Internal Revenue Bulletin 1998-2 (PDF rendition): IRS Revenue Rulings

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INCOME TAX
Rev. Rul. 98–2, page 15.
Insurance companies; interest rate tables. Prevailing state
assumed interest rates are provided for the determination of re-
serves under section 807 of the Code for contracts issued in
1997 and 1998. Rev. Rul 92–19 supplemented in part.
Rev. Rul. 98–3, page 4.
Low-income housing credit; satisfactory bond; “bond
factor” amounts for the period October through Decem-
ber 1997. This ruling announces the monthly bond factor
amounts to be used by taxpayers who dispose of qualified low-
income buildings or interests therein during the period October
through December 1997. The ruling also corrects errors in the
bond factor amounts for properties placed in service in 1987
and disposed of between January through September 1997.
Rev. Rul. 98–4, page 18.
Federal rates; adjusted federal rates; adjusted federal
long-term rate, and the long-term exempt rate. For
purposes of sections 1274, 1288, 382, and other sections
of the Code, tables set forth the rates for January 1998.
EMPLOYEE PLANS
Rev. Rul. 98–1, page 5.
Limitations on benefits and contributions. Questions
and answers on the limitations on benefits and contributions
under section 415 of the Code, as amended by the Uruguay
Round Agreements Act, and taking into account the applica-
ble provisions of the Small Business Job Protection Act of
1996, are set forth.
Rev. Proc. 98–10, page 35.
Minimum funding standards; change in funding
method. This procedure provides approval to change the
funding method used to determine the minimum funding
standard for defined benefit plans for plan years beginning
on or after January 1, 1998, to any one of the specific
methods contained in this procedure.
Notice 98–2, page 22.
Recovery of basis; retirees. This notice provides a simpli-
fied method of calculating the recovery of basis based on the
life of more than one annuitant where the retiree made contri-
butions to a tax-qualified pension plan, even if the amount of
the annuity varies by annuitant. The method is described in
section 1403 of the Small Business Job Protection Act of
1996 and section 1075 of the Taxpayer Relief Act of 1997.
Notice 98–4, page 25.
Questions and answers; SIMPLE-IRAs, SIMPLE IRA
plans. This notice pertains to savings incentive match
plans for employees of small employers described in sec-
tion 408(p) of the Code as added by the Small Business Job
Protection Act of 1996, and modified by the Taxpayer Relief
Act of 1997.
Announcement 98–1, page 38.
The Service is proposing to include in the Internal Revenue
Manual examination guidelines relating to employer deduc-
tions to qualified plans under Code section 404 and the min-
imum funding standards under Code section 412.
EXEMPT ORGANIZATIONS
Announcement 98–3, page 38.
A list is provided of organizations that no longer qualify as
organizations for which contributions are deductible under
section 170 of the Code.
EXCISE TAX
Rev. Rul. 98–5, page 20.
Bows and arrows; taxable and nontaxable articles. A list
of taxable and nontaxable articles is provided for use by man-
ufacturers, producers, and importers in determining their lia-
bility for the manufacturers tax on archery equipment im-
posed by section 4161 of the Code. The list reflects changes
to the tax on archery equipment made by the Taxpayer Relief
Act of 1997. Rev. Rul 75–17 supplemented and superseded.
ADMINISTRATIVE
Announcement 98–2, page 38.
New Form 8023, Election Under Section 338 for
Corporations Making Qualified Stock Purchases, replaces
Form 8023–A, Corporate Qualified Stock Purchases.
Internal Revenue
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Bulletin No. 1998–2
January 12, 1998
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page 40.

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.A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.

January 12, 199841998–2 I.R.B.
Table 2
Rev. Rul. 98–3
Monthly Bond Factor Amounts for Dispositions Expressed As a Percentage of Total Credits
Calendar Year Building Placed in Service or, if Section 42(f)(1)
Election Was Made, the Succeeding Calendar Year
Month of
Disposition19871988198919901991199219931994199519961997
Jan ‘9779.9582.0884.6787.7091.2595.3299.53103.58107.56111.85112.52
Feb ‘9779.9581.8384.4187.4390.9695.0099.17103.18107.11111.28112.52
Mar ‘9779.9581.5984.1587.1690.6794.6998.83102.81106.69110.79112.52
Apr ‘9779.9581.3583.9186.9090.4094.3998.50102.45106.31110.36112.52
May ‘9779.9581.1183.6686.6490.1394.0998.18102.11105.95109.98112.52
Jun ‘9779.9580.8883.4286.4089.8793.8197.88101.79105.61109.64112.52
Jul ‘9779.9580.6583.1986.1589.6193.5497.58101.48105.30109.33112.52
Aug ‘9779.9580.4382.9685.9289.3693.2797.30101.18105.01109.06112.52
Sep ‘9779.9580.2182.7485.6889.1293.0197.03100.90104.73108.81112.52
Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 1998. See Rev. Rul. 98–4, page 18.
Low-income housing credit; satisfac-
tory bond; “bond factor” amounts for
the period October through December
1997. This ruling announces the monthly
bond factor amounts to be used by taxpay-
ers who dispose of qualified low-income
buildings or interests therein during the
period October through December 1997.
The ruling also corrects errors in the bond
factor amounts for properties placed in
service in 1987 and disposed of between
January through September 1997.
Rev. Rul. 98–3
In Rev. Rul. 90–60, 1990–2 C.B. 3, the
Internal Revenue Service provided guid-
ance to taxpayers concerning the general
methodology used by the Treasury De-
partment in computing the bond factor
amounts used in calculating the amount of
bond considered satisfactory by the Sec-
retary under § 42(j)(6) of the Internal
Revenue Code. It further announced that
the Secretary would publish in the Inter-
nal Revenue Bulletin a table of “bond fac-
tor” amounts for dispositions occurring
during each calendar month.
This revenue ruling provides in Table 1
the bond factor amounts for calculating
the amount of bond considered satisfac-
tory under § 42(j)(6) for dispositions of
qualified low-income buildings or inter-
ests therein during the period October
through December 1997. Table 2 pro-
vides a summary of the bond factor
amounts for dispositions occurring during
the period January through September
1997. Table 3 provides a summary of
bond factor amounts for dispositions oc-
curring during the period January through
December 1996.
Due to a miscalculation, Rev. Rul.
97–16, 1997–13 I.R.B. 4, Rev. Rul.
97–25, 1997–23 I.R.B. 4, and Rev. Rul.
97–34, 1997–34 I.R.B. 4, are in error re-
garding the specific bond factor amounts
for buildings placed in service in calendar
year 1987 and disposed of in calendar
year 1997. The present revenue ruling
provides a complete list of the corrected
amounts. Taxpayers who posted bonds
prior to the publication date of this rev-
enue ruling based upon the above men-
tioned bond factor amounts may continue
to rely on these figures under the author-
ity of § 7805(b).
For a list of bond factor amounts applic-
able to dispositions occurring during other
calendar years, see the following revenue
rulings: Rev. Rul. 90–60, 1990–2 C.B. 3,
for dispositions occurring during calendar
years 1987, 1988, and 1989;
Rev. Rul. 90–88, 1990–2 C.B. 7, for
dispositions occurring during calendar
year 1990; Rev. Rul. 91–67, 1991–2 C.B.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Table 1
Rev. Rul. 98–3
Monthly Bond Factor Amounts for Dispositions Expressed As a Percentage of Total Credits
Calendar Year Building Placed in Service or, if Section 42(f)(1)
Election Was Made, the Succeeding Calendar Year
Month of
Disposition19871988198919901991199219931994199519961997
Oct ‘9779.9579.99 82.5285.4688.8892.7696.76100.63104.47108.59112.52
Nov ‘9779.9579.7882.3085.2388.6592.5296.51100.38104.22108.38112.52
Dec ‘9779.9579.5782.0985.0188.4292.2896.26100.13103.99108.20112.52

1998–2 I.R.B5January 12, 1998
13, for dispositions occurring during cal-
endar year 1991;
Rev. Rul. 92–101, 1992–2 C.B. 9, for
dispositions occurring during calendar
year 1992; Rev. Rul 93–83, 1993–2 C.B.
6, for dispositions occurring during calen-
dar year 1993;
Rev. Rul. 94–71, 1994–2 C.B. 4, for
dispositions occurring during calendar
year 1994; and Rev. Rul. 95–83, 1995–2
C.B. 8, for dispositions occurring during
calendar year 1995.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Jack Malgeri of the Office of As-
sistant Chief Counsel (Passthroughs and
Special Industries). For further informa-
tion regarding this revenue ruling, contact
Mr. Malgeri at (202) 622-3040 (not a toll-
free call).
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term
rates are set forth for the month of January 1998. See
Rev. Rul. 98–4, page 18.
Section 382.—Limitation on Net
Operating Loss Carryforwards
and Certain Built-In Losses
Following Ownership Change
The adjusted federal long-term rate is set forth
for the month of January 1998. See Rev. Rul. 98–4,
page 18.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 1998. See Rev. Rul. 98–4, page 18.
Arevenue procedure describes certain changes to
the funding method used to determine the minimum
funding standard for defined benefit plans for plan
years beginning on or after January 1, 1998. See
Rev. Proc. 98–10, page 35.
Section 415. — Limitations on
Benefits and Contributions
Under Qualified Plans
(Also §417.)
Limitations on benefits and contri-
butions. Questions and answers on the
limitations on benefits and contributions
under section 415 of the Code, as
amended by the Uruguay Round Agree-
ments Act, and taking into account the ap-
plicable provisions of the Small Business
Job Protection Act of 1996, are set forth.
Rev. Rul. 98-1
This revenue ruling modifies and su-
persedes Rev. Rul. 95–29, 1995–1 C.B.
81, which provided questions and an-
swers on the limitations on benefits and
contributions under §415 of the Internal
Revenue Code (Code), as amended by the
Uruguay Round Agreements Act, Pub. L.
No. 103–465 (GATT), which includes the
Retirement Protection Act of 1994
(RPA’94). This revenue ruling takes into
account the applicable provisions of the
Small Business Job Protection Act of
1996, Pub. L. No. 104–188 (SBJPA), after
the technical correction made by the Tax-
payer Relief Act of 1997, Pub. L. No.
105–34 (TRA’97).
Until further guidance is issued, the
guidance provided by these questions and
answers may be relied on to administer
plans. If, and to the extent, future guid-
ance is more restrictive than the guidance
in this revenue ruling, the future guidance
will be applied without retroactive effect.
No inference should be drawn regarding
issues not raised that may be suggested by
a particular question and answer or as to
why certain questions, and not others, are
included.
Background
Section 415 provides that benefits ac-
crued or payable under a qualified defined
benefit plan may not exceed certain speci-
fied limitations. In general, annual bene-
fits are limited to the lesser of $90,000, as
adjusted for cost-of-living increases
($130,000 for 1998) and the 10-year
phase-in under §415(b)(5)(A) (the
Table 3
Rev. Rul. 98–3
Monthly Bond Factor Amounts for Dispositions Expressed As a Percentage of Total Credits
Calendar Year Building Placed in Service or, if Section 42(f)(1)
Election Was Made, the Succeeding Calendar Year
Month of
Disposition1987198819891990199119921993199419951996
Jan ’9682.7285.1887.8591.0094.7399.06103.57107.87111.88112.52
Feb ’9682.4784.9287.5890.7194.4298.71103.18107.41111.30112.52
Mar ’9682.2284.6687.3190.4394.1198.38102.80106.98110.81112.52
Apr ’9676.7678.2679.9181.9484.4387.3890.4093.1695.6197.21
May ’9676.5478.0379.6881.7184.1987.1290.1292.8695.3297.21
Jun ’9676.3277.8179.4681.4883.9586.8689.8592.5895.0697.21
Jul ’9681.0683.4786.0989.1692.7896.94101.25105.33109.16112.52
Aug ’9680.8483.2485.8588.9292.5296.67100.96105.04108.90112.52
Sep ’9680.6183.0185.6288.6892.2896.41100.68104.76108.66112.52
Oct ’9680.3982.7885.3988.4492.0396.15100.41104.49108.44112.52
Nov ’9680.1782.5685.1688.2191.8095.90100.16104.25108.24112.52
Dec ’9679.9682.3584.9587.9991.5795.6799.92104.02108.06112.52

January 12, 199861998–2 I.R.B.
§415(b) dollar limitation), or 100 percent
of the participant’s average compensation
for the participant’s high three consecu-
tive years, as adjusted for the 10-year
phase-in under §415(b)(5)(B) (the
§415(b) compensation limitation).
Section 415(b)(2)(B) provides, with
certain exceptions, that, if a benefit is
payable other than as an annual straight
life annuity, the benefit must be actuarially
adjusted to an equivalent annual straight
life annuity. Sections 415(b)(2)(C) and
(D) require that, if a benefit is payable be-
ginning at an age other than the partici-
pant’s social security retirement age
(SSRA), the §415(b) dollar limitation at
that age equals the annual benefit that is
actuarially equivalent to the §415(b) dol-
lar limitation at the participant’s SSRA.
Section 415(b)(2)(E) provides rules re-
garding the actuarial assumptions to be
used in making the adjustments required
under §§415(b)(2)(B), (C), and (D).
Section 415(b)(2)(E)(i) generally re-
quires that, for purposes of adjusting any
limitation or benefit under §415(b)(2)(B)
or (C), the interest rate assumption shall
not be less than the greater of 5 percent or
the rate specified in the plan. Section
415(b)(2)(E)(iii) generally requires that,
for purposes of adjusting any limitation
under §415(b)(2)(D), the interest rate as-
sumption shall not be greater than the
lesser of 5 percent or the rate specified in
the plan.
Section 417(e)(3) provides rules re-
garding the actuarial assumptions to be
used to determine the present value of a
participant’s accrued benefit.
Sections 415(b)(2)(E) and 417(e)(3) of
the Code were amended by §767 of
RPA’94. Section 767(a) provided a spe-
cific mortality table and changed the ap-
plicable interest rate that must be used to
determine the present value of a benefit
subject to §417(e)(3) (§417(e)(3)
changes). Section767(b) added §415(b)-
(2)(E)(v), which requires the mortality
table prescribed by the Secretary to be
used for adjusting any benefit or limita-
tion under §415(b)(2). Section 767(b)
also revised the interest rates used for ad-
justing a benefit or limitation in the case
of a form of benefit subject to §417(e)(3)
by inserting a new §415(b)(2)(E)(ii),
which required that in such a case the ap-
plicable interest rate be substituted for the
5 percent interest rate specified in
§415(b)(2)(E)(i).
The amendments made by §767(b) of
RPA’94 were modified by §1449 of
SBJPA. The amendments made by
§1449 of SBJPAare effective as if in-
cluded in §767 of RPA’94.
In general, §1449(a) of SBJPApro-
vides that, in the case of plans adopted
and in effect before December 8, 1994,
the provisions of §767(b) shall not be re-
quired to be applied with respect to bene-
fits accrued before the later of the date a
plan amendment applying the amend-
ments made by §767(b) is adopted or
made effective, but not later than the first
day of the first limitation year beginning
after1999. Section 1449(a) further pro-
vides that determinations under
§415(b)(2)(E) before such date are made
with respect to such benefits on the basis
of §415(b)(2)(E) and the provisions of
the plan as in effect on December7, 1994,
but only if such provisions of the plan
meet the requirements of §415 as in ef-
fect on December7, 1994. (Section
1604(b)(3) of TRA’97 deleted superflu-
ous parenthetical language from this
rule.) Section 1449(d) of SBJPAprovides
that if, within one year of the enactment
of SBJPA, an amendment made to con-
form the plan to the requirements of §767
of RPA’94 is repealed, the original
amendment is not taken into account for
purposes of applying §1449(a).
Section1449(b) of SBJPAamended
§415(b)(2)(E) to provide that in the case
of a form of benefit subject to §417(e)(3),
the applicable interest rate is substituted
for 5 percent solely for purposes of ad-
justing the benefit (and not for purposes
of adjusting the §415(b) dollar limita-
tion). Thus, regardless of the form of
benefit, the interest rate used to reduce the
§415(b) dollar limitation for benefits
payable before SSRAis determined under
the rules of §415(b)(2)(E)(i) (that is, it
cannot be less than the greater of 5 per-
cent or the rate specified in the plan).
Section 415(d)(1)(B) provides that the
§415(b) compensation limitation is ad-
justed annually for cost-of-living in-
creases in the case of participants who
have separated from service. Section 732
of GATTchanged the periods used to
compute increases in the cost of living for
purposes of these adjustments.
Rev. Rul. 95–29 provided guidance on
limitations on benefits and contributions
under §415 of the Code, as amended by
GATT, including RPA’94. This revenue
ruling modifies and supersedes Rev. Rul.
95–29.
Rev. Proc. 97–41, 1997–33 I.R.B. 51,
provides guidance to sponsors of plans
that are qualified under §401(a) of the
Code with respect to the date by which
they must adopt amendments to comply
with changes in the law made by GATT
and SBJPA.
Questions and Answers
The following terms are used in this
revenue ruling:
§ 415(b) compensation limitation. See
Background.
§ 415(b) dollar limitation. See Back-
ground.
§ 415(b)(2)(E) changes. See Q&A–1.
§ 417(e)(3) changes. See Background.
§ 1449(b) revisions. See Q&A–11.
Age-adjusted dollar limit. See
Q&A–7.
Applicable interest rate. See Q&A–4.
Applicable mortality table. See
Q&A–6.
Final implementation date. See
Q&A–12.
Old-law benefits. See Q&A–12.
Old-law limitations. See Q&A–13.
Participant’s freeze date. See Q&A–13.
Plan rate and plan mortality table. See
Q&A–7.
Repealing amendment. See Q&A–16.
RPA’94 § 415 effective date. See
Q&A–1.
(1) General Rules and Effective Dates
Q–1. When are the changes to §415(b)-
(2)(E) made by §767(b) of RPA’94
(§415(b)(2)(E) changes) effective?
A–1. Under §767(d)(1) of RPA’94, the
§415(b)(2)(E) changes are generally ef-
fective as of the first day of the first limi-
tation year beginning in 1995, except that
an employer may elect to treat the
§415(b)(2)(E) changes as being effective
on an earlier date that is on or after De-
cember 8, 1994. For purposes of this rev-
enue ruling, the date described in the pre-
ceding sentence is the RPA’94 §415
effective date.
Plan amendments that apply the
§415(b)(2)(E) changes must be effective
as of the RPA’94 §415 effective date.
However, §1449(a) of SBJPAprovides a

1998–2 I.R.B7January 12, 1998
rule under which the §415(b)(2)(E)
changes are not required to be applied to
certain benefits even after the RPA’94
§415 effective date. See Q&A–12.
Q–2.What plan benefits are subject to
the interest rate prescribed by §415(b)-
(2)(E)(ii)?
A–2. The interest rate prescribed by
§415(b)(2)(E)(ii) applies in the case of a
form of benefit subject to §417(e)(3).
See §417(e)(3) and the Income Tax Reg-
ulations thereunder to determine whether
a form of benefit is subject to §417(e)(3).
Q–3. Are plans that are not subject to
§417(e)(3) subject to the requirements
for assumptions under §§415(b)(2)(E)(ii)
and (v)?
A–3. Plans that are not subject to
§417(e)(3), such as governmental plans
and certain church plans, are not subject
to the interest rate requirement under
§415(b)(2)(E)(ii), but are subject to the
mortality table requirement under
§415(b)(2)(E)(v).
Q–4. What is the applicable interest
rate, as defined in §417(e)(3), as refer-
enced by §415(b)(2)(E)(ii)?
A–4. The regulations under §417(e)(3)
(currently §1.417(e)–1T(d)(3)(i)) provide
that the applicable interest rate under
§417(e)(3) is the annual interest rate on
30-year Treasury securities as specified
by the Commissioner.
Q–5. What is the time for determining
the applicable interest rate?
A-5. Aplan that has been amended to
reflect the §417(e)(3) changes must use
the same date for determining the applica-
ble interest rate for purposes of applying
the §415(b)(2)(E) changes as it uses for
purposes of §417(e)(3). Aplan that has
not yet been amended to reflect the
§417(e)(3) changes may use any date for
determining the applicable interest rate
for purposes of applying the §415(b)-
(2)(E) changes that is permitted under
§417(e)(3) and the regulations thereunder
(currently §1.417(e)–1T(d)-(4)) for use
in determining the applicable interest rate
for purposes of §417(e)(3).
Q–6. What mortality table must be
used to make adjustments to benefits and
limitations under §415(b)(2)(E)?
A–6. Section415(b)(2)(E)(v), added
by RPA’94, provides that, for purposes
of adjusting any benefit or limitation
under §415(b)(2)(B), (C), or (D), the
mortality table used shall be the table
prescribed by the Secretary. Rev. Rul.
95-6, 1995–1 C.B. 80, provides the mor-
tality table (applicable mortality table)
which generally must be used for these
purposes. For purposes of adjusting any
limitation under §415(b)(2)(C) or (D), to
the extent that a forfeiture does not occur
upon death, the mortality decrement may
be ignored prior to age 62 and must be ig-
nored after SSRA. See Q&AG–3 and
Q&AG–4 of Notice 83–10, 1983–1 C.B.
536.
Q–7. How are the §415(b) limitations
applied to a benefit under a defined bene-
fit plan that is not payable in the form of
an annual straight life annuity within the
meaning of §415(b)(2)(A) and that is not
subject to §417(e)(3)?
A–7. The determination as to whether
such a benefit satisfies the §415(b) limi-
tations generally is made by comparing
the equivalent annual benefit determined
in Step1 with the lesser of the age-ad-
justed dollar limit determined in Step2
and the §415(b) compensation limitation
determined in Step3.
Step 1: Under §415(b)(2)(B), determine
the annual benefit in the form of a straight
life annuity commencing at the same age
that is actuarially equivalent to the plan
benefit. In general, §§415(b)(2)(E)(i) and
(v) require that the equivalent annual bene-
fit be the greater of the equivalent annual
benefit computed using the interest rate
and mortality table, or tabular factor, speci-
fied in the plan for actuarial equivalence
for the particular form of benefit payable
(plan rate and plan mortality table, or plan
tabular factor, respectively) and the equiv-
alent annual benefit computed using a 5
percent interest rate assumption and the
applicable mortality table. This step does
not apply to a benefit that is not required to
be converted to a straight life annuity pur-
suant to §415(b)(2)(B) (for example, a
qualified joint and survivor annuity).
Step 2: Under §415(b)(2)(C) or (D),
determine the §415(b) dollar limitation
that applies at the age the benefit is
payable (age-adjusted dollar limit). The
age-adjusted dollar limit is the annual
benefit that is actuarially equivalent to an
annual benefit equal to the §415(b) dollar
limitation payable at the participant’s
SSRA.
If the age at which the benefit is
payable is 62 or greater, and less than the
participant’s SSRA, the age-adjusted dol-
lar limit is determined by reducing the
§415(b) dollar limitation at the partici-
pant’s SSRAusing adjustment factors that
are consistent with the factors used to re-
duce old-age insurance benefits under the
Social Security Act. Pursuant to Q&A–5
of Notice 87–21, 1987–1 C.B. 458, the
§415(b) dollar limitation at the partici-
pant’s SSRAis reduced by 5/9 of 1 per-
cent for each of the first 36 months by
which benefits commence before the
month in which the participant’s SSRAis
attained and by 5/12 of 1 percent for each
additional month.
If the age at which the benefit is
payable is less than 62, the age-adjusted
dollar limit is determined by reducing the
age-adjusted dollar limit at age 62 on an
actuarially equivalent basis. In general,
§§415(b)(2)(E)(i) and (v) require that the
reduced age-adjusted dollar limit be the
lesser of the equivalent amount computed
using the plan rate and plan mortality
table (or plan tabular factor) used for ac-
tuarial equivalence for early retirement
benefits under the plan and the amount
computed using 5 percent interest and the
applicable mortality table (used to the ex-
tent described in Q&A–6).
If the age at which the benefit is
payable is greater than the participant’s
SSRA, the age-adjusted dollar limit is de-
termined by increasing the §415(b) dollar
limitation at the participant’s SSRAon an
actuarially equivalent basis. In general,
§§415(b)(2)(E)(i) and (v) require that the
increased age-adjusted dollar limit be the
lesser of the equivalent amount computed
using the plan rate and plan mortality
table (or plan tabular factor) used for ac-
tuarial equivalence for late retirement
benefits under the plan and the equivalent
amount computed using 5 percent interest
and the applicable mortality table (used to
the extent described in Q&A–6).
Step 3: Determine the participant’s
§415(b) compensation limitation. This
limitation is equal to the participant’s
compensation averaged over the consecu-
tive three-year period producing the high-
est average, as provided in §415(b)(3).
The plan does not satisfy the §415(b)
limitations unless the equivalent annual
benefit determined in Step 1 is no greater
than the lesser of the age-adjusted dollar
limit determined in Step 2 and the
§415(b) compensation limitation deter-
mined in Step3.

