . .$2,050
More than 70 . . . . . . . . . . . . . . . . . . .$2,570
.10Treatment of Dues Paid to Agricul-
tural or Horticultural Organizations. For
tax years beginning in 1998, the limita-
tion under § 512(d)(1), regarding the ex-
emption of annual dues required to be
paid by a member to an agricultural or
horticultural organization, is $109.
.11 Insubstantial Benefit Limitations
for Contributions Associated with Chari-
table Fund-Raising Campaigns.
(1) Low cost article. For tax years
beginning in 1998, the unrelated business
income of certain exempt organizations
under § 513(h)(2) does not include a “low
cost article” of $7.10 or less.
(2) Other insubstantial benefits. For
tax years beginning in 1998, the $5, $25,
and $50 guidelines in section 3 of Rev.
Proc. 90-12, 1990-1 C.B. 471 (as ampli-
fied and modified), for disregarding the
value of insubstantial benefits received by
a donor in return for a fully deductible
charitable contribution under § 170, are
$7.10, $35.50, and $71, respectively.
12 Expatriation to Avoid Tax. For cal-
endar year 1998, the thresholds used
under § 877(a)(2), regarding whether an
individual’s loss of United States citizen-
ship had the avoidance of United States
taxes as one of its principal purposes, are
more than $109,000 for “average annual
net income tax” and $543,000 or more for
“net worth.”
.13 Luxury Automobile Excise Tax. For
calendar year 1998, the excise tax under
§§ 4001 and 4003 is imposed on the first
retail sale of a passenger vehicle (includ-
ing certain parts or accessories installed
within six months of the date after the ve-
hicle was first placed in service), to the
extent the price exceeds $36,000.
.14 Reporting Exception for Certain
Exempt Organizations with Nonde-
ductible Lobbying Expenditures. For tax
years beginning in 1998, the annual per
person, family, or entity dues limitation to
qualify for the reporting exception under
§ 6033(e)(3) (and section 4.02 of Rev.
Proc. 95–35, 1995–2 C.B. 391), regarding
certain exempt organizations with nonde-
ductible lobbying expenditures, is $55 or
less.
.15 Notice of Large Gifts Received from
Foreign Persons. For tax years beginning
in 1998, recipients of gifts from certain
foreign persons may have to report these
gifts under § 6039F if the aggregate value
of gifts received in a taxable year exceeds
$10,557.
.16 Property Exempt from Levy. For
calendar year 1998, the value of property
exempt from levy under § 6334(a)(2)
(fuel, provisions, furniture, and other
household personal effects, as well as
arms for personal use, livestock, and
poultry) may not exceed $2,570. The
value of property exempt from levy under
§ 6334(a)(3) (books and tools necessary
for the trade, business, or profession of
the taxpayer) may not exceed $1,280.
.17 Attorney Fee Awards. For calendar
year 1998, the attorney fee award limita-
tion under § 7430(c)(1)(B)(iii) is $120 per
hour.
.18Periodic Payments Received under
Qualified Long-Term Care Insurance
Contracts or under Certain Life Insur-
ance Contracts. For calendar year 1998,
the stated dollar amount of the per diem
limitation under § 7702B(d)(4), regarding
periodic payments received under a quali-
fied long-term care insurance contract or
periodic payments received under a life
insurance contract that are treated as paid
by reason of the death of a chronically ill
individual, is $180.
SECTION 4. EFFECTIVE DATE
.01 General Rule. Except as provided
in section 4.02, this revenue procedure
applies to tax years beginning in 1998.
.02 Calendar Year Rule. This revenue
procedure applies to transactions or
events occurring in calendar year 1998 for
purposes of section 3.12 (the expatriation
tax), section 3.13 (the excise tax on lux-
ury automobiles), section 3.16 (the value
of certain property exempt from levy),
section 3.17 (the hourly limit on attorney
fee awards), and section 3.18 (the per
diem limitation for periodic payments re-

December 29, 1997241997–52 I.R.B.
ceived under qualified long-term care in-
surance contracts).
SECTION 5. DRAFTING
INFORMATION
The principal author of this revenue
procedure is John Moran of the Office of
Assistant Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue procedure, contact
Mr. Moran on (202) 622-4940 (not a toll-
free call).
26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement; determina-
tion of correct tax liability.
(Also Part I, sections 62, 162, 274, 1016; 1.62–2,
1.162–17, 1.274–5T, 1.274(d)–1, 1.1016–3.)
Rev. Proc. 97–58
SECTION 1. PURPOSE
This revenue procedure updates Rev.
Proc. 96–63, 1996–2 C.B. 420, by provid-
ing optional standard mileage rates for
employees, self-employed individuals, or
other taxpayers to use in computing the
deductible costs paid or incurred on or
after January 1, 1998, of operating an au-
tomobile for business, charitable, medical,
or moving expense purposes. This rev-
enue procedure also provides rules under
which the amount of ordinary and neces-
sary expenses of local travel or transporta-
tion away from home that are paid or in-
curred by an employee will be deemed
substantiated under § 1.274–5Tof the
temporary Income Tax Regulations when
a payor (the employer, its agent, or a third
party) provides a mileage allowance under
a reimbursement or other expense al-
lowance arrangement to pay for such ex-
penses. Use of a method of substantiation
described in this revenue procedure is not
mandatory and a taxpayer may use actual
allowable expenses if the taxpayer main-
tains adequate records or other sufficient
evidence for proper substantiation.
SECTION 2. SUMMARY OF
STANDARD MILEAGE RATES
Business
(section 5 below)32.5 cents per mile
Charitable
(section 7 below)14 cents per mile
Medical and Moving
(section 7 below)10 cents per mile
SECTION 3. BACKGROUND AND
CHANGES
.01 Section 162(a) of the Internal Rev-
enue Code allows a deduction for all the
ordinary and necessary expenses paid or
incurred during the taxable year in carry-
ing on any trade or business. Under that
provision, an employee or self-employed
individual may deduct the cost of operat-
ing an automobile to the extent that it is
used in a trade or business. However,
under § 262, no portion of the cost of op-
erating an automobile that is attributable
to personal use is deductible.
.02 Section 274(d) provides, in part,
that no deduction shall be allowed under
§ 162 with respect to any listed property
(as defined in § 280F(d)(4) to include pas-
senger automobiles and any other property
used as a means of transportation) unless
the taxpayer complies with certain sub-
stantiation requirements. The section fur-
ther provides that regulations may
prescribe that some or all of the substanti-
ation requirements do not apply to an ex-
pense that does not exceed an amount pre-
scribed by such regulations.
.03 Section 1.274(d)–1, in part, grants
the Commissioner the authority to pre-
scribe rules relating to mileage allowances
for ordinary and necessary expenses of
local travel and transportation away from
home. Pursuant to this grant of authority,
the Commissioner may prescribe rules
under which such allowances, if in accor-
dance with reasonable business practice,
will be regarded as (1) equivalent to sub-
stantiation, by adequate records or other
sufficient evidence, of the amount of such
travel and transportation expenses for pur-
poses of § 1.274–5T(c), and (2) satisfying
the requirements of an adequate account-
ing to the employer of the amount of such
expenses for purposes of § 1.274–5T(f).
.04 Section 62(a)(2)(A) allows an em-
ployee, in determining adjusted gross in-
come, a deduction for the expenses al-
lowed by Part VI (§ 161 and following),
subchapter B, chapter 1 of the Code, paid
or incurred by the employee in connection
with the performance of services as an em-
ployee under a reimbursement or other ex-
pense allowance arrangement with a payor.
.05 Section 62(c) provides that an
arrangement will not be treated as a reim-
bursement or other expense allowance
arrangement for purposes of § 62(a)-
(2)(A) if it—
(1) does not require the employee to
substantiate the expenses covered by the
arrangement to the payor, or
(2) provides the employee with the
right to retain any amount in excess of the
substantiated expenses covered under the
arrangement. Section 62(c) further pro-
vides that the substantiation requirements
described therein shall not apply to any
expense to the extent that, under the grant
of regulatory authority prescribed in §
274(d), the Commissioner has provided
that substantiation is not required for such
expense.
.06 Under § 1.62–2(c)(1), a reimburse-
ment or other expense allowance arrange-
ment satisfies the requirements of § 62(c)
if it meets the requirements of business
connection, substantiation, and returning
amounts in excess of expenses as speci-
fied in the regulations. Section 1.62–2-
(e)(2) specifically provides that substanti-
ation of certain business expenses in
accordance with rules prescribed under
the authority of § 1.274(d)–1 will be
treated as substantiation of the amount of
such expenses for purposes of § 1.62-2.
Under § 1.62–2-(f)(2), the Commissioner
may prescribe rules under which an
arrangement providing mileage al-
lowances will be treated as satisfying the
requirement of returning amounts in ex-
cess of expenses, even though the
arrangement does not require the em-
ployee to return the portion of such an al-
lowance that relates to miles of travel
substantiated and that exceeds the
amount of the employee’s expenses
deemed substantiated pursuant to rules
prescribed under § 274(d), provided the
allowance is reasonably calculated not to
exceed the amount of the employee’s ex-
penses or anticipated expenses and the
employee is required to return any por-
tion of such an allowance that relates to
miles of travel not substantiated.
.07 Section 1.62–2(h)(2)(i)(B) provides
that if a payor pays a mileage allowance
under an arrangement that meets the re-
quirements of § 1.62–-2(c)(1), the por-
tion, if any, of the allowance that relates
to miles of travel substantiated in accor-
dance with § 1.62–2(e), that exceeds the
amount of the employee’s expenses
deemed substantiated for such travel pur-
suant to rules prescribed under §§ 274(d)
and 1.274(d)–1, and that the employee is
not required to return, is subject to with-

1997–52 I.R.B.25December 29, 1997
holding and payment of employment
taxes. See §§ 31.3121(a)–3, 31.3231(e)–
1(a)(5), 31.3306(b)–2, and 31.3401-(a)–4.
Because the employee is not required to
return this excess portion, the reasonable
period of time provisions of § 1.62–2(g)
(relating to the return of excess amounts)
do not apply to this excess portion.
.08 Under § 1.62-2(h)(2)(i)(B)(4), the
Commissioner may, in his or her discre-
tion, prescribe special rules regarding the
timing of withholding and payment of
employment taxes on mileage al-
lowances.
.09 Significant changes to this revenue
procedure include:
(1) the increase in the charitable stan-
dard mileage rate (sections 2 and 7.01);
(2) the deletion of the rural mail carrier
special mileage rate (in sections 2 and 6 of
Rev. Proc. 96–63) and the addition of sec-
tion 5.06(4) because of amendments made
to § 162(o) by § 1203 of the Taxpayer Re-
lief Act of 1997, Pub. L. No. 105– 34, 111
Stat. 788 (August 5, 1997); and
(3) the extension of the rules for using
the business standard mileage rate or a
fixed and variable rate (FAVR) allowance
to apply to leased automobiles (sections
4, 5, 8, and 9).
SECTION 4. DEFINITIONS
.01 Standard mileage rate. The term
“standard mileage rate” means the ap-
plicable amount provided by the Service
for optional use by employees or self-
employed individuals in computing the
deductible costs of operating automo-
biles (including vans, pickups, or panel
trucks) owned or leased for business pur-
poses, or by taxpayers in computing the
deductible costs of operating automo-
biles for charitable, medical, or moving
expense purposes.
.02 Transportation expenses. The term
“transportation expenses” means the ex-
penses of operating an automobile for
local travel or transportation away from
home.
.03 Mileage allowance. The term
“mileage allowance” means a payment
under a reimbursement or other expense
allowance arrangement that meets the re-
quirements specified in § 1.62-2(c)(1) and
that is
(1) paid with respect to the ordinary
and necessary business expenses in-
curred, or which the payor reasonably an-
ticipates will be incurred, by an employee
for transportation expenses in connection
with the performance of services as an
employee of the employer,
(2) reasonably calculated not to exceed
the amount of the expenses or the antici-
pated expenses, and
(3) paid at the applicable standard
mileage rate, a flat rate or stated schedule,
or in accordance with any other Service-
specified rate or schedule.
.04 Flat rate or stated schedule. A
mileage allowance is paid at a flat rate or
stated schedule if it is provided on a uni-
form and objective basis with respect to
the expenses described in section 4.03 of
this revenue procedure. Such allowance
may be paid periodically at a fixed rate, at
a cents-per-mile rate, at a variable rate
based on a stated schedule, at a rate that
combines any of these rates, or on any
other basis that is consistently applied and
in accordance with reasonable business
practice. Thus, for example, a periodic
payment at a fixed rate to cover the fixed
costs (including depreciation (or lease
payments), insurance, registration and li-
cense fees, and personal property taxes)
of driving an automobile in connection
with the performance of services as an
employee of the employer, coupled with a
periodic payment at a cents-per-mile rate
to cover the operating costs (including
gasoline and all taxes thereon, oil, tires,
and routine maintenance and repairs) of
using an automobile for such purposes, is
an allowance paid at a flat rate or stated
schedule. Likewise, a periodic payment
at a variable rate based on a stated sched-
ule for different locales to cover the costs
of driving an automobile in connection
with the performance of services as an
employee is an allowance paid at a flat
rate or stated schedule.
SECTION 5. BUSINESS STAN-
DARD MILEAGE RATE
.01 In general. The standard mileage
rate for transportation expenses paid or
incurred on or after January 1, 1998, is
32.5 cents per mile for all miles of use for
business purposes. This business stan-
dard mileage rate will be adjusted annu-
ally (to the extent warranted) by the
Service, and any such adjustment will be
applied prospectively.
.02 Use of the business standard
mileage rate. Ataxpayer may use the
business standard mileage rate with re-
spect to an automobile that is either
owned or leased by the taxpayer. Atax-
payer generally may deduct an amount
equal to either the business standard
mileage rate times the number of business
miles traveled or the actual costs (both
operating and fixed) paid or incurred by
the taxpayer that are allocable to traveling
those business miles.
.03 Business standard mileage rate in
lieu of operating and fixed costs. Ade-
duction using the standard mileage rate
for business miles is computed on a
yearly basis and is in lieu of all operating
and fixed costs of the automobile alloca-
ble to business purposes (except as pro-
vided in section 9.06 of this revenue
procedure). Such items as depreciation
(or lease payments), maintenance and re-
pairs, tires, gasoline (including all taxes
thereon), oil, insurance, and license and
registration fees are included in operating
and fixed costs for this purpose.
.04 Parking fees, tolls, interest, and
taxes. Parking fees and tolls attributable
to use of the automobile for business pur-
poses may be deducted as separate items.
Likewise, interest relating to the purchase
of the automobile as well as state and
local taxes (other than those included in
the cost of gasoline) may be deducted as
separate items, but only to the extent that
the interest or taxes are allowable deduc-
tions under § 163 or 164 respectively. If
the automobile is operated less than 100
percent for business purposes, an alloca-
tion is required to determine the business
and nonbusiness portion of the taxes and
interest deduction allowable. However,
§ 163(h)(2)(A) expressly provides that in-
terest is nondeductible personal interest
when it is paid or accrued on indebtedness
properly allocable to the trade or business
of performing services as an employee.
Section 164 also expressly provides that
state and local taxes that are paid or ac-
crued by a taxpayer in connection with an
acquisition or disposition of property will
be treated as part of the cost of the ac-
quired property or as a reduction in the
amount realized on the disposition of such
property.
.05 Depreciation. For owned automo-
biles placed in service for business pur-
poses, and for which the business stan-
dard mileage rate has been used for any
year, depreciation will be considered to

December 29, 1997261997–52 I.R.B.
have been allowed at the rate of 12 cents a
mile for 1994, 1995, 1996, 1997, and
1998, for those years in which the busi-
ness standard mileage rate was used. If
actual costs were used for one or more of
those years, the rates above will not apply
to any year in which such costs were
used. The depreciation described above
will reduce the basis of the automobile
(but not below zero) in determining ad-
justed basis as required by § 1016.
.06 Limitations.
(1) The business standard mileage rate
may not be used to compute the de-
ductible expenses of (a) automobiles used
for hire, such as taxicabs, or (b) two or
more automobiles used simultaneously
(such as in fleet operations).
(2) The business standard mileage rate
may not be used to compute the de-
ductible businsess expenses of an auto-
mobile leased by a taxpayer unless the
taxpayer uses either the business standard
mileage rate or a FAVR allowance (as
provided in section 8 of this revenue pro-
cedure) to compute the deductible busi-
ness expenses of the automobile for the
entire lease period (including renewals).
For a lease commencing on or before De-
cember 31, 1997, the “entire lease period”
means the portion of the lease period (in-
cluding renewals) remaining after that
date.
(3) The business standard mileage rate
may not be used to compute the de-
ductible expenses of an automobile for
which the taxpayer has (a) claimed depre-
ciation using a method other than straight-
line for its estimated useful life, (b)
claimed a § 179 deduction, or (c) used the
Accelerated Cost Recovery System
(ACRS) under former § 168 or the Modi-
fied Accelerated Cost Recovery System
(MACRS) under current § 168. By using
the business standard mileage rate, the
taxpayer has elected to exclude the auto-
mobile (if owned) from MACRS pursuant
to § 168(f)(1). If, after using the business
standard mileage rate, the taxpayer uses
actual costs, the taxpayer must use
straight-line depreciation for the automo-
bile’s remaining estimated useful life
(subject to the applicable depreciation de-
duction limitations under § 280F).
(4) The business standard mileage rate
and this revenue procedure may not be
used to compute the amount of the de-
ductible automobile expenses of an em-
ployee of the United States Postal Service
incurred in performing services involving
the collection and delivery of mail on a
rural route if the employee receives quali-
fied reimbursements (as defined in
§ 162(o)) for such expenses. See
§ 162(o), as amended by § 1203 of the
Taxpayer Relief Act of 1997, Pub. L. No.
105–34, 111 Stat. 788 (August 5, 1997)
for the rules that apply to these qualified
reimbursements.
SECTION 6. RESERVED
SECTION 7. CHARITABLE,
MEDICAL, AND MOVING
STANDARD MILEAGE RATE
.01 Charitable. Section 170(i), as
amended by § 973 of the Taxpayer Relief
Act of 1997, provides a standard mileage
rate of 14 cents per mile for purposes of
computing the charitable deduction for
use of an automobile in connection with
rendering gratuitous services to a charita-
ble organization under § 170, for taxable
years beginning after December 31,
1997.
.02 Medical and moving. The standard
mileage rate is 10 cents per mile for use of
an automobile (a) to obtain medical care
described in § 213, or (b) as part of a
move for which the expenses are de-
ductible under § 217. The standard
mileage rates for medical and moving
transportation expenses will be adjusted
annually (to the extent warranted) by the
Service, and any such adjustment will be
applied prospectively.
.03 Charitable, medical, or moving ex-
pense standard mileage rate in lieu of op-
erating expenses. Adeduction computed
using the applicable standard mileage rate
for charitable, medical, or moving ex-
pense miles is in lieu of all operating ex-
penses (including gasoline and oil) of the
automobile allocable to such purposes.
Costs for such items as depreciation (or
lease payments), maintenance and repairs,
tires, insurance, and license and registra-
tion fees are not deductible, and are not
included in such standard mileage rates.
.04 Parking fees, tolls, interest, and
taxes. Parking fees and tolls attributable
to the use of the automobile for charita-
ble, medical, or moving expense purposes
may be deducted as separate items. Like-
wise, interest relating to the purchase of
the automobile as well as state and local
taxes (other than those included in the
cost of gasoline) may be deducted as sep-
arate items, but only to the extent that the
interest and taxes are allowable deduc-
tions under § 163 or 164, respectively.
SECTION 8. FIXED AND
VARIABLE RATE ALLOWANCE
.01 In general.
(1) The ordinary and necessary ex-
penses paid or incurred by an employee in
driving an automobile owned or leased by
the employee in connection with the per-
formance of services as an employee of
the employer will be deemed substanti-
ated (in an amount determined under sec-
tion 9 of this revenue procedure) when a
payor reimburses such expenses with a
mileage allowance using a flat rate or
stated schedule that combines periodic
fixed and variable rate payments that
meet all the requirements of section 8 of
this revenue procedure (a FAVR al-
lowance).
(2) The amount of a FAVR allowance
must be based on data that (a) is derived
from the base locality, (b) reflects retail
prices paid by consumers, and (c) is rea-
sonable and statistically defensible in ap-
proximating the actual expenses employ-
ees receiving the allowance would incur
as owners of the standard automobile.
.02 Definitions.
(1) FAVR allowance. AFAVR al-
lowance includes periodic fixed payments
and periodic variable payments. Apayor
may maintain more than one FAVR al-
lowance. AFAVR allowance that uses the
same payor, standard automobile (or an
automobile of the same make and model
that is comparably equipped), retention
period, and business use percentage is
considered one FAVR allowance, even
though other features of the allowance
may vary. AFAVR allowance also in-
cludes any optional high mileage pay-
ments; however, such optional high
mileage payments are included in the em-
ployee’s gross income, are reported as
wages or other compensation on the em-
ployee’s Form W–2, and are subject to
withholding and payment of employment
taxes when paid. See section 9.05 of this
revenue procedure. An optional high
mileage payment covers the additional
depreciation for a standard automobile at-
tributable to business miles driven and
substantiated by the employee for a calen-

1997–52 I.R.B.27December 29, 1997
dar year in excess of the annual business
mileage for that year. If an employee is
covered by the FAVR allowance for less
than the entire calendar year, the annual
business mileage may be prorated on a
monthly basis for purposes of the preced-
ing sentence.
(2) Periodic fixed payment. Aperiodic
fixed payment covers the projected fixed
costs (including depreciation (or lease
payments), insurance, registration and li-
cense fees, and personal property taxes)
of driving the standard automobile in con-
nection with the performance of services
as an employee of the employer in a base
locality, and must be paid at least quar-
terly. Aperiodic fixed payment may be
computed by (a) dividing the total pro-
jected fixed costs of the standard automo-
bile for all years of the retention period,
determined at the beginning of the reten-
tion period, by the number of periodic
fixed payments in the retention period,
and (b) multiplying the resulting amount
by the business use percentage.
(3) Periodic variable payment. Aperi-
odic variable payment covers the pro-
jected operating costs (including gasoline
and all taxes thereon, oil, tires, and rou-
tine maintenance and repairs) of driving a
standard automobile in connection with
the performance of services as an em-
ployee of the employer in a base locality,
and must be paid at least quarterly. The
rate of a periodic variable payment for a
computation period may be computed by
dividing the total projected operating
costs for the standard automobile for the
computation period, determined at the be-
ginning of the computation period, by the
computation period mileage. Acomputa-
tion period can be any period of a year or
less. Computation period mileage is the
total mileage (business and personal) a
payor reasonably projects a standard auto-
mobile will be driven during a computa-
tion period and equals the retention
mileage divided by the number of compu-
tation periods in the retention period. For
each business mile substantiated by the
employee for the computation period, the
periodic variable payment must be paid at
a rate that does not exceed the rate for that
computation period.
(4) Base locality. Abase locality is the
particular geographic locality or region of
the United States in which the costs of
driving an automobile in connection with
the performance of services as an em-
ployee of the employer are generally paid
or incurred by the employee. Thus, for
purposes of determining the amount of
fixed costs, the base locality is generally
the geographic locality or region in which
the employee resides. For purposes of de-
termining the amount of operating costs,
the base locality is generally the geo-
graphic locality or region in which the
employee drives the automobile in con-
nection with the performance of services
as an employee of the employer.
(5) Standard automobile. Astandard
automobile is the automobile selected by
the payor on which a specific FAVR al-
lowance is based.
(6) Standard automobile cost. The
standard automobile cost for a calendar
year may not exceed 95 percent of the
sum of (a) the retail dealer invoice cost of
the standard automobile in the base local-
ity, and (b) state and local sales or use
taxes applicable on the purchase of such
an automobile. Further, the standard au-
tomobile cost may not exceed $27,100.
(7) Annual mileage. Annual mileage is
the total mileage (business and personal)
a payor reasonably projects a standard au-
tomobile will be driven during a calendar
year. Annual mileage equals the annual
business mileage divided by the business
use percentage.
(8) Annual business mileage. Annual
business mileage is the mileage a payor
reasonably projects a standard automobile
will be driven by an employee in connec-
tion with the performance of services as
an employee of the employer during the
calendar year, but may not be less than
6,250 miles for a calendar year. Annual
business mileage equals the annual
mileage multiplied by the business use
percentage.
(9) Business use percentage. Abusi-
ness use percentage is determined by di-
viding the annual business mileage by the
annual mileage. The business use per-
centage may not exceed 75 percent. In
lieu of demonstrating the reasonableness
of the business use percentage based on
records of total mileage and business
mileage driven by the employees annu-
ally, a payor may use a business use per-
centage that is less than or equal to the
following percentages for a FAVR al-
lowance that is paid for the following an-
nual business mileage:
Annual businessBusiness use
mileagepercentage
6,250 or more but
less than 10,00045 percent
10,000 or more but
less than 15,00055 percent
15,000 or more but
less than 20,00065 percent
20,000 or more75 percent
(10) Retention period. Aretention pe-
riod is the period in calendar years se-
lected by the payor during which the
payor expects an employee to drive a
standard automobile in connection with
the performance of services as an em-
ployee of the employer before the auto-
mobile is replaced. Such period may not
be less than two calendar years.
(11) Retention mileage. Retention
mileage is the annual mileage multiplied
by the number of calendar years in the re-
tention period.
(12) Residual value. The residual value
of a standard automobile is the projected
amount for which it could be sold at the
end of the retention period after being dri-
ven the retention mileage. The Service
will accept the following safe harbor
residual values for a standard automobile
computed as a percentage of the standard
automobile cost:
Retention periodResidual value
2-year70 percent
3-year60 percent
4-year50 percent
.03 FAVR allowance in lieu of operat-
ing and fixed costs.
(1) Areimbursement computed using a
FAVR allowance is in lieu of the em-
ployee’s deduction of all the operating
and fixed costs paid or incurred by an em-
ployee in driving the automobile in con-
nection with the performance of services
as an employee of the employer, except as
provided in section 9.06 of this revenue
procedure. Such items as depreciation (or
lease payments), maintenance and repairs,
tires, gasoline (including all taxes
thereon), oil, insurance, license and regis-
tration fees, and personal property taxes
are included in operating and fixed costs
for this purpose.
(2) Parking fees and tolls attributable to
an employee driving the standard automo-

December 29, 1997281997–52 I.R.B.
bile in connection with the performance
of services as an employee of the em-
ployer are not included in fixed and oper-
ating costs and may be deducted as sepa-
rate items. Similarly, interest relating to
the purchase of the standard automobile
may be deducted as a separate item, but
only to the extent that the interest is an al-
lowable deduction under § 163.
.04 Depreciation.
(1) AFAVR allowance may not be paid
with respect to an automobile for which
the employee has (a) claimed depreciation
using a method other than straight-line for
its estimated useful life, (b) claimed a
§ 179 deduction, or (c) used the Acceler-
ated Cost Recovery System (ACRS)
under former § 168 or the Modified
Accelerated Cost Recovery System
(MACRS) under current § 168. If an em-
ployee uses actual costs for an owned au-
tomobile that has been covered by a
FAVR allowance, the employee must use
straight-line depreciation for the automo-
bile’s remaining estimated useful life
(subject to the applicable depreciation de-
duction limitations under § 280F).
(2) The total amount of the depreciation
component for the retention period taken
into account in computing the periodic
fixed payments for that retention period
may not exceed the excess of the standard
automobile cost over the residual value of
the standard automobile. In addition, the
total amount of such depreciation compo-
nent may not exceed the sum of the annual
§ 280F limitations on depreciation (in ef-
fect at the beginning of the retention pe-
riod) that apply to the standard automobile
during the retention period.
(3) The depreciation included in each
periodic fixed payment portion of a FAVR
allowance paid with respect to an automo-
bile will reduce the basis of the automo-
bile (but not below zero) in determining
adjusted basis as required by § 1016. See
section 8.07(2) of this revenue procedure
for the requirement that the employer re-
port the depreciation component of a peri-
odic fixed payment to the employee.
.05 FAVR allowance limitations.
(1) AFAVR allowance may be paid
only to an employee who substantiates to
the payor for a calendar year at least
5,000 miles driven in connection with the
performance of services as an employee
of the employer or, if greater, 80 percent
of the annual business mileage of that
FAVR allowance. If the employee is cov-
ered by the FAVR allowance for less than
the entire calendar year, these limits may
be prorated on a monthly basis.
(2) AFAVR allowance may not be paid
to a control employee (as defined in
§ 1.61–21(f)(5) and (6), excluding the
$100,000 limitation in paragraph
(f)(5)(iii)).
(3) At no time during a calendar year
may a majority of the employees covered
by a FAVR allowance be management
employees.
(4) At all times during a calendar year
at least 10 employees of an employer
must be covered by one or more FAVR al-
lowances.
(5) AFAVR allowance may be paid
only with respect to an automobile (a)
owned or leased by the employee receiv-
ing the payment, (b) the cost of which,
when new, is at least 90 percent of the
standard automobile cost taken into ac-
count for purposes of determining the
FAVR allowance for the first calendar
year the employee receives the allowance
with respect to that automobile, and (c)
the model year of which does not differ
from the current calendar year by more
than the number of years in the retention
period.
(6) AFAVR allowance may not be paid
with respect to an automobile leased by
an employee for which the employee has
used actual expenses to compute the de-
ductible business expenses of the automo-
bile for any year during the entire lease
period. For a lease commencing on or be-
fore December 31, 1997, the “entire lease
period” means the portion of the lease pe-
riod (including renewals) remaining after
that date.
(7) The insurance cost component of a
FAVR allowance must be based on the
rates charged in the base locality for in-
surance coverage on the standard automo-
bile during the current calendar year with-
out taking into account such
rate-increasing factors as poor driving
records or young drivers.
(8) AFAVR allowance may be paid
only to an employee whose insurance
coverage limits on the automobile with
respect to which the FAVR allowance is
paid are at least equal to the insurance
coverage limits used to compute the peri-
odic fixed payment under that FAVR
allowance.
.06 Employee reporting. Within 30
days after an employee’s automobile is
initially covered by a FAVR allowance, or
is again covered by a FAVR allowance if
such coverage has lapsed, the employee
by written declaration must provide the
payor with the following information: (a)
the make, model, and year of the em-
ployee’s automobile, (b) written proof of
the insurance coverage limits on the auto-
mobile, (c) the odometer reading of the
automobile, (d) if owned, the purchase
price of the automobile or, if leased, the
price at which the automobile is ordinar-
ily sold by retailers (the gross capitalized
cost of the automobile), and (e) if owned,
whether the employee has claimed depre-
ciation with respect to the automobile
using any of the depreciation methods
prohibited by section 8.04(1) of this rev-
enue procedure or, if leased, whether the
employee has computed deductible busi-
ness expenses with respect to the automo-
bile using actual expenses. The informa-
tion described in (a), (b), and (c) of the
preceding sentence also must be supplied
by the employee to the payor within 30
days after the beginning of each calendar
year that the employee’s automobile is
covered by a FAVR allowance.
.07 Payor recordkeeping and reporting.
(1) The payor or its agent must main-
tain written records setting forth (a) the
statistical data and projections on which
the FAVR allowance payments are based,
and (b) the information provided by the
employees pursuant to section 8.06 of this
revenue procedure.
(2) Within 30 days of the end of each
calendar year, the employer must provide
each employee covered by a FAVR al-
lowance during that year with a statement
that, for automobile owners, lists the
amount of depreciation included in each
periodic fixed payment portion of the
FAVR allowance paid during that calen-
dar year and explains that by receiving a
FAVR allowance the employee has
elected to exclude the automobile from
MACRSpursuant to § 168(f)(1). For au-
tomobile lessees, the statement must ex-
plain that by receiving the FAVR al-
lowance the employee may not compute
the deductible business expenses of the
automobile using actual expenses for the
entire lease period (including renewals).
For a lease commencing on or before De-
cember 31, 1997, the “entire lease pe-

1997–52 I.R.B.29December 29, 1997
riod” means the portion of the lease pe-
riod (including renewals) remaining after
that date.
.08 Failure to meet section 8 require-
ments. If an employee receives a mileage
allowance that fails to meet one or more
of the requirements of section 8 of this
revenue procedure, the employee may not
be treated as covered by any FAVR al-
lowance of the payor during the period of
such failure. Nevertheless, the expenses
to which that mileage allowance relates
may be deemed substantiated using the
method described in sections 5, 9.01(1),
and 9.02 of this revenue procedure to the
extent the requirements of those sections
are met.
SECTION 9. APPLICATION
.01 If a payor pays a mileage allowance
in lieu of reimbursing actual transporta-
tion expenses incurred or to be incurred
by an employee, the amount of the ex-
penses that is deemed substantiated to the
payor is either:
(1) for any mileage allowance other
than a FAVR allowance, the lesser of the
amount paid under the mileage allowance
or the applicable standard mileage rate in
section 5.01 of this revenue procedure
multiplied by the number of business
miles substantiated by the employee; or
(2) for a FAVR allowance, the amount
paid under the FAVR allowance less the
sum of (a) any periodic variable rate pay-
ment that relates to miles in excess of the
business miles substantiated by the em-
ployee and that the employee fails to re-
turn to the payor although required to do
so, (b) any portion of a periodic fixed
payment that relates to a period during
which the employee is treated as not cov-
ered by the FAVR allowance and that the
employee fails to return to the payor al-
though required to do so, and (c) any op-
tional high mileage payments.
.02 If the amount of transportation ex-
penses is deemed substantiated under the
rules provided in section 9.01 of this rev-
enue procedure, and the employee actu-
ally substantiates to the payor the ele-
ments of time, place (or use), and
business purpose of the transportation ex-
penses in accordance with paragraphs
(b)(2) (travel away from home), (b)(6)
(listed property, which includes passenger
automobiles and any other property used
as a means of transportation), and (c) of §
1.274–5T, the employee is deemed to sat-
isfy the adequate accounting requirements
of § 1.274–5T(f), as well as the require-
ment to substantiate by adequate records
or other sufficient evidence for purposes
of § 1.274–5T(c). See § 1.62–2(e)(1) for
the rule that an arrangement must require
business expenses to be substantiated to
the payor within a reasonable period of
time.
.03 An arrangement providing mileage
allowances will be treated as satisfying
the requirement of § 1.62–2(f)(2) with re-
spect to returning amounts in excess of
expenses as follows:
(1) For a mileage allowance other than
a FAVR allowance, the requirement to re-
turn excess amounts will be treated as
satisfied if the employee is required to re-
turn within a reasonable period of time
(as defined in § 1.62–2(g)) any portion of
such an allowance that relates to miles of
travel not substantiated by the employee,
even though the arrangement does not re-
quire the employee to return the portion
of such an allowance that relates to the
miles of travel substantiated and that ex-
ceeds the amount of the employee’s ex-
penses deemed substantiated. For exam-
ple, assume a payor provides an
employee an advance mileage allowance
of $70 based on an anticipated 200 busi-
ness miles at 35 cents per mile (at a time
when the applicable business standard
mileage rate is 32.5 cents per mile), and
the employee substantiates 120 business
miles. The requirement to return excess
amounts will be treated as satisfied if the
employee is required to return the portion
of the allowance that relates to the 80 un-
substantiated business miles ($28) even
though the employee is not required to
return the portion of the allowance ($3)
that exceeds the amount of the em-
ployee’s expenses deemed substantiated
under section 9.01 of this revenue proce-
dure ($39) for the 120 substantiated busi-
ness miles. However, the $3 excess por-
tion of the allowance is treated as paid
under a nonaccountable plan as discussed
in section 9.05.
(2) For a FAVR allowance, the require-
ment to return excess amounts will be
treated as satisfied if the employee is re-
quired to return within a reasonable pe-
riod of time (as defined in § 1.62–2(g)),
(a) the portion (if any) of the periodic
variable payment received that relates to
miles in excess of the business miles sub-
stantiated by the employee, and (b) the
portion (if any) of a periodic fixed pay-
ment that relates to a period during which
the employee was not covered by the
FAVR allowance.
.04 An employee is not required to in-
clude in gross income the portion of a
mileage allowance received from a payor
that is less than or equal to the amount
deemed substantiated under section 9.01
of this revenue procedure, provided the
employee substantiates in accordance
with section 9.02. See § 1.274–5T(f)-
(2)(i). In addition, such portion of the al-
lowance is treated as paid under an ac-
countable plan, is not reported as wages
or other compensation on the employee’s
Form W-2, and is exempt from the with-
holding and payment of employment
taxes. See §§ 1.62–2(c)(2) and (c)(4).
.05 An employee is required to include
in gross income only the portion of a
mileage allowance received from a payor
that exceeds the amount deemed substan-
tiated under section 9.01 of this revenue
procedure, provided the employee sub-
stantiates in accordance with section 9.02
of this revenue procedure. See
§ 1.274–5T(f)(2)(ii). In addition, the ex-
cess portion of the allowance is treated as
paid under a nonaccountable plan, is re-
ported as wages or other compensation on
the employee’s Form W-2, and is subject
to withholding and payment of employ-
ment taxes. See §§ 1.62–2(c)(3)(ii),
(c)(5), and (h)(2)(i)(B).
.06
(1) Except as otherwise provided in
section 9.06(2) of this revenue procedure
with respect to leased automobiles, if the
amount of the expenses deemed substanti-
ated under the rules provided in section
9.01 of this revenue procedure is less than
the amount of the employee’s business
transportation expenses, the employee
may claim an itemized deduction for the
amount by which the business transporta-
tion expenses exceed the amount that is
deemed substantiated, provided the em-
ployee substantiates all the business trans-
portation expenses, includes on Form
2106, Employee Business Expenses, the
deemed substantiated portion of the
mileage allowance received from the
payor, and includes in gross income the
portion (if any) of the mileage allowance

December 29, 1997301997–52 I.R.B.
received from the payor that exceeds
the amount deemed substantiated. See
§ 1.274–5T(f)(2)(iii). However, for pur-
poses of claiming this itemized deduction,
substantiation of the amount of the ex-
penses is not required if the employee is
claiming a deduction that is equal to or
less than the applicable standard mileage
rate multiplied by the number of business
miles substantiated by the employee
minus the amount deemed substantiated
under section 9.01 of this revenue proce-
dure. The itemized deduction is subject
to the 2-percent floor on miscellaneous
itemized deductions provided in § 67.
(2) An employee whose business trans-
portation expenses with respect to a
leased automobile are deemed substanti-
ated under section 9.01(1) of this revenue
procedure (relating to an allowance other
than a FAVR allowance) may not claim a
deduction based on actual expenses un-
less the employee does so consistently be-
ginning with the first business use of the
automobile after December 31, 1997.
However, an employee whose business
transportation expenses with respect to a
leased automobile are deemed substanti-
ated under section 9.01(2) of this revenue
procedure (relating to a FAVR allowance)
may not claim a deduction based on ac-
tual expenses.
.07 An employee may deduct an
amount computed pursuant to section
5.01 of this revenue procedure only as an
itemized deduction. This itemized deduc-
tion is subject to the 2-percent floor on
miscellaneous itemized deductions pro-
vided in § 67.
.08 Aself-employed individual may
deduct an amount computed pursuant to
section 5.01 of this revenue procedure in
determining adjusted gross income under
§ 62(a)(1).
.09 If a payor’s reimbursement or other
expense allowance arrangement evi-
dences a pattern of abuse of the rules of
§ 62(c) and the regulations thereunder, all
payments under the arrangement will be
treated as made under a nonaccountable
plan. Thus, such payments are included
in the employee’s gross income, are re-
ported as wages or other compensation on
the employee’s Form W–2, and are sub-
ject to withholding and payment of em-
ployment taxes. See §§ 1.62–2(c)(3),
(c)(5), and (h)(2).
SECTION 10. WITHHOLDING
AND PAYMENT OF
EMPLOYMENT TAXES.
.01 The portion of a mileage allowance
(other than a FAVR allowance), if any,
that relates to the miles of business travel
substantiated and that exceeds the amount
deemed substantiated for those miles
under section 9.01(1) of this revenue pro-
cedure is subject to withholding and
payment of employment taxes. See
§ 1.62–2(h)(2)(i)(B).
(1) In the case of a mileage allowance
paid as a reimbursement, the excess de-
scribed in section 10.01 of this revenue
procedure is subject to withholding and
payment of employment taxes in the pay-
roll period in which the payor reimburses
the expenses for the business miles sub-
stantiated. See § 1.62–2(h)(2)(i)(B)(2).
(2) In the case of a mileage allowance
paid as an advance, the excess described
in section 10.01 of this revenue proce-
dure is subject to withholding and pay-
ment of employment taxes no later than
the first payroll period following the pay-
roll period in which the business miles
with respect to which the advance was
paid are substantiated. See §
1.62–2(h)(2)-(i)(B)(3). If some or all of
the business miles with respect to which
the advance was paid are not substanti-
ated within a reasonable period of time
and the employee does not return the por-
tion of the allowance that relates to those
miles within a reasonable period of time,
the portion of the allowance that relates
to those miles is subject to withholding
and payment of employment taxes no
later than the first payroll period follow-
ing the end of the reasonable period. See
§ 1.62–2(h)(2)(i)(A).
(3) In the case of a mileage allowance
that is not computed on the basis of a
fixed amount per mile of travel (e.g., a
mileage allowance that combines peri-
odic fixed and variable rate payments,
but that does not satisfy the requirements
of section 8 of this revenue procedure),
the payor must compute periodically (no
less frequently than quarterly) the
amount, if any, that exceeds the amount
deemed substantiated under section
9.01(1) of this revenue procedure by
comparing the total mileage allowance
paid for the period to the applicable stan-
dard mileage rate in section 5.01 of this
revenue procedure multiplied by the
number of business miles substantiated
by the employee for the period. Any ex-
cess is subject to withholding and pay-
ment of employment taxes no later than
the first payroll period following the pay-
roll period in which the excess is com-
puted. See § 1.62–2(h)(2)(i)(B)(4).
(4) For example, assume an employer
pays its employees a mileage allowance
at a rate of 35 cents per mile (when the
business standard mileage rate is 32.5
cents per mile). The employer does not
require the return of the portion of the al-
lowance (2.5 cents) that exceeds the busi-
ness standard mileage rate for the busi-
ness miles substantiated. In June, the
employer advances an employee $175 for
500 miles to be traveled during the
month. In July, the employee substanti-
ates to the employer 400 business miles
traveled in June and returns $35 to the
employer for the 100 business miles not
traveled. The amount deemed substanti-
ated for the 400 miles traveled is $130
and the employee is not required to return
the remaining $10. No later than the first
payroll period following the payroll pe-
riod in which the 400 business miles trav-
eled are substantiated, the employer must
withhold and pay employment taxes on
$10.
.02 The portion of a FAVR allowance,
if any, that exceeds the amount deemed
substantiated for those miles under sec-
tion 9.01(2) of this revenue procedure is
subject to withholding and payment of
employment taxes. See § 1.62–2(h)-
(2)(i)(B).
(1) Any periodic variable rate payment
that relates to miles in excess of the busi-
ness miles substantiated by the employee
and that the employee fails to return
within a reasonable period, or any por-
tion of a periodic fixed payment that re-
lates to a period during which the em-
ployee is treated as not covered by the
FAVR allowance and that the employee
fails to return within a reasonable period,
is subject to withholding and payment of
employment taxes no later than the first
payroll period following the end of the
reasonable period. See § 1.62–2(h)-
(2)(i)(A).
(2) Any optional high mileage payment
is subject to withholding and payment of
employment taxes when paid.

1997–52 I.R.B.31December 29, 1997
SECTION 11. EFFECT ON
OTHER DOCUMENTS
Rev. Proc. 96-63, 1996–2 C.B. 420, is
hereby superseded for mileage al-
lowances paid to an employee on or after
January 1, 1998, with respect to trans-
portation expenses paid or incurred on or
after January 1, 1998, and, for purposes of
computing the amount allowable as a de-
duction, for transportation expenses paid
or incurred on or after January 1, 1998.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Edwin B. Cleverdon of the
Office of Assistant Chief Counsel (In-
come Tax and Accounting). For further
information regarding this revenue proce-
dure, contact Mr. Cleverdon on (202)
622-4920 (not a toll-free call).
26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement; determina-
tion of correct tax liability.
(Also Part I, §§ 62, 162, 267, 274; 1.62–2,
1.162–17, 1.267(a)–1, 1.274–5T, 1.274(d)–1)
Rev. Proc. 97–59
SECTION 1. PURPOSE
This revenue procedure updates Rev.
Proc. 96-64, 1996–2 C.B. 427, by provid-
ing rules under which the amount of ordi-
nary and necessary business expenses of
an employee for lodging, meal, and inci-
dental expenses or for meal and inciden-
tal expenses incurred while traveling
away from home will be deemed substan-
tiated under § 1.274–5Tof the temporary
Income Tax Regulations when a payor
(the employer, its agent, or a third party)
provides a per diem allowance under a
reimbursement or other expense al-
lowance arrangement to pay for such ex-
penses. This revenue procedure also pro-
vides an optional method for employees
and self-employed individuals to use in
computing the deductible costs of busi-
ness meal and incidental expenses paid or
incurred while traveling away from
home. Use of a method described in this
revenue procedure is not mandatory and
a taxpayer may use actual allowable ex-
penses if the taxpayer maintains adequate
records or other sufficient evidence for
proper substantiation. This revenue pro-
cedure does not provide rules under
which the amount of an employee’s lodg-
ing expenses will be deemed substanti-
ated when a payor provides an allowance
to pay for those expenses but not meal
and incidental expenses.
SECTION 2. BACKGROUND AND
CHANGES
.01 Section 162(a) of the Internal Rev-
enue Code allows a deduction for all the
ordinary and necessary expenses paid or
incurred during the taxable year in carry-
ing on any trade or business. Under that
provision, an employee or self-employed
individual may deduct expenses paid or in-
curred while traveling away from home in
pursuit of a trade or business. However,
under § 262, no portion of such travel ex-
penses that is attributable to personal, liv-
ing, or family expenses is deductible.
.02 Section 274(n) generally limits the
amount allowable as a deduction under
§ 162 for any expense for food, beverages,
or entertainment to 50 percent of the
amount of the expense that otherwise
would be allowable as a deduction. In the
case of any expenses for food or beverages
consumed while away from home (within
the meaning of § 162(a)(2)) by an individ-
ual during, or incident to, the period of
duty subject to the hours of services limita-
tions of the Department of Transportation,
§ 274(n)(3), as added by § 969 of the Tax-
payer Relief Act of 1997, Pub. L. No.
105–34, 111 Stat. 788 (August 5, 1997),
gradually increases the deductible percent-
age to 80 percent for taxable years begin-
ning in 2008. For taxable years beginning
in 1998, the deductible percentage for
these expenses is 55 percent.
.03 Section 274(d) provides, in part,
that no deduction shall be allowed under §
162 for any traveling expense (including
meals and lodging while away from
home) unless the taxpayer complies with
certain substantiation requirements. The
section further provides that regulations
may prescribe that some or all of the sub-
stantiation requirements do not apply to
an expense that does not exceed an
amount prescribed by such regulations.
.04 Section 1.274(d)–1(a) of the regula-
tions, in part, grants the Commissioner
the authority to prescribe rules relating to
reimbursement arrangements or per diem
allowances for ordinary and necessary ex-
penses paid or incurred while traveling
away from home. Pursuant to this grant
of authority, the Commissioner may pre-
scribe rules under which such arrange-
ments or allowances, if in accordance
with reasonable business practice, will be
regarded (1) as equivalent to substantia-
tion, by adequate records or other suffi-
cient evidence, of the amount of such
travel expenses for purposes of
§ 1.274–5T(c), and (2) as satisfying the
requirements of an adequate accounting
to the employer of the amount of such
travel expenses for purposes of
§ 1.274–5T(f).
.05 For purposes of determining ad-
justed gross income, § 62(a)(2)(A) allows
an employee a deduction for expenses al-
lowed by Part VI (§ 161 and following),
subchapter B, chapter 1 of the Code, paid
or incurred by the employee in connection
with the performance of services as an
employee under a reimbursement or other
expense allowance arrangement with a
payor.
.06 Section 62(c) provides that an
arrangement will not be treated as a reim-
bursement or other expense allowance
arrangement for purposes of § 62(a)(2)(A)
if it—
(1) does not require the employee to
substantiate the expenses covered by the
arrangement to the payor, or
(2) provides the employee with the
right to retain any amount in excess of the
substantiated expenses covered under the
arrangement.
Section 62(c) further provides that the
substantiation requirements described
therein shall not apply to any expense to
the extent that, under the grant of regula-
tory authority prescribed in § 274(d), the
Commissioner has provided that substan-
tiation is not required for such expense.
.07 Under § 1.62–2(c)(1) a reimburse-
ment or other expense allowance arrange-
ment satisfies the requirements of § 62(c)
if it meets the requirements of business
connection, substantiation, and returning
amounts in excess of expenses as speci-
fied in the regulations. Section
1.62–2(e)(2) specifically provides that
substantiation of certain business ex-
penses in accordance with rules pre-
scribed under the authority of
§ 1.274(d)–1(a) or 1.274–5T(j) will be
treated as substantiation of the amount of
such expenses for purposes of § 1.62–2.
Under § 1.62–2(f)(2), the Commissioner
may prescribe rules under which an

December 29, 1997321997–52 I.R.B.
arrangement providing per diem al-
lowances will be treated as satisfying the
requirement of returning amounts in ex-
cess of expenses, even though the arrange-
ment does not require the employee to re-
turn the portion of such an allowance that
relates to days of travel substantiated and
that exceeds the amount of the employee’s
expenses deemed substantiated pursuant
to rules prescribed under § 274(d), pro-
vided the allowance is reasonably calcu-
lated not to exceed the amount of the em-
ployee’s expenses or anticipated expenses
and the employee is required to return any
portion of such an allowance that relates to
days of travel not substantiated.
.08 Section 1.62–2(h)(2)(i)(B) provides
that if a payor pays a per diem allowance
that meets the requirements of § 1.62–
2(c)(1), the portion, if any, of the al-
lowance that relates to days of travel sub-
stantiated in accordance with § 1.62–2(e),
that exceeds the amount of the employee’s
expenses deemed substantiated for such
travel pursuant to rules prescribed under
§ 274(d) and § 1.274(d)–1(a) or
§ 1.274–5T(j), and that the employee is
not required to return, is subject to with-
holding and payment of employment
taxes. See §§ 31.3121(a)–3, 31.3231(e)–
1(a)(5), 31.3306(b)–2, and 31.3401(a)–4.
Because the employee is not required to
return this excess portion, the reasonable
period of time provisions of § 1.62–2(g)
(relating to the return of excess amounts)
do not apply to this portion.
.09 Under § 1.62–2(h)(2)(i)(B)(4), the
Commissioner may, in his or her discre-
tion, prescribe special rules regarding the
timing of withholding and payment of
employment taxes on per diem al-
lowances.
.10 Section 1.274–5T(j) grants the
Commissioner the authority to establish a
method under which a taxpayer may elect
to use a specified amount for meals paid
or incurred while traveling away from
home in lieu of substantiating the actual
cost of meals.
.11 Significant changes to this revenue
procedure include:
(1) revisions to the list of high-cost lo-
calities and high-low rates for purposes of
the high-low substantiation method (sec-
tion 5);
(2) modification of how to prorate the
Federal M&IE rate for partial days of
travel to reflect an amendment to the Fed-
eral Travel Regulations by 61 Fed. Reg.
68,158 (1996) (to be codified at 41 C.F.R.
§ 301–7.8) (section 6.04); and
(3) modification of the limitation on the
deduction of meal expenses to reflect an
amendment to § 274(n) (as described in
section 2.02 of this revenue procedure)
(sections 6.05 and 7).
SECTION 3. DEFINITIONS
.01 Per diem allowance. The term “per
diem allowance” means a payment under
a reimbursement or other expense al-
lowance arrangement that meets the re-
quirements specified in § 1.62–2(c)(1)
and that is
(1) paid with respect to ordinary and
necessary business expenses incurred, or
which the payor reasonably anticipates
will be incurred, by an employee for lodg-
ing, meal, and incidental expenses or for
meal and incidental expenses for travel
away from home in connection with the
performance of services as an employee
of the employer,
(2) reasonably calculated not to exceed
the amount of the expenses or the antici-
pated expenses, and
(3) paid at or below the applicable Fed-
eral per diem rate, a flat rate or stated
schedule, or in accordance with any other
Service-specified rate or schedule.
.02 Federal per diem rate.
(1) General rule. The Federal per diem
rate is equal to the sum of the Federal
lodging expense rate and the Federal meal
and incidental expense (M&IE) rate for
the locality of travel. Each of these rates
for a particular locality in the continental
United States (“CONUS”) is set forth in
Appendix Aof 41 C.F.R., Chapter 301, as
amended. See 41 C.F.R. Part 301–7
(1996), as amended, for specific rules re-
garding these Federal rates. Each of these
rates is established by the Secretary of
Defense for a particular nonforeign local-
ity outside the continental United States
(“OCONUS”) (including Alaska, Hawaii,
Puerto Rico, the Northern Mariana Is-
lands, and the possessions of the United
States), and by the Secretary of State for a
particular foreign OCONUS locality.
Each of these OCONUS rates is published
in the Per Diem Supplement to the Stan-
dardized Regulations (Government Civil-
ians, Foreign Areas). See, e.g., Maximum
Travel Per Diem Allowances for Foreign
Areas, PD Supplement 382, issued
March 1, 1996.
(2) Locality of travel. The term “local-
ity of travel” means the locality where an
employee traveling away from home in
connection with the performance of ser-
vices as an employee of the employer
stops for sleep or rest.
(3) Incidental expenses. The term “in-
cidental expenses” includes, but is not
limited to, expenses for laundry, cleaning
and pressing of clothing, and fees and tips
for services, such as for porters and bag-
gage carriers. The term “incidental ex-
penses” does not include taxicab fares or
the costs of telegrams or telephone calls.
.03 Flat rate or stated schedule.
(1) In general. Except as provided in
section 3.03(2) of this revenue procedure,
an allowance is paid at a flat rate or stated
schedule if it is provided on a uniform and
objective basis with respect to the ex-
penses described in section 3.01 of this
revenue procedure. Such allowance may
be paid with respect to the number of days
away from home in connection with the
performance of services as an employee
or on any other basis that is consistently
applied and in accordance with reason-
able business practice. Thus, for exam-
ple, an hourly payment to cover meal and
incidental expenses paid to a pilot or
flight attendant who is traveling away
from home in connection with the perfor-
mance of services as an employee is an al-
lowance paid at a flat rate or stated sched-
ule. Likewise, a payment based on the
number of miles traveled (e.g., cents per
mile) to cover meal and incidental ex-
penses paid to an over-the-road truck dri-
ver who is traveling away from home in
connection with the performance of ser-
vices as an employee is an allowance paid
at a flat rate or stated schedule.
(2) Limitation. For purposes of this
revenue procedure, an allowance that is
computed on a basis similar to that used
in computing the employee’s wages or
other compensation (e.g., the number of
hours worked, miles traveled, or pieces
produced) does not meet the business
connection requirement of § 1.62–2(d), is
not a per diem allowance, and is not paid
at a flat rate or stated schedule, unless, as
of December 12, 1989, (a) the allowance
was identified by the payor either by mak-
ing a separate payment or by specifically
identifying the amount of the allowance,