January 12, 199881998–2 I.R.B.
Q–8. How is §415(b)(2)(B) applied to
a benefit under a defined benefit plan that
is in a form of benefit subject to
§417(e)(3)?
A–8. If a defined benefit plan provides
a benefit in a form that is subject to
§417(e)(3), the determination of the
equivalent annual benefit is the same as in
Q&A–7, Step 1, except that, under
§415(b)(2)(E)(ii), the applicable interest
rate is substituted for the 5 percent inter-
est rate under §415(b)(2)(E)(i). Thus, the
equivalent annual benefit must be the
greater of the equivalent annual benefit
computed using the plan rate and plan
mortality table (or plan tabular factor) and
the equivalent annual benefit computed
using the applicable interest rate and the
applicable mortality table.
Example: Plan Aprovides that single-
sum distributions are determined as the
actuarial present value of the annual
straight life annuity payable at the actual
retirement date. Plan Aprovides that a
participant’s single sum is determined as
the greater of the present value using 6
percent interest and the UP-1984 Mortal-
ity Table and the present value using the
applicable interest rate and applicable
mortality table. In accordance with
§417(e) and the regulations thereunder,
Plan Aprovides that the single sum is not
less than the actuarial present value of the
normal retirement benefit using the ap-
plicable interest rate and the applicable
mortality table. The plan has been
amended to apply the §415(b)(2)(E)
changes and, in accordance with that
amendment, the §415(b)(2)(E) changes
are applied to all accrued benefits for all
participants under the plan.
Participant M, whose SSRAis age 65,
retires at age 60 from Plan Aand elects to
receive a distribution in the form of a sin-
gle sum. Under the plan formula, and be-
fore the application of §415 under the
plan, the amount of the single sum is
$950,000, which is the present value of
the early retirement benefit based upon 6
percent interest and the UP-1984 mortal-
ity table. This benefit must be converted
to an actuarially equivalent straight life
annuity commencing at age 60 in order to
apply §415 under the plan. Assuming
that the plan’s applicable interest rate
under §417(e)(3) is 8 percent, the conver-
sion is made as follows:
First, divide $950,000 by an immediate
straight life annuity purchase rate at age
60 using the plan rate and plan mortality
table for determining single sums. Based
on 6 percent interest and the UP-1984
Mortality Table, the equivalent annual
benefit is $950,000/10.596, or $89,656.
Second, divide $950,000 by an immediate
straight life annuity purchase rate at age
60 using the applicable interest rate and
the applicable mortality table. Based on 8
percent interest and the applicable mortal-
ity table, the equivalent annual benefit is
$950,000/10.098, or $94,078. The equiv-
alent annual benefit for purposes of §415
is the greater of the two resulting
amounts, or $94,078.
Q–9. How is the age-adjusted dollar
limit determined under §415(b)(2)(C)
when a benefit is payable before SSRAin
a form subject to §417(e)(3)?
A–9. If a defined benefit plan provides
a form of benefit subject to §417(e)(3)
and the benefit is payable before a partici-
pant’s SSRA, the age-adjusted dollar limit
is determined in the same manner as in
Q&A–7, Step 2. Thus, the §415(b) dollar
limitation at the participant’s SSRAis re-
duced by 5/9 of 1 percent for each of the
first 36 months by which benefits com-
mence before the month in which the par-
ticipant’s SSRAis attained and by 5/12 of
1 percent for each additional month and,
if the age at which the benefit is payable
is less than 62, is further reduced in accor-
dance with §415(b)(2)(E)(i) and (v).
Example: Plan Adescribed in Q&A–8
also provides that early retirement annuity
benefits are equal to the normal form of
annuity benefit payable at age 65, reduced
by 4 percent for each year by which the
early retirement age is less than 65. Par-
ticipant M’s retirement age is age 60, and
Participant Mhas more than 10 years of
plan participation at age 60. The age-ad-
justed dollar limit at age 60 is computed
as follows:
The age-adjusted dollar limit at age 62
is determined by reducing the §415(b)
dollar limitation at SSRA(assumed to be
$125,000) by a factor of 5/9 of 1 percent
for 36 months. This results in an age-ad-
justed dollar limit of $100,000 at age 62,
which is further reduced as described
below.
First, using the plan tabular factor for
early retirement reductions of 4 percent
per year, the benefit adjustment factor at
age 62 would be 88 percent (100%-
(4%x3)). At age 60, the factor would be
80 percent (100%-(4%x5)). Accord-
ingly, the actuarially equivalent benefit at
age 60 reduced in accordance with plan
factors is equal to $100,000x80%/88%,
or $90,909.
Second, even though Participant M’s
distribution is in the form of a single sum
which is subject to §417(e)(3), the age-
adjusted dollar limit at age 62 is now re-
duced using an interest rate of 5 percent
and the applicable mortality table. As-
suming no mortality decrement is applied
prior to age 62 (which is permitted be-
cause plan benefits are not subject to for-
feiture upon death prior to the annuity
starting date), the actuarially equivalent
benefit at age 60 is $86,661.
The age-adjusted dollar limit at age 60
is the lesser of $90,909 and $86,661, or
$86,661. Because the equivalent annual
benefit of $94,078 exceeds the age-ad-
justed dollar limit at age 60, the single-
sum benefit determined in Q&A-8 does
not satisfy the §415(b) limitations.
Q–10. Does a plan amendment that ap-
plies the §415(b)(2)(E) changes violate
§411(d)(6)?
A–10. In general, a plan amendment
that changes the interest rate or mortality
table taken into account in determining a
participant’s accrued benefit is subject to
the anti-cutback rules under §411(d)(6)
of the Code. However, under § 767(d)(2)
of RPA’94, a participant’s accrued bene-
fit is not considered to be reduced in vio-
lation of §411(d)(6) merely because the
plan is amended to apply the
§415(b)(2)(E) changes. Therefore, a plan
amendment that merely applies the
§415(b)(2)(E) changes will not violate
§411(d)(6) even if the amendment ap-
plies those changes to previously accrued
benefits, including benefits accrued be-
fore the RPA’94 §415 effective date.
Similarly, a plan amendment that merely
applies the §415(b)(2)(E) changes will
not violate §411(d)(6) even if the amend-
ment applies those changes to distribu-
tions made on or after the RPA’94 §415
effective date and before the amendment.
In addition, an amendment that merely re-
peals an original §415(b)(2)(E) amend-
ment, as described in Q&A-16, will be
treated as an amendment to apply the
§415(b)(2)(E) changes for purposes of
§767(d)(2) and, therefore, will not violate
§411(d)(6).
Q–11. How is the relief provided under
§767(d)(2) of RPA’94 affected by the
retroactive amendment to §415(b)(2)(E)

1998–2 I.R.B9January 12, 1998
made by §1449(b) of SBJPA(the
§1449(b) revisions)?
A–11. As described in Q&A-10, the
§411(d)(6) relief provided by §767(d)(2)
applies only to the extent that a reduction
in accrued benefits results from a plan
amendment that merely applies the
§415(b)(2)(E) changes. For this purpose,
a plan amendment is considered to apply
the §415(b)(2)(E) changes only if either
the plan, as amended, reflects the
§1449(b) revisions for all distributions
for periods on and after the RPA’94 §415
effective date or the plan, as amended, re-
flects the §1449(b) revisions for all distri-
butions for periods after August 20,1996.
Thus, the relief under §767(d)(2) does
not apply to a plan amendment that fails
to reflect the §1449(b) revisions for dis-
tributions for periods after Au-
gust20,1996. Consequently, a plan that
has been amended to apply the
§415(b)(2)(E) changes without regard to
the §1449(b) revisions must be further
amended, within the remedial amendment
period under §401(b) for disqualifying
provisions under SBJPAand GATT, to re-
flect the §1449(b) revisions (that is, it
must use the greater of 5 percent and the
plan rate in determining the age-adjusted
dollar limit for early retirement) for distri-
butions for periods after August 20, 1996.
As described in Q&A-18, plan operations
must be conformed to the terms of the
plan. Accordingly, distributions for peri-
ods on or after the RPA’94 §415 effec-
tive date may have to be redetermined.
(2) Transition Rules
Q–12. Must the §415(b)(2)(E) changes
be applied to all benefits under the plan
on and after the RPA’94 §415 effective
date?
A–12. The §415(b)(2)(E) changes gen-
erally must be applied to all benefits
under the plan on and after the RPA’94
§415 effective date, or, if later, the date
the plan becomes effective. However,
under §767(d)(3)(A) of RPA’94, as
amended by §1449(a) of SBJPA, a plan
adopted and in effect before December 8,
1994, may provide that the §415(b)(2)(E)
changes do not apply with respect to ben-
efits accrued before the earlier of (i) the
later of the date a plan amendment apply-
ing the §415(b)(2)(E) changes is adopted
or made effective, or (ii) the first day of
the first limitation year beginning after
December31,1999. For purposes of this
revenue ruling, the date described in the
preceding sentence (the earlier of the
dates described in (i) and (ii)) is referred
to as the final implementation date, and
the benefits to which the §415(b)(2)(E)
changes are not applied are referred to as
old-law benefits. For purposes of deter-
mining the final implementation date, the
date in (i) above that a plan amendment
applying the §415(b)(2)(E) changes is
made effective is the earliest date as of
which, under the amendment, the
§415(b)(2)(E) changes apply to all bene-
fits accruing for the participants under the
plan.
Any amendment that provides that the
§415(b)(2)(E) changes will not apply to
certain benefits must be adopted prior to
the end of the remedial amendment period
under §401(b) for disqualifying provi-
sions under SBJPAand GATT. In addi-
tion, except where an employer makes a
repealing amendment under Q&A–16,
once the final implementation date for a
plan resulting from any plan amendment
implementing the §415(b)(2)(E) changes
has passed, the extent to which the
§415(b)(2)(E) changes are not applied to
certain benefits may not be changed.
Q–13. How is a participant’s old-law
benefit determined?
A–13. Aparticipant’s old-law benefit is
determined as of a date specified in the
plan for the participant (participant’s
freeze date) that is before the final imple-
mentation date. The plan may provide
that the freeze date for all participants is
the day before the final implementation
date for the plan. Alternatively, the plan
may specify an earlier date as the freeze
date for some or all participants. The par-
ticipant’s old-law benefit is determined
for each possible annuity starting date and
optional form of benefit based on the par-
ticipant’s accrued benefit under the terms
of the plan as of the participant’s freeze
date, after applying §415 as in effect on
December 7, 1994 (old-law limitations),
including the participation requirements
under §415(b)(5).
Under the second sentence of
§767(d)(3)(A) of RPA’94 (as amended
by SBJPA), before the final implementa-
tion date the old-law limitations are ap-
plied using all plan terms that were in ef-
fect on December 7, 1994 (that is, without
regard to amendments made after Decem-
ber 7, 1994) and that are relevant in deter-
mining actuarial equivalence under
§415(b)(2)(E). Therefore, except as pro-
vided in Q&A-15, in order to determine
the old-law benefit, the §415(b) limita-
tions must be applied using the plan’s
mortality table as in effect on December
7, 1994 and, except as provided in
§415(b)(2)(D), an interest rate that is no
less than the greater of 5 percent or the
plan rate as in effect on December 7, 1994
to determine actuarial equivalence. If, as
of December 7, 1994, the plan rate for a
particular optional form of benefit was a
variable interest rate, the plan rate that
would be compared to 5 percent is the
value of the variable rate at the time the
old-law limitations are applied, not the
value of the variable rate on December 7,
1994.
Except as provided in Q&A–15, plan
amendments that are adopted after the par-
ticipant’s freeze date are not taken into ac-
count in determining the old-law benefit,
and the old-law benefit is determined
without regard to cost-of-living adjust-
ments that become effective under
§415(d) after the participant’s freeze date.
Example: Plan Bhas a calendar plan
year and limitation year. Nis currently a
participant in Plan Band has never partic-
ipated in any other plan. Plan Bis
amended on December 1, 1998, to apply
the §415(b)(2)(E) changes. As amended,
the plan specifies that the §415(b)(2)(E)
changes will not apply to benefits accrued
as of December 31, 1997 (that is, Decem-
ber 31, 1997, is the freeze date for all par-
ticipants). Thus, any optional form of
benefit provided under the plan as of the
freeze date (taking into account the old-
law limitations) is an old-law benefit. As
of December 7, 1994, the plan provides
the normal retirement benefit in the form
of a straight life annuity beginning at age
65. Early retirement benefits are avail-
able at any age on or after age 60 with an
actuarial reduction. The plan rate and the
plan mortality table used for the reduction
are 5 percent and the UP-1984 Mortality
Table, respectively.
Under the plan, single-sum distribu-
tions are available at any permitted retire-
ment age. Single-sum distributions are
calculated as the actuarial present value of
the straight life annuity benefit payable at
the actual retirement age using the PBGC
immediate interest rate and the UP-1984

January 12, 1998101998–2 I.R.B.
Mortality Table. In accordance with
§417(e) and the regulations thereunder,
the plan further provides that any single-
sum distribution must be at least as great
as the actuarial present value of the partic-
ipant’s accrued normal retirement benefit
computed using the PBGC interest rates
for deferred annuities and the UP–1984
Mortality Table. The plan has not been
amended to change the interest rate or
mortality table used for determining sin-
gle-sum benefits or early retirement reduc-
tions at any time after December 7, 1994.
There is no forfeiture of accrued bene-
fits under the plan on account of death
prior to the annuity starting date. Under
the plan, the §415(b) limitations are ap-
plied only after the otherwise determined
benefit has been adjusted for early retire-
ment and for any optional form of benefit,
and the mortality decrement is ignored
prior to age 62.
Participant N’s SSRAis 65. As of the
freeze date, Participant Nhas 10 years of
participation in the plan. Under the plan
formula as of N’s freeze date, Participant
N’s accrued benefit payable at normal re-
tirement age (before the application of
§415 under the plan) is $110,000.
If Participant Nwere to retire in 1999 at
age 60 and to elect, with spousal consent,
to receive a distribution in the form of a
single sum, then Participant N’s single-
sum distribution at retirement (before the
application of §415 under the plan)
would equal the single-sum equivalent of
the early retirement annuity benefit under
the terms of the plan. Participant N’s
early retirement benefit accrued as of N’s
freeze date and payable at age 60, deter-
mined using the plan rate and plan mortal-
ity table, is $75,242. Under the plan, the
single-sum distribution at age 60 (before
the application of §415 under the plan),
which is based on the immediate annuity
of $75,242, the PBGC immediate rate of 6
percent, and the UP-1984 Mortality
Table, is $797,264.
The old-law limitations must now be
applied under the plan to determine the
old-law benefit for any optional form of
benefit elected by N. In this case, the plan
rate used to determine single sums is the
PBGC immediate rate of 6 percent and
the plan mortality table is the UP-1984
Mortality Table. The age-adjusted dollar
limit at age 60 determined on the basis of
§415(b)(2)(E) as in effect on December
7, 1994 (using 5 percent interest and the
UP-1984 Mortality Table) and without
taking into account cost-of-living in-
creases under §415(d) after the freeze
date is $86,143. Because $75,242 (the
annual benefit payable at age 60 that is
actuarially equivalent to $797,264, deter-
mined on the basis of §415(b)(2)(E) as in
effect on December 7, 1994) does not ex-
ceed $86,143, the single-sum old-law
benefit is $797,264.
Alternatively, if Nwere to elect to re-
ceive a distribution in the form of a
straight life annuity commencing at age
60, then the old-law benefit for that op-
tional form would be $75,242 because
that amount does not exceed the age-ad-
justed dollar limit of $86,143.
Q–14. How are the §415(b) limitations
applied to a benefit under a defined bene-
fit plan if the §415(b)(2)(E) changes are
not applied to the old-law benefits?
A–14. If the §415(b)(2)(E) changes are
not applied to old-law benefits, the plan
can apply the §415(b) limitations using
one of three methods as outlined below.
The plan must specify which of the three
methods is being used.
Method 1: Under this method, the plan
applies the §415(b) limitations using the
steps in Q&A–7, and, if applicable,
Q&A–8, except that, if the benefit is not
payable in the form of an annual benefit
within the meaning of §415(b)(2)(A), the
equivalent annual benefit determined in
Step 1 is computed separately with re-
spect to the old-law benefit (not to exceed
the total plan benefit) and the portion of
the total plan benefit that exceeds the old-
law benefit. The annual benefit that is
equivalent to the old-law benefit is deter-
mined in accordance with §415(b)(2)(E)
as in effect on December 7, 1994. The
determination of the annual benefit that is
equivalent to the portion of the plan bene-
fit that is in excess of the old-law benefit
must reflect the §415(b)(2)(E) changes.
The results of these two separate compu-
tations are added together to determine
the equivalent annual benefit, which is
then used in the remaining steps in
Q&A–7.
In accordance with § 767(d)(3)(A) as
amended by SBJPA, if the determination
is being made before the final implemen-
tation date, then the plan rate and plan
mortality table used to determine the an-
nual benefit that is equivalent to the old-
law benefit are based on the plan provi-
sions in effect on December 7, 1994. By
contrast, if the determination is being
made on or after the final implementation
date, then the plan rate and plan mortality
table used to determine the annual benefit
that is equivalent to the old-law benefit
are based on the plan provisions in effect
on the date of determination.
In some cases, the use of the applicable
mortality table in adjusting the §415(b)
dollar limitation under §415(b)(2)(C) or
(D) can result in an age-adjusted dollar
limit lower than the age-adjusted dollar
limit used in determining the old-law ben-
efit. Aplan using Method 1 may provide
that in any event the participant will re-
ceive no less than the old-law benefit,
limited to the extent required under
Q&A–15.
Method 2: Under this method, the plan
applies the §415(b) limitations, using the
steps in Q&A–7 and, if applicable,
Q&A–8, to the total plan benefit, but pro-
vides that in any event the participant will
receive no less than the old-law benefit,
limited to the extent required under
Q&A–15.
Method 3: Under this method, the plan
applies the §415(b) limitations by limit-
ing a benefit only to the extent needed to
satisfy either Method1 or Method2 de-
scribed above.
The following examples illustrate the
application of Method1, Method2, and
Method3, respectively, of this Q&A–14.
Example 1: The facts with respect to
Plan Band Participant Nare as described
in the example under Q&A-13. In addi-
tion, before applying §415 under the
plan, N’s total single-sum benefit payable
at age 60 under Plan Bis $950,000. This
amount is the present value of N’s straight
life annuity benefit commencing under
Plan Bat age 60 and computed using the
PBGC immediate rate of 6 percent and
UP–1984 Mortality Table. The applicable
interest rate under §417(e)(3) and PlanB
is 8 percent.
Plan Bprovides that the §415(b)(2)(E)
changes will not apply to benefits accrued
through December 31, 1997, in accor-
dance with Method 1. In addition, as al-
lowed by Method1, Plan Bprovides that
in any event a participant will receive no
less than the benefits accrued through De-
cember31,1997, limited to the extent re-
quired under Q&A–15.

1998–2 I.R.B11January 12, 1998
Under Plan B’s terms, the §415(b) lim-
itations are applied to N’s benefit using
the steps in Q&A–7 (as modified in ac-
cordance with Q&A–8 for distributions
subject to §417(e)(3)), except that the
equivalent annual benefit determined in
accordance with Step 1 of Q&A–7 is
computed separately with respect to N’s
single-sum old-law benefit and the por-
tion of N’s total single-sum benefit that
exceeds the single-sum old-law benefit,
and these two amounts are added together
to determine N’s total equivalent annual
benefit.
First, the annual benefit payable at age
60 that is actuarially equivalent to N’s sin-
gle-sum old-law benefit of $797,264 is
determined on the basis of §415(b)(2)(E)
as in effect on December 7, 1994. If the
determination were before the final im-
plementation date, all plan terms in effect
on December 7, 1994 that are relevant in
determining actuarial equivalence under
§415(b)(2)(E) would be used. In this
case, the §415(b)(2)(E) changes apply to
benefits accruing for all participants
under the plan on and after January 1,
1998. Consequently, the date the plan
amendment applying §415(b)(2)(E)
changes is made effective (within the
meaning of Q&A–12) is January 1, 1998,
and the final implementation date (based
on the later of the date the plan amend-
ment is adopted or made effective) is De-
cember 1, 1998.
Because the determination is being
made in 1999, which is on or after the
final implementation date, actuarial
equivalence is determined taking into ac-
count any amendments that affect the plan
rate and plan mortality table that are
adopted or become effective after Decem-
ber 7, 1994. However, in this case there
have been no amendments after Decem-
ber 7, 1994, and the interest rate used for
purposes of this adjustment is the greater
of the plan rate for determining single
sums (6 percent) or 5 percent. The mor-
tality table used is the plan mortality table
for determining single sums (UP–1984
Mortality Table). The equivalent annual
benefit is $75,242.
Next, the annual benefit payable at age
60 that is actuarially equivalent to the por-
tion of N’s total single-sum benefit of
$950,000 that exceeds $797,264, or
$152,736, is determined taking into ac-
count the §415(b)(2)(E) changes. For
this purpose, $152,736 is first converted
to an equivalent annual benefit using the
plan rate (6 percent) and the plan mortal-
ity table (UP–1984 Mortality Table). On
this basis, the equivalent annual benefit is
$14,415. The additional $152,736 is also
converted to an equivalent annual benefit
using the applicable interest rate (8 per-
cent) and the applicable mortality table.
On this basis, the equivalent annual bene-
fit is $15,125. Under Plan B, the annual
benefit that is equivalent to $152,736 for
purposes of §415 is the greater of
$14,415 and $15,125, or $15,125. Thus,
the annual benefit that is equivalent to the
total single sum of $950,000 for purposes
of §415 is $15,125 plus $75,242, or
$90,367.
Next, the age-adjusted dollar limit at
age 60 is determined taking the
§415(b)(2)(E) changes into account. As-
suming that the §415(b) dollar limitation
effective for the 1999 calendar year is
$130,000, the age-adjusted dollar limit at
age 60 is the lesser of the benefit that is
actuarially equivalent to the age-adjusted
dollar limit at age 62 ($104,000) com-
puted using the plan rate and the plan
mortality table for making early retire-
ment adjustments (5 percent and
UP–1984 Mortality Table, respectively),
or $89,588, and the benefit computed
using 5 percent and the applicable mortal-
ity table, or $90,127. Thus, N’s age-ad-
justed dollar limit at age 60 under Plan B
is the lesser of $89,588 and $90,127, or
$89,588.
Because N’s total single-sum benefit is
greater than the single-sum old-law bene-
fit and because the equivalent annual ben-
efit ($90,367) exceeds the age-adjusted
dollar limit ($89,588), N’s single-sum
benefit under Plan Bmust be limited to
$942,130 ($797,264 + ($89,588 -
$75,242) x 10.098) in order to satisfy the
§415(b) limitations.
Example 2: The facts are the same as in
Example 1, except that the plan provides
that the §415(b)(2)(E) changes will apply
to the total plan benefit, but that in any
event the participant will receive no less
than the old-law benefit, limited to the ex-
tent provided in Q&A–15, in accordance
with Method 2.
Under Plan B’s terms, the §415(b) lim-
itations are applied to N’s benefit using
the steps in Q&A–7 (as modified in ac-
cordance with Q&A–8 for distributions
subject to §417(e)(3)). Thus, the
$950,000 single-sum benefit is first con-
verted to an equivalent annual benefit
using the plan rate and plan mortality
table for determining single sums (6 per-
cent and UP–1984 Mortality Table, re-
spectively). On this basis, the equivalent
annual benefit is $89,656. The $950,000
single-sum benefit is then converted to an
equivalent annual benefit using the ap-
plicable interest rate (8 percent) and the
applicable mortality table. On this basis,
the equivalent annual benefit is $94,078.
Under Plan B, the annual benefit that is
equivalent to $950,000 for purposes of
§415 is the greater of these two amounts,
or $94,078.
As derived in Example 1 above, the
age-adjusted dollar limit at age 60 is
$89,588. Because the equivalent annual
annuity ($94,078) exceeds this amount
and because the total single-sum benefit
exceeds the single-sum old-law benefit,
the total single-sum benefit must be lim-
ited to $904,660 ($89,588 x 10.098) in
order to satisfy the §415(b) limitations.
Example 3: The facts are the same as in
Example 1, except that the plan provides
that, in accordance with Method 3, a ben-
efit is limited only to the extent necessary
to satisfy the §415(b) limitations using
either Method1 or Method2.
In the case of Participant N, the maxi-
mum benefit that satisfies the § 415(b)
limitations using Method1 is $942,130,
and the maximum benefit that satisfies the
§415(b) limitations using Method2 is
$904,660. Thus, the maximum benefit
that satisfies the §415(b) limitations de-
termined in accordance with Method 3 is
$942,130.
Q–15. Under what circumstances does
a participant’s old-law benefit change
after the participant’s freeze date?
A–15. Aparticipant’s old-law benefit
cannot increase after the participant’s
freeze date. However, for any date after
the participant’s freeze date, the partici-
pant’s old-law benefit must be limited if
the old-law limitations as of that later date
are less than the old-law benefit deter-
mined as of the participant’s freeze date.
For example, if, after the freeze date, an-
nual additions are credited to a partici-
pant’s account in an existing defined con-
tribution plan of the same employer for a
limitation year beginning before
January1,2000, increases in that partici-

January 12, 1998121998–2 I.R.B.
pant’s defined contribution fraction could
result in changes in the defined benefit
fraction that would require a further limi-
tation of the old-law benefit (depending
on the terms of the plans).
Similarly, on or after the final imple-
mentation date, the determinations of ac-
tuarial equivalence under §415(b)(2)(E)
that apply with respect to the old-law ben-
efit must take into account any changes in
plan terms that occur after Decem-
ber7,1994, that are relevant in applying
the old-law limitations. If the equivalent
annual benefit determined in this manner
exceeds the age-adjusted dollar limit, the
old-law benefit must be limited accord-
ingly.
Finally, the old-law benefit is limited to
the extent that the total plan benefit deter-
mined before applying §415 under the
plan is smaller than the old-law benefit.
This could happen, for example, if the
plan is amended to change the interest
rate generally used to apply §417(e)(3) in
a way that would reduce a participant’s
total plan benefit, even if the amendment
occurs after the participant’s freeze date.
Example 1: As of December 7, 1994,
Plan Cprovided that single-sum distribu-
tions were determined using the PBGC
interest rates and the UP-1984 Mortality
Table. Plan Calso provided that, for pur-
poses of computing the §415(b) limita-
tions, an interest rate equal to the greater
of 5 percent or the applicable PBGC inter-
est rate would be used with the UP–1984
Mortality Table. Under Plan C, the
§415(b) limitations are applied only after
the otherwise determined benefit has been
adjusted for early retirement and for any
optional form of benefit.
In order to reflect the §417(e)(3)
changes, Plan Cis amended on January 1,
1996, effective as of that date, to substi-
tute the applicable interest rate and the ap-
plicable mortality table for the original
plan rate and the UP-1984 Mortality
Table, respectively, to compute single-
sum benefits under the plan. These new
provisions are applied to all plan benefits
(as determined before applying §415
under the plan), whether accrued before
or after the amendment date.
Plan Cis amended July 1, 1999, to
apply the §415(b)(2)(E) changes. Plan
C’s terms as amended provide that the
§415(b)(2)(E) changes will not apply
to any benefits accrued under the plan as
of December 31, 1999. Thus, the freeze
date for all participants in the plan is De-
cember 31, 1999, and the final implemen-
tation date for Plan Cis January 1, 2000.
Because the January 1, 1996 amend-
ment applying the §417(e)(3) changes is
effective before the freeze date, it will be
taken into account in determining plan
benefits before applying §415. However,
that amendment will not be taken into ac-
count in applying the old-law limitations
to determine the old-law benefit until the
final implementation date. Accordingly,
in order to apply the old-law limitations to
determine the old-law benefit before the
final implementation date, the interest
rate used to convert a single-sum benefit
to an actuarially equivalent straight life
annuity is the greater of 5 percent and the
original plan rate.
Plan amendments made after Decem-
ber 7, 1994, including the January 1, 1996
amendment to use the applicable interest
rate in determining equivalent single
sums for all accrued benefits, must be
taken into account in applying the old-law
limitations on or after the final implemen-
tation date. Therefore, on or after the
final implementation date, in determining
the equivalent annual benefit under
§415(b)(2)(B), the interest rate used is
the greater of 5 percent and the new plan
rate under the amendment (the applicable
interest rate). If the new plan rate exceeds
the greater of 5 percent and the original
plan rate, the old-law benefit, determined
as of the freeze date, might exceed the
old-law limitations when those limitations
are applied on or after the final implemen-
tation date. In such a case, the old-law
benefit must be further limited in order to
ensure that the old-law benefit does not
exceed the old-law limitations.
Example 2:The facts are the same as in
Example 1, except that the freeze date for
a Participant Pis December 31, 1994.
Participant P’s benefits are being deter-
mined as of December31, 1996. As a re-
sult of the January1, 1996 amendment,
before applying §415 under the plan, P’s
total plan benefit as of December31,
1996 (which includes accruals after the
freeze date) is smaller than P’s old-law
benefit. Therefore, the old-law benefit
must be limited so that it does not exceed
the total plan benefit. Although, as de-
scribed in Example1, the January1, 1996
plan amendment is not taken into account
in applying the old-law limitations until
the final implementation date of Janu-
ary1, 2000, the reduction in the total plan
benefit resulting from the January1, 1996
amendment is taken into account immedi-
ately for purposes of determining old-law
benefits.
Example 3: As of December7, 1994,
Plan Dprovided that single-sum benefits
were determined using the lesser of 6 per-
cent and the PBGC interest rate, and the
UP–1984 Mortality Table. Plan Dalso
provided that for purposes of computing
benefit adjustments under §415, an inter-
est rate equal to the greater of 5 percent
and the lesser of 6 percent or the PBGC
interest rate would be used with the UP-
1984 Mortality Table.
In order to reflect the §417(e)(3)
changes, Plan Dis amended on Decem-
ber1, 1996 to substitute the applicable in-
terest rate and the applicable mortality
table for the PBGC interest rate and the
UP-1984 Mortality Table, respectively,
but only with respect to benefits accruing
after December 31, 1996. Plan Dis
amended July1, 1999 to apply the §
415(b)(2)(E) changes. Plan D’s terms as
amended provide that the §415(b)(2)(E)
changes will not apply to any benefits ac-
crued under the plan as of December31,
1994. Thus, the final implementation
date for Plan Dis July1, 1999.
Because the amendment to reflect the
§417(e)(3) changes only applies with re-
spect to benefits accruing after
December1, 1996, it has no effect on the
plan rate and plan mortality table used
with respect to benefits accrued under
Plan Das of the freeze date (December31,
1994). Thus, even on or after the final im-
plementation date, when the plan rate and
plan mortality table must be determined
taking into account plan amendments
made after December7, 1994, the plan
rate and plan mortality table that are used
to apply the old-law limitations will be un-
affected by the December1, 1996 amend-
ment to reflect the §417(e)(3) changes,
and the old-law benefit will not have to be
limited because of that amendment.
(3) Plan Amendments and Operational
Compliance Issues
Q–16. How does an employer apply the
transitional rule of §1449(d) of SBJPAto
a plan that was amended on or before Au-
gust20, 1996, to apply §767 of RPA’94?
A–16. Section 1449(d) of SBJPApro-

1998–2 I.R.B13January 12, 1998
vides that, if a plan amendment to apply
the §415(b)(2)(E) changes (original
amendment) was adopted or made effec-
tive on or before August20,1996, the em-
ployer could adopt another amendment
(repealing amendment) to repeal the orig-
inal amendment, and the original amend-
ment would not be taken into account in
applying §767(d)(3)(A) of RPA’94 as re-
vised by §1449(a) of SBJPA. Pursuant to
section7 of Rev. Proc. 97–41, an original
amendment is not taken into account in
applying §767(d)(3)(A) of RPA’94 as re-
vised by §1449(a) of SBJPAif a repeal-
ing amendment is adopted on or before
the last day of the plan’s remedial amend-
ment period under §401(b) for disquali-
fying provisions under SBJPAand GATT.
Thus, an employer adopting a repealing
amendment to a plan has the same options
for that plan as an employer that has not
made any plan amendments to apply the
§415(b)(2)(E) changes.
Q–17. When must qualified plans be
amended to apply the §415(b)(2)(E)
changes?
A–17. Under section6 of Rev.
Proc.97–41, plan amendments to apply
the §415(b)(2)(E) changes must be
adopted by the last day of the plan’s reme-
dial amendment period under §401(b) for
disqualifying provisions under SBJPA
and GATT. For plans other than govern-
mental plans, section6 of Rev. Proc. 97-
41 extended the remedial amendment pe-
riod to the last day of the first plan year
beginning on or after January1, 1999.
For governmental plans, the remedial
amendment period is extended to a later
date.
Under section9 of Rev. Proc. 97–41, if
a plan terminates prior to the date amend-
ments otherwise must be adopted, the
plan must be amended to conform to the
applicable §415(b)(2)(E) changes in con-
nection with that termination.
Q–18. Must a plan amendment to apply
the §415(b)(2)(E) changes conform the
terms of the plan to the plan’s operation
prior to the date the plan is amended?
A–18. No. Except as discussed below,
an employer may amend its plan within
the remedial amendment period described
in Q&A–17 to apply the §415(b)(2)(E)
changes in any manner permitted under
this revenue ruling (including an amend-
ment to provide that the §415(b)(2)(E)
changes will not apply to certain bene-
fits), regardless of whether the amend-
ment is consistent with the plan’s opera-
tion prior to the date the plan is amended.
However, this remedial amendment pe-
riod is available only if, in accordance
with §401(b) and the regulations thereun-
der, all of the provisions of the plan
needed to satisfy the qualification require-
ments are in effect by the end of the reme-
dial amendment period and have been
made effective for all purposes for the en-
tire period (that is, beginning with the
RPA’94 §415 effective date). Thus, plan
operations (including prior distributions
from the plan) must be changed to the ex-
tent necessary to conform the operations
retroactively to the terms of the plan as
retroactively amended for the §415(b)-
(2)(E) changes, including, for example,
plan terms that implement the §1449(b)
revisions under Q&A-11.
The following are examples of plan
amendments that apply the §415(b)(2)(E)
changes and their effects on prior distrib-
utions.
Example 1: Employer Xmaintains Plan
E, a qualified defined benefit plan that
was adopted and effective on January 1,
1985. The plan year and the limitation
year for Plan Eare the calendar year. In
making distributions for periods after Jan-
uary1,1995, and before August20, 1996,
Employer Xapplied the §415(b)(2)(E)
changes, but did not reduce a participant’s
benefit below the participant’s accrued
benefit as of December 31, 1994.
Plan Eis amended on Decem-
ber1,1999, effective on January1,1995,
to apply the § 415(b)(2)(E) changes. The
amendment further provides that the
§ 415(b)(2)(E) changes do not apply to
any benefits accrued before Janu-
ary1,2000, in accordance with Method2
of Q&A–14. Therefore, the amendment
to apply the §415(b)(2)(E) changes is
made effective (within the meaning of
Q&A–12) on January1, 2000, and Plan E
has a final implementation date of Janu-
ary1, 2000.
Under §767(d)(3)(A), determinations
under §415(b)(2)(E) with respect to old-
law benefits made before January1,2000,
are based on §415(b)(2)(E) and plan
terms as in effect on December7,1994.
Plan operations must be retroactively con-
formed to the terms of the plan as retroac-
tively amended. Therefore, distributions
made from Plan Ebetween January1,
1995 and August20, 1996 must be rede-
termined to reflect the freeze date used in
the December 1, 1999 amendment.
Example 2: Employer Ymaintains Plan
F, a qualified defined benefit plan that
was adopted and effective on January1,
1985. The plan year and the limitation
year for Plan Fare the calendar year. In
making distributions for periods after Jan-
uary1,1995, including distributions for
periods after August20, 1996, Employer
Yapplied the §415(b)(2)(E) changes
using §415(b)(2)(E)(ii) as amended by
RPA’94, but did not take the §1449(b)
revisions into account.
Plan Fis amended on Novem-
ber1,1999, effective on January1,1995,
to apply the §415(b)(2)(E) changes. The
amendment provides, that for distribu-
tions for periods after January1, 1995,
and on or before August20, 1996, in the
case of a form of benefit subject to
§417(e)(3), the applicable interest rate is
substituted for 5 percent in determining
the age-adjusted dollar limits. For distrib-
utions for periods after August20, 1996,
the amendment reflects the §1449(b) re-
visions. In accordance with Method2 of
Q&A–14, the amendment further pro-
vides that the benefits of any current or
former participant shall not be reduced
below the participant’s accrued benefit as
of December31,1994. Therefore, the
amendment adopted November1, 1999 to
apply the §415(b)(2)(E) changes is made
effective (within the meaning of
Q&A–12) on January1, 1995, and Plan F
has a final implementation date of No-
vember1, 1999.
Plan operations (including distributions
made from Plan Fon or after the RPA’94
§ 415 effective date) must be retroactively
conformed to the terms of the plan as
retroactively amended. In this case, dis-
tributions from Plan Fmade before the
amendment conform to the terms of the
plan except to the extent that distributions
for periods after August20, 1996 did not
reflect the §1449(b) revisions. Such dis-
tributions will have to be redetermined.
Example 3: Employer Zmaintains Plan
G, a qualified defined benefit plan that
was adopted and effective on January 1,
1982. The plan year and limitation year
are the calendar year. Plan Gis amended
on March 1,1998, effective on January 1,
1995, to apply the §415(b)(2)(E)
changes. The amendment provides that in

January 12, 1998141998–2 I.R.B.
the case of participants who terminate be-
fore February 1, 1998, the § 415(b)(2)(E)
changes do not apply to benefits accrued
before January1,1995, in accordance
with Method 2 of Q&A–14. The amend-
ment further provides that in the case of
participants who have an hour of service
on or after February1, 1998, the §415(b)-
(2)(E) changes do not apply to benefits
accrued before January1,1999, in accor-
dance with Method1 of Q&A–14. In
making distributions since Janu-
ary1,1995, Employer Zapplied the
§415(b)(2)(E) changes, but did not re-
duce the participant’s benefit below the
participant’s accrued benefit as of Decem-
ber31,1994.
Plan operations (including distributions
made from Plan Gon or after the RPA’94
§415 effective date) must be retroactively
conformed to apply the plan terms as
retroactively amended. In the case of
Plan G, distributions made for partici-
pants who terminated prior to
February1,1998, will conform to the
terms of the plan (except to the extent a
distribution for a period after August20,
1996 might have reflected §415(b)-
(2)(E)(ii), as amended by RPA’94, but
before amendment by §1449(b) of
SBJPA).
(4) Plan Funding
Q–19. May the §415(b)(2)(E) changes
be taken into account for purposes of the
minimum funding standards under §412
before the plan is amended to reflect these
changes?
A–19. Except as provided under
§412(c)(12) or by the Commissioner,
changes in plan benefits that become ef-
fective after the first day of the current
plan year may not be anticipated for pur-
poses of §412. See §1.412(c)(3)–
1(d)(1).
In the case of a plan that is operated in
accordance with the §415(b)(2)(E)
changes, the anticipation of a plan amend-
ment applying the §415(b)(2)(E) changes
is hereby permitted for purposes of §412
until the final implementation date. For
purposes of the preceding sentence, for
plan years beginning before January1,
1997, the anticipated plan amendment
need not reflect the amendments made to
§415 of the Code or §767 of RPA’94 by
§1449 of SBJPA. For plan years begin-
ning on or after January1,1997, a plan
amendment applying the §415(b)(2)(E)
changes may be anticipated only if the
plan amendment is permitted under this
revenue ruling and only if it is described
in an attachment to a ScheduleB of
Form5500 for the plan year that is filed
on or before the due date (including ex-
tensions) for such Schedule B. The at-
tachment must specify the extent to which
the anticipated plan amendment provides
that the §415(b)(2)(E) changes will not
apply to participants’old-law benefits (in-
cluding, if applicable, any freeze date
under Q&A–13 and method under
Q&A–14). Note that if the §415(b)(2)(E)
changes are retroactively applied to all
benefits under the plan, this must be spec-
ified in the attachment. In addition, once
a ScheduleB of Form5500 is filed for a
plan year, the anticipated amendment, if
any, that was used in applying §412 for
that year cannot be changed (for purposes
of applying §412 for that year).
If no such attachment is made to
ScheduleB of Form5500 for a plan year,
the employer may not anticipate the
§415(b)(2)(E) changes for that plan year
and must determine the minimum funding
standard using the terms of the plan.
Q–20. What are the implications of a
plan being funded on the basis of plan
terms without taking the §415(b)(2)(E)
changes into account?
A–20. If an employer has not yet
amended its plan to reflect the §415(b)-
(2)(E) changes, funding on the basis of
plan terms could result in a plan being
funded based on benefits that exceed the
§415(b) limitations. Because §404(j)
provides that benefits in excess of the
§415(b) limitations may not be taken into
account in determining a deduction under
§404, contributions that are made as a re-
sult of benefits that are in excess of the
§415 limits are nondeductible, regardless
of whether they are required under §412.
Thus, if an employer has not yet amended
its plan to apply the §415(b)(2)(E)
changes, the employer could be required
to make nondeductible contributions to
the plan to satisfy the minimum funding
standards, unless (in accordance with
Q&A–19) a plan amendment to apply the
§415(b)(2)(E) changes is anticipated.
However, for taxable years relating to
plan years beginning prior to January1,
1997, the Service will not assert a viola-
tion of §404(j) merely because contribu-
tions are made in amounts necessary to
satisfy minimum funding standards calcu-
lated based on the terms of the plan, pro-
vided that the terms of the plan satisfy
old-law limitations. The preceding sen-
tence will not apply with respect to a plan
year if a ScheduleB of Form5500 has
been filed for that plan year prior to Janu-
ary12, 1998, for which the minimum
funding standards have been calculated
by anticipating an amendment applying
the §415(b)(2)(E) changes.
(5) Miscellaneous
Q–21. Are the RPA’94 §415 effective
date and the final implementation date for
a plan affected by the date the §417(e)(3)
changes are made effective for the plan?
A–21. No. The RPA’94 §415 effective
date applies regardless of when the
§417(e)(3) changes are made effective
for the plan. In addition, the final imple-
mentation date for a plan may be different
from the date the §417(e)(3) changes are
made effective for the plan.
Q–22. Must a plan provide a uniform
freeze date under Q&A–13 and a uniform
method under Q&A–14 for all partici-
pants?
A–22. No. Aplan may provide differ-
ent participant freeze dates under
Q&A–13 or different methods under
Q&A–14 for different participants in the
plan. In addition, a plan may provide no
freeze date for some participants (that is,
the §415(b)(2)(E) changes apply to the
entire accrued benefit of those partici-
pants), while providing a freeze date for
other participants. However, the avail-
ability of a specific participant freeze date
under Q&A–13 or method described in
Q&A–14 is a benefit, right, or feature,
which must satisfy the nondiscriminatory
availability requirement of §1.401(a)-
(4)–4. Furthermore, in accordance with
Q&A–11 of Notice87–21, if a limitation
under §415 may be applied in more than
one manner, the plan must specify the
manner in which the limitation is to be ap-
plied.
Q–23. Are fully insured plans that meet
the accrued benefit requirements of
§411(b) by satisfying the requirements of
§411(b)(1)(F) subject to the new require-
ments under §415(b)(2)(E) as amended
by RPA’94 and SBJPA?
A–23. Yes, these plans are subject to all
of the requirements of §415.