1997–52 I.R.B.33December 29, 1997
or (b) an allowance computed on that
basis was commonly used in the industry
in which the employee is employed. See
§ 1.62–2(d)(3)(ii).
SECTION 4. PER DIEM
SUBSTANTIATION METHOD
.01 Per diem allowance. If a payor
pays a per diem allowance in lieu of reim-
bursing actual expenses for lodging, meal,
and incidental expenses incurred or to be
incurred by an employee for travel away
from home, the amount of the expenses
that is deemed substantiated for each cal-
endar day is equal to the lesser of the per
diem allowance for such day or the
amount computed at the Federal per diem
rate for the locality of travel for such day
(or partial day, see section 6.04 of this
revenue procedure).
.02 Meals only per diem allowance. If a
payor pays a per diem allowance only for
meal and incidental expenses in lieu of re-
imbursing actual expenses for meal and
incidental expenses incurred or to be in-
curred by an employee for travel away
from home, the amount of the expenses
that is deemed substantiated for each cal-
endar day is equal to the lesser of the per
diem allowance for such day or the
amount computed at the Federal M&IE
rate for the locality of travel for such day
(or partial day, see section 6.04 of this rev-
enue procedure). Aper diem allowance is
treated as paid only for meal and inciden-
tal expenses if (1) the payor pays the em-
ployee for actual expenses for lodging
based on receipts submitted to the payor,
(2) the payor provides the lodging in kind,
(3) the payor pays the actual expenses for
lodging directly to the provider of the
lodging, (4) the payor does not have a rea-
sonable belief that lodging expenses were
or will be incurred by the employee, or (5)
the allowance is computed on a basis simi-
lar to that used in computing the em-
ployee’s wages or other compensation
(e.g., the number of hours worked, miles
traveled, or pieces produced).
.03 Optional method for meals only de-
duction. In lieu of using actual expenses,
employees and self-employed individuals,
in computing the amount allowable as a
deduction for ordinary and necessary meal
and incidental expenses paid or incurred
for travel away from home, may use an
amount computed at the Federal M&IE
rate for the locality of travel for each cal-
endar day (or partial day, see section 6.04
of this revenue procedure) the employee
or self-employed individual is away from
home. Such amount will be deemed sub-
stantiated for purposes of paragraphs
(b)(2) (travel away from home) and (c) of
§ 1.274–5T, provided the employee or
self-employed individual substantiates the
elements of time, place, and business pur-
pose of the travel expenses in accordance
with those regulations.
.04 Special rules for transportation in-
dustry.
(1) In general. This section 4.04 ap-
plies to (a) a payor that pays a per diem
allowance only for meal and incidental
expenses for travel away from home as
described in section 4.02 of this revenue
procedure to an employee in the trans-
portation industry, or (b) an employee or
self-employed individual in the trans-
portation industry who computes the
amount allowable as a deduction for meal
and incidental expenses for travel away
from home in accordance with section
4.03 of this revenue procedure.
(2) Rates. Ataxpayer described in sec-
tion 4.04(1) of this revenue procedure
may treat $36 as the Federal M&IE rate
for any locality of travel in CONUS,
and/or $40 as the Federal M&IE rate for
any locality of travel OCONUS. Apayor
that uses either (or both) of these special
rates with respect to an employee must
use the special rate(s) for all amounts sub-
ject to section 4.02 of this revenue proce-
dure paid to that employee for travel away
from home within CONUS and/or
OCONUS, as the case may be, during the
calendar year. Similarly, an employee or
self-employed individual that uses either
(or both) of these special rates must use
the special rate(s) for all amounts com-
puted pursuant to section 4.03 of this rev-
enue procedure for travel away from
home within CONUS and/or OCONUS,
as the case may be, during the calendar
year.
(3) Periodic rule. Apayor described in
section 4.04(1) of this revenue procedure
may compute the amount of the em-
ployee’s expenses that is deemed substan-
tiated under section 4.02 of this revenue
procedure periodically (not less fre-
quently than monthly), rather than daily,
by comparing the total per diem al-
lowance paid for the period to the sum of
the amounts computed at the Federal
M&IE rate(s) for the localities of travel
for the days (or partial days, see section
6.04 of this revenue procedure) the em-
ployee is away from home during the pe-
riod. For example, assume an employee
in the transportation industry travels away
from home within CONUS on 17 days
(including partial days, see section 6.04 of
this revenue procedure) during a calendar
month and receives a per diem allowance
only for meal and incidental expenses
from a payor that uses the special rule
under section 4.04(2) of this revenue pro-
cedure. The amount deemed substanti-
ated under section 4.02 of this revenue
procedure is equal to the lesser of the total
per diem allowance paid for the month or
$612 (17 days at $36 per day).
(4) Transportation industry defined. For
purposes of this section 4.04 of this rev-
enue procedure, an employee or self-em-
ployed individual is “in the transportation
industry” only if the employee’s or indi-
vidual’s work (a) is of the type that directly
involves moving people or goods by air-
plane, barge, bus, ship, train, or truck, and
(b) regularly requires travel away from
home which, during any single trip away
from home, usually involves travel to lo-
calities with differing Federal M&IE rates.
For purposes of the preceding sentence, a
payor must determine that an employee or
a group of employees is “in the transporta-
tion industry” by using a method that is
consistently applied and in accordance
with reasonable business practice.
SECTION 5. HIGH-LOW
SUBSTANTIATION METHOD
.01 General rule. If a payor pays a per
diem allowance in lieu of reimbursing ac-
tual expenses for lodging, meal, and inci-
dental expenses incurred or to be incurred
by an employee for travel away from
home and the payor uses the high-low
substantiation method described in this
section 5 for travel within CONUS, the
amount of the expenses that is deemed
substantiated for each calendar day is

December 29, 1997341997–52 I.R.B.
equal to the lesser of the per diem al-
lowance for such day or the amount com-
puted at the rate set forth in section 5.02
of this revenue procedure for the locality
of travel for such day (or partial day, see
section 6.04 of this revenue procedure).
This high-low substantiation method may
be used in lieu of the per diem substantia-
tion method provided in section 4.01 of
this revenue procedure, but may not be
used in lieu of the meals only substantia-
tion method provided in section 4.02 or
4.03 of this revenue procedure.
.02 Specific high-low rates. The per
diem rate set forth in this section 5.02 is
$180 for travel to any “high-cost locality”
specified in section 5.03 of this revenue
procedure, or $113 for travel to any other
locality within CONUS. Whichever per
diem rate applies, it is applied as if it were
the Federal per diem rate for the locality
of travel. For purposes of applying the
high-low substantiation method, the Fed-
eral M&IE rate shall be treated as $40 for
a high-cost locality and $32 for any other
locality within CONUS.
.03 High-cost localities. The following
localities have a Federal per diem rate of
$147 or more for all or part of the calen-
dar year, and are high-cost localities for
all of the calendar year or the portion of
the calendar year specified in parenthesis
under the key city name:
Key cityCounty and other defined location
Arizona
Grand CanyonAll points in the Grand Canyon National Park and Kaibab National Forest within
Coconino County
California
Los AngelesLos Angeles, Kern, Orange, and Ventura Counties; Edwards Air Force Base,
Naval Weapons Center and Ordnance Test Station, China Lake
NapaNapa
(April 1-October 31)
Palo Alto/San JoseSanta Clara
Point Arena/GualalaMendocino
San FranciscoSan Francisco
Colorado
AspenPitkin
Keystone/SilverthorneSummit
TellurideSan Miquel
VailEagle
(November 1-March 31)
Delaware
LewesSussex
(June 1-September 14)
District of ColumbiaWashington, D.C.; the cities of Alexandria, Falls Church, and Fairfax, and the counties of
Washington, D.C.Arlington, Loudoun, and Fairfax in Virginia; and the counties of Montgomery and Prince
George’s in Maryland
Florida
Key WestMonroe
(December 15-April 30)
NaplesCollier
December 15-April 30)
Illinois
ChicagoDu Page, Cook, and Lake
Indiana
NashvilleBrown
(June 1-October 31)
Maine
Bar HarborHancock
(July 1-September 14)
Maryland
(For the counties of Montgomery and Prince George’s, see District of Columbia)
BaltimoreBaltimore and Harford
Ocean CityWorcester
(May 1-September 30)
Saint MichaelsTalbot
(April 1-November 30)

1997–52 I.R.B.35December 29, 1997
Key cityCounty and other defined location
Maryland—Continued
Massachusetts
BostonSuffolk
Cambridge/LowellMiddlesex
Martha’s VineyardDukes
(June 1-October 31)
NantucketNantucket
(June 1-October 31)
Nevada
Incline VillageAll points in the Northern Lake Tahoe area within Washoe County
(June 1-September 30)
New Hampshire
HanoverGrafton and Sullivan
(June 1-October 31)
New Jersey
Ocean City/Cape MayCape May
(May 15-September 30)
Parsippany/DoverMorris; Picatinny Arsenal
New Mexico
Santa FeSanta Fe
(May 1-October 31)
New York
New York CityThe boroughs of Bronx, Brooklyn, Manhattan, Queens, and Staten Island; Nassau and
Suffolk Counties
Tarrytown/White PlainsWestchester
North Carolina
Kill Devil/Duck/Dare
Outer Banks
(May 1-September 30)
Pennsylvania
PhiladelphiaPhiladelphia; city of Bala Cynwyd in Montgomery County
Rhode Island
Newport/Block IslandNewport and Washington
(May 1-October 14)
South Carolina
Hilton HeadBeaufort
(March 1-September 30)
Myrtle BeachHorry; Myrtle Beach Air Force Base
(May 1-September 30)
Utah
Park CitySummit
(December 1-March 31)
Virginia
(For the cities of Alexandria, Fairfax, and Falls Church, and the counties of Arlington, Fairfax, and Loudoun, see District of
Columbia)
Washington
Friday HarborSan Juan
(June 1-October 31)
SeattleKing
Wyoming
JacksonTeton
(June 1-October 14)

December 29, 1997361997–52 I.R.B.
.04 Changes in high-cost localities.
The list of high-cost localities in section
5.03 of this revenue procedure differs
from the list of high-cost localities in sec-
tion 5.03 of Rev. Proc. 96-64. The fol-
lowing localities have been added to the
list of high-cost localities: Napa, Califor-
nia; Lewes, Delaware; Naples, Florida;
Baltimore, Maryland; Hanover, New
Hampshire; Parsippany/Dover, New Jer-
sey; Tarrytown, New York; Kill Devil,
North Carolina; Hilton Head, South Car-
olina; Myrtle Beach, South Carolina; Fri-
day Harbor, Washington; and Seattle,
Washington. The portion of the year for
which the following are high-cost locali-
ties has been changed: Aspen, Colorado;
Key West, Florida; Saint Michaels, Mary-
land; Martha’s Vineyard, Massachusetts;
Nantucket, Massachusetts; and Incline
Village, Nevada. The following localities
have been removed from the list of high-
cost localities: Phoenix/Scottsdale, Ari-
zona; South Lake Tahoe, California;
Yosemite National Park, California;
Steamboat Springs, Colorado; Hyannis,
Massachusetts; Leland, Michigan; Mack-
inac Island, Michigan; Stateline, Nevada;
Atlantic City, New Jersey; Sandusky,
Ohio; Chester/Radnor, Pennsylvania;
Bullfrog, Utah; Virginia Beach, Virginia;
Wintergreen, Virginia; and Wisconsin
Dells, Wisconsin.
.05 Specific limitation. Apayor that
uses the high-low substantiation method
with respect to an employee must use that
method for all amounts paid to that em-
ployee for travel away from home within
CONUS during the calendar year. How-
ever, with respect to that employee, the
payor may still reimburse actual expenses
or use the meals only per diem method
described in section 4.02 of this revenue
procedure for any travel away from home,
and may use the per diem substantiation
method described in section 4.01 of this
revenue procedure for any OCONUS
travel away from home.
SECTION 6. LIMITATIONS AND
SPECIAL RULES
.01 In general. The Federal per diem
rate and the Federal M&IE rate described
in section 3.02 of this revenue procedure
for the locality of travel will be applied in
the same manner as applied under the
Federal Travel Regulations, 41 C.F.R.
Part 301–7 (1996), except as provided in
sections 6.02 through 6.04 of this revenue
procedure.
.02 Federal per diem rate. Areceipt
for lodging expenses is not required in de-
termining the amount of expenses deemed
substantiated under section 4.01 or 5.01
of this revenue procedure. See section
7.01 of this revenue procedure for the re-
quirement that the employee substantiate
the time, place, and business purpose of
the expense.
.03 Federal per diem or M&IE rate. A
payor is not required to reduce the Federal
per diem rate or the Federal M&IE rate
for the locality of travel for meals pro-
vided in kind, provided the payor has a
reasonable belief that meal and incidental
expenses were or will be incurred by the
employee.
.04Proration of the Federal per diem
or M&IE rate. Pursuant to the Federal
Travel Regulations, in determining the
Federal per diem rate or the Federal
M&IE rate for the locality of travel, the
full applicable Federal M&IE rate is avail-
able for a full day of travel from 12:01
a.m. to 12:00 midnight. For purposes of
determining the amount deemed substanti-
ated under section 4 or 5 of this revenue
procedure with respect to partial days of
travel away from home, either of the fol-
lowing methods may be used to prorate
the Federal M&IE rate to determine the
Federal per diem rate or the Federal
M&IE rate for the partial days of travel:
(1) Such rate may be prorated using the
method prescribed by the Federal Travel
Regulations. Currently the Federal Travel
Regulations allow three-fourths of the ap-
plicable Federal M&IE rate for each par-
tial day during which the employee or
self-employed individual is traveling
away from home in connection with the
performance of services as an employee
or self-employed individual; or
(2) Such rate may be prorated using
any method that is consistently applied
and in accordance with reasonable busi-
ness practice. For example, if an em-
ployee travels away from home from 9
a.m. one day to 5 p.m. the next day, a
method of proration that results in an
amount equal to 2 times the Federal
M&IE rate will be treated as being in ac-
cordance with reasonable business prac-
tice (even though only 1 1/2 times the
Federal M&IE rate would be allowed
under the Federal Travel Regulations).
.05 Application of the appropriate §
274(n) limitation on meal expenses. All or
part of the amount of an expense deemed
substantiated under this revenue procedure
is subject to the appropriate limitation
under § 274(n) (see section 2.02 of this
revenue procedure) on the deductibility of
food and beverage expenses.
(1) When an amount for meal and inci-
dental expenses is computed pursuant to
section 4.03 of this revenue procedure,
the taxpayer must treat such amount as an
expense for food and beverages.
(2) When a per diem allowance is paid
only for meal and incidental expenses, the
payor must treat an amount equal to the
lesser of the allowance or the Federal
M&IE rate for the locality of travel for
such day (or partial day, see section 6.04
of this revenue procedure) as an expense
for food and beverages.
(3) When a per diem allowance is paid
for lodging, meal, and incidental ex-
penses, the payor must treat an amount
equal to the Federal M&IE rate for the lo-
cality of travel for each calendar day (or
partial day, see section 6.04 of this rev-
enue procedure) the employee is away
from home as an expense for food and
beverages. For purposes of the preceding
sentence, when a per diem allowance for
lodging, meal, and incidental expenses is
paid at a rate that is less than the Federal
per diem rate for the locality of travel for
such day (or partial day, see section 6.04
of this revenue procedure), the payor may
treat an amount equal to 40 percent of
such allowance as the Federal M&IE rate
for the locality of travel for such day (or
partial day, see section 6.04 of this rev-
enue procedure).
.06 No double reimbursement or de-
duction. If a payor pays a per diem al-
lowance in lieu of reimbursing actual ex-
penses for lodging, meal, and incidental
expenses or for meal and incidental ex-
penses in accordance with section 4 or 5
of this revenue procedure, any additional
payment with respect to such expenses is
treated as paid under a nonaccountable
plan, is included in the employee’s gross
income, is reported as wages or other
compensation on the employee’s Form
W-2, and is subject to withholding and
payment of employment taxes. Similarly,
if an employee or self-employed individ-
ual computes the amount allowable as a
deduction for meal and incidental ex-

1997–52 I.R.B.37December 29, 1997
penses for travel away from home in ac-
cordance with section 4.03 or 4.04 of this
revenue procedure, no other deduction is
allowed to the employee or self-employed
individual with respect to such expenses.
For example, assume an employee re-
ceives a per diem allowance from a payor
for lodging, meal, and incidental expenses
or for meal and incidental expenses in-
curred while traveling away from home.
During that trip, the employee pays for
dinner for the employee and two business
associates. The payor reimburses as a
business entertainment meal expense the
meal expense for the employee and the
two business associates. Because the
payor also pays a per diem allowance to
cover the cost of the employee’s meals,
the amount paid by the payor for the em-
ployee’s portion of the business entertain-
ment meal expense is treated as paid
under a nonaccountable plan, is reported
as wages or other compensation on the
employee’s Form W-2, and is subject to
withholding and payment of employment
taxes.
.07 Related parties. Sections 4.01,
4.02, 4.04 (to the extent it relates to sec-
tion 4.02), and 5 of this revenue proce-
dure will not apply in any case in which
a payor and an employee are related
within the meaning of § 267(b), but for
this purpose the percentage of ownership
interest referred to in § 267(b)(2) shall
be 10 percent.
SECTION 7. APPLICATION
.01 If the amount of travel expenses is
deemed substantiated under the rules pro-
vided in section 4 or 5 of this revenue pro-
cedure, and the employee actually sub-
stantiates to the payor the elements of
time, place, and business purpose of the
travel expenses in accordance with para-
graphs (b)(2) (travel away from home)
and (c) (other than subparagraph
(2)(iii)(A) thereof) of § 1.274–5T, the em-
ployee is deemed to satisfy the adequate
accounting requirements of § 1.274–5T(f)
as well as the requirement to substantiate
by adequate records or other sufficient ev-
idence for purposes of § 1.274–5T(c).
See § 1.62–2(e)(1) for the rule that an
arrangement must require business ex-
penses to be substantiated to the payor
within a reasonable period of time.
.02 An arrangement providing per diem
allowances will be treated as satisfying
the requirement of § 1.62–2(f)(2) with re-
spect to returning amounts in excess of
expenses if the employee is required to re-
turn within a reasonable period of time (as
defined in § 1.62–2(g)) any portion of
such an allowance that relates to days of
travel not substantiated, even though the
arrangement does not require the em-
ployee to return the portion of such an al-
lowance that relates to days of travel sub-
stantiated and that exceeds the amount of
the employee’s expenses deemed substan-
tiated. For example, assume a payor pro-
vides an employee an advance per diem
allowance for meal and incidental ex-
penses of $200, based on an anticipated 5
days of business travel at $40 per day to a
locality for which the Federal M&IE rate
is $34, and the employee substantiates 3
full days of business travel. The require-
ment to return excess amounts will be
treated as satisfied if the employee is re-
quired to return within a reasonable pe-
riod of time (as defined in § 1.62–2(g))
the portion of the allowance that is attrib-
utable to the 2 unsubstantiated days of
travel ($80), even though the employee is
not required to return the portion of the al-
lowance ($18) that exceeds the amount of
the employee’s expenses deemed substan-
tiated under section 4.02 of this revenue
procedure ($102) for the 3 substantiated
days of travel. However, the $18 excess
portion of the allowance is treated as paid
under a nonaccountable plan as discussed
in section 7.04 of this revenue procedure.
.03 An employee is not required to in-
clude in gross income the portion of a per
diem allowance received from a payor
that is less than or equal to the amount
deemed substantiated under the rules pro-
vided in section 4 or 5 of this revenue
procedure if the employee substantiates
the business travel expenses covered by
the per diem allowance in accordance
with section 7.01 of this revenue proce-
dure. See § 1.274–5T(f)(2)(i). In addi-
tion, such portion of the allowance is
treated as paid under an accountable plan,
is not reported as wages or other compen-
sation on the employee’s Form W–2, and
is exempt from the withholding and pay-
ment of employment taxes. See
§ 1.62–2(c)(2) and (c)(4).
.04 An employee is required to include
in gross income only the portion of the per
diem allowance received from a payor that
exceeds the amount deemed substantiated
under the rules provided in section 4 or 5
of this revenue procedure if the employee
substantiates the business travel expenses
covered by the per diem allowance in ac-
cordance with section 7.01 of this revenue
procedure. See § 1.274–5T(f)(2)(ii). In
addition, the excess portion of the al-
lowance is treated as paid under a nonac-
countable plan, is reported as wages or
other compensation on the employee’s
Form W-2, and is subject to withholding
and payment of employment taxes. See §
1.62–2(c)(3)(ii), (c)(5), and (h)(2)(i)(B).
.05 If the amount of the expenses that is
deemed substantiated under the rules pro-
vided in section 4.01, 4.02, or 5 of this
revenue procedure is less than the amount
of the employee’s business expenses for
travel away from home, the employee
may claim an itemized deduction for the
amount by which the business travel ex-
penses exceed the amount that is deemed
substantiated, provided the employee sub-
stantiates all the business travel expenses,
includes on Form 2106, Employee Busi-
ness Expenses, the deemed substantiated
portion of the per diem allowance re-
ceived from the payor, and includes in
gross income the portion (if any) of the
per diem allowance received from the
payor that exceeds the amount deemed
substantiated. See § 1.274–5T(f)(2)(iii).
However, for purposes of claiming this
itemized deduction with respect to meal
and incidental expenses, substantiation of
the amount of the expenses is not required
if the employee is claiming a deduction
that is equal to or less than the amount
computed under section 4.03 of this rev-
enue procedure minus the amount deemed
substantiated under sections 4.02 and 7.01
of this revenue procedure. The itemized
deduction is subject to the appropriate
limitation (see section 2.02 of this rev-
enue procedure) on meal and entertain-
ment expenses provided in § 274(n) and
the 2-percent floor on miscellaneous
itemized deductions provided in § 67.
.06 An employee who does not receive
a per diem allowance for meal and inci-
dental expenses may deduct an amount
computed pursuant to section 4.03 of this
revenue procedure only as an itemized de-
duction. This itemized deduction is sub-
ject to the appropriate limitation (see sec-
tion 2.02 of this revenue procedure) on
meal and entertainment expenses pro-
vided in § 274(n) and the 2-percent floor

December 29, 1997381997–52 I.R.B.
on miscellaneous itemized deductions
provided in § 67.
.07 Aself-employed individual may
deduct an amount computed pursuant to
section 4.03 of this revenue procedure in
determining adjusted gross income under
§ 62(a)(1). This deduction is subject to
the appropriate limitation (see section
2.02 of this revenue procedure) on meal
and entertainment expenses provided in
§ 274(n).
.08 If a payor’s reimbursement or other
expense allowance arrangement evi-
dences a pattern of abuse of the rules of
§ 62(c) and the regulations thereunder, all
payments under the arrangement will be
treated as made under a nonaccountable
plan. Thus, such payments are included
in the employee’s gross income, are re-
ported as wages or other compensation on
the employee’s Form W-2, and are subject
to withholding and payment of employ-
ment taxes. See § 1.62–2(c)(3), (c)(5),
and (h)(2).
SECTION 8. WITHHOLDING AND
PAYMENT OF EMPLOYMENT
TAXES.
.01 The portion of a per diem al-
lowance, if any, that relates to the days of
business travel substantiated and that ex-
ceeds the amount deemed substantiated
for those days under section 4.01, 4.02, or
5 of this revenue procedure is subject to
withholding and payment of employment
taxes. See § 1.62–2(h)(2)(i)(B).
.02 In the case of a per diem allowance
paid as a reimbursement, the excess de-
scribed in section 8.01 of this revenue
procedure is subject to withholding and
payment of employment taxes in the pay-
roll period in which the payor reimburses
the expenses for the days of travel sub-
stantiated. See § 1.62–2(h)(2)(i)(B)(2).
.03 In the case of a per diem allowance
paid as an advance, the excess described
in section 8.01 of this revenue procedure
is subject to withholding and payment of
employment taxes no later than the first
payroll period following the payroll pe-
riod in which the days of travel with re-
spect to which the advance was paid are
substantiated. See § 1.62–2(h)(2)(i)-
(B)(3). If some or all of the days of
travel with respect to which the advance
was paid are not substantiated within a
reasonable period of time and the em-
ployee does not return the portion of the
allowance that relates to those days
within a reasonable period of time, the
portion of the allowance that relates to
those days is subject to withholding and
payment of employment taxes no later
than the first payroll period following
the end of the reasonable period. See
§ 1.62–2(h)(2)(i)(A).
.04 In the case of a per diem allowance
only for meal and incidental expenses for
travel away from home paid to an em-
ployee in the transportation industry by a
payor that uses the rule in section 4.04(3)
of this revenue procedure, the excess of
the per diem allowance paid for the period
over the amount deemed substantiated for
the period under section 4.02 of this rev-
enue procedure (after applying section
4.04(3) of this revenue procedure), is sub-
ject to withholding and payment of em-
ployment taxes no later than the first pay-
roll period following the payroll period in
which the excess is computed. See
§ 1.62-2(h)(2)(i)(B)(4).
.05 For example, assume that an em-
ployer pays an employee a per diem al-
lowance to cover business expenses for
meals and lodging for travel away from
home at a rate of 120 percent of the Fed-
eral per diem rate for the localities to
which the employee travels. The em-
ployer does not require the employee to
return the 20 percent by which the reim-
bursement for those expenses exceeds the
Federal per diem rate. The employee sub-
stantiates 6 days of travel away from
home: 2 days in a locality in which the
Federal per diem rate is $100 and 4 days
in a locality in which the Federal per diem
rate is $125. The employer reimburses
the employee $840 for the 6 days of travel
away from home (2
3(120% 3$100) 14
3(120% 3$125)), and does not require
the employee to return the excess payment
of $140 ((2 days 3$20 ($120–$100) 14
days x $25 ($150–$125)). For the payroll
period in which the employer reimburses
the expenses, the employer must withhold
and pay employment taxes on $140. See
section 8.02 of this revenue procedure.
SECTION 9. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 96–64 is hereby superseded
for per diem allowances paid to an em-
ployee on or after January 1, 1998, with
respect to lodging, meal, and incidental
expenses or with respect to meal and inci-
dental expenses paid or incurred for travel
while away from home on or after Janu-
ary 1, 1998, and, for purposes of comput-
ing the amount allowable as a deduction,
for meal and incidental expenses paid or
incurred by an employee or self-em-
ployed individual for travel while away
from home on or after January 1, 1998.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Edwin B. Cleverdon of the
Office of Assistant Chief Counsel (In-
come Tax and Accounting). For further
information regarding this revenue proce-
dure, contact Mr. Cleverdon on (202)
622-4920 (not a toll-free call).
26 CFR 601.602: Tax forms and instructions.
(Also Part I, sections 6012, 6061; 1.6012–5,
1.6061–1)
Rev. Proc. 97–60
CONTENTS
SECTION 1PURPOSE
SECTION 2 BACKGROUND AND
CHANGES
SECTION 3 ELECTRONIC FILING
PARTICIPANTS—DEFI-
NITIONS
SECTION 4 ACCEPTANCE IN THE
FORM 1040 ELEC-
TRONIC FILING PRO-
GRAM
SECTION 5 RESPONSIBILITIES OF
AN ELECTRONIC
FILER
SECTION 6 PENALTIES
SECTION 7 FORM 8453, U.S. INDI-
VIDUALINCOME TAX
DECLARATION FOR
ELECTRONIC FILING
SECTION 8 INFORMATION AN
ELECTRONIC FILER
MUSTPROVIDE TO
THE TAXPAYER
SECTION 9 DIRECTDEPOSITOF
REFUNDS
SECTION 10 REFUND ANTICIPA-
TION LOANS
SECTION 11 BALANCE DUE RE-
TURNS
SECTION 12ADVERTISING STAN-