1998–2 I.R.B15January 12, 1998
Q–24. How is the §415(b) compensa-
tion limitation adjusted for years begin-
ning after December31, 1994?
A–24. Section 415(d)(1)(B) provides
that the §415(b) compensation limitation
is adjusted annually for cost-of-living in-
creases in the case of a participant who
has separated from service. Section
732(b) of GATTchanged the base period
for computing the annual adjustments.
For a participant separating from ser-
vice on or before December 31, 1994, the
§415(b) compensation limitation for the
1995 calendar year is computed by multi-
plying the participant’s compensation
limitation, as adjusted under prior law
through the 1994 calendar year, by
1.0217.
PAPERWORK REDUCTION ACT
The collection of information con-
tained in this revenue ruling has been re-
viewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under control number
1545–1563.
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
OMB control number.
The collection of information in this
revenue ruling is in Q&A–19. This rev-
enue ruling provides guidance on the lim-
itations on benefits and contributions
under §415 of the Code and §767 of
RPA’94 as amended by §1449 of SBJPA,
including the various options that an em-
ployer may elect when implementing the
amendment. This information will be
used in determining benefits taken into
account for purposes of the minimum
funding requirements for the plan. The
collection of information is required to as-
sure compliance with the minimum fund-
ing requirements. The likely respondents
are businesses or other for-profit institu-
tions, nonprofit institutions, and small
businesses or organizations.
The estimated total annual reporting
burden is 35,000 hours.
The estimated annual burden per re-
spondent varies from 15 minutes to 45
minutes, depending on individual circum-
stances, with an estimated average of 30
minutes. The estimated number of re-
spondents is 70,000.
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.
Effect On Other Documents
Rev. Rul. 95–29, 1995–1 C.B. 81, is
modified and superseded.
Drafting Information
The principal authors of this revenue
ruling are John Heil and Martin Pippins of
the Employee Plans Division. For further
information regarding this revenue ruling,
contact the Employee Plans Division’s
taxpayer assistance number at (202)622-
6076 (not a toll-free number) between the
hours of 2:30p.m. and 3:30p.m., Eastern
Time, Monday through Thursday. Mr.
Heil’s telephone number is (202)622-
7383 (also not a toll-free number). Mr.
Pippins’telephone number is (202) 622-
6261 (also not a toll-free number).
Section 417.—Definitions and
Special Rules for Purposes of
Minimum Survivor Annuity
Requirements
26 CFR 1.417(e)–1: Restrictions and valuations of
distributions from plans subject to §§ 401(a)(11)
and 417.
Whether the applicable interest rate described in
§ 417(e)(3) of the Code as applied for purposes of §
415(b)(2)(E) is affected by the Small Business Job
Protection Act of 1996, Pub. L. 104–188. See Rev.
Rul. 98–1 page 5.
Section 467.—Certain
Payments for the Use of
Property or Services
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 1998. See Rev. Rul. 98–4, page 18.
Section 468.—Special Rules for
Mining and Solid Waste
Reclamation and Closing Costs
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 1998. See Rev. Rul. 98–4, page 18.
Section 482.—Allocation of
Income and Deductions Among
Taxpayers
Federal short-term, mid-term, and long-term
rates are set forth for the month of January 1998. See
Rev. Rul. 98–4, page 18.
Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 1998. See Rev. Rul. 98–4, page 18.
Section 642.—Special Rules for
Credits and Deductions
Federal short-term, mid-term, and long-term
rates are set forth for the month of January 1998. See
Rev. Rul. 98–4, page 18.
Section 807.—Rules for Certain
Reserves
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 1998. See Rev. Rul. 98–4, page 18.
Insurance companies; interest rate
tables. Prevailing state assumed interest
rates are provided for the determination of
reserves under section 807 of the Code for
contracts isued in 1997 and 1998. Rev.
Rul. 92–19 supplemented in part.
Rev. Rul. 98–2
For purposes of § 807(d)(4) of the Inter-
nal Revenue Code, for taxable years be-
ginning after December 31, 1996, this rul-
ing supplements the schedules of
prevailing state assumed interest rates set
forth in Rev. Rul. 92–19, 1992–1 C.B.
227. This information is to be used by in-
surance companies in computing their re-
serves for (1) life insurance and supple-
mentary total and permanent disability
benefits, (2) individual annuities and pure
endowments, and (3) group annuities and
pure endowments. As § 807(d)(2)(B) re-
quires that the interest rate used to com-
pute these reserves be the greater of (1) the
applicable federal interest rate, or (2) the
prevailing state assumed interest rate, the
table of applicable federal interest rates in
Rev. Rul. 92–19 is also supplemented.
Following are supplements to schedules
A, B, C, and D to Part III of Rev. Rul.

January 12, 1998161998–2 I.R.B.
92–19, providing prevailing state assumed
interest rates for insurance products with
different features issued in 1997 and 1998,
and a supplement to the table in Part IVof
Rev. Rul. 92–19, providing the applicable
federal interest rate under § 807(d) for
1997 and 1998. This ruling does not sup-
plement Parts I and II of Rev. Rul. 92–19.
This is the sixth supplement to the inter-
est rates provided in Rev. Rul. 92–19. Ear-
lier supplements were published in Rev.
Rul. 93–58, 1993–2 C.B. 241 (interest rates
for insurance products issued in 1992 and
1993), Rev. Rul. 94–11, 1994–1 C.B. 196
(1993 and 1994), Rev. Rul. 95– 4, 1995–1
C.B. 141 (1994 and 1995), Rev. Rul. 96–2,
1996–1 C.B. 141 (1995 and 1996), and Rev.
Rul. 97–2, 1997–1 C.B. 8 (1996 and 1997).
Part III. Prevailing State Assumed Interest Rates — Products Issued in Years After 1982.*
Schedule A
STATUTORYVALUATION INTERESTRATES BASED ON THE
1980 AMENDMENTS TO THE NAIC STANDARD VALUATION LAW
A. Life insurance valuation:
Guarantee Duration
(years)Calendar Year of Issue
1998
10 or fewer5.50**
More than 105.25**
but not more than 20
More than 204.50**
Source: Rates calculated from the monthly averages, ending June 30, 1997, of Moody’s Corporate Bond Yield Average—Monthly
Average Corporates.
** As the applicable federal interest rate for 1998 of 6.31 percent exceeds this prevailing state assumed interest rate, the interest
rate to be used for this product under § 807 is 6.31 percent.
* The terms used in the schedules in this ruling and in Part III of Rev. Rul. 92-19 are those used in the Standard Valuation Law; the terms are defined in Rev. Rul.
92–19.
Part III, Schedule B
STATUTORYVALUATION INTERESTRATES BASED ON THE
1980 AMENDMENTS TO THE NAIC STANDARD VALUATION LAW
B. Single premium immediate annuities and annuity benefits involving life contingencies arising from other annuities with cash set-
tlement options and from guaranteed interest contracts with cash settlement options:
Calendar Year of Issue Valuation Interest Rate
19976.75*
Source: Rates calculated from the monthly averages, ending June 30, 1997, of Moody’s Corporate Bond Yield Average — Monthly
Average Corporates. The terms used in this schedule are those used in the Standard Valuation Law as defined in Rev. Rul. 92–19.
*As this prevailing state assumed interest rate exceeds the applicable federal interest rate for 1997 of 6.33 percent, the prevailing state assumed interest rate of
6.75 percent is to be used for this product under § 807.*

1998–2 I.R.B17January 12, 1998
Part III, Schedule D15—1997
STATUTORYVALUATION INTERESTRATES BASED ON NAIC STANDARD
VALUATION LAWFOR 1997 CALENDAR YEAR BUSINESS GOVERNED BYTHE 1980 AMENDMENTS
D. Valuation interest rates for other annuities and guaranteed interest contracts that are contracts with cash settlement options and
that are valued on a change in fund basis:
CashFutureValuation Interest Rate
SettlementInterestGuarantee DurationFor Plan Type
Options? Guarantee?(years)ABC
YesYes5 or fewer7.507.005.50*
More than 5, but not more than 107.257.005.50*
More than 10, but not more than 206.756.505.25*
More than 20 5.75*5.75*5.00*
YesNo5 or fewer7.757.255.75*
More than 5, but not more than 107.507.255.75*
More than 10, but not more than 207.006.755.50*
More than 206.00*6.00* 5.25*
Source: Rates calculated from the monthly averages, ending June 30, 1997, of Moody’s Corporate Bond Yield Average—Monthly
Average Corporates.
*As the applicable federal interest rate for 1997 of 6.33 percent exceeds this prevailing state assumed interest rate, the interest rate to be used for this product under §
807 is 6.33 percent.
Part III, Schedule C15 - 1997
STATUTORYVALUATION INTERESTRATES BASED ON NAIC STANDARD VALUATION
LAWFOR 1997 CALENDAR YEAR BUSINESS GOVERNED BYTHE 1980 AMENDMENTS
C. Valuation interest rates for other annuities and guaranteed interest contracts that are valued on an issue year basis:
CashFutureValuation Interest Rate
SettlementInterestGuarantee DurationFor Plan Type
Options? Guarantee?(years)ABC
YesYes5 or fewer6.755.75*5.25*
More than 5, but not more than 106.505.75*5.25*
More than 10, but not more than 206.00*5.25*5.25*
More than 205.25*4.75*4.75*
YesNo5 or fewer7.006.00*5.50*
More than 5, but not more than 106.756.00*5.50*
More than 10, but not more than 206.25* 5.50*5.25*
More than 205.25*5.00*5.00*
No Yes or No5 or fewer6.75
More than 5, but not more than 106.50
NOTAPPLICABLE
More than 10, but not more than 206.00*
More than 205.25*
Source:Rates calculated from the monthly averages, ending June 30, 1997 of Moody’s Corporate Bond Yield Average—Monthly
Average Corporates.
*As the applicable federal interest rate for 1997 of 6.33 percent exceeds this prevailing state assumed interest rate, the interest rate to be used for this product under §
807 is 6.33 percent.

EFFECTON OTHER REVENUE
RULINGS
Rev. Rul. 92–19 is supplemented by the
addition to Part III of that ruling of pre-
vailing state assumed interest rates under §
807 for certain insurance products issued
in 1997 and 1998 and is further supple-
mented by an addition to the table in Part
IVof Rev. Rul. 92–19 listing applicable
federal interest rates. Parts I and II of Rev.
Rul. 92–19 are not affected by this ruling.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Ann H. Logan of the Office of Assis-
tant Chief Counsel (Financial Institutions
and Products). For further information re-
garding this revenue ruling contact her on
(202) 622-3970 (not a toll-free call).
Section 846.—Discounted
Unpaid Losses Defined
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 1998. See Rev. Rul. 98–4, on this page.
Section 1274.—Determination
of Issue Price in the Case of
Certain Debt Instruments Issued
for Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal rates;
adjusted federal long-term rate, and
the long-term exempt rate.For purposes
of sections 1274, 1288, 382, and other
sections of the Code, tables set forth the
rates for January 1998.
Rev. Rul. 98–4
This revenue ruling provides various
prescribed rates for federal income tax
purposes for January 1998 (the current
month.) Table 1 contains the short-term,
mid-term, and long-term applicable fed-
eral rates (AFR) for the current month for
purposes of section 1274(d) of the Inter-
nal Revenue Code. Table 2 contains the
short-term, mid-term, and long-term ad-
justed applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the ap-
propriate percentages for determining the
low-income housing credit described in
section 42(b)(2) for buildings placed in
service during the current month. Table 5
contains the federal rate for determining
the present value of an annuity, an inter-
est for life or for a term of years, or a re-
mainder or a reversionary interest for
purposes of section 7520. Finally, Table
6 contains the deemed rate of return for
transfers made during calendar year 1998
to pooled income funds described in §
642(c)(5) that have been in existence for
less than 3 taxable years immediately
preceding the taxable year in which the
transfer is made.
January 12, 1998181998–2 I.R.B.
Part IV. Applicable Federal Interest Rates.
TABLE OF APPLICABLE FEDERALINTERESTRATES FOR PURPOSES OF § 807
YearInterest Rate
19976.33
19986.31
Sources: Rev. Rul. 96–57, 1996–2 C.B. 82 for the 1997 rate and Rev. Rul. 97–50, 1997–49 I.R.B. 5 for the 1998 rate.
REV. RUL. 98–4 TABLE 1
Applicable Federal Rates (AFR) for January 1998
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-Term
AFR5.70%5.62%5.58%5.56%
110% AFR6.28%6.18%6.13%6.10%
120% AFR6.85%6.74%6.68%6.65%
130% AFR7.44%7.31%7.24% 7.20%
Mid-Term
AFR5.93% 5.84%5.80%5.77%
110% AFR6.52%6.42%6.37%6.34%
120% AFR7.13%7.01%6.95%6.91%
130% AFR7.73%7.59%7.52%7.47%
150% AFR8.95%8.76%8.67%8.60%
175% AFR 10.48%10.22%10.09% 10.01%

1998–2 I.R.B19January 12, 1998
REV. RUL. 98–4 TABLE 3
Rates Under Section 382 for January 1998
Adjusted federal long-term rate for the current month5.10%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the
adjusted federal long-term rates for the current month and the prior two months.)5.23%
REV. RUL. 98–4 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for January 1998
Appropriate percentage for the 70% present value low-income housing credit8.41%
Appropriate percentage for the 30% present value low-income housing credit3.61%
REV. RUL. 98–4 TABLE 5
Rate Under Section 7520 for January 1998
Applicable federal rate for determining the present value of an annuity, an interest for life or a
term of years, or a remainder or reversionary interest7.2%
REV. RUL. 98–4 TABLE 6
Deemed Rate for Transfers to New Pooled Income Funds
Deemed rate of return for transfers during 1998 to pooled income funds that have been in existence for
less than 3 taxable years7.2%
REV. RUL. 98–4 TABLE 1 — (continued)
Applicable Federal Rates (AFR) for January 1998
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Long-Term
AFR6.13%6.04%6.00%5.97%
110% AFR6.75%6.64%6.59%6.55%
20% AFR7.38%7.25%7.19%7.14%
130% AFR8.00%7.85%7.77%7.72%
REV. RUL. 98–4 TABLE 2
Adjusted AFR for January 1998
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
adjusted AFR3.86%3.82%3.80%3.79%
Mid-term
adjusted AFR4.30%4.25%4.23%4.21%
Long-term
adjusted AFR5.10%5.04%5.01%4.99%

January 12, 1998201998–2 I.R.B.
Section 1288.—Treatment of
Original Issue Discount on
Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 1998. See Rev. Rul. 98–4, page 18.
Section 4161.—Imposition of Tax
26 CFR 48.4161(b)-1: Imposition and rates of tax;
bows and arrows.
Bows and arrows; taxable and non-
taxable articles. An illustrative list of tax-
able and nontaxable articles is provided
for use by manufacturers, producers, and
importers in determining their liability for
the manufacturers tax on archery equip-
ment imposed by section 4161 of the
Code. The list reflects changes to the tax
on archery equipment made by the Tax-
payer Relief Act of 1997. Rev. Rul 75–17
supplemented and superseded.
Rev. Rul. 98–5
This revenue ruling updates Rev. Rul.
75–17, 1975–1 C.B. 344, by revising the
illustrative list of taxable and nontaxable
archery articles in that ruling. This rev-
enue ruling provides guidance to manu-
facturers, producers, and importers in de-
termining their liability for the
manufacturers excise tax on bows and ar-
rows imposed by § 4161(b) of the Internal
Revenue Code.
BACKGROUND
For sales prior to October 1, 1997,
§ 4161(b) imposed an 11 percent tax on the
sale by the manufacturer, producer, or im-
porter of any bow that had a draw weight
of 10 pounds or more, any arrow that mea-
sured 18 inches or more in overall length,
or any arrow sold after September 30,
1984, that measured less than 18 inches in
overall length but was suitable for use with
a taxable bow, any part or accessory suit-
able for inclusion in or attachment to a tax-
able bow or arrow, and any quiver suitable
for use with taxable arrows.
For sales after September 30, 1997,
§ 4161(b), as amended by § 1433(a) of the
Taxpayer Relief Act of 1997 (TRA-97),
provides for the continued taxation of bows,
bow parts and accessories, and quivers in
the same manner and at the same rate as be-
fore amendment. However, § 4161(b), as
amended, replaces the prior tax on arrows
and arrow parts and accessories with an ex-
cise tax on arrow components. The new tax
is imposed at the rate of 12.4 percent on the
sale by the manufacturer, producer, or im-
porter of arrow components. For this pur-
pose, an arrow component is any shaft,
point, nock, or vane of the type used in the
manufacture of any arrow which after its as-
sembly (A) measures 18 inches or more in
overall length, or (B) measures less than 18
inches in overall length, but is suitable for
use with a taxable bow.
No tax is imposed under the former or
amended § 4161(b) with respect to any ar-
ticle taxable under § 4161(a) as sport fish-
ing equipment, for example, bow fishing
rods and reels.
Section 48.4161(b)–2(a)(1) of the
Manufacturers and Retailers Excise Tax
Regulations defines the term “bows” as
including all articles made of flexible ma-
terials that are designed to be equipped
with a string and used for the propelling
of arrows in the sport of archery (target
shooting), or in hunting or fishing.
Section 48.4161(b)–2(a)(2) defines the
term “arrows” as including all articles de-
signed or constructed to be propelled by a
bow in the sport of archery (target shoot-
ing), or in hunting or fishing. The overall
length of the arrow is to be measured from
the point of the tip or arrowhead to the end
of the arrow nock. In the case of arrows
sold by the manufacturer without heads,
tips, or nocks, the overall length is to in-
clude the length of the shaft plus the length
of the nock and head or tip that is normally
used with the particular type of arrow shaft.
(The following provisions of the regu-
lations do not reflect the amendments
made to § 4161(b) by the TRA–97.)
Section 48.4161(b)–2(b)(1) defines the
term “parts and accessories” for bows and
arrows as including all articles (other than
fishing reels) suitable for inclusion in or
attachment to a taxable bow or arrow. Ex-
amples of parts and accessories for bows
are bow handles, bow limbs, bowstrings,
bowstring silencers, bow stabilizers, arrow
rests, bow slings, bow sights, bow levels,
bow tip protectors, brush buttons, camou-
flaged bow covers, and all other articles
designed to be attached to or included in a
bow to assist in aiming or propelling an
arrow, or to protect the bow while in use.
Examples of parts and accessories for ar-
rows are arrow shafts, nocks, tips, heads,
head adapters, and feathers.
Under the provisions of § 48.4161(b)–
2(b)(2), general purpose materials and arti-
cles that are not specifically designed to di-
rectly improve the performance or appear-
ance of bows or arrows, or to protect them
while in use, are not considered to be parts
and accessories for bows or arrows, even
though such materials may be intended,
after further processing, to be included in or
attached to bows or arrows. An example of
a nontaxable article that is designed for use
with a bow, but is neither attached to a bow,
nor serves a purpose directly related to the
efficient use of a bow, is a carrying case for
a bow. Examples of nontaxable general
purpose materials or articles are glues and
cements, feathers before they are prepared
for use with arrows, and bowstring thread
before it is processed into bowstrings.
Arrow shaft material is considered to be a
taxable part for an arrow unless the manu-
facturer, producer, or importer can establish
that the particular material is unsuitable for
use in the manufacture of taxable arrows.
In addition, the term parts and accessories
does not include articles in the nature of ex-
pendable supplies, even though such arti-
cles are designed to be applied to, or used
with, bows or arrows. Examples of such
supply materials are bowstring wax and
archery powder.
Section 48.4161(b)–2(c) defines the
term “quivers” as including all articles, of
whatever material made, that are designed
to contain, and to provide ready access to,
taxable arrows during the time an archer
is engaged in target shooting, hunting, or
fishing. The term does not include any
article designed solely for storing or
transporting arrows during times when
the arrows are not in use.
ILLUSTRATIVE LISTS
The Internal Revenue Service has de-
termined that the articles listed below are
bows, arrows, arrow components, or parts
or accessories subject to the tax imposed
by § 4161(b). The parts or accessories
subject to the tax include replacement
parts or accessories. Aseparate list of the
articles that the Service has determined
not to be subject to the tax imposed by
that section is also provided. The lists are
illustrative and not all-inclusive.
ARTICLES SUBJECTTO TAX
Bows
All bows that have a draw weight of 10
pounds or more, including laminated
composite bows; solid glass, wood, steel,
etc., bows; and crossbows.

1998–2 I.R.B21January 12, 1998
Arrows
(Prior to October 1, 1997)
All arrows (including bow fishing ar-
rows), regardless of shaft material or the
type of head, that measure 18 inches or
more in overall length (including the tip
or head, and nock), and all arrows sold
after September 30, 1984, that measure
less than 18 inches in overall length but
are suitable for use with a taxable bow.
Arrow Components
(After September 30, 1997)
All shafts, points, nocks, or vanes of
the type used in the manufacture of any
arrow which after its assembly (A) mea-
sures 18 inches or more overall in length,
or (B) measures less than 18 inches over-
all in length, but is suitable for use with a
taxable bow.
Bow and Arrow Sets
Bow and arrow sets that contain any tax-
able article. When a set also contains non-
taxable articles, the tax applies only to that
portion of the combination sale price prop-
erly attributable to the taxable articles. See
Rev. Rul. 75–18, 1975–1 C.B. 345, which
provides a method of determining the man-
ufacturer’s tax base and computing the tax
where taxable and nontaxable articles are
sold as a unit at a single price.
Bow Parts and Accessories and Quivers
Arrow holders (all items to be affixed to a
bow to hold an arrow in ready position)
Arrow plates (whether fixed, adjustable,
spring loaded, etc.)
Arrow rests (whether bow shelf or auxil-
iary type)
Bow handles
Bow handle sections
Bow levels
Bow limbs
Bow saddles (including interchangeable
or replaceable bow grips) Bow sights
and bow sight extensions (including
parts and attachments therefor)
Bow silencing pads
Bow slings
Bow stabilizers (all attachments and
weights for use on bows to affect stabi-
lization, counterbalancing, or modifica-
tion of weight distribution)
Bowstrings
Bowstring silencers
Bow tip protectors
Brush buttons
Cable guards
Cable guard slides
Camouflaged bow covers (slip-over cloth,
self-adhesive tape type, etc.)
Cushion nocks
Draw checks (spring loaded clickers, mir-
rors, or any other device attached to a
bow or string to insure consistent draw
length)
Draw stops
Finger protectors attached to a bowstring
Grip formers
Kisser buttons (all items attached to a
bowstring to establish a consistent an-
chor point)
Nocking points (all items attached to a
bowstring to establish arrow position-
ing)
Quivers designed to provide ready access
to taxable arrows while an archer is en-
gaged in target shooting, hunting, or
fishing, regardless of material from
which constructed (including bow
quivers designed to be attached to a
bow and ground quivers)
Release draw bars
String peeps (all items attached to a bow-
string for use in sighting)
Arrow Parts and Accessories
(Prior to October 1, 1997)
Arrow fletching (natural feathers
processed for application to arrows or
synthetic feather substitutes)
Arrow nocks and inserts
Arrow points, tips, heads, adapters, and
inserts
Arrow shafts
Arrow shaft material
Broadhead guide rings
Broadhead rings
Feather tracers
ARTICLES NOTSUBJECTTO TAX
Accessory belts
Archery armguards
Archery powder
Archery shooting finger tabs
Archery shooting gloves
Arrow clips for tackle boxes and display
racks
Arrow cresting machines and replacement
parts therefor
Arrow cut-off and fabricating tools (and
replacement parts therefor)
Arrow fletching jigs and tools
Arrow lubes
Arrow pullers
Arrow shaft dip tanks
Arrow spine meters (and replacement
parts therefor)
Arrow straighteners
Arrow tapering tools
Bow and arrow racks designed solely for
the storage of bows and/or arrows
Bow and arrow cases designed for the
transportation or storage of bows, ar-
rows, and related equipment
Bowfishing line
Bow squares
Bow stringers
Bowstring jigs
Bowstring thread
Bowstring wax
Bow supports including ground bow
holders and stands
Broadhead wrenches
Electronic trackers
Feather burners and feather burner kits
(and replacement parts therefor)
Feathers not prepared for use with arrows
Feather waterproofing
Finger slings
Glues and cements
Nocking point tools
Powder pouches
Score card holder
Shirt and blouse protectors
String holders and keepers
String releases
String servers
Targets and target accessories
EFFECTON OTHER REVENUE
RULINGS
Rev. Rul. 75–17 is supplemented and
superseded.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Theodore N. Margopulos of the
Office of the Assistant Chief Counsel
(Passthroughs and Special Industries).
For further information regarding this
revenue ruling contact Mr. Margopulos
on (202) 622-3130 (not a toll-free call).
Section 7520.—Valuation Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 1998. See Rev. Rul. 98–4, page 18.
Section 7872.—Treatment of
Loans with Below-Market
Interest Rates
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of January 1998. See Rev. Rul. 98–4, page 18.

January 12, 1998221998–2 I.R.B.
Simplified Exclusion Ratio
Notice 98–2
I. Introduction
This notice replaces Notice 88–118,
1988–2 C.B. 450, to reflect certain
changes to §72 of the Internal Revenue
Code of 1986 (the Code) made by the
Small Business Job Protection Act of
1996, Pub. L. 104–188 (SBJPA) and by
the Taxpayer Relief Act of 1997, Pub. L.
105-34 (TRA‘97). Specifically, this no-
tice describes the simplified method pro-
vided by §72(d)(1) for determining the
tax-free and taxable portions of certain
annuity payments made from qualified
plans under §401(a), employee annuities
under §403(a), and annuity contracts
under §403(b).
In general, this new method applies to
an annuity if the annuity starting date is
after November 18, 1996. However, see
Section Vbelow for a transition rule for
annuities with annuity starting dates after
November 18, 1996 and before January 1,
1997. Unlike the safe-harbor method in
Notice 88–118, the simplified method is
required by the Code (rather than op-
tional) and distributees must use this
method in order to comply with §72(d) of
the Code as amended by SBJPAand TRA
‘97. Payors must also use this method to
report the taxable portion of the annuity
payments on Form 1099-R. The new
method does not apply if the annuity start-
ing date is on or before November 18,
1996.
II. Background
Section 402(a)(1) provides that the
amount actually distributed to any distrib-
utee by an employees’trust described in
§401(a) which is exempt from tax under
§501(a) shall be taxable to the distribu-
tee, in the year in which distributed, under
§72 (relating to annuities). Similarly,
amounts distributed from employee annu-
ity contracts under §403(a) and annuity
contracts under §403(b) are taxable to the
distributee (in the year in which distrib-
uted) under §72.
Section 72(b) provides that a portion of
the annuity payments received in a tax-
able year may be excluded from gross in-
come as a return of the distributee’s in-
vestment according to an exclusion ratio
determined at the annuity starting date.
The numerator of this ratio is the em-
ployee’s investment in the contract, and
the denominator is the expected return.
Section 72(e) provides rules relating to
the taxability of amounts not received as
annuities. Section 1.72–11(f) of the In-
come Tax Regulations provides rules for
the treatment of a single-sum withdrawal
received on or after the annuity starting
date.
Notice 88–118 provided a simplified
safe harbor method for determining the
tax-free portion and taxable portion of
certain annuity payments made from
qualified plans under §401(a), employee
annuities under §403(a), and annuity
contracts under §403(b). Under the safe
harbor method of Notice 88-118, the ex-
clusion ratio was determined by dividing
the distributee’s investment in the con-
tract by an expected number of payments
based upon the distributee’s age. The re-
sult represented the tax-free portion of
each payment. This safe harbor method
could be elected only if the distributee re-
ceived monthly payments and did not
apply to installment payments that were
not life contingent.
Section 1403 of SBJPAamended
§72(d) of the Code to require the use of a
simplified method of recovering the in-
vestment in the contract for most annuity
distributions from qualified plans under
§401(a), employee annuities under
§403(a), and §403(b) annuity contracts.
The simplified method of §72(d) is simi-
lar to, but not the same as, the safe-harbor
method that was provided in Notice 88–
118. Section 1403 of SBJPAalso pro-
vided a special rule where a single sum is
received in connection with the com-
mencement of annuity payments. In such
a case, the single- sum payment is treated
as if received before the annuity starting
date. Generally, the SBJPAchanges to
§72(d) of the Code apply to distributions
with annuity starting dates after Novem-
ber 18, 1996.
Section 1075 of TRA‘97 amended the
simplified method of recovering the in-
vestment in the contract in §72(d)(1)(B)
of the Code to prescribe a different table
if the annuity is payable based on the lives
of more than one individual. This new
table applies to distributions with annuity
starting dates after December 31, 1997.
For annuities payable based on the life of
only one individual, §1075 of TRA‘97
made no changes in the applicable table
under the simplified method described by
SBJPA.
III. Simplified Method
A. General
The simplified method provided in
§72(d) of the Code and this notice must
be used by distributees to comply with
§72, and by payors to report the taxable
portion of annuity distributions on Form
1099-R. If payments are made on a non-
monthly basis, the simplified method ap-
plies with appropriate adjustments. How-
ever, this method does not apply if the
annuitant is over age 75 and there are five
or more years of guaranteed payments
under the annuity.
B. Excluded Amount
Under the simplified method, the dis-
tributee recovers his or her investment in
the contract in level amounts over the ex-
pected number of monthly payments de-
termined from the tables below. The por-
tion of each annuity payment that is
excluded from gross income by a distribu-
tee for income tax purposes is a level dol-
lar amount determined by dividing the in-
vestment in the contract by the set number
of annuity payments from the tables
below.
Investment =Tax free portion of
Expectedmonthly annuity
Number of Monthly
Payments
C. Expected Number of Monthly Pay-
ments
(1) Annuity Starting Dates After No-
vember 18, 1996 and Before Janu-
ary 1, 1998
Under the simplified method, for annu-
ity starting dates beginning after Novem-
ber 18, 1996 but before January 1, 1998,
the total number of monthly annuity pay-
ments expected to be received is based on
the primary annuitant’s age at the annuity
Part III. Administrative, Procedural, and Miscellaneous

1998–2 I.R.B23January 12, 1998
starting date. The same expected number
of payments applies to an annuitant
whether he or she is receiving a single life
annuity or a joint and survivor annuity.
The expected number of payments is set
forth in the table below.
Age of PrimaryExpected
AnnuitantNumber of Payments
55 and under360
56–60310
61–65260
66–70210
71 and over160
(2) Annuity Starting Dates After De-
cember 31, 1997
For annuity starting dates beginning
after December 31, 1997, the table used to
determine the expected number of pay-
ments depends on whether the payments
are based on the life of more than one in-
dividual. In the case of an annuity
payable based on the life of only one indi-
vidual, the total number of monthly annu-
ity payments expected to be received is
based on the annuitant’s age at the annuity
starting date. An annuity which is
payable over the life of one annuitant with
a term certain feature is an annuity based
on the life of that individual. Similarly,
an annuity which is payable over the life
of one annuitant with a temporary annuity
payable to the annuitant’s child until the
child reaches an age specified in the plan
(not more than age 25) is an annuity based
on the life of that individual. The ex-
pected number of payments for an annuity
based on the life of one individual is set
forth in the table below.
Expected
Age of AnnuitantNumber of Payments
55 and under 360
56–60310
61–65260
66–70210
71 and over160
In the case of an annuity payable based
on the life of more than one individual,
the total number of monthly annuity pay-
ments expected to be received is based on
the combined ages of the annuitants at the
annuity starting date. If the annuity is
payable to a primary annuitant and more
than one survivor annuitant, the combined
ages of the annuitants is the sum of the
age of the primary annuitant and the
youngest survivor annuitant. If the annu-
ity is payable to more than one survivor
annuitant but there is no primary annui-
tant, the combined ages of the annuitants
is the sum of the age of the oldest survivor
annuitant and the youngest survivor annu-
itant. In addition, any survivor annuitant
whose entitlement to payments is contin-
gent on an event other than the death of
the primary annuitant is disregarded. The
expected number of payments is set forth
in the table below.
Combined AgesExpected
of AnnuitantsNumber of Payments
110 and under 410
111–120360
121–130310
131–140260
141 and over210
(3) Term Certain Annuities Without
Life Contingencies
In the case of an annuity that does not
depend in whole or in part on the life ex-
pectancy of one or more individuals, the
expected number of payments is the num-
ber of monthly annuity payments under
the contract.
D. Investment in the Contract
The investment in the contract is de-
fined under §72(c)(1) as the aggregate
premiums or other consideration paid
(generally, the aggregate amount of after-
tax contributions made to the plan), re-
duced by amounts received before the an-
nuity starting date that were excluded
from gross income. In addition,
§72(c)(2) provides that the investment in
the contract must be adjusted to reflect the
value of any refund feature. Under
§72(d)(1)(C), as amended by SBJPA, for
purposes of the simplified method, the in-
vestment in the contract is determined
without regard to the adjustment for any
refund feature as described in §72(c)(2).
In certain cases, the investment in the
contract could be increased by any death
benefit exclusion that is allowed under
§101(b) if the employee death benefits
are paid to a survivor in the form of an an-
nuity, other than as a joint and survivor
annuity. Section 101(b) was repealed by
§1402 of SBJPAeffective with respect to
decedents dying after August 20, 1996.
Accordingly, in the case of decedents
dying after August 20, 1996, surviving
beneficiaries no longer are permitted to
increase the investment in the contract by
the death benefit exclusion.
E. Application of Excluded Amount
The dollar amount determined above,
as of the annuity starting date, will be ex-
cluded from each monthly annuity pay-
ment, even where the amount of the annu-
ity payments change. For example, the
amount to be excluded from each annuity
payment determined at the annuity start-
ing date remains constant, even if the
amount of the annuity payments increases
due to cost of living increases, or de-
creases in the case of a reduced survivor
annuity after death of one of the annui-
tants.
If the amount to be excluded from each
payment is greater than the amount of the
annuity payment (e.g., because of de-
creased survivor payments), then each an-
nuity payment will be completely ex-
cluded from gross income until the entire
investment is recovered. For those dis-
tributees with annuity starting dates after
December 31, 1986, annuity payments re-
ceived after the investment is recovered
(generally, after the expected number of
payments has been received) are fully in-
cludible in gross income. If annuity pay-
ments cease by reason of death, a deduc-
tion for the unrecovered investment in the
contract, if any, is allowed on the distribu-
tee’s last income tax return.
Where two or more annuitants are re-
ceiving payments at the same time, each
annuitant will exclude from each annuity
payment a pro-rata portion of this amount
determined according to a ratio, the nu-
merator of which is the amount of the
beneficiary’s annuity payment, and the
denominator of which is the total amount
of the monthly annuity payments to all
beneficiaries.
F. Adjustments for Non-Monthly
Payments
In the case where annuity payments are
not made on a monthly basis, under
§72(d)(1)(F) of the Code, an adjustment
must be made to take into account the pe-
riod on the basis of which such payments
are made. One way to make this adjust-
ment is to determine the number of ex-

January 12, 1998241998–2 I.R.B.
pected payments by dividing the applica-
ble expected number of months in the ap-
plicable table above by the number of
months in each period. Another way (the
result of which is equivalent to the first
way) is to determine the tax-free portion
of a monthly payment using the applica-
ble expected number of months from the
applicable table above and then multiply
the resulting dollar amount per month by
the number of months in each period.
G. Examples
The application of the simplified
method is illustrated by the following ex-
amples. In all examples, the investment
in the contract is stated as the employee’s
after-tax contributions and with no adjust-
ment for the refund feature.
(i) Example 1
Upon retirement, Employee A, age 65,
begins receiving retirement benefits in the
form of a joint and 50 percent survivor an-
nuity to be paid for the joint lives of Aand
A’sspouse, age 64. A’s annuity starting
date is January 1, 1997. Amade $26,000
of after-tax contributions to the plan and
has received no distributions prior to the
annuity starting date. Awill receive a
monthly retirement benefit of $1,000, and
A’sspouse will receive a monthly survivor
benefit of $500 upon A’sdeath.
A’sinvestment in the contract is
$26,000. Because the annuity starting
date is prior to January 1, 1998, the ex-
pected number of monthly payments for
a distributee who is age 65 is 260. The
tax-free portion of each $1,000 monthly
annuity payment to Ais $100, deter-
mined by dividing A’sinvestment
($26,000) by the expected number of
payments (260).
$26,000 investment=
$100 return of
260 monthly payments
investment per month
Upon A’sdeath, if Ahas not recovered
the full $26,000 investment, A’sspouse
will also exclude $100 from each $500
monthly annuity payment.
Any annuity payments received after
the 260 monthly payments have been
made will be fully includible in gross in-
come. If Aand A’sspouse die before 260
monthly payments have been made, a de-
duction is allowed for the last income tax
return in the amount of the unrecovered
investment.
(ii) Example 2
Upon retirement, Employee B, age 65,
begins receiving retirement benefits in
the form of a joint and 50 percent sur-
vivor annuity to be paid for the joint lives
of Band B’sspouse, age 64. B’sannuity
starting date is January 1, 1998. Bcon-
tributed $26,000 to the plan, and has re-
ceived no distributions prior to the annu-
ity starting date. Bwill receive a
monthly retirement benefit of $1,000 per
month, and B’sspouse will receive a
monthly survivor benefit of $500 upon
B’sdeath.
B’sinvestment in the contract is
$26,000. The expected number of
monthly payments is 310 for two distribu-
tees whose combined ages are 129. The
tax-free portion of each $1,000 monthly
annuity payment to Bis $83.87, deter-
mined by dividing B’sinvestment
($26,000) by the expected number of pay-
ments (310).
$26,000 investment=
$83.87 return of
310 monthly payments
investment per month
Upon B’sdeath, if Bhas not recovered
the full $26,000 investment, B’sspouse
will also exclude $83.87 from each $500
monthly annuity payment.
Any annuity payments received after the
310 monthly payments have been made
will be fully includible in gross income. If
Band B’sspouse die before 310 monthly
payments have been made, a deduction is
allowed for the last income tax return in
the amount of the unrecovered investment.
(iii) Example 3.
Upon retirement, Employee C, age 66,
begins receiving retirement benefits in the
form of a joint and 50 percent survivor
annuity to be paid for the joint lives of C
and C’sspouse, age 65. C’sannuity start-
ing date is January 1, 1997. Ccontributed
$42,000 to the plan, and has received no
distributions prior to the annuity starting
date. Cwill receive a quarterly retirement
benefit of $6,000, and C’sspouse will re-
ceive a quarterly survivor benefit of
$3,000 upon C’sdeath.
C’sinvestment in the contract is
$42,000. Because the annuity starting
date is prior to January 1, 1998, the ex-
pected number of monthly payments for a
distributee who is age 66 is 210. Because
C’sannuity is paid quarterly, the appro-
priate adjustment is to divide the expected
number of payments (210) by the number
of months in the period (3), which equals
70. Thus, the tax-free portion of each
$6,000 quarterly annuity payment to Cis
$600, determined by dividing C’sinvest-
ment ($42,000) by the expected number
of quarterly payments (70).
$42,000 investment=
$600 return of
70 quarterly payments
investment per quarter
Alternatively, the appropriate adjust-
ment can be made by dividing $42,000 by
210 and multiplying the resulting $200
per month by the number of months in the
period, three (3), which equals a $600 re-
turn of investment per quarter.
(iv) Example 4.
Upon retirement, Employee D, age 57,
begins receiving retirement benefits in the
form of a joint and 50 percent survivor
annuity to be paid for the joint lives of D
and D’sspouse, age 57. Dcontributed
$31,000 to the plan. D’sannuity starting
date is July 1, 1998. On D’sannuity start-
ing date, in connection with receiving the
first annuity payment, Dreceives a sin-
gle-sum payment of $10,000. Had the
single-sum payment of $10,000 been re-
ceived prior to D’sannuity starting date,
then under the rules of §72(e), $2,000
would have been considered as a recovery
of D’sinvestment in the contract. Dwill
receive a monthly retirement benefit of
$1,500 per month, and D’sspouse will re-
ceive a monthly survivor benefit of $750
upon D’sdeath.
Because the $10,000 is treated as if re-
ceived before the annuity starting date, D
will include $8,000 in income as a result
of the single-sum payment ($10,000
minus $2,000) and for purposes of deter-
mining the tax-free portion of each annu-
$42,000 investment
3
3 months
=
$600 return of
210 monthly paymentsper quarterinvestment per quarter

1998–2 I.R.B25January 12, 1998
ity payment, D’sinvestment in the con-
tract is $29,000 (the after-tax contribu-
tions to the plan minus the $2,000 portion
of the single-sum payment representing
the recovery of D’sinvestment in the con-
tract). The expected number of monthly
payments for two annuitants whose com-
bined ages are 114 is 360. The tax-free
portion of each $1,500 monthly annuity
payment to Dis $80.56, determined by di-
viding D’sinvestment ($29,000) by the
expected number of payments (360).
$29,000 investment=
$80.56 return of
360 monthly payments
investment per month
Upon D’sdeath, if Dhas not recovered
the full $29,000 investment, D’sspouse
will also exclude $80.56 from each $750
monthly annuity payment.
Any annuity payments received after
the 360 monthly payments have been
made will be fully includible in gross in-
come. If Dand D’sspouse die before 360
monthly payments have been made, a de-
duction is allowed for the last income tax
return in the amount of the unrecovered
investment.
IV. Effective Date
The simplified method described in this
notice is generally effective for annuities
with annuity starting dates after Novem-
ber 18, 1996. For annuity starting dates
after December 31, 1997, if the annuity is
payable based on the lives of more than
one individual, the simplified method
based on the combined ages of the annui-
tants is to be used.
V. Transition Rule
Some payors and distributees may have
continued to use the law in effect prior to
SBJPA(including the safe-harbor method
contained in Notice 88–118) for annuity
starting dates after November 18, 1996
and before January 1, 1997. This notice
contains a transition rule for these payors
and distributees.
Under this transition rule, for annuities
with annuity starting dates after Novem-
ber 18, 1996 and before January 1, 1997,
the law in effect prior to SBJPA(includ-
ing the methodology contained in Notice
88–118) may be used to determine the
taxable and tax-free portions of annuity
payments received in 1996 and 1997. Ac-
cordingly, under this transition rule, pay-
ors are not to re-issue Forms 1099-R for
1996 (and 1997, if applicable), and dis-
tributees are not to file amended income
tax returns for 1996 (and 1997, if applica-
ble), solely because they failed to take
into account the changes to §72(d) of the
Code made by SBJPA.
However, under this transition rule, a
payor who reports the taxable portion of an-
nuity payments on Form 1099-R must de-
termine the taxable and tax-free portion of
annuity payments using the transition
method described below. The transition
method must be applied to annuity pay-
ments made on and after January 1, 1998.
However, payors may choose to apply the
transition method for annuity payments
made on an earlier date (for example, pay-
ments made on and after January 1, 1997).
Under the transition method, the tax-free
portion of each annuity payment made on
and after the transition date is determined by
dividing the remaining investment in the
contract by the remaining number of ex-
pected payments. The remaining invest-
ment in the contract is the distributee’s orig-
inal investment in the contract as of the
annuity starting date, minus the amount of
the investment in the contract treated as re-
covered after the annuity starting date and
prior to the transition date. The remaining
number of expected monthly payments is
the total number of expected monthly pay-
ments as of the annuity starting date (as de-
termined by the table in section III(C)(1) of
this notice) minus the number of payments
made prior to the transition date. Where the
payor does not report the taxable portion of
annuity payments on Form 1099-R, a dis-
tributee who uses the transition rule must
determine the taxable and tax-free portions
of annuity payments using the transition
method described in this paragraph.
(i) Example of Transition Rule
Assume the same facts as in Example 1
except that A’s annuity starting date is De-
cember 1, 1996. The tax-free portion of
each $1,000 monthly annuity payment to
Awas determined under Notice 88-118.
This tax-free portion was $108.33, calcu-
lated as follows.
$26,000 investment=
$108.33 return of
240 monthly payments
investment
The $108.33 was treated as tax-free for
the 1996 return. Under the transition rule,
this treatment for 1996 is allowed. How-
ever, the taxable and tax-free portions
must be redetermined using the transition
method with a transition date of January
1, 1998, or earlier.
Assume that Auses January 1, 1997 as
the transition date. For annuity payments
received after December 31, 1996, deter-
mine the tax-free portion of each $1,000
annuity payment by dividing the remain-
ing investment in the contract by the re-
maining number of expected payments as
of the transition date, determined in accor-
dance with §72(d) and this notice. Ac-
cordingly, the tax-free portion of each
$1,000 payment received in 1997 and later
years is $99.97, determined as follows.
Under this method, the total amount of
annuity payments that is tax-free is $26,000.
VI. Effect on Other Documents
Notice 88–118 is obsoleted.
Drafting 1`
The principal author of this notice is
Todd Newman of the Employee Plans Di-
vision. For further information please con-
tact the Employee Plans Division’s tax-
payer assistance telephone service between
the hours of 2:30 p.m. and 3:30 p.m. East-
ern time, Monday through Thursday on
(202) 622-6076 (not a toll-free call). Mr.
Newman’s telephone number is (202) 622-
6262 (also not a toll-free call).
SIMPLE IRA Plan Guidance
Notice 98–4
PURPOSE
This notice modifies and supersedes
Notice 97–6, 1997–2 I.R.B. 26, relating to
SIMPLE IRAPlans described in §408(p)
25,891.67 ($26,000 minus $108.33)=$99.97 return of
259 payments (260 minus 1)investment