1997–52 I.R.B.39December 29, 1997
DARDS FOR ELEC-
TRONIC FILERS AND
FINANCIALINSTITU-
TIONS
SECTION 13 MONITORING AND
SUSPENSION OF AN
ELECTRONIC FILER
SECTION 14ADMINISTRATIVE RE-
VIEWPROCESS FOR
DENIALOF
PARTICIPATION IN
THE FORM 1040 ELEC-
TRONIC FILING PRO-
GRAM
SECTION 15ADMINISTRATIVE RE-
VIEWPROCESS FOR
SUSPENSION FROM
THE FORM 1040 ELEC-
TRONIC FILING PRO-
GRAM
SECTION 16VITAAND TCE SPON-
SORED ELECTRONIC
FILING
SECTION 17EMPLOYER SPON-
SORED ELECTRONIC
FILING
SECTION 18EFFECTON OTHER
DOCUMENTS
SECTION 19 EFFECTIVE DATE
SECTION 20INTERNALREVENUE
SERVICE OFFICE
CONTACT
SECTION 21PAPERWORK REDUC-
TION ACT
SECTION 1. PURPOSE
This revenue procedure informs those
who participate in the Form 1040 Elec-
tronic Filing (ELF) Program of their
obligations to the Internal Revenue Ser-
vice, taxpayers, and other participants.
The following returns can be filed under
the Form 1040 ELF Program: (1) 1997
Form 1040 and 1997 Form 1040A, U.S.
Individual Income Tax Return; and (2)
1997 Form 1040EZ, Income Tax Return
for Single and Joint Filers With No De-
pendents. This revenue procedure up-
dates and supersedes Rev. Proc. 96-61,
1996–2 C.B. 401.
SECTION 2. BACKGROUND AND
CHANGES
.01 Section 1.6012–5 of the Income
Tax Regulations provides that the Com-
missioner may authorize the use, at the
option of a person required to make a re-
turn, of a composite return in lieu of any
form specified in 26 CFR Part 1 (Income
Tax), subject to the conditions, limita-
tions, and special rules governing the
preparation, execution, filing, and correc-
tion thereof as the Commissioner may
deem appropriate.
.02 For purposes of this revenue pro-
cedure, an electronically filed Form
1040, Form 1040A, or Form 1040EZ is a
composite return consisting of electroni-
cally transmitted data and certain paper
documents. The paper portion of the re-
turn consists of Form 8453, U.S. Individ-
ual Income Tax Declaration for Elec-
tronic Filing, and other paper documents
that cannot be electronically transmitted.
Form 8453 must be received by the Ser-
vice before the composite return is con-
sidered filed (see section 5.08 of this rev-
enue procedure). The composite return
must contain the same information that a
return filed completely on paper contains.
See section 7 of this revenue procedure
for procedures for completing Form
8453.
.03 The Service will periodically issue
Publication 1345, Handbook for Elec-
tronic Filers of Individual Income Tax
Returns, that lists the forms and sched-
ules associated with the Form 1040 series
that can be electronically transmitted.
.04 For the purposes of the Form 1040
ELF Program, a 1997 Form 1040, Form
1040A, or Form 1040EZ cannot be elec-
tronically filed after October 15, 1998,
notwithstanding the fact that the taxpayer
has been granted an extension to file a re-
turn beyond that date.
.05 An amended tax return cannot be
electronically filed under the Form 1040
ELF Program. Ataxpayer must file an
amended tax return on paper in accor-
dance with the instructions for Form
1040X, Amended U.S. Individual Income
Tax Return.
.06 Atax return that has a foreign ad-
dress for the taxpayer cannot be electroni-
cally filed under the Form 1040 ELF Pro-
gram. Army/Air Force (APO) and Fleet
(FPO) post offices are not considered for-
eign addresses.
.07 Atax return for a decedent cannot
be electronically filed under the Form
1040 ELF Program. The decedent’s
spouse or personal representative must
file a paper tax return for the decedent.
.08 This revenue procedure updates
and supersedes Rev. Proc. 96–61, 1996–2
C.B. 401. The updates include changes in
the Form 1040 ELF Program, clarifica-
tion of prior Form 1040 ELF Program
statements, and additional guidance de-
rived from other Service documents that
relate to the Form 1040 ELF Program.
Some of the updates are:
(1) additional fingerprint cards are not
required for an application to operate an
electronic filing business at a new loca-
tion (section 4.02(4));
(2) the application period for the Form
1040 ELF Program runs from September
2, 1997, through December 1, 1997 (sec-
tion 4.05(1));
(3) a proof of sale must be attached to
an application from the purchaser of an
existing Electronic Filer (section 4.05(2));
(4) all applications for the Form 1040
ELF Program must be sent to the Andover
Service Center (sections 4.07 and 5.07);
(5) the definition of Responsible Offi-
cial is clarified to reflect that a Responsi-
ble Official may also be a Principal (sec-
tion 4.11));
(6) an individual who is an attorney
may submit evidence of professional sta-
tus in lieu of a fingerprint card provided
the individual is not currently under sus-
pension or disbarment from practice be-
fore the Service or the bar of the highest
court of any State, Commonwealth, pos-
session, territory, or the District of Co-
lumbia (section 4.13(1));
(7) an individual who is a certified pub-
lic accountant may submit evidence of
professional status in lieu of a fingerprint
card provided the individual is not cur-
rently under suspension or disbarment
from practice before the Service, or
whose license to practice is not currently
suspended or revoked by any State, Com-
monwealth, possession, territory, or the
District of Columbia (section 4.13(2));
(8) timely notification that an Elec-
tronic Filer has discontinued participation
in the Form 1040 ELF Program must be
sent to the Andover Service Center (sec-
tion 5.07);
(9) the complete paper copy of the re-
turn furnished to the taxpayer need not in-
clude the social security number of the
paid preparer (section 8.01);
(10) a printout of the electronic portion
of the return does not have to be provided
to the taxpayer if the taxpayer provided a
completed tax return for electronic filing
and the information on the electronic por-

December 29, 1997401997–52 I.R.B.
tion of the return is identical to the infor-
mation on the completed tax return (sec-
tion 8.01); and
(11) the Andover Service Center is the
office responsible for accepting or reject-
ing an application to participate in the
Form 1040 ELF Program (sections 14.02
through 14.07).
SECTION 3. ELECTRONIC FILING
PARTICIPANTS—DEFINITIONS
.01 After acceptance into the Form
1040 ELF Program, as described in sec-
tion 4 of this revenue procedure, a partic-
ipant is referred to as an “Electronic
Filer.”
.02 The Electronic Filer categories are:
(1) ELECTRONIC RETURN ORIGI-
NATOR. An “Electronic Return Origina-
tor” (ERO) is: (a) an “Electronic Return
Preparer” who prepares tax returns, in-
cluding Forms 8453, for taxpayers who
intend to have their returns electronically
filed; and/or (b) an “Electronic Return
Collector” who accepts completed tax re-
turns, including Forms 8453, from tax-
payers who intend to have their returns
electronically filed.
(2) SERVICE BUREAU. A“Service
Bureau” receives tax return information
on any media from an ERO, formats the
return information, and either forwards
the return information to a Transmitter or
sends back the return information to the
ERO. AService Bureau may send Forms
8453 to the appropriate service center.
(3) SOFTWARE DEVELOPER. A
“Software Developer” develops software
for the purposes of (a) formatting returns
according to the Service’s electronic re-
turn specifications; and/or (b) transmit-
ting electronic returns directly to the Ser-
vice. ASoftware Developer may also sell
its software.
(4) TRANSMITTER. A“Transmitter”
transmits the electronic portion of a return
directly to the Service. An entity that pro-
vides a “bump-up” service is a Transmit-
ter. Abump-up service provider increases
the transmission rate or line speed of for-
matted or reformatted information that is
being sent to the Service via a public
switched telephone network. The Service
accepts both asynchronous and bisyn-
chronous communications protocols.
.03 The Electronic Filer categories are
not mutually exclusive. For example, an
ERO can, at the same time, be considered
a Transmitter, Software Developer, or
Service Bureau depending on the func-
tion(s) performed.
.04 An Electronic Filer may have a
“Drop-Off Collection Point(s).” The ac-
tivity at a Drop-Off Collection Point is
limited solely to receiving a return or re-
turn information that a taxpayer wants to
have electronically filed and collecting a
fee for electronically filing that return.
Return preparation activity may not be
conducted at a Drop-Off Collection Point.
Return preparation activity includes, but
is not limited to, comparing amounts
listed on Form 8453 with those on the
paper return or return information pro-
vided by a taxpayer and verifying routing
numbers and account numbers used for
direct deposit of refunds. Return prepara-
tion activity does not include collecting a
fee for electronic filing or ensuring that
the taxpayer has signed Form 8453. An
Electronic Filer need not have an owner-
ship interest in the Drop-Off Collection
Point.
SECTION 4. ACCEPTANCE IN THE
FORM 1040 ELECTRONIC FILING
PROGRAM
.01 Except as provided in sections 4.02
through 4.04 of this revenue procedure,
an Electronic Filer that actively partici-
pated in the most recent Form 1040 ELF
Program does not have to reapply to par-
ticipate in the Form 1040 ELF Program.
However, an Electronic Filer that intends
to participate as a Transmitter or a Soft-
ware Developer in the Form 1040 ELF
Program must first successfully complete
the testing referred to in section 4.08 of
this revenue procedure. In addition, sec-
tion 4.15 of this revenue procedure pro-
vides for the Service’s issuance of creden-
tials necessary for participation in the
Form 1040 ELF Program.
.02 Applicants and Electronic Filers
must file a new Form 8633, Application
to Participate in the Electronic Filing Pro-
gram, with completed fingerprint cards
for the appropriate individuals, if:
(1) the applicant has never participated
in the Form 1040 ELF Program;
(2) the applicant has previously been
denied participation in the Form 1040
ELF Program;
(3) the applicant has been suspended
from the Form 1040 ELF Program; or
(4) the Electronic Filer is participating
in the Form 1040 ELF Program and wants
to operate an electronic filing business at
an additional location (except that an in-
dividual listed on the Electronic Filer’s
application who has previously submitted
a fingerprint card does not need to submit
an additional fingerprint card).
.03 To participate in the Form 1040
ELF Program, an Electronic Filer in the
most recent Form 1040 ELF Program
must submit a revised Form 8633, signed
by all “Principals” and the “Responsible
Official” (as described in sections 4.09
through 4.12 of this revenue procedure),
with completed fingerprint cards for the
appropriate individuals, if:
(1) the Electronic Filer functioned
solely as a Software Developer during the
most recent Form 1040 ELF Program and
intends to function as an ERO, Service
Bureau, or Transmitter during the Form
1040 ELF Program;
(2) there is an additional Principal,
such as a partner or a corporate officer,
that must be listed on Form 8633, line 8,
“Principals of Your Firm or Organiza-
tion”;
(3) there is a Principal listed on Form
8633, line 8, that should be deleted; or
(4) the Responsible Official on Form
8633, line 9 changes.
.04 Except as provided in section 4.03
of this revenue procedure, to participate
in the Form 1040 ELF Program, an Elec-
tronic Filer in the most recent Form 1040
ELF Program must submit either a re-
vised Form 8633, or a letter containing
the same information contained in a re-
vised Form 8633, if any information on
the Electronic Filer’s Form 8633 has
changed. Arevised Form 8633 or letter
submitted under this section should in-
clude only the information requested on
lines 1a through 1i of Form 8633 and the
information being revised. APrincipal or
a Responsible Official must sign the re-
vised Form 8633 or the letter.
.05 Applicants and Electronic Filers
described in section 4.02 of this revenue
procedure must submit new applications
within the following time periods:
(1) except as provided in section
4.05(2) of this revenue procedure, the ap-
plication period runs from September 2,
1997, through December 1, 1997; and
(2) if an applicant purchases an existing
Electronic Filer’s business on or after No-
vember 1, 1997, a new application with

1997–52 I.R.B.41December 29, 1997
proof of sale attached must be submitted
within 30 days after the date of the pur-
chase.
.06 Revised applications described in
sections 4.03 and 4.04 of this revenue
procedure must be submitted within 30
days of the change(s) reflected on the re-
vised Form 8633 or in the letter.
.07 Applicants and Electronic Filers
described in sections 4.02 through 4.04 of
this revenue procedure must file Form
8633 (or a letter as provided in section
4.04 of this revenue procedure) with the
Andover Service Center.
.08 Applicants and Electronic Filers
described in sections 4.01 through 4.04 of
this revenue procedure that intend to par-
ticipate as a Transmitter or a Software De-
veloper in the Form 1040 ELF Program
must first successfully complete the nec-
essary testing at the appropriate service
center(s).
.09 Each individual listed as a Princi-
pal or a Responsible Official must:
(1) be a United States citizen or an
alien lawfully admitted for permanent res-
idence as described in 8 U.S.C. § 1101(a)-
(20) (1994);
(2) have attained the age of 21 as of the
date of application;
(3) submit with Form 8633 one stan-
dard fingerprint card with a full set of fin-
gerprints taken by a law enforcement
agency, except as provided in section 4.13
of this revenue procedure;
(4) pass a suitability check that in-
cludes a credit check, a tax compliance
check, and a fingerprint check; and
(5) meet any applicable state and local
licensing and/or bonding requirements in
connection with the preparation of tax re-
turns and the collection of prepared re-
turns that taxpayers intend to have elec-
tronically filed. However, if the state and
local licensing and/or bonding require-
ments apply to a business entity, the indi-
vidual(s) must demonstrate that the busi-
ness entity meets the requirements.
.10 APrincipal for a firm or organiza-
tion includes the following:
(1) Sole Proprietorship. The sole pro-
prietor is the Principal for a sole propri-
etorship.
(2) Partnership. Each partner who has
a 5 percent or more interest in the partner-
ship is a Principal of the partnership. If
no partner has at least a 5 percent or more
interest in the partnership, the Principal is
an individual authorized to act for the
partnership in legal and/or tax matters (at
least one such individual must be listed on
Form 8633).
(3) Corporation. The President, Vice-
President, Secretary, and Treasurer of the
corporation are each a Principal of the
corporation.
(4) Other. The Principal for a for-profit
entity that is not a sole proprietorship,
partnership, or corporation, is an individ-
ual authorized to act for the entity in legal
and/or tax matters (at least one such indi-
vidual must be listed on Form 8633).
.11 AResponsible Official is the indi-
vidual who oversees the daily operations
of an Electronic Filer’s office. ARespon-
sible Official may also be a Principal. As
set forth in section 4.12 of this revenue
procedure, a Responsible Official may be
responsible for more than one office.
.12 The Responsible Official cate-
gories are:
(1) TIER I RESPONSIBLE OFFI-
CIAL. A“Tier I Responsible Official” is
a Responsible Official who does not meet
the definition of a “Tier II Responsible
Official.” ATier I Responsible Official
should be able to visit on a daily basis
each office for which he or she is listed as
a Responsible Official. ATier I Respon-
sible Official may be listed on a maxi-
mum of ten applications (Forms 8633).
(2) TIER II RESPONSIBLE OFFI-
CIAL. A“Tier II Responsible Official” is
an individual who has participated in the
Form 1040 ELF Program as a Responsi-
ble Official during at least the two most
recent filing seasons and who has never
been suspended from participation in the
Form 1040 ELF Program. ATier II Re-
sponsible Official should be able to visit
on a daily basis any office for which he or
she is listed as a Responsible Official. A
Tier II Responsible Official may be listed
on a maximum of twenty applications
(Forms 8633).
.13 An individual may choose to sub-
mit evidence of the individual’s profes-
sional status in lieu of a standard finger-
print card if the individual is:
(1) an attorney in good standing of the
bar of the highest court of any State,
Commonwealth, possession, territory, or
the District of Columbia, and is not cur-
rently under suspension or disbarment
from practice before the Service or the bar
of the highest court of any State, Com-
monwealth, possession, territory, or the
District of Columbia;
(2) a certified public accountant who is
duly qualified to practice as a certified
public accountant in any State, Common-
wealth, possession, territory, or the Dis-
trict of Columbia, and is not currently
under suspension or disbarment from
practice before the Service or whose li-
cense to practice is not currently sus-
pended or revoked by any State, Com-
monwealth, possession, territory, or the
District of Columbia;
(3) an enrolled agent pursuant to part
10 of 31 C.F.R. Subtitle A;
(4) an officer of a publicly held corpo-
ration; or
(5) a banking official who is bonded
and has been fingerprinted within the last
two years.
.14 If an Electronic Filer has a foreign
location, the stateside contact representa-
tive will receive all Service correspon-
dence for the foreign location relating to
the Form 1040 ELF Program.
.15 The Service will issue credentials
to eligible applicants for the Form 1040
ELF Program, as well as Electronic Fil-
ers that do not have to reapply pursuant
to section 4.01, 4.03, or 4.04 of this rev-
enue procedure (provided they have first
satisfactorily completed the testing de-
scribed in section 4.08 of this revenue
procedure if they intend to participate as
a Transmitter or Software Developer).
No one may participate in the Form 1040
ELF Program without the following cre-
dentials:
(1) a letter of acceptance into the Form
1040 ELF Program;
(2) an Electronic Filing Identification
Number (EFIN) or a Service Bureau Iden-
tification Number (SBIN);
(3) if appropriate, an Electronic Trans-
mitter Identification Number (ETIN); and
(4) if appropriate, a Collection Point
Identification Number (CPIN).
.16 The Service will not issue a letter
of acceptance to participate in the Form
1040 ELF Program to an ERO if the Ser-
vice did not receive and accept during the
most recent Form 1040 ELF Program any
electronically filed returns containing the
ERO’s EFIN. In addition, an ERO may
be dropped from the Form 1040 ELF Pro-
gram if the Service does not receive and
accept prior to April 15, 1998, any elec-
tronically filed returns containing the

December 29, 1997421997–52 I.R.B.
ERO’s EFIN. In either case, the Service
will notify the ERO that it has been
dropped from the Form 1040 ELF Pro-
gram and explain what steps the ERO
needs to take for future participation in
the program.
.17 If an Electronic Filer is a Software
Developer that performs no other function
in the Form 1040 ELF Program but soft-
ware development, no Principal or Re-
sponsible Official needs to pass a suitabil-
ity check.
.18 If an Electronic Filer will have a
Drop-Off Collection Point(s) (as defined
in section 3.04 of this revenue procedure),
an Electronic Filer must submit a Form
8633 that lists each Drop-Off Collection
Point. By listing a Drop-Off Collection
Point on Form 8633, an Electronic Filer
becomes a “parent” in relation to a listed
Drop-Off Collection Point.
.19 The Service may reject an applica-
tion to participate in the Form 1040 ELF
Program for the following reasons (this
list is not all-inclusive). These reasons
apply to any firm, organization, Principal,
or Responsible Official listed on Form
8633:
(1) conviction of any criminal offense
under the revenue laws of the United
States, or of any offense involving dis-
honesty or breach of trust;
(2) failure to file timely and accurate
tax returns, including returns indicating
that no tax is due;
(3) failure to timely pay any tax liabili-
ties;
(4) assessment of tax penalties;
(5) suspension/disbarment from practice
before the Service;
(6) disreputable conduct or other facts
that would reflect adversely on the Form
1040 ELF Program;
(7) misrepresentation on an applica-
tion;
(8) suspension or rejection from the
program in a prior year;
(9) unethical practices in return prepa-
ration;
(10) stockpiling returns prior to official
acceptance into the Form 1040 ELF Pro-
gram (see section 5.14 of this revenue
procedure);
(11) knowingly and directly or indi-
rectly employing or accepting assistance
from any firm, organization, or individual
that is prohibited from applying to partici-
pate in the Form 1040 ELF Program (see
section 13.10 of this revenue procedure)
or that is suspended from participating in
the Form 1040 ELF Program (see section
13.11 of this revenue procedure). This in-
cludes any individual whose actions re-
sulted in the rejection or suspension of a
corporation or a partnership from the
Form 1040 ELF Program; or
(12) knowingly and directly or indi-
rectly accepting employment as an associ-
ate, correspondent, or as a subagent from,
or sharing fees with, any firm, organiza-
tion, or individual that is prohibited from
applying to participate in the Form 1040
ELF Program (see section 13.10 of this
revenue procedure) or that is suspended
from participating in the Form 1040 ELF
Program (see section 13.11 of this rev-
enue procedure). This includes any indi-
vidual whose actions resulted in the rejec-
tion or suspension of a corporation or a
partnership from the Form 1040 ELF Pro-
gram.
SECTION 5. RESPONSIBILITIES OF
AN ELECTRONIC FILER
.01 To ensure that complete returns are
accurately and efficiently filed, an Elec-
tronic Filer must comply with all publica-
tions and notices of the Service relating to
electronic filing. Currently, these publi-
cations and notices include:
(1) Publication 1345, Handbook for
Electronic Filers of Individual Income
Tax Returns, and Publication 1345A,
Handbook for Electronic Filers of Indi-
vidual Income Tax Returns (Supplement);
(2) Publication 1346, Electronic Return
File Specifications and Record Layouts
for Individual Income Tax Returns;
(3) Publication 1436, Test Package for
Electronic Filing of Individual Income
Tax Returns; and
(4) Postings to the Electronic Filing
System Bulletin Board (EFS Bulletin
Board).
.02 An Electronic Filer must maintain
a high degree of integrity, compliance,
and accuracy.
.03 An Electronic Filer may accept re-
turns for electronic filing only from tax-
payers, from Drop-Off Collection Points
as listed on the Electronic Filer’s Form
8633 (see section 4.18 of this revenue
procedure), or from another Electronic
Filer.
.04 If the taxpayer’s address on a Form
W-2, Wage and Tax Statement, Form W-
2G, Statement for Recipients of Certain
Gambling Winnings, Form 1099–R, Dis-
tributions From Pensions, Annuities, Re-
tirement or Profit-Sharing Plans, IRAs,
Insurance Contracts, etc., Form 1040,
Schedule C, Profit or Loss From Business
(Sole Proprietorship), or Form 1040,
Schedule C-EZ, Profit or Loss From
Business - Short Version, or any other tax
form is different than the taxpayer’s ad-
dress in the entity section of the electronic
portion of the taxpayer’s Form 1040, the
ERO or the Service Bureau must input for
transmission to the Service those ad-
dresses that differ from the taxpayer’s ad-
dress on the electronic portion of the tax-
payer’s Form 1040.
.05 If an Electronic Filer charges a fee
for the electronic transmission of a tax re-
turn, the fee may not be based on a per-
centage of the refund amount or any other
amount from the tax return. An Elec-
tronic Filer may not charge a separate fee
for Direct Deposit. See section 9 of this
revenue procedure.
.06 An Electronic Filer must submit a
revised Form 8633 (or a letter as provided
in section 4.04 of this revenue procedure)
to the Andover Service Center within 30
days of when any of the conditions or
changes described in section 4.03 or 4.04
of this revenue procedure occur. See sec-
tion 4.06 of this revenue procedure.
.07 An Electronic Filer must notify the
Andover Service Center within 30 days of
discontinuing its participation in the Form
1040 ELF Program. This does not pre-
clude reapplication in the future.
.08 An Electronic Filer must ensure
that it promptly processes returns submit-
ted to it for electronic filing. See sections
5.14, 5.15, 5.16, and 7.01 of this revenue
procedure. However, an Electronic Filer
that receives a return for electronic filing
on or before the due date of the return
must ensure that the electronic return is
filed on or before that due date (including
extensions). An electronic return is not
considered filed until the electronic por-
tion of the tax return has been acknowl-
edged by the Service as accepted for pro-
cessing and a completed and signed Form
8453 has been received by the Service.
However, if the electronic portion of a re-
turn is successfully transmitted on or

1997–52 I.R.B.43December 29, 1997
shortly before the due date and the Elec-
tronic Filer complies with section 7.01 of
this revenue procedure, the return will be
deemed timely filed. If the electronic
portion of a return is transmitted on or
shortly before the due date and is ulti-
mately rejected, but the Electronic Filer
and the taxpayer comply with section
5.13 of this revenue procedure, the return
will be deemed timely filed. For a bal-
ance due return, see section 11 of this rev-
enue procedure for instructions on how to
make a timely payment of tax.
.09 An Electronic Filer that functions
as an ERO must:
(1) comply with the procedures for
completing and securing Forms 8453 de-
scribed in section 7 of this revenue proce-
dure;
(2) comply with the procedures de-
scribed in section 11 of this revenue pro-
cedure for handling a balance due return;
(3) while returns are being filed by the
ERO, retain and make available to the
Service upon request the following mater-
ial at the business address from which a
return was accepted for electronic filing:
(a) a copy of the signed Form 8453 and
paper copies of Forms W–2, W–2G, and
1099–R;
(b) a complete copy of the electronic
portion of the return (may be retained on
magnetic media) that can be readily and
accurately converted into an electronic
transmission that the Service can process;
and
(c) the acknowledgement file received
from the Service or from a third party
Transmitter; and
(4) retain until the end of the calendar
year in which a return was filed, and
make available to the Service upon re-
quest the materials described in section
5.09(3) of this revenue procedure at ei-
ther the business address from which a
return was electronically filed or from the
contact representative named on Form
8633.
.10 An ERO who is the paid preparer of
an electronic tax return must also retain
for the prescribed amount of time the ma-
terials described in § 1.6107–1(b) that are
required to be kept by an income tax re-
turn preparer.
.11 An ERO must identify the paid pre-
parer (if any) in the appropriate field of
the electronic return and ensure that the
paid preparer signed Form 8453. If Form
8453 is not signed by the paid preparer,
the ERO must attach to Form 8453 a copy
of pages 1 and 2 of the Form 1040EZ,
Form 1040A, or Form 1040 signed by the
paid preparer. These copies must be
marked “COPY-DO NOTPROCESS” to
prevent duplicate filings.
.12 An ERO must ensure against the
unauthorized use of its EFIN and, if ap-
plicable, the CPIN(s) issued to its Drop-
Off Collection Point(s). An ERO must
not transfer its EFIN or the CPIN(s) of its
Drop-Off Collection Point(s) by sale,
merger, loan, gift, or otherwise to another
entity.
.13 If the Service rejects the electronic
portion of a taxpayer’s return (the Ser-
vice states whether it accepts or rejects
the electronic portion of a taxpayer’s re-
turn in an “acknowledgment file”), and
the reason for the rejection cannot be rec-
tified by the actions described in section
6.02(3) of this revenue procedure, the
ERO, within 24 hours of receiving the re-
jection, must take reasonable steps to in-
form the taxpayer that the taxpayer’s re-
turn has not been filed. When the ERO
advises the taxpayer that the taxpayer’s
return has not been filed, the ERO must
provide the taxpayer with the reject
code(s), an explanation of the reject
code(s), and the sequence number of each
reject code(s). If the taxpayer chooses
not to have the electronic portion of the
return corrected and transmitted to the
Service, or if the electronic portion of the
return cannot be accepted for processing
by the Service, the taxpayer must file a
paper return by the later of:
(1) the due date of the return; or
(2) ten calendar days after the date the
Service gives notification that the elec-
tronic portion of the return is rejected or
that the electronic portion of the return
cannot be accepted for processing.
The paper return should include an ex-
planation of why the return is being filed
after the due date.
.14 An ERO is responsible for ensuring
that stockpiling does not occur at its of-
fice(s) or Drop-Off Collection Point(s).
Stockpiling means collecting returns from
taxpayers or from another Electronic Filer
prior to official acceptance into the Form
1040 ELF Program, or, after official accep-
tance into the Form 1040 ELF Program,
waiting more than three calendar days to
transmit a return to the Service after re-
ceiving the information necessary for an
electronic transmission of a tax return.
.15 An Electronic Filer who partici-
pates as a Service Bureau must:
(1) deliver all electronic returns to a
Transmitter or to the ERO who gave the
electronic returns to the Service Bureau
within three calendar days of receipt;
(2) retrieve the acknowledgement file
from the Transmitter within one calendar
day of receipt by the Transmitter;
(3) send the acknowledgement file to
the ERO (whether related or not) within
one work day of retrieving the acknowl-
edgement file;
(4) if the Service Bureau processes
Forms 8453, send back to the ERO any
return and Form 8453 that needs correc-
tion, unless the correction is described in
section 6.02(3) of this revenue procedure;
(5) accept tax return information only
from Electronic Filers;
(6) include its SBIN and the ERO’s
EFIN with all return information the Ser-
vice Bureau forwards to a Transmitter or
sends back to an ERO;
(7) retain each acknowledgement file
received from a Transmitter until the end
of the calendar year in which the elec-
tronic return was filed;
(8) if requested, serve as a contact point
between its client EROs and the Service;
(9) if requested, provide the Service
with a list of each client ERO; and
(10) ensure against the unauthorized
use of its SBIN. AService Bureau must
not transfer its SBIN by sale, merger,
loan, gift, or otherwise to another entity.
.16 An Electronic Filer who partici-
pates as a Transmitter must:
(1) transmit all electronic returns
within three calendar days of receipt;
(2) retrieve the acknowledgement file
within two work days of transmission;
(3) match the acknowledgement file to
the original transmission file and send the
acknowledgement file to the ERO or the
Service Bureau (whether or not the ERO
or the Service Bureau are related to the
Transmitter) within two work days of re-
trieving the acknowledgement file;
(4) retain an acknowledgement file re-
ceived from the Service until the end of
the calendar year in which the electronic
return was filed;