January 12, 1998261998–2 I.R.B.
of the Internal Revenue Code. The ques-
tions and answers contained in this notice
reflect technical corrections made by the
Taxpayer Relief Act of 1997, Pub. L.
105–34 (“TRA97”). This notice also
amends the answers to certain questions
in Notice 97–6 in order to reflect the is-
suance of Form 5304-SIMPLE (Not Sub-
ject to the Designated Financial Institu-
tion Rules) and provides a transition
period for the use of Form 5305-SIMPLE
(for Use With a Designated Financial In-
stitution) for a SIMPLE IRAPlan that
does not use a designated financial insti-
tution.
BACKGROUND
Section1421 of the Small Business Job
Protection Act of 1996, Pub. L. 104–188
(“SBJPA”) established a simplified tax-
favored retirement plan for small employ-
ers (a “SIMPLE IRAPlan”) under
§408(p) of the Code. Contributions
under a SIMPLE IRAPlan are made to in-
dividual retirement accounts or annuities
(“SIMPLE IRAs”) that are established
pursuant to the SIMPLE IRAPlan
adopted by the employer.
Section 1601(d)(1) of TRA97
amended §1421 of SBJPA, making tech-
nical changes to the statutory require-
ments for SIMPLE IRAPlans.
Notice 97–6 was issued on December
23, 1996, and provided guidance, in the
form of questions and answers, on SIM-
PLE IRAPlans.
On October 31, 1996, the Internal Rev-
enue Service issued Form 5305-SIMPLE,
a model form that may be used by an em-
ployer to establish a SIMPLE IRAPlan
with a designated financial institution,
and on December 30, 1996, the Service
issued 5304-SIMPLE, a model form that
may be used by an employer to establish a
SIMPLE IRAPlan without using a desig-
nated financial institution. Notice 97–6
contained instructions for modifying
Form 5305-SIMPLE for an employer that
did not want to use a designated financial
institution but that wanted to use a Ser-
vice-approved model form to establish a
SIMPLE IRAPlan. Form 5304-SIMPLE
is now available for this purpose.
On November 25, 1997, the Depart-
ment of Labor (“DOL”) issued a final
rule, consistent with the statements in
Q&AG–5 of Notice 97–6, amending 29
CFR 2510.3–102, relating to the defini-
tion of “plan assets” under Title I of the
Employee Retirement Income Security
Act of 1974 (“ERISA”), to harmonize
those Title I rules with the rules for salary
reduction contributions to SIMPLE IRA
Plans under § 408(p) of the Code.
CHANGES TO NOTICE 97–6
This notice modifies Q&As B–3, C–1
and H–2 to reflect technical corrections
made by TRA97; Q&AG–5 to reflect the
amendment to the DOLplan asset regula-
tions; and Q&As E–4, G–1, H–1 and K–3
to reflect the issuance of Form 5304-SIM-
PLE. Anew Q&A, K–4, is added to pro-
vide a transition period for employers
using Form 5305-SIMPLE as modified in
accordance with Notice 97–6 for a SIM-
PLE IRAPlan that does not use a desig-
nated financial institution. In addition,
this notice makes certain stylistic changes
to the Q&As as published in Notice 97–6,
including substituting the term “SIMPLE
IRAPlan” for “SIMPLE plan.”
TABLE OF CONTENTS
A. SIMPLE IRAPLANS IN GENERAL
B. EMPLOYERS THATCAN ESTAB-
LISH SIMPLE IRAPLANS
C. EMPLOYEE ELIGIBILITYTO PAR-
TICIPATE IN ASIMPLE IRAPLAN
D. SIMPLE IRAPLAN CONTRIBU-
TIONS
E. EMPLOYEE ELECTIONS
F. VESTING REQUIREMENTS
G. EMPLOYER ADMINISTRATIVE
AND NOTIFICATION REQUIRE-
MENTS
H. TRUSTEE ADMINISTRATIVE RE-
QUIREMENTS
I. TAX TREATMENTOF SIMPLE
IRAPLANS
J. EXCEPTION FOR USE OF DESIG-
NATED FINANCIALINSTITUTION
K. SIMPLE IRAPLAN ESTABLISH-
MENT
QUESTIONS AND ANSWERS
A. SIMPLE IRAPLANS IN GENERAL
Q. A–1: What is a SIMPLE IRAPlan?
A. A–1: ASIMPLE IRAPlan is a writ-
ten arrangement established under
§408(p) of the Code that provides a sim-
plified tax-favored retirement plan for
small employers. If an employer estab-
lishes a SIMPLE IRAPlan, each em-
ployee may choose whether to have the
employer make payments as contributions
under the SIMPLE IRAPlan or to receive
these payments directly in cash. An em-
ployer that chooses to establish a SIM-
PLE IRAPlan must make either matching
contributions or nonelective contribu-
tions. All contributions under a SIMPLE
IRAPlan are made to SIMPLE IRAs.
Q. A–2: Can contributions made under
a SIMPLE IRAPlan be made to any type
of IRA?
A. A–2: Contributions under a SIM-
PLE IRAPlan may only be made to a
SIMPLE IRA, not to any other type of
IRA. ASIMPLE IRAis an individual re-
tirement account described in §408(a), or
an individual retirement annuity described
in §408(b), to which the only contribu-
tions that can be made are contributions
under a SIMPLE IRAPlan and rollovers
or transfers from another SIMPLE IRA.
Q. A–3: Can a SIMPLE IRAPlan be
maintained on a fiscal year basis?
A. A–3: ASIMPLE IRAPlan may
only be maintained on a calendar year
basis. Thus, for example, employer eligi-
bility to establish a SIMPLE IRAPlan
(see Q&As B–1 through B–5) and SIM-
PLE IRAPlan contributions (see Q&As
D–1 through D–6) are determined on a
calendar-year basis.
B. EMPLOYERS THATCAN
ESTABLISH SIMPLE IRAPLANS
Q. B–1: Can any employer establish a
SIMPLE IRAPlan?
A. B–1: SIMPLE IRAPlans may be
established only by employers that had no
more than 100 employees who earned
$5,000 or more in compensation during
the preceding calendar year (the “100-em-
ployee limitation”). See Q&As C–4 and
C–5 for the definition of compensation.
For purposes of the 100-employee limita-
tion, all employees employed at any time
during the calendar year are taken into ac-
count, regardless of whether they are eli-
gible to participate in the SIMPLE IRA
Plan. Thus, employees who are exclud-
able under the rules of §410(b)(3) or who
have not met the plan’s minimum eligibil-
ity requirements must be taken into ac-
count. Employees also include self-em-
ployed individuals described in
§401(c)(1) who received earned income
from the employer during the year.
Q. B–2: Is there a grace period that can
be used by an employer that ceases to sat-
isfy the 100-employee limitation?

1998–2 I.R.B27January 12, 1998
A. B–2: An employer that previously
maintained a SIMPLE IRAPlan is treated
as satisfying the 100-employee limitation
for the 2 calendar years immediately fol-
lowing the calendar year for which it last
satisfied the 100-employee limitation.
However, if the failure to satisfy the 100-
employee limitation is due to an acquisi-
tion, disposition or similar transaction in-
volving the employer, then the 2-year
grace period will apply only in accor-
dance with rules similar to the rules of
§410(b)(6)(C)(i).
Q. B–3: Can an employer make contri-
butions under a SIMPLE IRAPlan for a
calendar year if it maintains another qual-
ified plan?
A. B–3: Generally, an employer cannot
make contributions under a SIMPLE IRA
Plan for a calendar year if the employer, or
a predecessor employer, maintains a quali-
fied plan (other than the SIMPLE IRA
Plan) under which any of its employees re-
ceives an allocation of contributions (in the
case of a defined contribution plan) or has
an increase in a benefit accrued or treated
as an accrued benefit under §411(d)(6) (in
the case of a defined benefit plan) for any
plan year beginning or ending in that cal-
endar year. In applying these rules, trans-
fers, rollovers or forfeitures are disre-
garded, except to the extent forfeitures
replace otherwise required contributions.
For purposes of this Q&AB–3, “qualified
plan” means a plan, contract, pension or
trust described in §219(g)(5) and includes
a plan qualified under §401(a), a qualified
annuity plan described in §403(a), an an-
nuity contract described in §403(b), a plan
established for employees of a State, a po-
litical subdivision or by an agency or in-
strumentality of any State or political sub-
division (other than an eligible deferred
compensation plan described in §457(b)),
a simplified employee pension (“SEP”) de-
scribed in §408(k), a trust described in
§501(c)(18) and a SIMPLE IRAPlan de-
scribed in §408(p).
However, an employer can make con-
tributions under a SIMPLE IRAPlan for a
calendar year even though it maintains
another qualified plan if either:
(1) The other qualified plan maintained
by the employer covers only employees
described in paragraph (1) of Q&AC–1
(i.e., employees covered under a collective
bargaining agreement for which retire-
ment benefits were the subject of good
faith bargaining) and the SIMPLE IRA
Plan excludes these employees.
(2) The other qualified plan is main-
tained by the employer during the calen-
dar year in which an acquisition, disposi-
tion or similar transaction occurs (or the
following calendar year); the require-
ments of this Q&AB–3 would have been
satisfied if the transaction had not oc-
curred (and thus the employer maintain-
ing the SIMPLE IRAPlan had remained a
separate employer); and only individuals
who would have been employees of that
“separate” employer are eligible to partic-
ipate in the SIMPLE IRAPlan.
Q. B–4: Are tax-exempt employers
and governmental entities permitted to
maintain SIMPLE IRAPlans?
A. B–4: Yes. Excludable contributions
may be made to the SIMPLE IRAof em-
ployees of tax-exempt employers and
governmental entities on the same basis
as contributions may be made to employ-
ees of other eligible employers.
Q. B–5: Do the employer aggregation
and leased employee rules apply for pur-
poses of the SIMPLE IRAPlan rules
under §408(p)?
A. B–5: For purposes of applying the
SIMPLE IRAPlan rules under §408(p),
certain related employers (trades or busi-
nesses under common control) are treated
as a single employer. These related em-
ployers include controlled groups of cor-
porations under §414(b), partnerships or
sole proprietorships under common con-
trol under §414(c), and affiliated service
groups under §414(m). In addition,
leased employees described in §414(n)
are treated as employed by the employer.
Example: Individual Powns Business
A, a computer rental agency, that has 80
employees who received more than
$5,000 in compensation in 1996. Individ-
ual Palso owns Business B, which repairs
computers and has 60 employees who re-
ceived more than $5,000 in compensation
in 1996. Individual Pis the sole propri-
etor of both businesses. Section 414(c)
provides that the employees of partner-
ships and sole proprietorships that are
under common control are treated as em-
ployees of a single employer. Thus, for
purposes of the SIMPLE IRAPlan rules,
all 140 employees are treated as em-
ployed by Individual P. Therefore, nei-
ther Business Anor Business B is eligible
to establish a SIMPLE IRAPlan for 1997.
C. EMPLOYEE ELIGIBILITYTO
PARTICIPATE IN ASIMPLE IRA
PLAN
Q. C–1: Which employees of an em-
ployer must be eligible to participate
under the SIMPLE IRAPlan?
A. C–1: If an employer establishes a
SIMPLE IRAPlan, all employees of the
employer who received at least $5,000 in
compensation from the employer during
any 2 preceding calendar years (whether
or not consecutive) and who are reason-
ably expected to receive at least $5,000 in
compensation during the calendar year,
must be eligible to participate in the SIM-
PLE IRAPlan for the calendar year.
An employer, at its option, may ex-
clude from eligibility employees de-
scribed in §410(b)(3). These employees
are:
(1) Employees who are included in a
unit of employees covered by an agree-
ment that the Secretary of Labor finds to
be a collective bargaining agreement be-
tween employee representatives and one
or more employers, if there is evidence
that retirement benefits were the subject
of good faith bargaining between such
employee representatives and such em-
ployer or employers;
(2) In the case of a trust established or
maintained pursuant to an agreement that
the Secretary of Labor finds to be a col-
lective bargaining agreement between air
pilots represented in accordance with
Title II of the Railway Labor Act and one
or more employees, all employees not
covered by that agreement; and
(3) Employees who are nonresident
aliens and who received no earned in-
come (within the meaning of §911(d)(2))
from the employer that constitutes income
from sources within the United States
(within the meaning of §861(a)(3)).
Moreover, during the calendar year in
which an acquisition, disposition or simi-
lar transaction occurs (or the following
calendar year), an employer may exclude
from eligibility all of the employees who
would not have been eligible if the trans-
action had not occurred (and thus the em-
ployer maintaining the SIMPLE IRAPlan
had remained a separate employer). See
paragraph (2) of Q&AB–3 for circum-
stances in which exclusion of these em-
ployees would be required.
As noted in Q&AB–5, the employer
aggregation and leased employee rules

January 12, 1998281998–2 I.R.B.
apply for purposes of §408(p). Thus, for
example, if two related employers must
be aggregated under the rules of §414(b),
all employees of either employer who sat-
isfy the eligibility criteria must be al-
lowed to participate in the SIMPLE IRA
Plan.
Q. C–2: May an employer impose less
restrictive eligibility requirements?
A. C–2: An employer may impose less
restrictive eligibility requirements by
eliminating or reducing the prior year
compensation requirements, the current
year compensation requirements, or both,
under its SIMPLE IRAPlan. For exam-
ple, the employer could allow participa-
tion for employees who received $3,000
in compensation during any preceding
calendar year. However, the employer
cannot impose any other conditions on
participating in a SIMPLE IRAPlan.
Q. C–3: May an employee participate
in a SIMPLE IRAPlan if he or she also
participates in a plan of a different em-
ployer for the same year?
A. C–3: An employee may participate
in a SIMPLE IRAPlan even if he or she
also participates in a plan of a different
employer for the same year. However,
the employee’s salary reduction contribu-
tions are subject to the limitations of
§402(g), which provides an aggregate
limit on the exclusion for elective defer-
rals for any individual. Similarly, an em-
ployee who participates in a SIMPLE
IRAPlan and an eligible deferred com-
pensation plan described in §457(b) is
subject to the limitations described in
§457(c). An employer that establishes a
SIMPLE IRAPlan is not responsible for
monitoring compliance with either of
these limitations.
Q. C–4: What definition of compensa-
tion applies for purposes of the SIMPLE
IRAPlan rules in the case of an individual
who is not a self-employed individual?
A. C–4: For purposes of the SIMPLE
IRAPlan rules, in the case of an individ-
ual who is not a self-employed individual,
compensation means the amount de-
scribed in §6051(a)(3) (wages, tips, and
other compensation from the employer
subject to income tax withholding under
§3401(a)), and amounts described in
§6051(a)(8), including elective contribu-
tions made under a SIMPLE IRAPlan,
and compensation deferred under a §457
plan. For purposes of applying the 100-
employee limitation, and in determining
whether an employee is eligible to partici-
pate in a SIMPLE IRAPlan (i.e., whether
the employee had $5,000 in compensation
for any 2 preceding years), an employee’s
compensation also includes the em-
ployee’s elective deferrals under a
§401(k) plan, a salary reduction SEPand
a §403(b) annuity contract.
Q. C–5: What definition of compensa-
tion applies for purposes of the SIMPLE
IRAPlan rules in the case of a self-em-
ployed individual?
A. C–5: For purposes of the SIMPLE
IRAPlan rules, in the case of a self-em-
ployed individual, compensation means
net earnings from self-employment deter-
mined under §1402(a), prior to subtract-
ing any contributions made under the
SIMPLE IRAPlan on behalf of the indi-
vidual.
D. SIMPLE IRAPLAN
CONTRIBUTIONS
Q. D–1: What contributions must an
employer make under a SIMPLE IRA
Plan?
A. D–1: If an employer establishes a
SIMPLE IRAPlan, it must make salary
reduction contributions, as described in
Q&AD–2, to the extent elected by em-
ployees. In addition, the employer must
make employer matching contributions,
as described in Q&As D–4 and D–5, or
employer nonelective contributions, as
described in Q&AD–6. These are the
only contributions that may be made
under a SIMPLE IRAPlan.
Q. D–2: What is a salary reduction
contribution?
A. D–2: Asalary reduction contribu-
tion is a contribution made pursuant to an
employee’s election to have an amount
contributed to his or her SIMPLE IRA,
rather than have the amount paid directly
to the employee in cash. An employee
must be permitted to elect to have salary
reduction contributions made at the level
specified by the employee, expressed as a
percentage of compensation for the year.
Additionally, an employer may permit an
employee to express the level of salary re-
duction contributions as a specific dollar
amount. An employer may not place any
restrictions on the amount of an em-
ployee’s salary reduction contributions
(e.g., by limiting the contribution percent-
age), except to the extent needed to com-
ply with the annual limit on the amount of
salary reduction contributions described
in Q&AD–3.
Q. D–3: What is the annual limit on
the amount of salary reduction contribu-
tions under a SIMPLE IRAPlan?
A. D–3: For 1997 (and for 1998), the
maximum annual amount of salary reduc-
tion contributions that can be made on be-
half of any employee under a SIMPLE
IRAPlan is $6,000. This amount will be
adjusted by the Service to reflect any
changes in the cost of living.
Q. D–4: What employer matching con-
tribution is generally required under a
SIMPLE IRAPlan?
A. D–4: Under a SIMPLE IRAPlan,
an employer is generally required to make
a contribution on behalf of each eligible
employee in an amount equal to the em-
ployee’s salary reduction contributions,
up to a limit of 3 percent of the em-
ployee’s compensation for the entire cal-
endar year.
Q. D–5: Can the 3-percent limit on
matching contributions be reduced?
A. D–5: The 3-percent limit on match-
ing contributions is permitted to be re-
duced for a calendar year at the election
of the employer, but only if:
(1) The limit is not reduced below 1
percent;
(2) The limit is not reduced for more
than 2 years out of the 5-year period that
ends with (and includes) the year for
which the election is effective; and
(3) Employees are notified of the re-
duced limit within a reasonable period of
time before the 60-day election period
during which employees can enter into
salary reduction agreements. See Q&A
E–1.
For purposes of applying the rule de-
scribed in paragraph (2) of this Q&A
D–5, in determining whether the limit
was reduced below 3 percent for a year,
any year before the first year in which an
employer (or a predecessor employer)
maintains a SIMPLE IRAPlan will be
treated as a year for which the limit was 3
percent. If an employer chooses to make
nonelective contributions for a year (see
Q&AD–6), that year also will be treated
as a year for which the limit was 3 per-
cent.
Q. D–6: May an employer make non-
elective contributions instead of matching
contributions?

1998–2 I.R.B29January 12, 1998
A. D–6: As an alternative to making
matching contributions under a SIMPLE
IRAPlan (as described in Q&AD–4 and
D–5), an employer may make nonelective
contributions equal to 2 percent of each
eligible employee’s compensation for the
entire calendar year. The employer’s non-
elective contributions must be made for
each eligible employee regardless of
whether the employee elects to make
salary reduction contributions for the cal-
endar year. The employer may, but is not
required to, limit nonelective contribu-
tions to eligible employees who have at
least $5,000 (or some lower amount se-
lected by the employer) of compensation
for the year.
For purposes of the 2-percent nonelec-
tive contribution, the compensation taken
into account must be limited to the
amount of compensation that may be
taken into account under §401(a)(17) for
the year. The §401(a)(17) limit for 1997
(and for 1998) is $160,000. This amount
will be adjusted by the Service for subse-
quent years to reflect changes in the cost
of living.
An employer may substitute the 2-per-
cent nonelective contribution for the
matching contribution for a year, only if:
(1) Eligible employees are notified that
a 2-percent nonelective contribution will
be made instead of a matching contribu-
tion; and
(2) This notice is provided within a
reasonable period of time before the 60-
day election period during which employ-
ees can enter into salary reduction agree-
ments. See Q&AE–1.
E. EMPLOYEE ELECTIONS
Q. E–1: When must an employee be
given the right to enter into a salary re-
duction agreement?
A. E–1: During the 60-day period im-
mediately preceding January 1 of a calen-
dar year (i.e., November 2 to December
31 of the preceding calendar year), an eli-
gible employee must be given the right to
enter into a salary reduction agreement
for the calendar year, or to modify a prior
agreement (including reducing the
amount subject to this agreement to $0).
However, for the year in which the em-
ployee becomes eligible to make salary
reduction contributions, the period during
which the employee may enter into a
salary reduction agreement or modify a
prior agreement is a 60-day period that in-
cludes either the date the employee be-
comes eligible or the day before that date.
For example, if an employer establishes a
SIMPLE IRAPlan effective as of July 1,
1997, each eligible employee becomes el-
igible to make salary reduction contribu-
tions on that date and the 60-day period
must begin no later than July 1 and cannot
end before June 30, 1997.
During these 60-day periods, employ-
ees have the right to modify their salary
reduction agreements without restrictions.
In addition, for the year in which an em-
ployee becomes eligible to make salary
reduction contributions, the employee
must be able to commence these contribu-
tions as soon as the employee becomes el-
igible, regardless of whether the 60-day
period has ended.
Q. E–2: Can a SIMPLE IRAPlan pro-
vide additional or longer election periods?
A. E–2: Nothing precludes a SIMPLE
IRAPlan from providing additional or
longer periods for permitting employees
to enter into salary reduction agreements
or to modify prior agreements. For exam-
ple, a SIMPLE IRAPlan can provide a
90-day election period instead of the 60-
day period described in Q&AE–1. Simi-
larly, in addition to the 60-day period de-
scribed in Q&AE–1, a SIMPLE IRAPlan
can provide quarterly election periods
during the 30 days before each calendar
quarter.
Q. E–3: Does an employee have the
right to terminate a salary reduction
agreement outside a SIMPLE IRAPlan’s
normal election period?
A. E–3: An employee must be given
the right to terminate a salary reduction
agreement for a calendar year at any time
during the year. ASIMPLE IRAPlan
may provide that an employee who termi-
nates a salary reduction agreement at any
time other than the periods described in
Q&AE–1 or E–2 is not eligible to resume
participation until the beginning of the
next calendar year.
Q. E–4: Must an employer allow an
employee to select the financial institu-
tion to which the employer will make all
SIMPLE IRAPlan contributions on be-
half of the employee?
A. E–4: Generally, under §408(p), an
employer must permit an employee to se-
lect the financial institution for the SIM-
PLE IRAto which the employer will
make all contributions on behalf of the
employee. The employee must communi-
cate to the employer the name of the fi-
nancial institution selected and any addi-
tional information necessary to facilitate
transmittal of the contribution to that in-
stitution. The Model Salary Reduction
Agreement on page 3 of Form 5304-SIM-
PLE can be used for this purpose. Alter-
natively, under the exception described in
Q&AJ–1, an employer may require that
all contributions on behalf of employees
be made to a specified designated finan-
cial institution.
F. VESTING REQUIREMENTS
Q. F–1: Must contributions under a
SIMPLE IRAPlan be nonforfeitable?
A. F–1: Yes. All contributions under a
SIMPLE IRAPlan must be fully vested
and nonforfeitable when made.
Q. F–2: May amounts held in a SIM-
PLE IRAbe withdrawn at any time?
A. F–2: Yes. An employer may not re-
quire an employee to retain any portion of
the contributions in his or her SIMPLE
IRAor otherwise impose any withdrawal
restrictions.
G. EMPLOYER ADMINISTRATIVE
AND NOTIFICATION
REQUIREMENTS
Q. G–1: What notification require-
ments apply to employers?
A. G–1: An employer must notify each
employee, immediately before the em-
ployee’s 60-day election period described
in Q&AE–1, of the employee’s opportu-
nity to enter into a salary reduction agree-
ment or to modify a prior agreement. If
applicable, this notification must disclose
an employee’s ability to select the finan-
cial institution that will serve as the
trustee of the employee’s SIMPLE IRAas
described in Q&AE–4. In the case of a
SIMPLE IRAPlan established using
Form 5304-SIMPLE (Not Subject to the
Designated Financial Institution Rules),
the employer may use the Model Notifi-
cation to Eligible Employees on page 3 of
the form to disclose to each employee the
employee’s right to select the financial in-
stitution that will serve as the trustee of
the employee’s SIMPLE IRAas described
in Q&AE–4. The notification must also
include the summary description de-
scribed in Q&AH–1. In the case of a