December 29, 1997441997–52 I.R.B.
(5) immediately contact the appropriate
service center’s Electronic Filing Unit for
further instructions if an acknowledge-
ment of acceptance for processing has not
been received by the Transmitter within
two work days of transmission or if a
Transmitter receives an acknowledgement
for a return that was not transmitted on
the designated transmission;
(6) promptly correct any transmission
error that causes an electronic transmis-
sion to be rejected;
(7) contact the appropriate service cen-
ter’s Electronic Filing Unit for assistance
if a return has been rejected after three
transmission attempts;
(8) ensure the security of all transmit-
ted data;
(9) ensure against the unauthorized use
of its EFIN or ETIN. ATransmitter must
not transfer its EFIN or ETIN by sale,
merger, loan, gift, or otherwise to another
entity; and
(10) not use software that has a Service
assigned production password built into
the software.
.17 ATransmitter who provides trans-
mission services to other unrelated Elec-
tronic Filers must accept electronic re-
turns for transmission to the Service only
from accepted Electronic Filers. ATrans-
mitter must include the ERO’s EFIN and
if applicable, the CPIN on each return that
the Transmitter accepts from an ERO. In
addition, a Transmitter must also include
a Service Bureau’s SBIN if a Service Bu-
reau formats the return information.
.18 An Electronic Filer who partici-
pates as a Software Developer must:
(1) promptly correct any software error
which causes the electronic portion of a
return to be rejected;
(2) promptly distribute any software
correction;
(3) ensure that any software package
that will be used to transmit electronic re-
turns from multiple Electronic Filers has
the capability of combining returns from
these Electronic Filers into one Service
transmission file taking into account the
sorting requirements of the Declaration
Control Number (DCN);
(4) ensure that no other entity uses the
Software Developer’s EFIN or ETIN. A
Software Developer must not transfer by
sale, merger, loan, gift, or otherwise its
EFIN or ETIN to another entity; and
(5) not incorporate into its software a
Service assigned production password.
.19 An Electronic Filer with a Drop-
Off Collection Point is the ERO for that
Drop-Off Collection Point. The ERO
must clearly display its name at each
Drop-Off Collection Point. The Service
will hold the ERO responsible for any vi-
olation of the advertising standards de-
scribed in section 12 or any other viola-
tion of this revenue procedure that occurs
at a Drop-Off Collection Point listed on
the ERO’s Form 8633. The ERO must
also serve as the contact point between
the Service and the Drop-Off Collection
Point for all correspondence including
problem resolution and report evaluation.
.20 In addition to the specific responsi-
bilities described in this section, an Elec-
tronic Filer must meet all the require-
ments in this revenue procedure to retain
the privilege of participating in the Form
1040 ELF Program.
SECTION 6. PENALTIES
.01 Penalties for Disclosure or Use of
Information.
(1) An Electronic Filer, except a Soft-
ware Developer, is a tax return preparer
(Preparer) under the definition of
§ 301.7216–1(b) of the Regulations on
Procedure and Administration. APre-
parer is subject to a criminal penalty for
unauthorized disclosure or use of tax re-
turn information. See § 7216 of the Inter-
nal Revenue Code and § 301.7216–1(a).
In addition, § 6713 establishes civil
penalties for unauthorized disclosure or
use of tax return information.
(2) Under § 301.7216–2(h), disclosure
of tax return information among accepted
Electronic Filers for the purpose of
preparing a return is permissible. For ex-
ample, an ERO may pass on tax return in-
formation to a Service Bureau and/or a
Transmitter for the purpose of having an
electronic return formatted and transmit-
ted to the Service. However, if the tax re-
turn information is disclosed or used in
any other way, a Service Bureau and/or a
Transmitter may be subject to the penal-
ties described in section 6.01(1) of this
revenue procedure.
.02 Other Preparer Penalties.
(1) Preparer penalties may be asserted
against an individual or firm meeting the
definition of an income tax return preparer
under § 7701(a)(36) and § 301.7701–15.
Preparer penalties that may be asserted
under appropriate circumstances include,
but are not limited to, those set forth in §§
6694, 6695, and 6713.
(2) Under § 301.7701–15(d), Elec-
tronic Return Collectors, Service Bu-
reaus, Transmitters, and Software Devel-
opers are not income tax return preparers
for the purpose of assessing most preparer
penalties as long as their services are lim-
ited to “typing, reproduction, or other me-
chanical assistance in the preparation of a
return or claim for refund.”
(3) If an Electronic Return Collector,
Service Bureau, Transmitter, or the prod-
uct of a Software Developer alters the re-
turn information in a nonsubstantive way,
this alteration will be considered to come
under the “mechanical assistance” excep-
tion described in § 301.7701–15(d)(1). A
nonsubstantive change is a correction or
change limited to a transposition error,
misplaced entry, spelling error, or arith-
metic correction that falls within the fol-
lowing tolerances:
(a) the amount of “Total tax”, “Federal
income tax withheld”, “Refund”, or
“Amount you owe” on Form 8453 differs
from the corresponding amount on the
electronic portion of the tax return by no
more than $7;
(b) the amount of “Total income” on
Form 8453 differs from the corresponding
amount on the electronic portion of the
tax return by no more than $25; or
(c) dropping cents and rounding to
whole dollars.
(4) If an Electronic Return Collector,
Service Bureau, or Transmitter alters the
return information in a substantive way,
rather than having the taxpayer alter the
return, the Electronic Return Collector,
Service Bureau, or Transmitter will be
considered to be an income tax return pre-
parer for purposes of § 7701(a)(36).
(5) If an Electronic Return Collector,
Service Bureau, or Transmitter, or the
product of a Software Developer, goes be-
yond mechanical assistance, any of these
parties may be held liable for income tax
return preparer penalties. See Rev. Rul.
85–189, 1985–2 C.B. 341 (which de-
scribes a situation where a Software De-
veloper was determined to be an income
tax return preparer and subject to certain
preparer penalties).

1997–52 I.R.B.45December 29, 1997
.03 Other Penalties.In addition to the
above specified provisions, the Service
reserves the right to assert all appropriate
preparer, nonpreparer, and disclosure
penalties against an Electronic Filer as
warranted under the circumstances.
SECTION 7. FORM 8453, U.S.
INDIVIDUALINCOME TAX
DECLARATION FOR ELECTRONIC
FILING
.01 Procedures for Completing Form
8453.
(1) Form 8453 must be completed in
accordance with the instructions for that
form.
(2) The taxpayer(s)’s name, address,
social security number(s), tax return in-
formation, and direct deposit of refund
information in the electronic transmis-
sion must be identical to the information
on the Form 8453 that the taxpayer(s)
signed and provided for submission to
the Service.
(3) An Electronic Filer, a financial in-
stitution, or any other entity associated
with the electronic filing of a taxpayer’s
return must not put its address in the sec-
tion reserved for the taxpayer’s address
on Form 8453 or anywhere in the elec-
tronic portion of a return.
(4) Before the electronic portion of the
return is transmitted, the taxpayer must
verify the information on the electronic
portion of the return and on Form 8453,
and must sign Form 8453. Both spouses’
signatures are required on the Form 8453
prior to the electronic transmission of a
joint tax return. The taxpayer may verify
the information on the electronic portion
of the return by viewing this information
on a computer display terminal. Atax-
payer need not verify the electronic por-
tion of the return prior to its transmission
if the taxpayer provided a completed
paper return for filing and the informa-
tion on the electronic portion is identical
to the information provided by the tax-
payer.
(5) An Electronic Filer must submit the
taxpayer’s Form 8453 to the appropriate
service center within one work day after
the Electronic Filer receives acknowledg-
ment that the electronic portion of the tax-
payer’s return has been accepted for pro-
cessing.
(6) If an Electronic Filer functions as
an ERO, the Electronic Filer must sign
the ERO’s Declaration on Form 8453.
(7) If the ERO is also the paid preparer,
the ERO must check the “Paid Preparer”
box and sign the ERO Declaration on
Form 8453.
.02 Corrections to Form 8453.
(1) Anew Form 8453 is not required
for a nonsubstantive change. Anonsub-
stantive change is limited to a correction
that does not exceed the tolerances, de-
scribed in section 7.02(2) of this revenue
procedure for arithmetic errors, a transpo-
sition error, a misplaced entry, or a
spelling error. The incorrect nonsubstan-
tive information must be neatly lined
through on the Form 8453 and the correct
data entered next to the lined-through
entry. Also, the individual making the
correction must initial the correction.
(2) The tolerances for section 7.02(1)
of this revenue procedure are:
(a) the amount of “Total income” does
not differ from the amount on the elec-
tronic tax return by more than $25; or
(b) the amount of “Total tax”, “Federal
income tax withheld”, “Refund”, or
“Amount you owe” does not differ from
the amount on the electronic portion of
the tax return by more than $7.
(3) If the ERO makes a substantive
change to the electronic portion of the re-
turn after Form 8453 has been signed by
the taxpayer, but before it is transmitted,
the ERO must have all the necessary par-
ties described above sign a new Form
8453 that reflects the corrections before
the return is transmitted.
(4) Dropping cents or rounding to
whole dollars does not constitute a sub-
stantive change or alteration to the return
unless the amount differs by more than the
above tolerances. All rounding should be
accomplished in accordance with the in-
structions in the Form 1040 tax package.
.03 Missing Form 8453. If the Service
determines that a Form 8453 is missing,
the ERO must provide the Service with a
replacement. The ERO must also provide
a copy of the Form(s) W–2, W–2G,
1099R, and all other attachments to Form
8453.
.04 Substitute Form 8453. If a substi-
tute Form 8453 is used, it must be ap-
proved by the Service prior to use. See
Rev. Proc. 96–48, 1996-–2 C.B. 339.
SECTION 8. INFORMATION AN
ELECTRONIC FILER MUST
PROVIDE TO THE TAXPAYER
.01 The ERO must furnish the tax-
payer with a complete paper copy of the
taxpayer’s return. However, the copy
need not contain the social security num-
ber of the paid preparer. See Rev. Rul.
78–317, 1978–2 C.B. 335. Acomplete
copy of a taxpayer’s return includes:
(1) Form 8453 and other paper docu-
ments that cannot be electronically trans-
mitted; and
(2) a printout of the electronic portion
of the return. See section 2.02 of this rev-
enue procedure. The electronic portion of
the return can be contained on a replica of
an official form or on an unofficial form.
However, on an unofficial form, data en-
tries must be referenced to the line num-
bers on an official form. Also, a printout
of the electronic portion of the return does
not have to be provided to the taxpayer if
the taxpayer provided a completed paper
return for electronic filing and the infor-
mation on the electronic portion of the re-
turn is identical to the information pro-
vided by the taxpayer.
.02 The ERO must advise the taxpayer
to retain a complete copy of the return and
any supporting material.
.03 The ERO must advise the taxpayer
that an amended return, if needed, must
be filed as a paper return and mailed to
the service center that would handle the
taxpayer’s paper return.
.04 The ERO must, upon request, pro-
vide the taxpayer with the Declaration
Control Number and the date the Service
gave notification that the electronic por-
tion of the taxpayer’s return was accepted
for processing.
.05 The ERO must advise taxpayers
that they can call the local IRS TeleTax
number to inquire about the status of their
tax refund. The ERO should also advise
taxpayers to wait at least three weeks
from the date the Service accepted the
electronic portion of the taxpayer’s return
for processing before calling the TeleTax
number.
.06 If a taxpayer chooses to use an ad-
dress other than his or her home address
on the return, the Electronic Filer must in-
form the taxpayer that the address on the
electronic portion of the return, once

December 29, 1997461997–52 I.R.B.
processed by the Service, will be used to
update the taxpayer’s address of record.
The Internal Revenue Service uses the
taxpayer’s address of record for various
notices that are required to be sent to a
taxpayer’s “last known address” under the
Internal Revenue Code, and for refunds of
overpayments of tax (unless otherwise
specifically directed by the taxpayer, such
as by Direct Deposit).
SECTION 9. DIRECTDEPOSITOF
REFUNDS
.01 The Service will ordinarily process
a request for Direct Deposit but reserves
the right to issue a paper refund check.
.02 The Service does not guarantee a
specific date by which a refund will be di-
rectly deposited into the taxpayer’s finan-
cial institution account.
.03 Neither the Service nor Financial
Management Service (FMS) is responsi-
ble for the misapplication of a Direct De-
posit that is caused by error, negligence,
or malfeasance on the part of the tax-
payer, Electronic Filer, financial institu-
tion, or any of their agents.
.04 An ERO must:
(1) advise taxpayers of the option to re-
ceive their refund by paper check or direct
deposit;
(2) not charge a separate fee for a Di-
rect Deposit;
(3) accept any Direct Deposit election
to any eligible
financial institution designated by the
taxpayer;
(4) ensure that the taxpayer is eligible
to choose Direct Deposit;
(5) verify that the taxpayer has entered
the Direct Deposit information requested
on Part II of Form 8453 correctly and that
the information entered is the information
transmitted with the electronic portion of
the return;
(6) caution the taxpayer that once an
electronic
return has been accepted for processing
by the Service:
(a) the Direct Deposit election cannot
be rescinded;
(b) the Routing Transit Number (RTN)
of the financial institution cannot be
changed; and
(c) the taxpayer’s account number can-
not be changed; and
(7) advise the taxpayer that refund in-
formation is available by calling the local
IRS TeleTax number. See section 8.05 of
this revenue procedure.
SECTION 10. REFUND
ANTICIPATION LOANS
.01 ARefund Anticipation Loan
(RAL) is money borrowed by a taxpayer
that is based on a taxpayer’s anticipated
income tax refund. The Service has no
involvement in RALs. ARALis a con-
tract between the taxpayer and the lender.
.02 Any entity that is involved in the
Form 1040 ELF Program, including a fi-
nancial institution that accepts direct de-
posits of income tax refunds, has an
obligation to every taxpayer who applies
for a RALto clearly explain to the tax-
payer that a RALis in fact a loan, and not
a substitute for or a quicker way of receiv-
ing an income tax refund. An Electronic
Filer must advise the taxpayer that if a Di-
rect Deposit is not timely, the taxpayer
may be liable to the lender for additional
interest on the RAL.
.03 An Electronic Filer may assist a
taxpayer in applying for a RAL.
.04 An Electronic Filer may charge a
flat fee to assist a taxpayer in applying for
a RAL. The fee must be identical for all
of the Electronic Filer’s customers and
must not be related to the amount of the
refund or a RAL. The Electronic Filer
must not accept a fee from a financial in-
stitution for any service connected with a
RALthat is contingent upon the amount
of the refund or a RAL.
.05 The Service has no responsibility
for the payment of any fees associated
with the preparation of a return, the elec-
tronic transmission of a return, or a RAL.
.06 An Electronic Filer may disclose
tax information to the lending financial
institution in connection with an applica-
tion for a RALonly with the taxpayer’s
written consent as specified in
§ 301.7216–3(b).
.07 An Electronic Filer that is also the
return preparer, and the financial institu-
tion or other lender that makes an RAL,
may not be related taxpayers within the
meaning of § 267 or § 707.
.08 Section 6695(f) imposes a $500
penalty on a return preparer who endorses
or negotiates a refund check issued to any
taxpayer other than the return preparer.
However, a bank, as defined in § 581,
may accept the full amount of a refund
check as a deposit in the taxpayer’s ac-
count for the benefit of the taxpayer. Sec-
tion 1.6695–1(f) clarifies § 6695(f) by ex-
plaining that the prohibition on a return
preparer negotiating a refund check is
limited to a refund check for a return that
the return preparer prepared. Apreparer
that is also a financial institution, but has
not made a loan to the taxpayer on the
basis of the taxpayer’s anticipated refund,
may (1) cash a refund check and remit all
of the cash to the taxpayer or accept a re-
fund check for deposit in full to a tax-
payer’s account, provided the bank does
not initially endorse or negotiate the
check; or (2) endorse a refund check for
deposit in full to a taxpayer’s account pur-
suant to a written authorization of the tax-
payer. Apreparer bank may also subse-
quently endorse or negotiate a refund
check as part of the check-clearing
process through the financial system after
initial endorsement. Any income tax re-
turn preparer that violates this provision
may be suspended from the Form 1040
ELF Program.
SECTION 11. BALANCE DUE
RETURNS
.01All service centers that accept
electronically filed
returns will accept electronically filed
balance due returns.
.02 The Electronic Filer must furnish
Form 1040-V, Payment Voucher, to a tax-
payer who electronically files a balance
due return.
.03 To expedite the crediting of a tax
payment, a taxpayer who electronically
files a balance due return should mail his
or her tax payment with either Form
1040-Vor the scannable payment
voucher that is included in some tax pack-
ages. Each of these options has specific
mailing instructions.
.04 Ataxpayer who electronically files
a balance due return must make a full and
timely payment of any tax that is due.
Failure to make full payment of any tax
that is due on or before April 15, 1998,
will result in the imposition of interest and
may result in the imposition of penalties.
SECTION 12. ADVERTISING
STANDARDS FOR ELECTRONIC
FILERS AND FINANCIAL
INSTITUTIONS
.01 An Electronic Filer shall comply
with the advertising and solicitation provi-

1997–52 I.R.B.47December 29, 1997
sions of 31 C.F.R. Part 10 (Treasury De-
partment Circular No. 230). This circular
prohibits the use or participation in the use
of any form of public communication con-
taining a false, fraudulent, misleading, de-
ceptive, unduly influencing, coercive, or
unfair statement or claim. Any claims con-
cerning faster refunds by virtue of elec-
tronic filing must be consistent with the
language in official Service publications.
.02 An Electronic Filer must adhere to
all relevant federal, state, and local con-
sumer protection laws that relate to adver-
tising and soliciting.
.03 An Electronic Filer must not use
the Service’s name, “Internal Revenue
Service” or “IRS”, within a firm’s name.
.04 An Electronic Filer must not use
improper or misleading advertising in re-
lation to the Form 1040 ELF Program (in-
cluding the time frames for refunds and
RALs).
.05 An Electronic Filer using elec-
tronic filing promotional materials or
logos provided by the Service must com-
ply with all Service instructions pertain-
ing to the promotional materials or logos.
.06 Use of Direct Deposit name and
logo.
(1) The name “Direct Deposit” will be
used with initial capital letters or all capi-
tal letters.
(2) The logo/graphic for Direct Deposit
will be used whenever feasible in adver-
tising copy.
(3) The color or size of the Direct De-
posit logo/graphic may be changed when
used in advertising pieces.
.07 Advertising materials shall not carry
the FMS, IRS, or other Treasury Seals.
.08 Advertising for a cooperative elec-
tronic return filing project (public/private
sector) must clearly state the names of all
cooperating parties.
.09 In advertising the availability of a
RAL, an Electronic Filer and a financial
institution must clearly (and, if applica-
ble, in easily readable print) refer to or de-
scribe the funds being advanced as a loan,
not a refund; that is, it must be made clear
in the advertising that the taxpayer is bor-
rowing against the anticipated refund and
not obtaining the refund itself from the fi-
nancial institution.
.10 If an Electronic Filer uses radio or
television broadcasting to advertise, the
broadcast must be pre-recorded. The
Electronic Filer must keep a copy of the
pre-recorded advertisement for a period
of at least 36 months from the date of the
last transmission or use.
.11 If an Electronic Filer uses direct
mail or fax communications to advertise,
the Electronic Filer must retain a copy of
the actual mailing or fax, along with a list
or other description of the firms, organi-
zations, or individuals to whom the com-
munication was mailed, faxed, or other-
wise distributed for a period of at least 36
months from the date of the last mailing,
fax, or distribution.
.12 Acceptance to participate in the
Form 1040 ELF Program does not imply
endorsement by the Service, FMS, or the
Treasury Department of the software or
quality of services provided.
SECTION 13. MONITORING AND
SUSPENSION OF AN ELECTRONIC
FILER
.01 The Service will monitor an Elec-
tronic Filer for conformity with this rev-
enue procedure. Before suspending an
Electronic Filer, the Service may issue a
warning letter that describes specific cor-
rective action for deviations from this rev-
enue procedure. However, the Service
can immediately suspend, without notice,
an Electronic Filer from the Form 1040
ELF Program. In most circumstances, a
suspension from participation in the Form
1040 ELF Program is effective as of the
date of the letter informing the Electronic
Filer of the suspension.
.02 If a Principal or Responsible Offi-
cial is suspended from the Form 1040 ELF
Program, every entity that listed the sus-
pended Principal or Responsible Official
on its Form 8633 may also be suspended.
.03 The Service will monitor the
timely receipt of Forms 8453, as well as
their overall legibility.
.04 The Service will monitor the qual-
ity of an Electronic Filer’s transmissions
throughout the filing season. The Service
will also monitor the electronic portion of
returns and tabulate rejections, errors, and
other defects. If quality deteriorates, the
Electronic Filer will receive a warning
from the Service.
.05 The Service will monitor Drop-Off
Collection Points and advise a parent of
any Form 1040 ELF Program violations
the Service has encountered with a par-
ent’s Drop-Off Collection Point. If a par-
ent fails to correct a Drop-Off Collection
Point problem, the parent will be required
to eliminate that Drop-Off Collection
Point. Failure to take corrective action or
eliminate a Drop-Off Collection Point
may cause the Service to suspend the par-
ent from participating in the Form 1040
ELF Program.
.06 The Service will monitor com-
plaints about an Electronic Filer and issue
a warning or suspension letter as appro-
priate.
.07 The Service reserves the right to
suspend an Electronic Filer from partici-
pation in the Form 1040 ELF Program for
violating any provision of this revenue
procedure. Generally, the Service will ad-
vise a suspended Electronic Filer con-
cerning the requirements for reacceptance
into the Form 1040 ELF Program. The
following reasons may lead to a warning
letter and/or suspension of an Electronic
Filer from the Form 1040 ELF Program
(this list is not all-inclusive):
(1) the reasons listed in section 4.19 of
this revenue procedure;
(2) deterioration in the format of indi-
vidual transmissions;
(3) unacceptable cumulative error or
rejection rate;
(4) untimely received, illegible, incom-
plete, missing, or unapproved substitute
Forms 8453;
(5) stockpiling returns at any time
while participating in the Form 1040 ELF
Program;
(6) failure on the part of a Transmitter to
retrieve acknowledgement files within two
work days of transmission by the Service;
(7) failure on the part of a Transmitter
to provide an ERO or Service Bureau
with acknowledgement files within two
work days after receipt from the Service;
(8) significant complaints about an
Electronic Filer’s performance in the
Form 1040 ELF Program;
(9) failure on the part of an Electronic
Filer to ensure against the unauthorized
use of its EFIN and/or ETIN;
(10) having more than one EFIN for
the same business entity at the same loca-
tion (the business entity is generally the
entity that reports on its return the income
derived from electronic filing), unless the
Service has issued more than one EFIN to
a business entity at the same location. For
example, the Service may issue more than
one EFIN to accommodate high volumes
of returns;