January 12, 1998301998–2 I.R.B.
SIMPLE IRAPlan established using
Form 5304-SIMPLE (Not Subject to the
Designated Financial Institution Rules) or
Form 5305-SIMPLE (for Use With a Des-
ignated Financial Institution), the sum-
mary description requirement may be sat-
isfied by providing a completed copy of
pages 1 and 2 of the form that reflects the
terms of the employer’s plan (including
the materials provided by the trustee for
completion of Article VI).
Q. G–2: May the notifications regard-
ing a reduced matching contribution (de-
scribed in Q&AD–5) and a nonelective
contribution in lieu of a matching contri-
bution (described in Q&AD–6) be pro-
vided at the same time as the notification
of an employee’s opportunity to enter into
a salary reduction agreement and the sum-
mary description?
A. G–2: Yes. An employer is deemed
to provide the notification regarding a re-
duced matching contribution or a non-
elective contribution in lieu of a matching
contribution within a reasonable period of
time before the 60-day election period if,
immediately before the 60-day election
period, this notification is included with
the notification of an employee’s opportu-
nity to enter into a salary reduction agree-
ment.
Q. G–3: What reporting penalties
under the Code apply if an employer fails
to provide one or more of the required no-
tices?
A. G–3: If the employer fails to provide
one or more of the required notices de-
scribed in Q&AG–1, the employer will be
liable, under the Code, for a penalty of
$50 per day until the notices are provided.
If the employer shows that the failure was
due to reasonable cause, the penalty will
not be imposed. To the extent that each
employee is permitted to select the trustee
for his or her SIMPLE IRApursuant to
Q&AE–4, and is so notified in accordance
with Q&AG–1, and the information with
respect to the trustee (the name and ad-
dress of the trustee and its withdrawal pro-
cedures) is not available at the time the
employer is required to provide the sum-
mary description, the employer is deemed
to have shown reasonable cause for failure
to provide this information to eligible em-
ployees, but only if the employer sees to it
that this information is provided to the
employee as soon as administratively fea-
sible once the trustee has been selected.
Q. G–4: What if an eligible employee
is unwilling or unable to establish a SIM-
PLE IRA?
A. G–4: If an eligible employee who is
entitled to a contribution under a SIMPLE
IRAPlan is unwilling or unable to estab-
lish a SIMPLE IRAwith any financial in-
stitution prior to the date on which the
contribution is required to be made to the
SIMPLE IRAof the employee under
Q&AG–5 or G–6, an employer may exe-
cute the necessary documents to establish
a SIMPLE IRAon the employee’s behalf
with a financial institution selected by the
employer.
Q. G–5: When must an employer make
salary reduction contributions under a
SIMPLE IRAPlan?
A. G–5: The employer must make
salary reduction contributions to the fi-
nancial institution maintaining the SIM-
PLE IRAno later than the close of the 30-
day period following the last day of the
month in which amounts would otherwise
have been payable to the employee in
cash. The Department of Labor has indi-
cated that most SIMPLE IRAPlans are
also subject to Title I of ERISA, and
under Department of Labor regulations, at
29 CFR 2510.3–102, salary reduction
contributions to these plans must be made
to the SIMPLE IRAas of the earliest date
on which the contributions can reasonably
be segregated from the employer’s gen-
eral assets, but in no event later than the
30-day deadline described above.
Q. G–6: When must an employer make
matching and nonelective contributions
under a SIMPLE IRAPlan?
A. G–6: Matching and nonelective em-
ployer contributions must be made to the
financial institution maintaining the SIM-
PLE IRAno later than the due date for fil-
ing the employer’s income tax return, in-
cluding extensions, for the taxable year
that includes the last day of the calendar
year for which the contributions are
made.
H. TRUSTEE ADMINISTRATIVE
REQUIREMENTS
Q. H–1: What information must a
SIMPLE IRAtrustee provide to an em-
ployer?
A. H–1: (1) Summary description.
Each year, a SIMPLE IRAtrustee must
provide the employer sponsoring the
SIMPLE IRAPlan with a summary de-
scription containing the following infor-
mation:
(a) The name and address of the em-
ployer and the trustee.
(b) The requirements for eligibility for
participation.
(c) The benefits provided with respect
to the arrangement.
(d) The time and method of making
employee elections with respect to the
arrangement.
(e) The procedures for, and effects of,
withdrawals (including rollovers) from
the arrangement.
(2) Timing.Each trustee must provide
the summary description to the employer
early enough to allow the employer to
meet its notification obligation described
in Q&AG–1. However, a trustee is not
required to provide the summary descrip-
tion prior to agreeing to be a trustee of a
SIMPLE IRAunder the SIMPLE IRA
Plan.
(3) Penalties.Each trustee that fails to
provide the employer with one or more
summary descriptions incurs a $50
penalty, under §6693(c) of the Code, for
each day the failures continue, unless the
trustee shows that the failures are due to
reasonable cause. To the extent that the
employer or a trustee provides the infor-
mation described in paragraphs (1)(a)
through (e) of this Q&AH–1 within the
time period prescribed in Q&AG–1 to the
employee for whom the SIMPLE IRAis
established, the trustee of that SIMPLE
IRAis deemed to have shown reasonable
cause for failure to provide that informa-
tion to the employer. For example, if, in
accordance with Q&AG–1, an employer
who uses a designated financial institu-
tion provides, to all eligible employees in
a SIMPLE IRAPlan, its name and ad-
dress, the information described in para-
graphs (1)(a) through (d) of this Q&A
H–1, and the effects of withdrawal, and
the trustee provides its name and address
and its procedures for withdrawal to each
eligible employee for whom a SIMPLE
IRAis established with the trustee under
the SIMPLE IRAPlan, the trustee will be
deemed to have shown reasonable cause
for failing to provide the employer the in-
formation described in paragraphs (1)(a)
through (e) of this Q&AH–1.
(4) Use of model forms as the summary
description.In the case of a SIMPLE
IRAPlan established using Form 5304-

1998–2 I.R.B31January 12, 1998
SIMPLE (Not Subject to the Designated
Financial Institution Rules) or Form
5305-SIMPLE (for Use With a Desig-
nated Financial Institution), a trustee may
satisfy this obligation by providing an
employer (and/or the employee in the
case of Form 5304-SIMPLE) with a cur-
rent copy of Form 5304-SIMPLE or Form
5305-SIMPLE, the instructions, the infor-
mation required for completion of Article
VI, and the name and address of the fi-
nancial institution. The trustee should
provide guidance to the employer (and the
employee, if Form 5304-SIMPLE is pro-
vided directly to the employee) concern-
ing the need for the employer to complete
the first two pages of Form 5304-SIM-
PLE or Form 5305-SIMPLE in accor-
dance with its plan’s terms and to distrib-
ute completed copies to eligible
employees.
(5) Transfer SIMPLE IRAs.The trustee
of a transfer SIMPLE IRAis not required
to provide the summary description de-
scribed in the preceding paragraph. A
SIMPLE IRAis a transfer SIMPLE IRAif
it is not a SIMPLE IRAto which the em-
ployer has made contributions under the
SIMPLE IRAPlan.
Q. H–2: What information must a
SIMPLE IRAtrustee provide to partici-
pants in the SIMPLE IRAPlan?
A. H–2: Within 31 days after the close
of each calendar year, a SIMPLE IRA
trustee must provide each individual on
whose behalf an account is maintained
with a statement of the individual’s ac-
count balance as of the close of that calen-
dar year and the account activity during
that calendar year. Atrustee who fails to
provide individuals with this statement in-
curs a $50 penalty, under the Code, for
each day the failure continues, unless the
trustee shows that the failure is due to rea-
sonable cause. The trustee must also pro-
vide any other information required to be
furnished to IRAholders (e.g., disclosure
statements for individual retirement plans
as referred to in §1.408–6 of the regula-
tions).
Q. H–3: What information must a
SIMPLE IRAtrustee provide to the Ser-
vice?
A. H–3: Section 408(i) requires the
trustee of an individual retirement account
to make reports regarding these accounts to
the Service. Form 5498, Individual Retire-
ment Arrangement Information, has been
modified to require that the amount of con-
tributions to a SIMPLE IRA, rollover con-
tributions, and the fair market value of the
account be reported, and that contributions
to a SIMPLE IRAbe identified as such. A
trustee who fails to file these reports incurs
a $50 penalty under the Code for each fail-
ure, unless it is shown that the failure is due
to reasonable cause.
Q. H–4: Are distributions from a SIM-
PLE IRArequired to be reported on Form
1099–R?
A. H–4: Pursuant to §6047 of the
Code and §35.3405–1 of the regulations,
the payor of a designated distribution
from an IRAmust report the distribution
on Form 1099–R. Adistribution from a
SIMPLE IRAis a designated distribution
from an IRAand thus must be reported on
Form 1099–R. The Service has revised
Form 1099–R, Distributions From Pen-
sions, Annuities, Retirement or Profit-
sharing Plans, IRAs, Insurance Contracts,
Etc., to reflect the requirements that apply
to SIMPLE IRAs. The penalty, under the
Code, for failure to report a designated
distribution from an IRA(including a
SIMPLE IRA) is determined under sec-
tions 6721–6724.
Q. H–5: Is a SIMPLE IRAtrustee re-
sponsible for reporting whether a distribu-
tion to a participant occurred during the 2-
year period described in Q&AI–2?
A. H–5: Yes. ASIMPLE IRAtrustee is
required to report on Form 1099–R
whether a distribution to a participant oc-
curred during the 2-year period described
in Q&AI–2. Atrustee is permitted to pre-
pare this report on the basis of its own
records with respect to the SIMPLE IRA
account. Atrustee may, but is not re-
quired to, take into account other ade-
quately substantiated information regard-
ing the date on which an individual first
participated in any SIMPLE IRAPlan
maintained by the individual’s employer.
See Q&AI–2 on the effect of distribu-
tions within this 2-year period.
I. TAX TREATMENTOF SIMPLE IRA
PLANS
Q. I–1: What are the tax consequences
of SIMPLE IRAPlan contributions?
A. I–1: Contributions to a SIMPLE
IRAare excludable from federal income
tax and not subject to federal income tax
withholding. Salary reduction contribu-
tions to a SIMPLE IRAare subject to tax
under the Federal Insurance Contributions
Act (“FICA”), the Federal Unemploy-
ment Tax Act (“FUTA”), and the Railroad
Retirement Act (“RRTA”), and must be
reported on Form W–2, Wage and Tax
Statement. Matching and nonelective
contributions to a SIMPLE IRAare not
subject to FICA, FUTA, or RRTAtaxes,
and are not required to be reported on
Form W–2.
Q. I–2: What are the tax consequences
when amounts are distributed from a
SIMPLE IRA?
A. I–2: Generally, the same tax results
apply to distributions from a SIMPLE
IRAas to distributions from a regular IRA
(i.e., an IRAdescribed in §408(a) or (b)).
However, a special rule applies to a pay-
ment or distribution received from a SIM-
PLE IRAduring the 2-year period begin-
ning on the date on which the individual
first participated in any SIMPLE IRA
Plan maintained by the individual’s em-
ployer (the “2-year period”).
Under this special rule, if the additional
income tax on early distributions under
§72(t) applies to a distribution within this
2-year period, §72(t)(6) provides that the
rate of additional tax under this special
rule is increased from 10 percent to 25
percent. If one of the exceptions to appli-
cation of the tax under §72(t) applies
(e.g., for amounts paid after age 59
1
⁄
2
,
after death, or as part of a series of sub-
stantially equal payments), the exception
also applies to distributions within the 2-
year period and the 25-percent additional
tax does not apply.
Q. I–3: Are there any special rollover
rules that apply to a distribution from a
SIMPLE IRA?
A. I–3: Section 408(d)(3)(G) provides
that the rollover provisions of §408(d)(3)
apply to a distribution from a SIMPLE
IRAduring the 2-year period described in
Q&AI–2 only if the distribution is paid
into another SIMPLE IRA. Thus, a distri-
bution from a SIMPLE IRAduring that 2-
year period qualifies as a rollover contri-
bution (and thus is not includable in gross
income) only if the distribution is paid
into another SIMPLE IRAand satisfies
the other requirements of §408(d)(3) for
treatment as a rollover contribution.
Q. I–4: Can an amount be transferred
from a SIMPLE IRAto another IRAin a
tax-free trustee-to-trustee transfer?

January 12, 1998321998–2 I.R.B.
A. I–4: During the 2-year period de-
scribed in Q&AI–2, an amount in a SIM-
PLE IRAcan be transferred to another
SIMPLE IRAin a tax-free trustee-to-
trustee transfer. If, during this 2-year pe-
riod, an amount is paid from a SIMPLE
IRAdirectly to the trustee of an IRAthat is
not a SIMPLE IRA, the payment is neither
a tax-free trustee-to-trustee transfer nor a
rollover contribution; the payment is a dis-
tribution from the SIMPLE IRAand a
contribution to the other IRAthat does not
qualify as a rollover contribution. After
the expiration of the 2-year period, an
amount in a SIMPLE IRAcan be trans-
ferred in a tax-free trustee-to-trustee trans-
fer to an IRAthat is not a SIMPLE IRA.
Q. I–5: When does the 2-year period
described in Q&AI–2 begin?
A. I–5: The 2-year period described in
Q&AI–2 begins on the first day on which
contributions made by the individual’s
employer are deposited in the individual’s
SIMPLE IRA.
Q. I–6: Do the qualification rules of
§401(a) apply to contributions under a
SIMPLE IRAPlan?
A. I–6: None of the qualification rules
of §401(a) apply to SIMPLE IRAPlans.
For example, the §415 and 416 rules do
not apply to contributions under a SIM-
PLE IRAPlan. Similarly, the §401(a)-
(17) limit does not apply to salary reduc-
tion contributions and matching
contributions. However, as noted in
Q&AD–6, the amount of compensation
that may be taken into account for pur-
poses of the 2-percent nonelective contri-
bution is limited to the amount that may
be taken into account under §401(a)(17)
for the year.
Q. I–7: What rules apply to an em-
ployer’s ability to deduct contributions
under a SIMPLE IRAPlan?
A. I–7: Pursuant to §404(m), contribu-
tions under a SIMPLE IRAPlan are de-
ductible in the taxable year of the em-
ployer with or within which the calendar
year for which contributions were made
ends (without regard to the limitations of
§404(a)). For example, if an employer
has a June 30 taxable year end, contribu-
tions under the SIMPLE IRAPlan for the
calendar year 1997 (including contribu-
tions made in 1997 before June 30, 1997)
are deductible in the taxable year ending
June 30, 1998. Contributions will be
treated as made for a particular taxable
year if they are made on account of that
taxable year and are made by the due date
(including extensions) prescribed by law
for filing the return for the taxable year.
J. EXCEPTION FOR USE OF
DESIGNATED FINANCIAL
INSTITUTION
Q. J–1: Can an employer designate a
particular financial institution to which all
contributions under the SIMPLE IRA
Plan will be made?
A. J–1: Yes. In accordance with
§408(p)(7), instead of making SIMPLE
IRAPlan contributions to the financial in-
stitution selected by each eligible em-
ployee (see Q&AE–4), an employer may
require that all contributions on behalf of
all eligible employees under the SIMPLE
IRAPlan be made to SIMPLE IRAs at a
particular financial institution if the fol-
lowing requirements are met: (1) the em-
ployer and the financial institution agree
that the financial institution will be a des-
ignated financial institution under
§408(p)(7) (“DFI”) for the SIMPLE IRA
Plan; (2) the financial institution agrees
that, if a participant so requests, the partic-
ipant’s balance will be transferred without
cost or penalty to another SIMPLE IRA
(or, after the 2-year period described in
Q&AI–2, to any IRA) at a financial insti-
tution selected by the participant; and (3)
each participant is given written notifica-
tion describing the procedures under
which, if a participant so requests, the par-
ticipant’s balance will be transferred with-
out cost or penalty to another SIMPLE
IRA(or, after the 2-year period described
in Q&AI–2, to any IRA) at a financial in-
stitution selected by the participant.
This Q&AJ–1 is illustrated by the fol-
lowing examples:
Example 1: Arepresentative of Finan-
cial Institution Lapproaches Employer B
concerning the establishment of a SIM-
PLE IRAPlan. Employer B agrees to es-
tablish a SIMPLE IRAPlan for its eligible
employees. Employer B would prefer to
avoid writing checks to more than one fi-
nancial institution on behalf of employ-
ees, and is interested in making all contri-
butions under the SIMPLE IRAPlan to a
single financial institution. Employer B
and Financial Institution Lagree that Fi-
nancial Institution Lwill be a DFI and Fi-
nancial Institution Lagrees that, if a par-
ticipant so requests, it will transfer the
participant’s balance, without cost or
penalty, to another SIMPLE IRA(or, after
the 2-year period described in Q&AI–2,
to any IRA) at a financial institution se-
lected by the participant. ASIMPLE IRA
is established for each participating em-
ployee of Employer B at Financial Institu-
tion L. Each participant is provided with
a written description of how and when the
participant may direct that the partici-
pant’s balance attributable to contribu-
tions made to Financial Institution Lbe
transferred without cost or penalty to a
SIMPLE IRA(or, after the 2-year period
described in Q&AI–2, to any IRA) at an-
other financial institution selected by the
participant. Financial Institution Lis a
DFI, and Employer B may require that all
contributions on behalf of all eligible em-
ployees be made to SIMPLE IRAs at Fi-
nancial Institution L.
Example 2: Arepresentative of Finan-
cial Institution M approaches Employer C
concerning the establishment of a SIM-
PLE IRAPlan. Employer C invites Fi-
nancial Institution M to make a presenta-
tion on its investment options for
SIMPLE IRAs to Employer C’s employ-
ees. Each eligible employee receives no-
tification that the employer must permit
the employee to select which financial in-
stitution will serve as the trustee of the
employee’s SIMPLE IRA(see Q&A
G–1). All eligible employees of Em-
ployer C voluntarily select Financial In-
stitution M to serve as the trustee of the
SIMPLE IRAs to which Employer C will
make all contributions on behalf of the
employees. Financial Institution M is not
a DFI merely because all eligible employ-
ees of Employer C selected Financial In-
stitution M to serve as the trustee of their
SIMPLE IRAs and Employer C conse-
quently makes all contributions to Finan-
cial Institution M. Therefore, Financial
Institution M is not required to transfer
SIMPLE IRAbalances without cost or
penalty.
Example 3: Assume the same facts as
Example 2, except that Employee X and
Employee Y, who made salary reduction
elections, failed to establish SIMPLE
IRAs to receive SIMPLE IRAPlan contri-
butions on their behalf before the first
date on which Employer C is required to
make a contribution to their SIMPLE
IRAs. Employer C establishes SIMPLE