December 29, 1997481997–52 I.R.B.
(11) failure on the part of a Transmitter
to include a Service Bureau’s SBIN in the
transmission of a return submitted by a
Service Bureau;
(12) failure on the part of an ERO to in-
clude a Drop-Off Collection Point’s CPIN
as part of a return collected from a Drop-
Off Collection Point;
(13) failure on the part of an Electronic
Filer to cooperate with the Service’s ef-
forts to monitor Electronic Filers and in-
vestigate electronic filing abuse;
(14) failure on the part of an Electronic
Filer to properly use the standard/non-
standard W–2 indicator;
(15) failure on the part of an Electronic
Filer to properly use the refund anticipa-
tion loan (RAL) indicator;
(16) failure on the part of a Service Bu-
reau or a Transmitter to include the ERO’s
EFIN as part of a return that the ERO sub-
mits to the Service Bureau or the Trans-
mitter;
(17) violation of the advertising stan-
dards described in section 12 of this rev-
enue procedure;
(18) failure to maintain and make avail-
able records as described in section
5.09(4) of this revenue procedure;
(19) accepting a tax return for elec-
tronic filing either directly or indirectly
from a firm, organization, or individual
(other than the taxpayer who is submitting
his or her return) that is not in the Form
1040 ELF Program;
(20) submitting the electronic portion
of a return with information that is not
identical to the information on Form
8453; or
(21) failure to timely submit a revised
Form 8633 (or a letter containing the
same information contained in a revised
Form 8633) notifying the Service of
changes described in section 4.03 or 4.04
of this revenue procedure.
.08 The Service may list in the Internal
Revenue Bulletin, district office listings,
district office newsletters, and the EFS
Bulletin Board the name and owner(s) of
any entity suspended from the Form 1040
ELF Program and the effective date of the
suspension.
.09 Adistrict director may warn Elec-
tronic Filers who are using the services
of a rejected or a suspended Electronic
Filer that sections 4.19(11) and (12) of
this revenue procedure prohibit a busi-
ness relationship with a rejected or a sus-
pended Electronic Filer. However, in ap-
propriate circumstances, the Service may
immediately suspend the Electronic
Filer.
.10 If an Electronic Filer is suspended
from participating in the Form 1040 ELF
Program, the period of suspension in-
cludes the remainder of the calendar year
in which the suspension occurs plus the
next two calendar years. Asuspended
participant may submit a new application
for the application period immediately
preceding the end of the suspension.
SECTION 14. ADMINISTRATIVE
REVIEWPROCESS FOR DENIALOF
PARTICIPATION IN THE FORM 1040
ELECTRONIC FILING PROGRAM
.01 An applicant that has been denied
participation in the Form 1040 ELF Pro-
gram has the right to an administrative re-
view. During the administrative review
process, the denial of participation re-
mains in effect.
.02 In response to the submission of a
Form 8633, the Andover Service Center
will either (1) accept an applicant into
the Form 1040 ELF Program, or (2)
issue a proposed letter of denial that ex-
plains to the applicant why the service
center proposes to reject the application
to participate in the Form 1040 ELF Pro-
gram.
.03 An applicant that receives a pro-
posed letter of denial may mail or deliver,
within 30 calendar days of the date of the
proposed letter of denial, a written re-
sponse to the Andover Service Center.
The applicant’s response must address the
service center’s reason(s) for proposing
the denial to participate.
.04 Upon receipt of an applicant’s
written response, the Andover Service
Center will reconsider its proposed letter
of denial. The service center may either
(1) withdraw its proposed letter of denial
and admit the applicant into the Form
1040 ELF Program, or (2) finalize the
proposed denial letter.
.05 If an applicant receives a final de-
nial letter from the Andover Service Cen-
ter, the applicant is entitled to an appeal,
in writing, to the Director of Practice.
.06 The appeal must be mailed or de-
livered to the Andover Service Center
within 30 calendar days of the date of the
final denial letter. An applicant’s written
appeal must contain a detailed explana-
tion, with supporting documentation, of
why the denial should be reversed.
.07 The Andover Service Center will,
upon receipt of a written appeal to the Di-
rector of Practice, forward to the Director
of Practice its file on the applicant and the
material described in section 14.06 of this
revenue procedure. The service center
will forward these materials to the Direc-
tor of Practice within 15 calendar days of
receipt of the applicant’s written appeal.
.08 Failure to respond within either of
the 30-day periods described in sections
14.03 and 14.06 of this revenue procedure
irrevocably terminates an applicant’s right
to an administrative review or appeal.
.09 If an application for participation
in the Form 1040 ELF Program is denied,
the applicant is ineligible to submit a new
application for two years from the appli-
cation date of the denied application.
SECTION 15. ADMINISTRATIVE
REVIEWPROCESS FOR
SUSPENSION FROM THE FORM 1040
ELECTRONIC FILING PROGRAM
.01 An Electronic Filer that has been
suspended from participation in the Form
1040 ELF Program has the right to an ad-
ministrative review. During the adminis-
trative review process, the suspension re-
mains in effect.
.02 If an Electronic Filer receives a
suspension letter, the Electronic Filer may
mail or deliver, within 30 calendar days of
the date of the suspension letter, a detailed
written explanation, with supporting doc-
umentation, of why the suspension letter
should be withdrawn. This written re-
sponse should be sent to the district office
or service center that issued the suspen-
sion letter.
.03 Upon receipt of the Electronic
Filer’s written response, the district office
or service center will reconsider its sus-
pension of the Electronic Filer. The dis-
trict office or service center may either (1)
withdraw its suspension letter, or (2) af-
firm the suspension.
.04 If an Electronic Filer receives a let-
ter affirming the suspension, the Elec-
tronic Filer is entitled to an appeal, in
writing, to the Director of Practice.
.05 The appeal must be mailed or de-
livered to the district office or service

1997–52 I.R.B.49December 29, 1997
center that issued the suspension letter
within 30 calendar days of the date of the
letter affirming the suspension. The Elec-
tronic Filer’s written appeal must contain
detailed reasons, with supporting docu-
mentation, for reversal of the suspension.
.06 The district office or service center
whose decision to suspend is being ap-
pealed will, upon receipt of a written ap-
peal to the Director of Practice, forward its
file on the Electronic Filer to the Director
of Practice. The district office or service
center will also forward to the Director of
Practice the material described in section
15.05 of this revenue procedure. The dis-
trict office or the service center will for-
ward these materials within 15 calendar
days of the receipt of the Electronic Filer’s
written request for appeal.
.07 Failure to appeal within either of
the 30-day periods described in sections
15.02 and 15.05 of this revenue procedure
irrevocably terminates an Electronic
Filer’s right to an appeal.
SECTION 16. VITAAND TCE
SPONSORED ELECTRONIC FILING
.01 This revenue procedure applies to
VITA(Volunteer Income Tax Assistance)
and TCE (Tax Counseling for the Elderly)
sponsors subject to the exceptions and re-
strictions described in this section.
.02 For purposes of this section, the
District Director may be represented by
an individual designated by the District
Director such as a District Office Elec-
tronic Filing Coordinator (DOEFC) or a
Taxpayer Education Coordinator.
.03 To be accepted in, or to continue
participation in, the Form 1040 ELF Pro-
gram, a VITAor TCE sponsor must:
(1) have obtained the District Direc-
tor’s permission (and, in the case of a
TCE sponsor, the permission of the Ser-
vice office that is funding the TCE pro-
gram) to provide electronic filing; and
(2) have a manual or electronic quality
review system for each return to be elec-
tronically filed.
.04 The District Director will advise
the VITAand TCE sponsor how to submit
or transmit returns. Some of the options
available to the District Director are:
(1) having the VITAor TCE sponsor
submit returns on paper, magnetic disk,
or in an electronic transmission to the
DOEFC or other locally designated
office;
(2) having the VITAor TCE sponsor
directly transmit returns to the appropriate
service center; or
(3) having the VITAor TCE sponsor
use a third party Transmitter.
.05 AVITAor TCE sponsor is not re-
quired to sign Form 8453 as ERO. How-
ever, if the VITAor TCE sponsor chooses
not to sign Form 8453, the VITAor TCE
sponsor must otherwise furnish on Form
8453 its VITAor TCE acronym and, if
operating from multiple sites, a site desig-
nation number.
.06 AVITAor TCE sponsor can only
accept a return for electronic filing that is
(1) prepared at the VITAor TCE site by a
VITAor TCE volunteer, (2) prepared by a
taxpayer that meets the criteria for VITA
or TCE assistance, or (3) prepared by a
paid preparer that meets the criteria for
VITAor TCE assistance.
.07 Only returns and accompanying
forms and schedules included in a district,
VITA, or TCE training course may be ac-
cepted for electronic filing by a VITAor
TCE sponsor.
.08 AVITAor TCE sponsor and a Dis-
trict Director may enter into an agreement
that provides for the retention of copies of
tax returns and Forms 8453 by a District
Director. This information must be re-
tained by either the VITAor TCE sponsor
or a District Director. This information
must not be given to a third party, includ-
ing a third party Transmitter.
.09 ADistrict Director is responsible for
ensuring that Form 8453 is sent to the ap-
propriate district office or service center.
However, a District Director may delegate
to the VITAor TCE sponsor the responsi-
bility for mailing Form 8453 to the appro-
priate district office or service center.
.10 AVITAor TCE sponsor may col-
lect a fee only if it is directly related to de-
fraying the actual cost of electronically
transmitting a tax return. AVITAor TCE
sponsor may also collect this fee on behalf
of a third party Transmitter who electroni-
cally transmitted a VITAor TCE return.
.11 Before a VITAor TCE sponsor may
collect a fee for electronically filing a tax
return, the VITAor TCE sponsor must en-
sure that the taxpayer understands that:
(1) the fee is not for the preparation of
the return; and
(2) the VITAor TCE service is offered
without regard to either the electronic
filing of a return or the collection of a
fee.
SECTION 17. EMPLOYER
SPONSORED ELECTRONIC FILING
.01 This revenue procedure applies to
an employer who chooses to offer elec-
tronic filing as an employee benefit to (1)
business owners and spouses, (2) employ-
ees and spouses, and/or (3) dependents of
business owners and employees, subject
to the exceptions and restrictions de-
scribed in this section.
.02 For purposes of this section, the
District Director may be represented by
an individual designated by the District
Director.
.03 An employer may choose to elec-
tronically transmit returns or may arrange
to have tax returns electronically trans-
mitted through a third party. If an em-
ployer chooses to transmit returns from
more than one location, the employer
must submit a properly completed Form
8633 for each location.
.04 An employer may offer electronic
filing as an employee benefit whether the
employer chooses to transmit tax returns
or contracts with a third party to transmit
the tax returns.
.05 If an employer contracts with a
third party to transmit tax returns, the em-
ployer may collect from participating em-
ployees a fee that is directly related to de-
fraying the actual cost of electronically
transmitting a tax return.
.06 An employer is not required to sign
Form 8453 as ERO. However, if the em-
ployer chooses not to sign Form 8453, the
employer must otherwise furnish on Form
8453 its name, address, and the designa-
tion “Employee Benefit,” and if operating
from multiple sites, a site designation
number.
.07 An employer and a District Direc-
tor may enter into an agreement that pro-
vides for the retention of copies of tax re-
turns including Forms 8453. In the
absence of such an agreement, this infor-
mation must be retained by the employer.
This information is not to be given to a
third party, including a third party Trans-
mitter.

December 29, 1997501997–52 I.R.B.
SECTION 18. EFFECTON OTHER
DOCUMENTS
Rev. Proc. 96–61, 1996–2 C.B. 401, is
superseded.
SECTION 19. EFFECTIVE DATE
This revenue procedure is effective De-
cember 29, 1997.
SECTION 20. INTERNALREVENUE
SERVICE OFFICE CONTACT
All questions regarding this revenue
procedure should be directed to the Inter-
nal Revenue Service. The telephone
number for this purpose is (202) 283-
0531 (not a toll-free number).
SECTION 21. PAPERWORK
REDUCTION ACT
The collections of information con-
tained in this revenue procedure have
been reviewed and approved by the Of-
fice of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1512.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
control number.
The collections of information in this
revenue procedure are in sections 5, 8, 9,
and 12. This information is required to
implement the Form 1040 ELF Program
and to enable taxpayers to file their indi-
vidual income tax returns electronically.
The information will be used to ensure
that taxpayers receive accurate and essen-
tial information regarding the filing of
their electronic returns and to identify the
persons involved in the filing of elec-
tronic returns. The collections of infor-
mation are required to retain the benefit of
participating in the Form 1040 ELF Pro-
gram. The likely respondents are busi-
ness or other for-profit institutions.
The estimated total annual reporting
and recordkeeping burden is 1,146,272
hours.
The estimated annual burden per re-
spondent/recordkeeper varies from six (6)
minutes to 15.5 hours, depending on indi-
vidual circumstances, with an estimated
average of 15.28 hours (or approximately
six (6) minutes per electronically filed re-
turn). The estimated number of respon-
dents and recordkeepers is 75,000.
The estimated annual frequency of re-
sponses is on occasion.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. § 6103.
26 CFR 601.602: Tax forms and instructions.
(Also Part I, sections 6012, 6061; 1.6012-5,
1.6061–1)
Rev. Proc. 97–61
CONTENTS
SECTION 1PURPOSE
SECTION 2 BACKGROUND AND
CHANGES
SECTION 3 ON-LINE FILING PAR-
TICIPANTS—DEFINI-
TIONS
SECTION 4 ACCEPTANCE IN THE
FORM 1040 ON-LINE
FILING PROGRAM
SECTION 5 RESPONSIBILITIES OF
AN ON-LINE FILER
SECTION 6 PENALTIES
SECTION 7 FORM 8453–OL, U.S.
INDIVIDUALTAX DE-
CLARATION FOR ON-
LINE FILING
SECTION 8 INFORMATION AN ON-
LINE FILER MUST
PROVIDE TO THE TAX-
PAYER
SECTION 9 DIRECTDEPOSITOF
REFUNDS
SECTION 10 BALANCE DUE RE-
TURNS
SECTION 11 ADVERTISING STAN-
DARDS FOR ON-LINE
FILERS
SECTION 12MONITORING AND
SUSPENSION OF AN
ON-LINE FILER
SECTION 13 ADMINISTRATIVE RE-
VIEWPROCESS FOR
DENIALOF PARTICI-
PATION IN THE FORM
1040 ON-LINE FILING
PROGRAM
SECTION 14ADMINISTRATIVE RE-
VIEWPROCESS FOR
SUSPENSION FROM
THE FORM 1040 ON-
LINE FILING PRO-
GRAM
SECTION 15EFFECTON OTHER
DOCUMENTS
SECTION 16EFFECTIVE DATE
SECTION 17INTERNALREVENUE
SERVICE OFFICE
CONTACT
SECTION 18PAPERWORK REDUC-
TION ACT
SECTION 1. PURPOSE
This revenue procedure informs those
who participate in the Form 1040 On-
Line Filing Program of their obligations
to the Internal Revenue Service, taxpay-
ers, and other participants. The following
returns can be filed under the Form 1040
On-Line Filing Program: (1) 1997 Form
1040 and 1997 Form 1040A, U.S. Indi-
vidual Income Tax Return; and (2) 1997
Form 1040EZ, Income Tax Return for
Single and Joint Filers With No Depen-
dents. This revenue procedure updates
and supersedes Rev. Proc. 96–62, 1996-2
C.B. 412.
SECTION 2. BACKGROUND AND
CHANGES
.01 Section 1.6012–5 of the Income
Tax Regulations provides that the Com-
missioner may authorize the use, at the
option of a person required to make a re-
turn, of a composite return in lieu of any
form specified in 26 C.F.R. Part 1 (In-
come Tax), subject to the conditions, limi-
tations, and special rules governing the
preparation, execution, filing, and correc-
tion thereof as the Commissioner may
deem appropriate.
.02 For purposes of this revenue proce-
dure, an on-line electronically filed Form
1040, Form 1040A, or Form 1040EZ is a
composite return consisting of electroni-
cally transmitted data and certain paper
documents. The paper portion of the re-
turn consists of Form 8453–OL, U.S. In-
dividual Income Tax Declaration for On-
Line Filing, and other paper documents
that cannot be electronically transmitted.
Form 8453–OLmust be received by the
Service before the composite return is
considered filed (see section 5.07 of this
revenue procedure). The composite re-
turn must contain the same information
that a return filed completely on paper

1997–52 I.R.B.51December 29, 1997
contains. See section 7 of this revenue
procedure for procedures for completing
Form 8453–OL.
.03 The Service will periodically issue
Publication 1345, Handbook for Elec-
tronic Filers of Individual Income Tax
Returns, that lists the forms and schedules
associated with the Form 1040 series that
can be electronically transmitted.
.04 For the purposes of the Form 1040
On-Line Filing Program, a 1997 Form
1040, Form 1040A, or Form 1040EZ can-
not be electronically filed after October
15, 1998, notwithstanding the fact that the
taxpayer has been granted an extension to
file a return beyond that date.
.05 An amended tax return cannot be
electronically filed under the Form 1040
On-Line Filing Program. Ataxpayer
must file an amended tax return on paper
in accordance with the instructions for
Form 1040X, Amended U.S. Individual
Income Tax Return.
.06 Atax return that has a foreign ad-
dress for the taxpayer cannot be electroni-
cally filed under the Form 1040 On-Line
Filing Program. Army/Air Force (APO)
and Fleet (FPO) post offices are not con-
sidered foreign addresses.
.07 Atax return for a decedent cannot
be electronically filed under the Form
1040 On-Line Filing Program. The dece-
dent’s spouse or personal representative
must file a paper tax return for the dece-
dent.
.08 This revenue procedure updates
and supersedes Rev. Proc. 96–62, 1996–2
C.B. 412. The updates include changes in
the Form 1040 On-Line Filing Program,
clarification of prior Form 1040 On-Line
Filing Program statements, and additional
guidance derived from other Service doc-
uments that relate to the Form 1040 On-
Line Filing Program. Some of the up-
dates are:
(1) Unless certain changes listed in sec-
tions 4.03 and 4.04 of this revenue proce-
dure have occurred, an On-Line Filer that
actively participated in the most recent
Form 1040 On-Line Filing Program does
not have to reapply to participate in the
Form 1040 On-Line Filing Program (sec-
tion 4.01);
(2) the application period for the Form
1040 On-Line Filing Program runs from
September 2, 1997, through December 1,
1997 (section 4.05);
(3) all applications for the Form 1040
On-Line Filing Program must be sent to
the Andover Service Center (sections 4.07
and 5.05);
(4) Applicants and certain On-Line Fil-
ers must submit information to the IRS
Headquarters Form 1040 On-Line Filing
Program Analyst by December 31, 1997
(sections 4.08 and 4.09);
(5) an individual who is an attorney
may submit evidence of professional sta-
tus in lieu of a fingerprint card provided
the individual is not currently under sus-
pension or disbarment from practice be-
fore the Service or the bar of the highest
court of any State, Commonwealth, pos-
session, territory, or the District of Co-
lumbia (section 4.12(1));
(6) an individual who is a certified
public accountant may submit evidence
of professional status in lieu of a finger-
print card provided the individual is not
currently under suspension or disbar-
ment from practice before the Service, or
whose license to practice is not currently
suspended or revoked by any State,
Commonwealth, possession, territory, or
the District of Columbia (section
4.12(2);
(7) timely notification that an On-Line
Filer has discontinued participation in the
Form 1040 On-Line Filing Program must
be sent to the Andover Service Center
(section 5.06);
(8) a Transmitter must ensure that it
does not use an EFIN or ETIN obtained
through the Form 1040 Electronic Filing
(ELF) Program in a transmission of the
electronic portion of a taxpayer’s return
as part of the Form 1040 On-Line Filing
Program (section 5.15); and
(9) the Andover Service Center is the
office responsible for accepting or reject-
ing an application to participate in the
Form 1040 On-Line Filing Program (sec-
tions 13.02 through 13.07).
SECTION 3. ON-LINE FILING
PARTICIPANTS—DEFINITIONS
.01 After acceptance into the Form
1040 On-Line Filing Program, as de-
scribed in section 4 of this revenue proce-
dure, a participant is referred to as an
“On-Line Filer.”
.02 The On-Line Filer categories are:
(1) ON-LINE SERVICE PROVIDER.
An “On-Line Service Provider” is an on-
line information service organization that
provides paying subscribers (individuals
who use the various services offered by
an On-Line Service Provider) dial-up ac-
cess to a variety of data bases. For pur-
poses of the Form 1040 On-Line Filing
Program, an On-Line Service Provider
must also have:
(a) an established subscriber or client
base to whom the On-Line Service
Provider offers services on a continuing
basis and about which the On-Line Ser-
vice Provider maintains certain minimum
information identifying the subscriber.
Such information could include the sub-
scriber’s name, account number, or credit
card or demand deposit account number;
(b) a port capacity of at least 1,000
lines or the ability to simultaneously ser-
vice 1,000 customers;
(c) a network of personal computers
that are linked by modems;
(d) access to a broad spectrum of infor-
mation and/or entertainment services; and
(e) a client base that has the ability to
communicate using electronic mail.
(2) SOFTWARE DEVELOPER. A
“Software Developer” develops software
for the purposes of (a) formatting returns
according to the Service’s electronic re-
turn specifications; and/or (b) transmit-
ting electronic returns directly to the Ser-
vice. ASoftware Developer may also sell
its software.
(3) TRANSMITTER. A“Transmitter”
transmits the electronic portion of a return
directly to the Service. An entity that pro-
vides a “bump-up” service is a Transmit-
ter. A“bump-up” service provider in-
creases the transmission rate or line speed
of formatted or reformatted information
that is being sent to the Service via a pub-
lic switched telephone network. The Ser-
vice accepts both asynchronous and bi-
synchronous communications protocols.
.03 The On-Line Filer categories are
not mutually exclusive. For example, a
Software Developer can, at the same time,
be considered a Transmitter or an On-
Line Service Provider depending on the
function(s) performed.
SECTION 4. ACCEPTANCE IN THE
FORM 1040 ON-LINE FILING
PROGRAM
.01 Except as provided in sections 4.02
through 4.04 of this revenue procedure,
an On-Line Filer that has actively partici-
pated in the most recent Form 1040 On-
Line Filing Program does not have to
reapply to participate in the Form 1040

December 29, 1997521997–52 I.R.B.
On-Line Filing Program. However, an
On-Line Filer that intends to participate
as a Transmitter or a Software Developer
in the Form 1040 On-Line Filing Program
must first successfully complete the test-
ing referred to in section 4.10 of this rev-
enue procedure. In addition, section 4.13
of this revenue procedure provides for the
Service’s issuance of credentials neces-
sary for participation in the Form 1040
On-Line Filing Program.
.02 Applicants must file a new Form
8633, Application to Participate in the
Electronic Filing Program, (hereinafter
“Form 8633”), with completed fingerprint
cards for the appropriate individuals, if:
(1) the applicant has never participated
in the Form 1040 On-Line Filing Pro-
gram;
(2) the applicant has previously been
denied participation in the Form 1040 On-
Line Filing Program; or
(3) the applicant has been suspended
from the Form 1040 On-Line Filing Pro-
gram.
Applicants must designate that the Form
8633 is for the Form 1040 On-Line Filing
Program by putting the words “ON-LINE
FILING PROGRAM” across the top of
the form and the letters “OLF” in the box
in the upper left hand corner of the form
that indicates whether the form is new or
revised.
.03 To participate in the Form 1040
On-Line Filing Program, an On-Line
Filer in the most recent Form 1040 On-
Line Filing Program must submit a re-
vised Form 8633 (designated for the Form
1040 On-Line Filing Program as de-
scribed in section 4.02 of this revenue
procedure), signed by all “Principals” and
the “Responsible Official” (as described
in section 4.11 of this revenue procedure)
with completed fingerprint cards for the
appropriate individuals if:
(1) the On-Line Filer functioned solely
as a Software Developer during the most
recent Form 1040 On-Line Filing Pro-
gram and intends to function as an On-
Line Service Provider or Transmitter dur-
ing the Form 1040 On-Line Filing
Program;
(2) there is an additional Principal, such
as a partner or a corporate officer, that
must be listed on Form 8633, line 8, “Prin-
cipals of Your Firm or Organization”;
(3) there is a Principal listed on Form
8633, line 8, that should be deleted; or
(4) the Responsible Official on Form
8633, line 9 changes.
.04 Except as provided in section 4.03
of this revenue procedure, to participate in
the Form 1040 On-Line Filing Program,
an On-Line Filer in the most recent Form
1040 On-Line Filing Program must sub-
mit either a revised Form 8633, or a letter
containing the same information con-
tained in a revised Form 8633, if any in-
formation on the On-Line Filer’s Form
8633 has changed. Arevised Form 8633
or letter submitted under this section
should include only the information re-
quested on lines 1a through 1i of Form
8633 and the information being revised. A
Principal or a Responsible Official must
sign the revised Form 8633 or the letter.
.05 For applicants described in section
4.02 of this revenue procedure, the appli-
cation period runs from September 2,
1997, through December 1, 1997.
.06 Revised applications described in
sections 4.03 and 4.04 of this revenue
procedure must be submitted within 30
days of the change(s) reflected on the re-
vised Form 8633 or in the letter.
.07 Applicants and On-Line Filers de-
scribed in sections 4.02 through 4.04 of
this revenue procedure must file Form
8633 (or a letter as provided in section
4.04 of this revenue procedure) with the
Andover Service Center.
.08 Applicants described in section
4.02 must submit the following informa-
tion (or the name and phone number of an
individual who can provide the informa-
tion) to the IRS Headquarters Form 1040
On-Line Filing Program Analyst (see sec-
tion 17 of this revenue procedure) by De-
cember 31, 1997:
(1) the brand name of the software the
applicant will be using, has developed, or
will be transmitting, and the following in-
formation regarding the software:
(a) the name of the Software Developer
for the software;
(b) the name of the Transmitter for the
software;
(c) the retail cost of the software and
any additional costs for transmitting the
electronic portion of the taxpayer’s re-
turn;
(d) whether the software can be used to
file Federal/State returns;
(e) whether the software is available on
the Internet and, if so, the Internet ad-
dress;
(f) the Professional Package name of the
software submitted for Participants Accep-
tance Testing (PATS) and whether the soft-
ware has successfully completed PATS;
(2) the applicant’s point of contact for
matters relating to the Form 1040 On-
Line Filing Program and the telephone
number for the point of contact; and
(3) the applicant’s customer service
telephone number.
.09 On-Line Filers that participated in
the most recent Form 1040 On-Line Fil-
ing Program must submit any changes to
the information contained in sections
4.08(1) through (3) of this revenue proce-
dure to the IRS Headquarters Form 1040
On-Line Filing Program Analyst by De-
cember 31, 1997.
.10 Applicants and On-Line Filers de-
scribed in sections 4.01 through 4.04 of
this revenue procedure that intend to par-
ticipate as a Transmitter or a Software De-
veloper in the Form 1040 On-Line Filing
Program must first successfully complete
the necessary testing at the appropriate
service center(s).
.11 Each individual listed as a Princi-
pal or a Responsible Official must:
(1) be a United States citizen or an
alien lawfully admitted for permanent res-
idence as described in 8 U.S.C. § 1101(a)-
(20) (1994);
(2) have attained the age of 21 as of the
date of application;
(3) submit with Form 8633 one stan-
dard fingerprint card with a full set of fin-
gerprints taken by a law enforcement
agency, except as provided in section 4.12
of this revenue procedure; and
(4) pass a suitability check that in-
cludes a credit check, a tax compliance
check, and a fingerprint check.
.12 An individual may choose to sub-
mit evidence of the individual’s profes-
sional status in lieu of a standard finger-
print card if the individual is:
(1) an attorney in good standing of the
bar of the highest court of any State,
Commonwealth, possession, territory, or
the District of Columbia, and is not cur-
rently under suspension or disbarment
from practice before the Service or the bar
of the highest court of any State, Com-
monwealth, possession, territory, or the
District of Columbia;
(2) a certified public accountant who is
duly qualified to practice as a certified
public accountant in any State, Common-

1997–52 I.R.B.53December 29, 1997
wealth, possession, territory, or the Dis-
trict of Columbia, and is not currently
under suspension or disbarment from
practice before the Service or whose li-
cense to practice is not currently sus-
pended or revoked by any State, Com-
monwealth, possession, territory, or the
District of Columbia;
(3) an enrolled agent pursuant to part
10 of 31 C.F.R. Subtitle A;
(4) an officer of a publicly held corpo-
ration; or
(5) a banking official who is bonded
and has been fingerprinted within the last
two years.
.13 The Service will issue credentials
to eligible applicants for the Form 1040
On-Line Filing Program, as well as On-
Line Filers that do not have to reapply
pursuant to section 4.01, 4.03, or 4.04 of
this revenue procedure (provided they
have first satisfactorily completed the
testing described in section 4.10 of this
revenue procedure if they intend to partic-
ipate as a Transmitter or Software Devel-
oper). No one may participate in the
Form 1040 On-Line Filing Program with-
out the following credentials:
(1) a letter of acceptance into the Form
1040 On-Line Filing Program;
(2) an Electronic Filing Identification
Number (EFIN) for each applicable ser-
vice center; and
(3) if appropriate, an Electronic Trans-
mitter Identification Number (ETIN) for
each applicable service center.
.14 If an On-Line Filer is a Software
Developer that performs no other function
in the Form 1040 On-Line Filing Program
but software development, no Principal or
Responsible Official needs to pass a suit-
ability check.
.15 The Service may reject an applica-
tion to participate in the Form 1040 On-
Line Filing Program for the following
reasons (this list is not all-inclusive).
These reason apply to any firm, organiza-
tion, Principal, or Responsible Official
listed on Form 8633:
(1) conviction of any criminal offense
under the revenue laws of the United
States, or of any offense involving dis-
honesty or breach of trust;
(2) failure to file timely and accurate
tax returns, including returns indicating
that no tax is due;
(3) failure to timely pay any tax liabili-
ties;
(4) assessment of tax penalties;
(5) suspension/disbarment from prac-
tice before the Service;
(6) disreputable conduct or other facts
that would reflect adversely on the Form
1040 On-Line Filing Program;
(7) misrepresentation on an application;
(8) suspension or rejection from either
the Form 1040 On-Line Filing Program or
the Form 1040 Electronic Filing (ELF)
Program in a prior year;
(9) unethical practices in return prepa-
ration;
(10) stockpiling returns prior to official
acceptance into the Form 1040 On-Line
Filing Program (see section 5.21 of this
revenue procedure);
(11) knowingly and directly or indi-
rectly employing or accepting assistance
from any firm, organization, or individual
that is prohibited from applying to partici-
pate in the Form 1040 On-Line Filing
Program or the Form 1040 ELF Program,
or that is suspended from participating in
the Form 1040 On-Line Filing Program or
the Form 1040 ELF Program. This in-
cludes any individual whose actions re-
sulted in the rejection or suspension of a
corporation or a partnership from the
Form 1040 On-Line Filing Program or the
Form 1040 ELF Program; or
(12) knowingly and directly or indi-
rectly accepting employment as an asso-
ciate, correspondent, or as a subagent
from, or sharing fees with, any firm, or-
ganization, or individual that is prohib-
ited from applying to participate in the
Form 1040 On-Line Filing Program or
the Form 1040 ELF Program, or that is
suspended from participating in the Form
1040 On-Line Filing Program or the
Form 1040 ELF Program. This includes
any individual whose actions resulted in
the rejection or suspension of a corpora-
tion or a partnership from the Form 1040
On-Line Filing Program or the Form
1040 ELF Program.
SECTION 5. RESPONSIBILITIES OF
AN ON-LINE FILER
.01 To ensure that complete returns are
accurately and efficiently filed, an On-
Line Filer must comply with all the publi-
cations and notices of the Service relating
to electronic filing. Currently, these pub-
lications and notices include:
(1) Publication 1345, Handbook for
Electronic Filers of Individual Income
Tax Returns, and Publication 1345A,
Handbook for Electronic Filers of Indi-
vidual Income Tax Returns (Supplement);
(2) Publication 1346, Electronic Return
File Specifications and Record Layouts
for Individual Income Tax Returns;
(3) Publication 1436, Test Package for
Electronic Filing of Individual Income
Tax Returns; and
(4) Postings to the Electronic Filing
System Bulletin Board (EFS Bulletin
Board).
.02 An On-Line Filer must maintain a
high degree of integrity, compliance, and
accuracy.
.03 An On-Line Filer may accept re-
turns for on-line electronic filing only from
taxpayers or from another On-Line Filer.
.04 If an On-Line Filer charges a fee
for the electronic transmission of a tax re-
turn, the fee may not be based on a per-
centage of the refund amount or any other
amount from the tax return.
.05 An On-Line Filer must submit a re-
vised Form 8633 (or a letter as provided
in section 4.04 of this revenue procedure)
to the Andover Service Center within 30
days of when any of the conditions or
changes described in section 4.03 or 4.04
of this revenue procedure occur. See sec-
tion 4.06 of this revenue procedure.
.06 An On-Line Filer must notify the
Andover Service Center within 30 days of
discontinuing its participation in the Form
1040 On-Line Filing Program. This does
not preclude reapplication in the future.
.07 An On-Line Filer must ensure that
it promptly processes returns submitted to
it for electronic filing. See sections 5.09,
5.10, and 5.11 of this revenue procedure.
However, an On-Line Filer that receives a
return for electronic filing on or before
the due date of the return must ensure that
the on-line electronic return is filed on or
before that due date (including exten-
sions). An on-line electronic return is not
considered filed until the electronic por-
tion of the tax return has been acknowl-
edged by the Service as accepted for pro-
cessing and a completed and signed Form
8453–OLhas been received by the Ser-
vice. However, if the electronic portion
of a return is successfully transmitted on
or shortly before the due date and the tax-
payer complies with section 7.01 of this
revenue procedure, the return will be
deemed timely filed. If the electronic
portion of a return is transmitted on or

December 29, 1997541997–52 I.R.B.
shortly before the due date and is ulti-
mately rejected, but the taxpayer com-
plies with section 5.18 of this revenue
procedure, the return will be deemed
timely filed. For a balance due return, see
section 10 of this revenue procedure for
instructions on how to make a timely pay-
ment of tax.
.08 An On-Line Filer must ensure
against the unauthorized use of its EFIN
or ETIN. An On-Line Filer must not
transfer its EFIN or ETIN by sale, loan,
gift, or otherwise to another entity.
.09 An On-Line Filer that participates
as an On-Line Service Provider must:
(1) provide assistance to a subscriber in
transmitting the electronic portion of a tax
return;
(2) ensure that no more than three tax
returns are filed electronically by one sub-
scriber;
(3) not provide to a subscriber software
that has a Service-assigned production
password built into the software;
(4) immediately send to a subscriber
the information provided by a Transmitter
under section 5.17 or 5.18 of this revenue
procedure; and
(5) inform a subscriber upon request
that information regarding a refund can be
obtained by using the IRS TeleTax system.
.10 An On-Line Filer that participates
as a Software Developer must:
(1) promptly correct any software error
which causes the electronic portion of a
return to be rejected;
(2) promptly distribute any software
correction;
(3) ensure that its software package
cannot be used to transmit more than
three electronic returns;
(4) ensure that its software package
contains a Form 8453–OLformat that can
be printed and used by a taxpayer to file
with the Service;
(5) ensure that its software package
contains a consent to disclosure state-
ment; and
(6) not incorporate into its software a
Service-assigned production password.
.11 An On-Line Filer that participates
as a Transmitter must:
(1) assign (as prescribed in Publication
1345) a Declaration Control Number
(DCN) to the electronic portion of each
return received from a taxpayer;
(2) include the assigned DCN in the
transmission of the electronic portion of a
return;
(3) transmit all electronic returns within
three calendar days of receipt to the appro-
priate service center based on the state
code in the taxpayer’s return address;
(4) retrieve the acknowledgement file
(in which the Service states whether it ac-
cepts or rejects the electronic portion of a
taxpayer’s return) within two work days
of transmission;
(5) match the acknowledgement file to
the original transmission file and notify
the taxpayer of the status of a transmitted
return as prescribed in section 5.18 of this
revenue procedure;
(6) retain, until the end of the calendar
year in which a return was filed, the ac-
knowledgement file received from the
Service;
(7) retain, until the end of the calendar
year in which a return was filed, the com-
plete copy of the electronic portion of the
return (may be retained on magnetic
media) that can be readily and accurately
converted into an electronic transmission
that the Service can process;
(8) immediately contact the Electronic
Filing Unit at the appropriate service cen-
ter for further instructions if an acknowl-
edgement of acceptance for processing
has not been received by the Transmitter
within two work days of transmission or
if the Transmitter receives an acknowl-
edgement for a return that was not trans-
mitted on the designated transmission;
(9) promptly correct any transmission
error that causes an electronic transmis-
sion to be rejected;
(10) contact the Electronic Filing Unit
at the appropriate service center for assis-
tance if a return has been rejected after
three transmission attempts;
(11) ensure the security of all transmit-
ted data;
(12) ensure that it does not transmit or
accept for transmission more than three
electronic returns originating from one
software package;
(13) ensure that the electronic portion
of a return contains a completed consent
to disclosure statement; and
(14) ensure that it does not use software
that has a Service-assigned production
password built into the software.
.12 ATransmitter must include an On-
Line Service Provider’s EFIN on each re-
turn that the Transmitter accepts from an
On-Line Service Provider.
.13 ATransmitter must enter the letter
“O” in Field #15 (Transmission Type
Code) when transmitting the electronic
portion of an on-line electronically filed
return to the Service. See Part II, Section
1, page 4, of Publication 1346.
.14 ATransmitter must ensure that it
does not combine the electronic portion of
an on-line electronically filed return with
the electronic portion of any other return
within the same transmission to the Ser-
vice.
.15 ATransmitter must ensure that it
does not use an EFIN or ETIN obtained
through the Form 1040 ELF Program in a
transmission of the electronic portion of a
taxpayer’s return as part of the Form 1040
On-Line Filing Program.
.16 If the Service accepts the elec-
tronic portion of a taxpayer’s return, the
Transmitter must notify the taxpayer (as
prescribed in section 5.19 of this revenue
procedure) of the following:
(1) the date the transmission was ac-
cepted;
(2) the DCN;
(3) where to put the DCN on Form
8453–OL;
(4) the requirement to properly com-
plete and timely submit a Form 8453–OL
with accompanying paper documents (in-
cluding Form W–2, Wage and Tax State-
ment) within one work day;
(5) the appropriate service center’s ad-
dress to which Form 8453–OLwith ac-
companying paper documents must be
sent;
(6) that a Form 8453–OLmust be re-
ceived by the Service before an on-line
electronically filed return is complete; and
(7) that the taxpayer’s failure to timely
submit a Form 8453-OLwith accompany-
ing paper documents could result in the
Service not allowing the taxpayer to file a
tax return through the Form 1040 On-
Line Filing Program in the future.
.17 If the Service informs the Trans-
mitter (in an acknowledgement file) that
the electronic portion of a taxpayer’s re-
turn has been rejected, the Transmitter
must notify the taxpayer, as prescribed in
section 5.19 of this revenue procedure, of
the following:
(1) that the Service rejected the elec-
tronic portion of the taxpayer’s return;

1997–52 I.R.B.55December 29, 1997
(2) the date of the rejection;
(3) what the reject code(s) means;
(4) what steps the taxpayer needs to
take to correct the error that caused the re-
jection; and
(5) the information contained in section
5.18 of this revenue procedure.
.18 If the taxpayer chooses not to have
the electronic portion of the return cor-
rected and transmitted to the Service, or if
the electronic portion of the return cannot
be accepted for processing by the Service,
the taxpayer, in order to file a timely re-
turn, must file a paper return by the later
of:
(1) the due date of the return; or
(2) ten calendar days after the date the
Service gives notification that the elec-
tronic portion of the return is rejected or
that the electronic portion of the return
cannot be accepted for processing.
The paper return should include an expla-
nation of why the return is being filed
after the due date.
.19 ATransmitter that transmits a re-
turn of a taxpayer who is a subscriber of
an On-Line Service Provider must notify
the taxpayer by sending an electronic
transmission to the On-Line Service
Provider within two work days of retriev-
ing the acknowledgement file. ATrans-
mitter that transmits a return of a taxpayer
who is not a subscriber of an On-Line
Service Provider must notify the taxpayer
by:
(1) sending an electronic transmission
to the taxpayer within two work days of
retrieving the acknowledgement file; or
(2) mailing a written notification to the
taxpayer within one work day of retriev-
ing the acknowledgement file.
.20 ATransmitter must make available
to the Service upon request all items re-
quired by this section to be retained until
the end of the calendar year in which a re-
turn was filed. The Transmitter must
make this material available either at the
business address of the Transmitter or
from the contact representative named on
Form 8633.
.21 ATransmitter is responsible for en-
suring that stockpiling does not occur.
Stockpiling means collecting returns from
taxpayers prior to official acceptance into
the Form 1040 On-Line Filing Program,
or, after official acceptance into the Form
1040 On-Line Filing Program, waiting
more than three calendar days to transmit
a return to the Service after receiving the
information necessary for an electronic
transmission of a tax return.
.22 An On-Line Filer may not offer,
nor in any way participate in or facilitate,
a Refund Anticipation Loan (RAL) in
connection with any return filed under the
Form 1040 On-Line Filing Program. A
RALis money borrowed by a taxpayer
that is based on a taxpayer’s anticipated
income tax refund.
.23 An On-Line Filer may not charge a
separate fee for a Direct Deposit. See
section 9 of this revenue procedure.
.24 In addition to the specific responsi-
bilities described in this section, an On-
Line Filer must meet all the requirements
in this revenue procedure to keep the priv-
ilege of participating in the Form 1040
On-Line Filing Program.
SECTION 6. PENALTIES
.01 Penalties for Disclosure or Use of
Information.
(1) An On-Line Filer, except a Soft-
ware Developer that performs no other
function in the Form 1040 On-Line Filing
Program but software development, is a
tax return preparer (Preparer) under the
definition of § 301.7216–1(b) of the Reg-
ulations on Procedure and Administra-
tion. APreparer is subject to a criminal
penalty for unauthorized disclosure or use
of tax return information. See § 7216 of
the Internal Revenue Code and
§ 301.7216–1(a). In addition, § 6713
establishes civil penalties for unautho-
rized disclosure or use of tax return infor-
mation.
(2) Under § 301.7216–2(h), disclosure
of tax return information among accepted
On-Line Filers for the purpose of prepar-
ing a return is permissible. For example,
an On-Line Service Provider may pass on
tax return information to a Transmitter for
the purpose of having an on-line elec-
tronic return formatted and transmitted to
the Service. However, if the tax return in-
formation is disclosed or used in any
other way, an On-Line Filer may be sub-
ject to the penalties described in section
6.01(1) of this revenue procedure.
.02 Other Preparer Penalties.
(1) Preparer penalties may be asserted
against an individual or firm meeting the
definition of an income tax return pre-
parer under § 7701(a)(36) and
§ 301.7701–15. Preparer penalties that
may be asserted under appropriate cir-
cumstances include, but are not limited to,
those set forth in §§ 6694, 6695, and
6713.
(2) Under § 301.7701–15(d), an On-
Line Filer is not an income tax return pre-
parer for the purpose of assessing most
preparer penalties as long as the On-Line
Filer’s services are limited to “typing, re-
production, or other mechanical assis-
tance in the preparation of a return or
claim for refund.”
(3) If an On-Line Filer alters the return
information in a nonsubstantive way, this
alteration will be considered to come
under the “mechanical assistance” excep-
tion described in § 301.7701–15(d)(1). A
nonsubstantive change is a correction or
change limited to a transposition error,
misplaced entry, spelling error, or arith-
metic correction that falls within the fol-
lowing tolerances:
(a) the amount of “Total tax”, “Federal
income tax withheld”, “Refund”, or
“Amount you owe” on Form 8453–OL
differs from the corresponding amount on
the electronic portion of the tax return by
no more than $7;
(b) the amount of “Total income” shown
on Form 8453–OLdiffers from the corre-
sponding amount on the electronic portion
of the tax return by no more than $25; or
(c) dropping cents and rounding to
whole dollars.
(4) If an On-Line Filer alters the return
information in a substantive way, rather
than having the taxpayer alter the return,
the On-Line Filer will be considered to be
an income tax return preparer for pur-
poses of § 7701(a)(36).
(5) If an On-Line Filer goes beyond
mechanical assistance, the On-Line Filer
may be held liable for income tax return
preparer penalties. See Rev. Rul. 85–189,
1985–2 C.B. 341 (which describes a situ-
ation where a Software Developer was
determined to be an income tax return
preparer and subject to certain preparer
penalties).
.03 Other Penalties.In addition to the
above specified provisions, the Service
reserves the right to assert all appropriate
preparer, nonpreparer, and disclosure
penalties against an On-Line Filer as war-
ranted under the circumstances.

December 29, 1997561997–52 I.R.B.
SECTION 7. FORM 8453–OL, U.S.
INDIVIDUALINCOME TAX
DECLARATION FOR ON-LINE
FILING
.01 Procedures for Completing Form
8453–OL.
(1) Form 8453–OLmust be completed
by the taxpayer in accordance with the in-
structions for that form.
(2) The taxpayer(s)’s name, address,
social security number(s), tax return in-
formation, and direct deposit of refund in-
formation in the electronic transmission
must be identical to the information on
the Form 8453–OLthat the taxpayer(s)
signs and will mail to the appropriate ser-
vice center.
(3) If the electronic portion of a return
was filed as a joint return, both spouses’
signatures are required on Form 8453–
OL.
(4) The taxpayer’s Form 8453–OLmust
be sent to the address of the appropriate
service center within one work day after
the taxpayer is provided notification that
the electronic portion of the taxpayer’s re-
turn has been accepted for processing.
.02 Missing Form 8453–OL.If the
Service determines that a Form 8453–OL
is missing, the taxpayer must provide the
Service with a replacement. Ataxpayer
must also provide a copy of any Form W–
2, Wage and Tax Statement, Form W–2G,
Certain Gambling Winnings, Form 1099–
R, Distributions From Pensions, Annu-
ities, Retirement or Profit-Sharing Plans,
IRAs, Insurance Contracts, etc., and all
other attachments to Form 8453–OL.
.03 Substitute Form 8453–OL.If a
substitute Form 8453–OLis used, it must
be approved by the Service prior to use.
See Rev. Proc. 96–48, 1996–2 C.B. 339.
SECTION 8. INFORMATION AN
ON-LINE FILER MUSTPROVIDE TO
THE TAXPAYER
01 The Transmitter must advise a tax-
payer to retain a complete copy of the re-
turn and any supporting material.
.02 The Transmitter must advise the
taxpayer that an amended return, if
needed, must be filed as a paper return
and mailed to the service center that
would handle the taxpayer’s paper return.
.03 The Transmitter must give the tax-
payer the Declaration Control Number
(DCN) for the taxpayer’s Form 8453–OL
and instructions to the taxpayer for enter-
ing the DCN on Form 8453–OL.
.04 If a taxpayer inquires about the
status of a refund, the Transmitter, or On-
Line Service Provider if the taxpayer is a
subscriber, must advise the taxpayer that
the taxpayer can call the local IRS Tele-
Tax number to inquire about the status of
the taxpayer’s refund. The Transmitter or
On-Line Service Provider should also ad-
vise the taxpayer to wait at least three
weeks from the date the Service gave no-
tification that the electronic portion of the
taxpayer’s return was accepted for pro-
cessing before calling the TeleTax
number.
.05 The Transmitter must inform the
taxpayer that the address on the electronic
portion of the return, once processed, will
be used to update the taxpayer’s address
of record. The Internal Revenue Service
uses the taxpayer’s address of record for
various notices that are required to be sent
to a taxpayer’s “last known address”
under the Internal Revenue Code and for
refunds of overpayments of tax (unless
otherwise specifically directed by the tax-
payer, such as by Direct Deposit).
SECTION 9. DIRECTDEPOSITOF
REFUNDS
.01 The Service will ordinarily process
a request for Direct Deposit but reserves
the right to issue a paper refund check.
.02 The Service does not guarantee a
specific date by which a refund will be di-
rectly deposited into the taxpayer’s finan-
cial institution account.
.03 Neither the Service nor Financial
Management Service (FMS) is responsi-
ble for the misapplication of a Direct De-
posit that is caused by error, negligence,
or malfeasance on the part of the tax-
payer, On-Line Filer, financial institution,
or any of their agents.
SECTION 10. BALANCE DUE
RETURNS
.01An on-line electronically filed
balance due return is transmitted to the
appropriate service center in the same
manner that a refund or zero balance re-
turn is filed. Abalance due return is not
complete unless and until the Service re-
ceives Form 8453–OLcompleted and
signed by the taxpayer.
.02 The Transmitter must furnish Form
1040–V, Payment Voucher, to a taxpayer
who electronically files a balance due re-
turn.
.03 To expedite the crediting of a tax
payment, a taxpayer who electronically
files a balance due return should mail his
or her tax payment with either Form
1040–Vor the scannable payment
voucher that is included in some tax pack-
ages. Each of these options has specific
mailing instructions.
.04 Ataxpayer who electronically files
a balance due return must make a full and
timely payment of any tax that is due.
Failure to make full payment of any tax
that is due on or before April 15, 1998,
will result in the imposition of interest and
may result in the imposition of penalties.
SECTION 11. ADVERTISING
STANDARDS FOR ON-LINE FILERS
.01 An On-Line Filer shall comply
with the advertising and solicitation pro-
visions of 31 C.F.R. Part 10 (Treasury De-
partment Circular No. 230). This circular
prohibits the use or participation in the
use of any form of public communication
containing a false, fraudulent, misleading,
deceptive, unduly influencing, coercive,
or unfair statement or claim. Any claims
concerning faster refunds by virtue of
electronic filing must be consistent with
the language in official Service publica-
tions.
.02 An On-Line Filer must adhere to
all relevant federal, state, and local con-
sumer protection laws that relate to adver-
tising and soliciting.
.03 An On-Line Filer must not use the
Service’s name, “Internal Revenue Ser-
vice” or “IRS”, within a firm’s name.
.04 An On-Line Filer must not use im-
proper or misleading advertising in rela-
tion to the Form 1040 On-Line Filing Pro-
gram (including the time frames for
refunds).
.05 An On-Line Filer using electronic
filing promotional materials or logos pro-
vided by the Service must comply with all
Service instructions pertaining to the pro-
motional materials or logos.
.06 Use of Direct Deposit name and
logo.
(1) The name “Direct Deposit” will be
used with initial capital letters or all capi-
tal letters.
(2) The logo/graphic for Direct Deposit
will be used whenever feasible in adver-
tising copy.

1997–52 I.R.B.57December 29, 1997
(3) The color or size of the Direct De-
posit logo/graphic may be changed when
used in advertising pieces.
.07 Advertising materials shall not
carry the FMS, IRS, or other Treasury
Seals.
.08 Advertising for a cooperative elec-
tronic return filing project (public/private
sector) must clearly state the names of all
cooperating parties.
.09 If an On-Line Filer uses radio or
television broadcasting to advertise, the
broadcast must be pre-recorded. The On-
Line Filer must keep a copy of the pre-
recorded advertisement for a period of at
least 36 months from the date of the last
transmission or use.
.10 If an On-Line Filer uses direct mail
or fax communications to advertise, the
On-Line Filer must retain a copy of the ac-
tual mailing or fax, along with a list or
other description of firms, organizations,
or individuals to whom the communication
was mailed, faxed, or otherwise distributed
for a period of at least 36 months from the
date of the last mailing, fax, or distribution.
.11 Acceptance to participate in the
Form 1040 On-Line Filing Program does
not imply endorsement by the Service,
FMS, or the Treasury Department of the
software or quality of services provided.
SECTION 12. MONITORING AND
SUSPENSION OF AN ON-LINE FILER
.01 The Service will monitor an On-
Line Filer for conformity with this rev-
enue procedure. Before suspending an
On-Line Filer, the Service may issue a
warning letter that describes specific cor-
rective action for deviations from this rev-
enue procedure. However, the Service can
immediately suspend, without notice, an
On-Line Filer from the Form 1040 On-
Line Filing Program. In most circum-
stances, a suspension from participation in
the Form 1040 On-Line Filing Program is
effective as of the date of the letter inform-
ing the On-Line Filer of the suspension.
.02If a Principal or Responsible Of-
ficial is suspended from the Form 1040
On-Line Filing Program, every entity that
listed the suspended Principal or Respon-
sible Official on its Form 8633 may also
be suspended.
.03 The Service will monitor the
timely receipt of Forms 8453–OL.
.04 The Service will monitor the qual-
ity of an On-Line Filer’s transmissions
throughout the filing season. The Service
will also monitor the electronic portion of
returns and tabulate rejections, errors, and
other defects. If quality deteriorates, the
On-Line Filer will receive a warning from
the Service.
.05 The Service will monitor complaints
about an On-Line Filer and issue a warning
or suspension letter as appropriate.
.06 The Service reserves the right to
suspend an On-Line Filer from participa-
tion in the Form 1040 On-Line Filing Pro-
gram for violating any provision of this
revenue procedure. Generally, the Ser-
vice will advise a suspended On-Line
Filer concerning the requirements for
reacceptance into the Form 1040 On-Line
Filing Program. The following reasons
may lead to a warning letter and/or sus-
pension of an On-Line Filer from the
Form 1040 On-Line Filing Program (this
list is not all-inclusive):
(1) the reasons listed in section 4.15 of
this revenue procedure;
(2) deterioration in the format of indi-
vidual transmissions;
(3) unacceptable cumulative error or
rejection rate;
(4) stockpiling returns at any time
while participating in the Form 1040 On-
Line Filing Program;
(5) failure on the part of a Transmitter
to retrieve acknowledgement files within
two work days of transmission by the
Service;
(6) failure on the part of a Transmitter
to notify the taxpayer, as prescribed in
section 5.19 of this revenue procedure, of
the status of a transmitted return within
two work days of receipt of the acknowl-
edgement files from the Service;
(7) failure on the part of an On-Line
Service Provider to ensure that no more
than three tax returns are filed electroni-
cally by one subscriber;
(8) failure on the part of a Transmitter
to ensure that it does not transmit or ac-
cept for transmission more than three
electronic returns originating from one
software package;
(9) significant complaints about an On-
Line Filer;
(10) failure on the part of an On-Line
Filer to ensure against the unauthorized
use of its EFIN and/or ETIN;
(11) failure on the part of an On-Line
Filer to cooperate with the Service’s ef-
forts to investigate electronic filing
abuse;
(12) violation of the advertising stan-
dards described in section 11 of this rev-
enue procedure;
(13) failure to maintain and make avail-
able records as described in section 5.20
of this revenue procedure;
(14) failure to supply a taxpayer with
an accurate DCN;
(15) failure to give effective instruc-
tions to a taxpayer concerning the entry of
the DCN on Form 8453–OL; or
(16) failure to timely submit a revised
Form 8633 (or a letter containing the
same information contained in a revised
Form 8633) notifying the Service of
changes described in section 4.03 or 4.04
of this revenue procedure.
.07 The Service may list in the Internal
Revenue Bulletin, district office listings,
district office newsletters, and on the EFS
Bulletin Board the name and owner(s) of
any entity suspended from the Form 1040
On-Line Filing Program and the effective
date of the suspension.
.08 If a participant is suspended from
participating in the Form 1040 On-Line
Filing Program, the period of suspension
includes the remainder of the calendar
year in which the suspension occurs plus
the next two calendar years. Asuspended
participant may submit a new application
for the application period immediately
preceding the end of the suspension.
SECTION 13. ADMINISTRATIVE
REVIEWPROCESS FOR DENIALOF
PARTICIPATION IN THE FORM 1040
ON-LINE FILING PROGRAM
.01 An applicant that has been denied
participation in the Form 1040 On-Line
Filing Program has the right to an admin-
istrative review. During the administra-
tive review process, the denial of partici-
pation remains in effect.
.02 In response to the submission of a
Form 8633, the Andover Service Center
will either (1) accept an applicant into the
Form 1040 On-Line Filing Program, or
(2) issue a proposed letter of denial that
explains to the applicant why the service
center proposes to reject the application to
participate in the Form 1040 On-Line Fil-
ing Program.
.03 An applicant who receives a pro-
posed letter of denial may mail or deliver,
within 30 calendar days of the date of the
proposed letter of denial, a written re-
sponse to the Andover Service Center.

December 29, 1997581997–52 I.R.B.
The applicant’s response must address the
service center’s reason(s) for proposing
the denial to participate.
.04 Upon receipt of an applicant’s
written response, the Andover Service
Center will reconsider its proposed letter
of denial. The service center may either
(1) withdraw its proposed letter of denial
and admit the applicant into the Form
1040 On-Line Filing Program, or (2) fi-
nalize the proposed denial letter.
.05 If an applicant receives a final de-
nial letter from the Andover Service Cen-
ter, the applicant is entitled to an appeal,
in writing, to the Director of Practice.
.06 The appeal must be mailed or de-
livered to the Andover Service Center
within 30 calendar days of the date of the
final denial letter. An applicant’s written
appeal must contain a detailed explana-
tion, with supporting documentation, of
why the denial should be reversed.
.07 The Andover Service Center will,
upon receipt of a written appeal to the Di-
rector of Practice, forward to the Director
of Practice its file on the applicant and the
material described in section 13.06 of this
revenue procedure. The service center
will forward these materials to the Direc-
tor of Practice within 15 calendar days of
receipt of the applicant’s written appeal.
.08 Failure to respond within either of
the 30-day periods described in sections
13.03 and 13.06 of this revenue procedure
irrevocably terminates an applicant’s right
to an administrative review or appeal.
.09 If an application for participation in
the Form 1040 On-Line Filing Program is
denied, the applicant is ineligible to submit
a new application for two years from the
application date of the denied application.
SECTION 14. ADMINISTRATIVE
REVIEWPROCESS FOR
SUSPENSION FROM THE FORM
1040 ON-LINE FILING PROGRAM
.01 An On-Line Filer that has been
suspended from participation in the Form
1040 On-Line Filing Program has the
right to an administrative review. During
the administrative review process, the
suspension remains in effect.
.02 If an On-Line Filer receives a sus-
pension letter, the On-Line Filer may mail
or deliver, within 30 calendar days of the
date of the suspension letter, a detailed
written explanation, with supporting doc-
umentation, of why the suspension letter
should be withdrawn. This written re-
sponse should be sent to the district office
or service center that issued the suspen-
sion letter.
.03 Upon receipt of the On-Line
Filer’s written response, the district office
or service center will reconsider its sus-
pension of the On-Line Filer. The district
office or service center may either (1)
withdraw its suspension letter, or (2) af-
firm the suspension.
.04 If the On-Line Filer receives a let-
ter affirming the suspension, the On-Line
Filer is entitled to an appeal, in writing, to
the Director of Practice.
.05 The appeal must be mailed or de-
livered to the district office or service
center that issued the suspension letter
within 30 calendar days of the date of the
letter affirming the suspension. The On-
Line Filer’s written appeal must contain
detailed reasons, with supporting docu-
mentation, for reversal of the suspension.
.06 The district office or service center
whose decision to suspend is being ap-
pealed will, upon receipt of a written ap-
peal to the Director of Practice, forward
its file on the On-Line Filer to the Direc-
tor of Practice. The district office or ser-
vice center will also forward to the Direc-
tor of Practice the material described in
section 14.05 of this revenue procedure.
The district office or the service center
will forward these materials within 15
calendar days of the receipt of an On-Line
Filer’s written request for appeal.
.07 Failure to appeal within either of
the 30-day periods described in sections
14.02 and 14.05 of this revenue procedure
irrevocably terminates an On-Line Filer’s
right to an appeal.
SECTION 15. EFFECTON OTHER
DOCUMENTS
Rev. Proc. 96–62, 1996–2 C.B. 412, is
superseded.
SECTION 16. EFFECTIVE DATE
This revenue procedure is effective De-
cember 29, 1997.
SECTION 17. INTERNALREVENUE
SERVICE OFFICE CONTACT
All questions regarding the electronic
filing aspects of the Form 1040 On-Line
Filing Program should be directed to the
IRS Headquarters Electronic Filing Of-
fice. The telephone number for this pur-
pose is (202) 283-0531 (not a toll-free
number). All questions regarding the on-
line aspects of this program should be di-
rected to the IRS Headquarters Form
1040 On-Line Filing Program Analyst.
The telephone number for this purpose is
(202) 283-0265 (not a toll-free number).
The address for the IRS Headquarters
Form 1040 On-Line Filing Program Ana-
lyst is T:ETA:O:P, 5000 Ellin Road, Lan-
ham, MD 20706.
SECTION 18. PAPERWORK
ACT
The collections of information con-
tained in this revenue procedure have
been reviewed and approved by the Of-
fice of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545-1513.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
control number.
The collections of information in this
revenue procedure are in sections 4, 5, 8,
and 11 of the revenue procedure. This in-
formation is required by the IRS to imple-
ment the Form 1040 On-Line Filing Pro-
gram and to enable taxpayers to file their
individual income tax returns electroni-
cally through the Form 1040 On-Line Fil-
ing Program. The information will be
used to ensure that taxpayers receive accu-
rate and essential information regarding
the filing of their return through the Form
1040 On-Line Filing Program and to iden-
tify the persons involved in the filing of a
return through the Form 1040 On-Line
Filing Program. The collections of infor-
mation are required to retain the benefit of
participating in the Form 1040 On-Line
Filing Program. The likely respondents
are business or other for-profit institutions.
The estimated total annual reporting
and recordkeeping burden is 5,926
hours.
The estimated annual burden per re-
spondent/recordkeeper varies from eight
(8) minutes to 455 hours, depending on in-
dividual circumstances, with an estimated
average of 423 hours (or approximately

1997–52 I.R.B.59December 29, 1997
two (2) minutes per on-line electronically
filed return). The estimated number of re-
spondents and recordkeepers is 14.
The estimated annual frequency of re-
sponses is on occasion.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. § 6103.
Social Security Contribution and
Benefit Base
Under authority contained in the Social
Security Act (“the Act”), the Commis-
sioner, Social Security Administration,
has determined and announced (62 F.R.
58762, dated October 30, 1997) that the
contribution and benefit base for remu-
neration paid in 1998, and self-employ-
ment income earned in taxable years be-
ginning in 1998 is $68,400.
“Old-Law” Contribution and
Benefit Base
General.The 1998 “old-law” contribu-
tion and benefit base is $50,700. This is
the base that would have been effective
under the Act without the enactment of
the 1977 amendments. The base is com-
puted under section 230(b) of the Act as it
read prior to the 1977 amendments.
The “old-law” contribution and benefit
base is used by:
(a) the Railroad Retirement program to
determine certain tax liabilities and tier II
benefits payable under that program to
supplement the tier I payments which
correspond to basic Social Security bene-
fits,
(b) the Pension Benefit Guaranty Cor-
poration to determine the maximum
amount of pension guaranteed under the
Employee Retirement Income Security
Act (as stated in section 230(d) of the So-
cial Security Act),
(c) Social Security to determine a year
of coverage in computing the special mini-
mum benefit, as described earlier, and
(d) Social Security to determine a year
of coverage (acquired whenever earnings
equal or exceed 25 percent of the “old-
law” base for this purpose only) in com-
puting benefits for persons who are also
eligible to receive pensions based on em-
ployment not covered under section 210
of the Act.
Domestic Employee Coverage
Threshold
General.Section 2 of the “Social Secu-
rity Domestic Employment Reform Act of
1994” (Pub. L. 103–387) increased the
threshold for coverage of a domestic em-
ployee’s wages paid per employer from
$50 per calendar quarter to $1,000 in cal-
endar year 1994. The statute holds the
coverage threshold at the $1,000 level for
1995 and then increases the threshold in
$100 increments for years after 1995. The
formula for increasing the threshold is
provided in section 3121(x) of the Inter-
nal Revenue Code.
Computation.Under the formula, the
domestic employee coverage threshold
amount for 1998 shall be equal to the
1995 amount of $1,000 multiplied by the
ratio of the national average wage index
for 1996 to that for 1993. If the amount so
determined is not a multiple of $100, it
shall be rounded to the next lower multi-
ple of $100.
Domestic Employee Coverage Thresh-
old Amount.The ratio of the national av-
erage wage index for 1996, $25,913.90,
compared to that for 1993, $23,132.67, is
1.1202295. Multiplying the 1995 domes-
tic employee coverage threshold amount
of $1,000 by the ratio of 1.1202295 pro-
duces the amount of $1,120.23, which
must then be rounded to $1,100. Accord-
ingly, the domestic employee coverage
threshold amount is determined to be
$1,100 for 1998.

December 29, 1997601997–52 I.R.B.
Extension of Federal Tax
Deposits Due Dates for Extra
Federal Holiday
Announcement 97–124
The Internal Revenue Service will ex-
tend the December 26 due date for federal
tax deposits in recognition of the presi-
dential executive order giving federal em-
ployees an extra holiday.
Normal deposit due date for payroll
tax liabilities of $100,000 or more for
wages paid on December 24 would be
December 26. This deposit due date is
extended to Monday, December 29, 1997.
The semi-weekly depositors with pay-
roll dates Dec 20, 21, 22, 23 must deposit
by Tuesday, December 30, 1997.
Foundations Status of Certain
Organizations
Announcement 97–125
The following organizations have
failed to establish or have been unable to
maintain their status as public charities or
as operating foundations. Accordingly,
grantors and contributors may not, after
this date, rely on previous rulings or des-
ignations in the Cumulative List of Orga-
nizations (Publication 78), or on the pre-
sumption arising from the filing of notices
under section 508(b) of the Code. This
listing does notindicate that the organiza-
tions have lost their status as organiza-
tions described in section 501(c)(3), eligi-
ble to receive deductible contributions.
Former Public Charities.The following
organizations (which have been treated as
organizations that are not private founda-
tions described in section 509(a) of the
Code) are now classified as private foun-
dations:
Aden Relief Services, Alexandria, VA
African-American Family History
Association, Memphis, TN
African American Men Against
Narcotics, Inc., AA-MAN, Inc., Dallas,
TX
Alliance for the Welfare of Animals,
Springfield, MO
Allied Housing Group Ltd, St. Louis,
MO
All Saints Scholarship Fund, Norfolk, VA
Almena Senior Citizens Inc., Almena, KS
Alpha Woodward Restoration Inc.,
Detroit, MI
Alpine Regional Education Center,
Gaylord, MI
Also Morale Inc., Englewood, CO
Alternative Radio Coalition Incorporated,
Charlotte, NC
Alternative Theatre Company, Phoenix,
AZ
Alternative Workhaven Inc., Eudora, KS
Altrusa Foundation, Fort Worth, TX
Altrusa Teen Share Inc., Coldwater, MI
Alvarado Historical Association Inc.,
Alvarado, TX
Aman Community, Cleveland, OH
Amateur Hardwood Association of Red
Stick, Baton Rouge, LA
Ambassadors for Christ, Nashville, NC
Amber Waves Inc., Jasper, AL
Ambulance Fund Raising Committee,
Townsend, WI
Amdpa Foundation Inc., Pine Bluff, AR
Amelia Island Chorale Inc., Fernandina
Beach, FL
America the Beautiful Centennial
Celebration, Inc., Colorado Springs, CO
American Assistance to Eastern Europe,
Inc., Satellite Beach, FL
American Association for Chronic
Fatigue Syndrome, Inc., Tulsa,OK
American Bosnian Herzegovinian
Association, Clinton Township, MI
American Childrens Welfare Foundation,
Flora, IL
American Disabilities Association,
Marshall, TX
American Foundation for Removal of
Addictions, Inc., Scottsdale, AZ
American Freedom Assembly Inc.,
Trussville, AL
American Friends of Mesilath Yesharim,
Inc., Baltimore, MD
American Friends of the William Harvey
Research Institute, Inc., Philadelphia,
PA
American Indian Center of Central
Florida, Inc., Orlando, FL
American Mountain Guides Association,
Golden, CO
American Multi-Racial Film Series, New
York, NY
American Muslim Support Group Inc.,
Belridge, MO
American Podiatric Arthroscopic
Association, Inc., Lorain, OH
American Quiz Bowl Association Inc.,
New Orleans, LA
American Russian Medical Exchange,
Lansing, MI
American Society of Dermatology Inc.,
Midwest City, OK
American-Somali Council, Washington,
DC
American Stories Inc., Philadelphia, PA
American Veterinary History Society,
Ames, IA
American Virtuosi Foundation Inc.,
Birmingham, AL
American Waterfowl Association Inc.,
Atlanta, GA
American Way Inc., Baltimore, MD
Americans and Germans Embracin Both
Nationalities in Dialogue and
Association, Detroit, MI
Americans for Mentored Officer
Recruitment and Education, Houston,
TX
Americas Art for Life Inc., Miami, FL
Americas Favorite Pre-Teen Foundation,
Inc., Lake Ariel, PA
Angleton Area Crimestoppers Inc.,
Angleton, TX
Animal Aid for Vermilion Area Inc.,
Abbeville, LA
Animal Protection League of Pulaski
County, Inc., Somerset, KY
Animal Relief Fund Inc., Garland, TX
Amhe Incorporated, Chicago, IL
Amigos for Education Inc., Alice, TX
Amoco Dealers and Jobbers for Kids
Corporation, White Bear Lake, MN
Anchor Ministries Inc., Conyers, GA
Andrew Jackson Institute Inc., Nashville,
TN
Andrew Magee-Scott Verplank
Endowment Fund, Dallas, TX
Animal Relief Fund Inc., Parker, AZ
Animal Welfare Society, Farmington, NM
Animals Pals Inc., Farmington, MI
Anioma Association of Nigeria Inc.,
Hyattsville, MD
Anna Jonesboro Community Pride, Inc.,
Anna, IL
Annual Emancipation Day Celebration,
Inc., Gallipolis, OH
Annunciation Greek Orthodox Church of
LR-AR Scholarship Foundation Inc.,
Little Rock, AR
Anoka County Tree Board Inc., Anoka,
MN
Anti-Rheumatic Drug Guidelines Fund,
Inc., Phoenix, AZ
Part IV. Items of General Interest

1997–52 I.R.B.61December 29, 1997
Antrim-Kalkaska Literacy Council,
Kewadin, MI
Apostolic Development Corporation,
Detroit, MI
Applecor Foundation Inc., Chicago, IL
Aqua-Tex Swim Team Inc., Klein, TX
Aquatic Medical Research &
Development, Ltd., Inc., Miami, FL
Aquia Harbor Volunteer Rescue Squad,
Inc., Stafford, VA
Arab American Medical Association-
Pittsburgh Chapter, Murrysville, PA
Arc Thriftown Inc., Farmington, NM
Ardbraccan Foundation Inc., Shorewood,
WI
Ardis Rhinehart Kremer Home of the
United Church of Christ, Conneaut,
OH
Ardmore Area Rapid Responders Inc.,
Ardmore, AL
Area Counties Council on Alcoholism
Drug Abuse, Bellville, TX
Arizona Academy of Family Physicians
Foundation, Inc., Phoenix, AZ
Arizona Association of Conservation
Districts, Phoenix, AZ
Campaign for Energy Efficiency in
Education and Health Care,
Washington, DC
Childrens Dance Co., Chattanooga, TN
Coalition for a National Memorial to
Mahatma Gandhi, Potomac, MD
Committee to Restore Pop Floyd Field,
Inc., Atlantic City, NJ
Cystic Fibrosis Care Group Inc.,
Windermere, FL
Gorgias Association Inc., Bellevue, CO
Hollister Citizens Organization, Inc.,
Hollister, NC
International Cultural and Friendship
Association, Mililani, HI
Library Foundation of Jefferson County,
Inc., Montrello, FL
Manasota Theatre Organ Society, Inc.,
Bradenton, FL
Mid-South Tissue Bank, Inc., Memphis,
TN
Rock the Vote Education Fund, Santa
Monica, CA
San Diego Flute Guild, Poway, CA
Wendy’s Relief Fund, Inc., Dublin, OH
World Class School, Inc., Arlington, VA
If an organization listed above submits
information that warrants the renewal of its
classification as a public charity or as a pri-
vate operating foundation, the Internal
Revenue Service will issue a ruling or de-
termination letter with the revised classifi-
cation as to foundation status. Grantors and
contributors may thereafter rely upon such
ruling or determination letter as provided
in section 1.509(a)–7 of the Income Tax
Regulations. It is not the practice of the
Service to announce such revised classifi-
cation of foundation status in the Internal
Revenue Bulletin.
Deletions From Cumulative List
of Organizations Contributions
to Which Are Deductible Under
Section 170 of the Code
Announcement 97–126
The names of organizations that no
longer qualify as organizations described
in section 170(c)(2) of the Internal Rev-
enue Code of 1986 are listed below.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an orga-
nization ceases to qualify under section
170(c)(2) if the organization has not
timely filed a suit for declaratory judg-
ment under section 7428 and if the con-
tributor (1) had knowledge of the revoca-
tion of the ruling or determination letter,
(2) was aware that such revocation was
imminent, or (3) was in part responsible
for or was aware of the activities or omis-
sions of the organization that brought
about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on December 29,
1997, and would end on the date the court
first determines that the organization is
not described in section 170(c)(2) as more
particularly set forth in section
7428(c)(1).
For individual contributors, the maxi-
mum deduction protected is $1,000, with
a husband and wife treated as one contrib-
utor. This benefit is not extended to any
individual who was responsible, in whole
or in part, for the acts or omissions of the
organization that were the basis for revo-
cation.
Exploring Cultural and Educational
Learning, Sandy, UT
Real Friends, Inc.,
Aurora, CO
Youth Today Leaders Tomorrow, Inc.
Golden Valley, CO
Section 7428(c) Validation of
Certain Contributions Made
During Pendency of Declaratory
Judgment Proceedings
This announcement serves notice to po-
tential donors that the organization listed
below has recently filed a timely declara-
tory judgment suit under section 7428 of
the Code, challenging revocation of its
status as an eligible donee under section
170(c)(2).
Protection under section 7428(c) of the
Code begins on the date that the notice of
revocation is published in the Internal
Revenue Bulletin and ends on the date on
which a court first determines that an or-
ganization is not described in section
170(c)(2), as more particularly set forth in
section 7428(c)(1). In the case of individ-
ual contributors, the maximum amount of
contributions protected during this period
is limited to $1,000.00, with a husband
and wife being treated as one contributor.
This protection is not extended to any in-
dividual who was responsible, in whole or
in part, for the acts or omissions of the or-
ganization that were the basis for the re-
vocation. This protection also applies
(but without limitation as to amount) to
organizations described in section
170(c)(2) which are exempt from tax
under section 501(a). If the organization
ultimately prevails in its declaratory judg-
ment suit, deductibility of contributions
would be subject to the normal limitations
set forth under section 170.
At Cost Services, Inc.
New York, NY

December 29, 1997621997–52 I.R.B.
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to Abut not
to B, and the new ruling holds that it ap-
plies to both Aand B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. Aruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Proc..—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

1997–52 I.R.B.63December 29, 1997
1
Acumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1997–1 through 1997–26
will be found in Internal Revenue Bulletin 1997–27,
dated July 7, 1997.
Numerical Finding List
1
Bulletins 1997–27 through 1997–51
Announcements:
97–61, 1997–29 I.R.B. 13
97–67, 1997–27 I.R.B. 37
97–68, 1997–28 I.R.B. 13
97–69, 1997–28 I.R.B. 13
97–70, 1997–29 I.R.B. 14
97–71, 1997–29 I.R.B. 15
97–72, 1997–29 I.R.B. 15
97–73, 1997–30 I.R.B. 86
97–74, 1997–31 I.R.B.16
97–75, 1997–32 I.R.B. 28
97–76, 1997–32 I.R.B. 28
97–77, 1997–33 I.R.B. 58
97–78, 1997–34 I.R.B. 11
97–79, 1997–35 I.R.B. 8
97–80, 1997–34 I.R.B. 12
97–81, 1997–34 I.R.B. 12
97–82, 1997–34 I.R.B. 12
97–83, 1997–34 I.R.B. 13
97–84, 1997–34 I.R.B. 13
97–85, 1997–35 I.R.B. 8
97–86, 1997–35 I.R.B. 9
97–87, 1997–35 I.R.B. 9
97–88, 1997–35 I.R.B. 9
97–89, 1997–36 I.R.B. 10
97–90, 1997–36 I.R.B. 10
97–91, 1997–37 I.R.B. 25
97–92, 1997–37 I.R.B. 26
97–93, 1997–36 I.R.B. 11
97–94, 1997–36 I.R.B. 12
97–95, 1997–36 I.R.B. 12
97–96, 1997–39 I.R.B.15
97–97, 1997–38 I.R.B. 22
97–98, 1997–39 I.R.B. 15
97–99, 1997–40 I.R.B. 7
97–100, 1997–40 I.R.B. 8
97–101, 1997–41 I.R.B. 13
97–102, 1997–41 I.R.B. 15
97–103, 1997–41 I.R.B. 16
97–104, 1997–42 I.R.B. 39
97–105, 1997–42 I.R.B. 40
97–106, 1997–45 I.R.B. 11
97–107, 1997–43 I.R.B. 25
97–108, 1997–43 I.R.B. 25
97–109, 1997–45 I.R.B. 12
97–110, 1997–45 I.R.B. 14
97–111, 1997–47 I.R.B. 15
97–112, 1997–46 I.R.B. 20
97–113, 1997–46 I.R.B.21
97–114, 1997–46 I.R.B. 21
97–115, 1997–47 I.R.B. 17
97–116, 1997–48 I.R.B. 25
97–117, 1997–49 I.R.B. 12
97–118, 1997–49 I.R.B. 13
97–119, 1997–50 I.R.B.61
97–120, 1997–50 I.R.B. 61
97–121, 1997–50 I.R.B. 62
97–122, 1997–50 I.R.B. 63
97–123, 1997–51 I.R.B. 28
Court Decisions:
2061, 1997–31 I.R.B. 5
2062, 1997–32 I.R.B. 8
Delegation Orders
97 (Rev. 34), 1997–41 I.R.B. 14
Delegation Orders–Continued
172 (Rev. 5), 1997–28 I.R.B. 6
Notices:
97–37, 1997–27 I.R.B. 4
97–38, 1997–27 I.R.B. 8
97–39, 1997–27 I.R.B. 8
97–40, 1997–28 I.R.B. 6
97–41, 1997–28 I.R.B. 6
97–42, 1997–29 I.R.B. 12
97–43, 1997–30 I.R.B. 9
97–44, 1997–31 I.R.B. 15
97–45, 1997–33 I.R.B. 7
97–46, 1997–34 I.R.B. 10
97–47, 1997–35 I.R.B. 5
97–48, 1997–35 I.R.B. 5
97–49, 1997–36 I.R.B. 8
97–50, 1997–37 I.R.B. 21
97–51, 1997–38 I.R.B. 20
97–52, 1997–38 I.R.B. 20
97–53, 1997–40 I.R.B. 6
97–54, 1997–41 I.R.B. 7
97–55, 1997–40 I.R.B. 6
97–56, 1997–43 I.R.B. 19
97–57, 1997–43 I.R.B. 19
97–58, 1997–45 I.R.B. 7
97–59, 1997–45 I.R.B. 7
97–60, 1997–46 I.R.B.8
97–61, 1997–48 I.R.B.8
97–62, 1997–49 I.R.B.8
97–63, 1997–47 I.R.B. 6
97–64, 1997–47 I.R.B. 7
97–65, 1997–51 I.R.B. 14
97–66, 1997–48 I.R.B.8
97–67, 1997–48 I.R.B.10
97–68, 1997–48 I.R.B. 11
97–69, 1997–48 I.R.B. 12
97–70, 1997–49 I.R.B.9
97–71, 1997–49 I.R.B.9
97–72, 1997–50 I.R.B.7
97–73, 1997–51 I.R.B. 16
97–74, 1997–51 I.R.B. 18
97–75, 1997–51 I.R.B. 18
Railroad Retirement Quarterly Rate:
1997–28 I.R.B. 5
Public Laws
105–35, 1997–43 I.R.B. 13
Proposed Regulations:
REG–103330–97, 1997–51 I.R.B. 24
REG–104893–97, 1997–29 I.R.B. 13
REG–105160–97, 1997–37 I.R.B. 22
REG–105162–97, 1997–48 I.R.B. 13
REG–106043–97, 1997–37 I.R.B. 24
REG–107644–97, 1997–32 I.R.B. 24
REG–107872–97, 1997–47 I.R.B. 11
REG–114000–97, 1997–47 I.R.B. 13
REG–208151–91, 1997–38 I.R.B. 21
REG–243025–96, 1997–51 I.R.B. 25
REG–246250–96, 1997–42 I.R.B. 30
REG–251985–96, 1997–48 I.R.B. 18
REG–252936–96, 1997–51 I.R.B. 27
Revenue Procedures:
97–32, 1997–27 I.R.B. 9
97–32A, 1997–34 I.R.B. 10
97–33, 1997–30 I.R.B. 10
Revenue Procedures–Continued
97–34, 1997–30 I.R.B.14
97–35, 1997–33 I.R.B. 11
97–36, 1997–33 I.R.B. 14
97–37, 1997–33 I.R.B. 18
97–38, 1997–33 I.R.B. 43
97–39, 1997–33 I.R.B. 48
97–40, 1997–33 I.R.B. 50
97–41, 1997–33 I.R.B. 5
97–42, 1997–33 I.R.B. 57
97–43, 1997–39 I.R.B. 12
97–44, 1997–41 I.R.B. 8
97–45, 1997–41 I.R.B. 10
97–46, 1997–42 I.R.B. 10
97–47, 1997–42 I.R.B. 19
97–48, 1997–43 I.R.B. 19
97–49, 1997–43 I.R.B. 22
97–50, 1997–45 I.R.B. 8
97–51, 1997–45 I.R.B. 9
97–52, 1997–46 I.R.B.17
97–53, 1997–47 I.R.B.10
97–54, 1997–50 I.R.B.8
97–55, 1997–51 I.R.B.23
Revenue Rulings:
97–27, 1997–27 I.R.B. 4
97–28, 1997–28 I.R.B. 4
97–29, 1997–28 I.R.B. 4
97–30, 1997–31 I.R.B.12
97–31, 1997–32 I.R.B.4
97–32, 1997–33 I.R.B. 4
97–33, 1997–34 I.R.B. 4
97–34, 1997–34 I.R.B. 14
97–35, 1997–35 I.R.B. 4
97–36, 1997–36 I.R.B. 5
97–37, 1997–37 I.R.B.15
97–38, 1997–38 I.R.B.14
97–39, 1997–39 I.R.B. 4
97–40, 1997–39 I.R.B. 8
97–41, 1997–40 I.R.B. 4
97–42, 1997–41 I.R.B. 4
97–43, 1997–42 I.R.B. 8
97–44, 1997–45 I.R.B. 5
97–45, 1997–46 I.R.B.4
97–46, 1997–46 I.R.B.7
97–47, 1997–47 I.R.B.4
97–48, 1997–49 I.R.B.5
97–49, 1997–48 I.R.B. 4
97–50, 1997–49 I.R.B.5
97–51, 1997–49 I.R.B. 4
97–52, 1997–50 I.R.B.4
Treasury Decisions:
8722, 1997–29 I.R.B. 4
8723, 1997–30 I.R.B. 4
8724, 1997–36 I.R.B. 4
8725, 1997–37 I.R.B. 16
8726, 1997–34 I.R.B. 7
8727, 1997–34 I.R.B. 5
8728, 1997–37 I.R.B. 4
8729, 1997–38 I.R.B. 4
8730, 1997–38 I.R.B. 16
8731, 1997–42 I.R.B. 6
8732, 1997–42 I.R.B. 4
8733, 1997–43 I.R.B. 8
8734, 1997–44 I.R.B. 5
8735, 1997–43 I.R.B. 4
8736, 1997–50 I.R.B.5
8737, 1997–51 I.R.B. 11
8738, 1997–51 I.R.B. 4
8739, 1997–51 I.R.B.8

December 29, 1997641997–52 I.R.B.
Finding List of Current Action on
Previously Published Items
1
Bulletins 1997–27 through 1997–51
*Denotes entry since last publication
Notices:
97–9
Modified by
97–70, 1997–49 I.R.B. 9
Revenue Procedures:
82–36
Modified and superseded by
97–49, 1997–43 I.R.B. 22
96–36
Superseded by
97–34, 1997–30 I.R.B. 14
96–42
Superseded by
97–27, 1997–27 I.R.B. 9
96–48
Superseded by
97–54, 1997–50 I.R.B. 8
97–32
Modified and amplified by
97–32A, 1997–34 I.R.B. 10
Revenue Rulings:
73–67
Revoked by
97–46, 1997–46 I.R.B. 7
75–7
Revoked by
97–48, 1997–49 I.R.B. 5
89–42
Supplemented by
97–31, 1997–32 I.R.B. 4
93–76
Clarified, modified, partially
obsoleted, and superceded by
97–39, 1997–39 I.R.B 4
94–7
Clarified, modified, partially
obsoleted, and superceded by
97–39, 1997–39 I.R.B 4
1
Acumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1997–1 through 1997–26 will be found in Internal
Revenue Bulletin 1997–27, dated July 7, 1997.

1997–52 I.R.B.65December 29, 1997
Notes

Notes
December 29, 1997661997–52 I.R.B.

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