1998–2 I.R.B33January 12, 1998
IRAs at Financial Institution M for these
employees and contributes the amount re-
quired to their accounts. Financial Insti-
tution M is not a DFI merely because Em-
ployer C establishes SIMPLE IRAs on
behalf of Employee X and Employee Y
while all other employees voluntarily se-
lect Financial Institution M to serve as the
trustee of the SIMPLE IRAs to which
Employer C will make contributions on
their behalf.
Q. J–2: May the time and manner in
which a participant may transfer his or her
balance without cost or penalty be limited
without violating the requirements of
§408(p)(7)?
A. J–2: Yes. Section 408(p)(7) will not
be violated merely because a participant
is given only a reasonable period of time
each year in which to transfer his or her
balance without cost or penalty. Apartici-
pant will be deemed to have been given a
reasonable period of time in which to
transfer his or her balance without cost or
penalty if, for each calendar year, the par-
ticipant has until the end of the 60-day pe-
riod described in Q&AE–1 to request to
transfer, without cost or penalty, his or her
balance attributable to SIMPLE IRAPlan
contributions for the calendar year fol-
lowing that 60-day period (or, for the year
in which an employee becomes eligible to
make salary reduction contributions, for
the balance of that year) and subsequent
calendar years.
If the time or manner in which a partic-
ipant may transfer his or her balance with-
out cost or penalty is limited, any such
limitation must be disclosed as part of the
written notification described in Q&A
J–1. In the case of a SIMPLE IRAPlan
established using Form 5305-SIMPLE, if
the summary description requirement is
being satisfied by providing a completed
copy of pages one and two of Form 5305-
SIMPLE, Article VI (Procedures for
Withdrawal) must contain a clear expla-
nation of any such limitation.
This Q&AJ–2 is illustrated by the fol-
lowing examples:
Example 1: Employer Afirst estab-
lishes a SIMPLE IRAPlan effective Janu-
ary 1, 1998, and intends to make all con-
tributions to Financial Institution M,
which has agreed to serve as a DFI. For
the 1998 calendar year, Employer Apro-
vides the 60-day election period described
in Q&AE–1 beginning November 2,
1997, and notifies each participant that he
or she may request that his or her balance
attributable to future contributions be
transferred from Financial Institution M
to a SIMPLE IRAat a financial institution
that the participant selects. The notifica-
tion states that the transfer will be made
without cost or penalty if the participant
contacts Financial Institution M prior to
January 1, 1998. For the 1998 calendar
year, the requirements of §408(p)(7) will
not be violated merely because partici-
pants are given only a 60-day period in
which to request to transfer their balances
without cost or penalty.
Example 2: Assume the same facts as
Example 1. Participant X does not re-
quest a transfer of her balance by Decem-
ber 31, 1997, but requests a transfer of her
current balance to another SIMPLE IRA
on July 1, 1998. Participant X’s current
balance would not be required to be trans-
ferred without cost or penalty because
Participant X did not request such a trans-
fer prior to January 1, 1998. However,
during the 60-day period preceding the
1999 calendar year, Participant X may re-
quest a transfer, without cost or penalty,
of her balance attributable to contribu-
tions made for the 1999 calendar year
and, if she so elects, for all future calendar
years (but not her balance attributable to
contributions for the 1998 calendar year).
Example 3: Assume the same facts as
Example 1. Under the terms of the SIM-
PLE IRAPlan, Participant Ybecomes an
eligible employee on June 1, 1998, and,
for Participant Y, the 60-day period de-
scribed in Q&AE–1 begins on that date.
For the 1998 calendar year, Participant Y
will be deemed to have been given a rea-
sonable amount of time in which to re-
quest to transfer, without cost or penalty,
his balance attributable to contributions
for the balance of the 1998 calendar year
if Financial Institution M allows such a
request to be made prior to July 31, 1998.
Q. J–3: Is there a limit on the fre-
quency with which a participant’s balance
must be transferred without cost or
penalty?
A. J–3: In order to satisfy §408(p)(7),
if a participant acts, within applicable rea-
sonable time limits, if any, to request a
transfer of his or her balance, the partici-
pant’s balance must be transferred on a
reasonably frequent basis. Aparticipant’s
balance will be deemed to be transferred
on a reasonably frequent basis if it is
transferred on a monthly basis.
Q. J–4: How does a DFI transfer a par-
ticipant’s balance without cost or penalty?
A. J–4: In order to satisfy §408(p)(7),
a participant’s balance must be transferred
in a trustee-to-trustee transfer directly to a
SIMPLE IRA(or, after the 2-year period
described in Q&AI–2, to any IRA) at the
financial institution specified by the par-
ticipant.
Atransfer is deemed to be made with-
out cost or penalty if no liquidation, trans-
action, redemption or termination fee, or
any commission, load (whether front-end
or back-end) or surrender charge, or simi-
lar fee or charge is imposed with respect
to the balance being transferred. Atrans-
fer will not fail to be made without cost or
penalty merely because contributions that
a participant has elected to have trans-
ferred without cost or penalty are required
to be invested in one specified investment
option until transferred, even though a va-
riety of investment options are available
with respect to contributions that partici-
pants have not elected to transfer.
This Q&AJ–4 is illustrated by the fol-
lowing examples:
Example 1: Financial Institution Q
agrees to be a DFI for the SIMPLE IRA
Plan maintained by Employer D. Em-
ployer D provides the 60-day election pe-
riod described in Q&AE–1 beginning on
November 2 of each year and each partic-
ipant is notified that he or she may re-
quest, before the end of the 60-day period,
a transfer of his or her future contribu-
tions from Financial Institution Q without
cost or penalty to a SIMPLE IRA(or,
after the 2-year period described in Q&A
I–2, to any IRA) at a financial institution
selected by the participant. The notifica-
tion states that a participant’s contribu-
tions that are to be transferred without
cost or penalty will be invested in a speci-
fied investment option and will be trans-
ferred to the financial institution selected
by the participant on a monthly basis.
Financial Institution Q offers various
investment options to account holders of
SIMPLE IRAaccounts, including invest-
ment options with a sales charge. Any
participant who does not elect to have his
or her balance transferred to another fi-
nancial institution may invest the contri-
butions made on his or her behalf in any
investment option available to account

January 12, 1998341998–2 I.R.B.
holders of SIMPLE IRAaccounts at Fi-
nancial Institution Q. However, contribu-
tions that a participant has elected to have
transferred are automatically invested,
prior to transfer, in a specified investment
option that has no sales charge. The re-
quirement that a participant’s balance be
transferred without cost or penalty will
not be violated merely because contribu-
tions that have been designated to be
transferred pursuant to a participant’s
election are automatically invested in one
specified investment option and trans-
ferred on a monthly basis to the financial
institution selected by the participant.
Example 2: Assume the same facts as
in Example 1. Financial Institution Q
generally charges its IRAaccounts a rea-
sonable annual administration fee. Finan-
cial Institution Q also charges this annual
administration fee with respect to SIM-
PLE IRAaccounts, including SIMPLE
IRAaccounts from which balances must
be transferred in accordance with partici-
pants’transfer elections. The requirement
that participants balances be transferred
without cost or penalty will not be vio-
lated merely because a reasonable annual
administration fee is charged to SIMPLE
IRAaccounts from which balances must
be transferred in accordance with partici-
pants’transfer elections.
Q. J–5: Is the “without cost or penalty”
requirement violated if a DFI charges an
employer for a participant’s transfer of his
or her balance?
A. J–5: The “without cost or penalty”
requirement of §408(p)(7) is not violated
merely because a DFI charges an em-
ployer an amount that takes into account
the financial institution’s responsibility to
transfer balances upon a participant’s re-
quest or otherwise charges an employer
for a transfer requested by a participant,
provided that the charge is not passed
through to the participant who requests
the transfer.
K. SIMPLE IRAPLAN
ESTABLISHMENT
Q. K–1: Must an employer establish a
SIMPLE IRAPlan on January 1?
A. K–1: An existing employer may
establish a SIMPLE IRAPlan effective
on any date between January 1 and Octo-
ber 1 of a year beginning after December
31, 1996, provided that the employer (or
any predecessor employer) did not previ-
ously maintain a SIMPLE IRAPlan.
This requirement does not apply to a new
employer that comes into existence after
October 1 of the year the SIMPLE IRA
Plan is established if the employer estab-
lishes the SIMPLE IRAPlan as soon as
administratively feasible after the em-
ployer comes into existence. If an em-
ployer (or predecessor employer) previ-
ously maintained a SIMPLE IRAPlan,
the employer may establish a SIMPLE
IRAPlan effective only on January 1 of a
year.
Q. K–2: When must a SIMPLE IRAbe
established for an employee?
A. K–2: ASIMPLE IRAis required to
be established for an employee prior to
the first date by which a contribution is
required to be deposited into the em-
ployee’s SIMPLE IRA(see Q&As G–5
and G–6).
Q. K–3: Has the Service issued model
forms that an employer can use to estab-
lish a SIMPLE IRAPlan?
A. K–3: Yes. On October 31, 1996,
the Service issued Form 5305-SIMPLE
(for Use With a Designated Financial In-
stitution), which is a form that may be
used by an employer establishing a SIM-
PLE IRAPlan with a financial institution
that is a DFI. On December 30, 1996, the
Service issued Form 5304-SIMPLE (Not
Subject to the Designated Financial Insti-
tution Rules), which is the model form
that may be used by an employer to estab-
lish a SIMPLE IRAPlan that does not use
a DFI.
Q. K–4: How long may an employer
use the modified Form 5305-SIMPLE
(for Use With a Designated Financial In-
stitution)?
A. K–4: An employer that established
or establishes a SIMPLE IRAPlan (that
does not use a DFI) by using Form 5305-
SIMPLE (for Use With a Designated Fi-
nancial Institution) as modified in accor-
dance with Q&AK–3 as it originally
appeared in Notice 97–6 may continue to
use that modified form through the end of
1998. The Service has not approved the
use of the modified form beyond 1998.
Consequently, such an employer that
makes contributions for a calendar year
after 1998 must adopt one of the two
model forms (Form 5304-SIMPLE or
Form 5305-SIMPLE) or an approved pro-
totype SIMPLE IRAPlan in order to rely
on Service-approved SIMPLE IRAPlans
for 1999 and future years. For purposes
of Q&As E–4, G–1 and H–1 of this no-
tice, the modified Form 5305-SIMPLE is
treated as a Form 5304-SIMPLE (Not
Subject to the Designated Financial Insti-
tution Rules).
EFFECTON OTHER DOCUMENTS
This notice modifies and supersedes
Notice 97–6.
PAPERWORK REDUCTION ACT
The collection of information con-
tained in this notice has been reviewed
and approved by the Office of Manage-
ment and Budget (OMB) in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under control number 1545-
1502.
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
OMB control number.
The collection of information in this
notice is in the sections headed “EM-
PLOYEE ELECTIONS” and “EM-
PLOYER ADMINISTRATIVE AND
NOTIFICATION REQUIREMENTS.”
This information is required to assure
compliance with the new provisions of
the Small Business Job Protection Act of
1996. The collection of information is re-
quired to obtain a benefit. The likely re-
spondents are individuals, businesses or
other for-profit institutions, and not-for-
profit institutions.
The estimated total annual reporting
burden is 75,000 hours. The estimated
annual burden per recordkeeper is 15
minutes. The estimated number of re-
spondents is 300,000. The estimated an-
nual frequency of responses is on occa-
sion.
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 26U.S.C.6103.
DRAFTING INFORMATION
The principal author of this notice is
Roger Kuehnle of the Employee Plans Di-
vision. For further information regarding

1998–2 I.R.B35January 12, 1998
this notice, please contact the Employee
Plans Division’s taxpayer assistance tele-
phone service at (202) 622-6074/6075
(not toll-free numbers), between the hours
of 1:30 and 3:30 p.m. Eastern Time, Mon-
day through Thursday.
Rev. Proc. 98–10
26 CFR 601.201: Rulings and determination letters.
(Also, Part I, §412.)
Section 1. Purpose and Scope
This revenue procedure modifies Rev.
Proc. 95–51, 1995–2 C.B. 431, which
provides approval to change the funding
method (actuarial cost method) used for a
defined benefit pension plan. Specifi-
cally, this revenue procedure modifies § 3
of Rev. Proc. 95–51 to provide approval
to change the asset valuation method to
one of three additional methods and to
provide approval for certain changes in
valuation software. This revenue proce-
dure also clarifies and modifies other pro-
visions of Rev. Proc. 95–51.
Section 2. Background
.01Section 412(c)(5)(A) of the Inter-
nal Revenue Code, as amended, and §
302(c)(5)(A) of the Employee Retire-
ment Income Security Act of 1974
(ERISA), as amended, state that if the
funding method of a plan is changed, the
new funding method shall become effec-
tive only if the change is approved by the
Secretary.
.02Section 1.412(c)(2)–1 of the In-
come Tax Regulations generally provides
that a change in the actuarial valuation
method used to value the assets of a plan is
a change in funding method that requires
approval under § 412(c)(5) of the Code.
.03Rev. Proc. 95–51 provides ap-
proval for certain changes in funding
method. Section 3 of Rev. Proc. 95–51
provides approval for changes to 14 spe-
cific methods including three asset valua-
tion methods. Section 4 of Rev. Proc. 95–
51 provides four special approvals for
changes. Section 5 of Rev. Proc. 95–51
provides rules relating to the establish-
ment and maintenance of amortization
bases upon changing methods. Section 6
of Rev. Proc. 95–51 provides restrictions
under the revenue procedure.
Section 3. Additional Approvals under
Rev. Proc. 95–51
.01Section 3 of Rev. Proc. 95–51 (Ap-
proval for Specified Changes) is modified
by adding the following:
.15Approval 15.Approval is granted
for a change in asset valuation method to
the smoothed market value (without phase-
in) described below, or to any alternative
formulation that is algebraically equivalent
to this smoothed value. The asset value
determined under the method will be ad-
justed to be no greater than 120% and no
less than 80% of the fair market value de-
fined in §1.412(c)(2)–1(c).
Under this method, the actuarial value
of assets is equal to the market value of
assets less a decreasing fraction (i.e.,
(n–1)/n, (n–2)/n, etc., where n equals the
number of years in the smoothing period)
of the gain or loss for each of the preced-
ing n-1 years. The stated smoothing pe-
riod may not exceed five (5) plan years.
Under this method, a gain or loss for a
year is determined by calculating the dif-
ference between the expected value of the
assets for the year and the market value of
the assets at the valuation date. The ex-
pected value of the assets for the year is
the market value of the assets at the valua-
tion date for the prior year brought for-
ward with interest at the valuation interest
rate to the valuation date for the current
year plus contributions minus benefit dis-
bursements, all adjusted with interest at
the valuation rate to the valuation date for
the current year. If the expected value is
less than the market value, the difference
is a gain. Conversely, if the expected
value is greater than the market value, the
difference is a loss.
For example, if the smoothing period is
five years, the actuarial value of the assets
will be the market value of the plan’s as-
sets, with gains subtracted or losses added
at the rates described as follows:
(i) 4/5 of the prior year’s gain or loss
(ii) 3/5 of the second preceding year’s
gain or loss
(iii) 2/5 of the third preceding year’s
gain or loss
(iv) 1/5 of the fourth preceding year’s
gain or loss
.16Approval 16.Approval is granted
for a change in asset valuation method to
the smoothed market value (with phase-
in) described below, or to any alternative
formulation that is algebraically equiva-
lent to this smoothed value. The asset
value determined under the method will
be adjusted to be no greater than 120%
and no less than 80% of the fair market
value defined in §1.412(c)(2)–1(c).
In the first year this method is used the
actuarial value of assets is equal to the
market value as of the valuation date. In
each subsequent year, the smoothed value
is calculated in the same manner as in Ap-
proval 15, except that the only gains or
losses recognized are those occurring in
the year of the change and in later years.
The stated smoothing period may not ex-
ceed five (5) plan years.
.17Approval 17. Approval is granted
for a change in asset valuation method to
the average value (as defined in
§1.412(c)(2)–1(b)(7)), modified to use
the alternative phase-in as described
below, or to any alternative formulation
that is algebraically equivalent to this av-
erage. The asset value determined under
the method will be adjusted to be no
greater than 120% and no less than 80%
of the fair market value defined in
§1.412(c)(2)–1(c).
In the first year this method is used, the
actuarial value of assets is equal to the
market value. In the second year, the av-
erage value is calculated in the same man-
ner as in Approval 11, except that the av-
eraging period is two years. In the third
year, the average value is calculated in the
same manner as in Approval 11, except
that the averaging period is three years.
This process continues until the stated av-
eraging period (not to exceed five years)
is reached.
.02 Section 4 of Rev. Proc. 95-51 (Spe-
cial Approvals) is modified to add a new
§4.05 as follows:
.05 Approval for Change in Valuation
Software
(1) Approval is granted for a change in
method that results from a change in valu-
ation software where all the conditions set
forth in paragraphs (2) through (8) are sat-
isfied. Note that certain changes in valua-
tion software may not constitute changes
in funding method. For example, the up-
date of the valuation software to incorpo-
rate the actual social security taxable
wage base for the current year is not a
change in funding method. Also, if all of
the results of each specific computation
are the same after the change in valuation

January 12, 1998361998–2 I.R.B.
software, there is no change in funding
method.
(2) There has been a modification to
the computations in the valuation soft-
ware or a different valuation software sys-
tem has been used. Examples of modifi-
cations to the computations in the
valuation software include a change from
commutation functions to direct calcula-
tion of actuarial values, changes in the
rounding conventions or changes to cor-
rect errors or inefficiencies in the compu-
tations. Examples of using a different
valuation software system include a
change in the spreadsheet software (e.g.,
Lotus 1-2-3 to Excel) or a change in the
actuarial software vendor.
(3) The underlying method is un-
changed and is consistent with the infor-
mation contained in the prior actuarial
valuation reports and prior Schedules B of
Form 5500.
(4) The modification to the computa-
tions in the valuation software or the use
of a different valuation software system is
designed to produce results that are no
less accurate than the results produced
prior to the modification or change.
(5) The net charge to the funding stan-
dard account for the year does not differ
from the net charge that would result if
the valuation software had not been
changed (all other factors being held con-
stant) by more than two percent (2%).
(6) Achange in valuation software re-
quiring approval was not made for the
prior plan year.
(7) Section 4.04 (Approval for
Takeover Plans) of this revenue procedure
is not applicable to the change.
(8) The effect of the change in method
is treated in the same manner as an expe-
rience gain or loss, unless the actuarial as-
sumptions are being changed, in which
case the effect of the change in method is
treated as part of the effect of the change
in assumptions.
Section 4. Clarifications and
Modifications of Rev. Proc. 95–51
.01Section 3.11 of Rev. Proc. 95–51 is
clarified to read as follows:
.11Approval 11.Approval is granted
for a change in asset valuation method to
the average value as defined in
§1.412(c)(2)–1(b)(7) (which does not
have a phase-in), or to any alternative for-
mulation that is algebraically equivalent
to this average value. The asset value de-
termined under the method will be ad-
justed to be no greater than 120% and no
less than 80% of the fair market value de-
fined in §1.412(c)(2)–1(c).
For example, under §1.412(c)(2)–
1(b)(7), if the averaging period is five
years, the average value is based on the
fair market value of assets in the current
year and the adjusted values of assets for
the prior four years as provided in
§1.412(c)(2)–1(b)(8). An alternative for-
mulation which is algebraically equivalent
to this method is one in which the average
value of assets is equal to the fair market
value on the valuation date, minus de-
creasing fractions (4/5, 3/5, 2/5 and 1/5, in
this example) of the appreciation and de-
preciation of the assets in each of the four
preceding years. The stated averaging pe-
riod may not exceed five (5) plan years.
.02 Section 3.11 of Rev. Proc. 95-51 is
clarified to read as follows:
.12Approval 12.Approval is granted
for a change in asset valuation method to
the average value (as defined in
§1.412(c)(2)–1(b)(7)), modified to use the
phase-in described below, or to any alter-
native formulation that is algebraically
equivalent to this average value. The asset
value determined under the method will
be adjusted to be no greater than 120%
and no less than 80% of the fair market
value defined in §1.412(c)(2)–1(c).
In the first year this method is used, the
average value is calculated as in Approval
11, except that the adjusted values for all
but the most recent prior year are replaced
by the adjusted value for the most recent
prior year. In the second year, the average
is calculated as in Approval 11, except
that the values for all but the most recent
two prior years are replaced by the ad-
justed value for the second most recent
prior year. This process is continued until
values for all prior years in the averaging
period are phased in. The stated averag-
ing period may not exceed five (5) plan
years.
.03Section 4.02(1) of Rev. Proc. 95-51 is
modified to read as follows:
(1) If a plan uses an individual aggre-
gate funding method and an individual
normal cost becomes negative for a par-
ticipant, approval is granted to re-allocate
excess assets to other participants in pro-
portion to the present value of accrued
benefits, or in proportion to the accrued
liability determined under the immediate
gain funding method described in §3.01,
§3.08 (only if the normal cost for a par-
ticipant is determined as a level percent of
compensation under the plan’s method),
or §3.09 (only if the normal cost for a
participant is determined as a level dollar
amount under the plan’s method) or in
proportion to the allocated adjusted assets
prior to the reallocation. For this purpose,
excess assets are defined as the excess, if
any, of the assets currently allocated to
the participant over the present value of
the participant’s future benefits.
.04Section 4.04(3) of Rev. Proc. 95–51
is modified to read as follows:
(3) The method used by the new actu-
ary is substantially the same as the
method used by the prior actuary, and is
consistent with the information contained
in the prior actuarial valuation reports or
prior Schedules B of Form 5500. Also,
the method used by the new actuary must
be applied to the prior year (using the as-
sumptions of the prior actuary) and the
absolute value of each resulting differ-
ence in normal cost, accrued liability (if
directly computed under the method) and
actuarial value of assets, that is attribut-
able to the change in cost method, does
not exceed five percent (5%) of the re-
spective amounts calculated by the prior
actuary for that year.
.05Section 5.01(2) (Creation of a Fund-
ing Method Change Base) of Rev. Proc.
95-51 is modified to read as follows:
Except in the case of a change to a
funding method described in §3.02,
§3.03, §3.04, or §3.05, all existing bases
shall be maintained and an amortization
base shall be established equal to the dif-
ference between the unfunded accrued li-
ability under the new method and an
amount equal to (A) the net sum of the
outstanding balances of all amortization
bases (including, when the preceding
method was an immediate gain method,
the gain or loss base for the immediately
preceding period), treating credit bases as
negative bases, less (B) the credit balance
(or plus the funding deficiency), if any, in
the funding standard account, less (C) the
sum of (i) any existing accumulation of
additional funding charges for prior plan
years due to §412(l), (ii) any existing ac-
cumulation of additional interest charges
due to late or unpaid quarterly install-

1998–2 I.R.B37January 12, 1998
ments for prior plan years and (iii) any ex-
isting accumulation of additional interest
charges due to the amortization of prior
funding waivers (which sum can be found
on the Schedule B, for example, in 1997
on Line 9q(4)), all adjusted for interest at
the valuation rate to the valuation date in
the plan year for which the change is
made. If this difference is a positive or
negative number, the resulting base will
be a charge base or a credit base, respec-
tively. In the case of a change to a fund-
ing method described in §3.02, §3.03,
§3.04, or §3.05, (a) the bases described
in paragraph (1) must be maintained, and
(b) all amortization bases other than those
described in paragraph (1) shall be con-
sidered fully amortized.
.06 Section 5.01 of Rev. Proc. 95–51 is
modified by adding the following:
(5) If the funding method is being
changed in accordance with the approval
provided in §4.01 (Approval to Antici-
pate Scheduled Benefit Increases), no
base is established due solely to the
change in method. The entire increase in
unfunded liability resulting from anticipa-
tion of benefit increases scheduled to take
effect during the term of the collective
bargaining agreement currently applica-
ble to the plan is treated as resulting from
a plan amendment and the base estab-
lished in the funding standard account is
amortized over a 30-year period.
.07Section 6.01(2) of Rev. Proc. 95–51
(Administrator Approval) is modified to
read as follows:
(2) This revenue procedure does not
apply unless the plan administrator
(within the meaning of §414(g)) or an au-
thorized representative of the plan spon-
sor indicates as part of the series Form
5500 for the plan year for which the
change is effective that the plan adminis-
trator or plan sponsor agrees to the change
in funding method. However, in the case
of a change in funding method described
in §4.01 (Approval to Anticipate Sched-
uled Benefit Increases), the plan adminis-
trator or authorized representative does
not need to agree to the request.
.08Section 6.02(3)(c) of Rev. Proc.
95–51 (Four-year limitation on changes)
is clarified and modified to read as fol-
lows:
(c)The funding method is being
changed in a way not described in (a) or
(b), and a funding method change (other
than a change for which approval is pro-
vided by §4 of this revenue procedure, or
a change described in (a) or (b)) was made
in any of the four (4) preceding plan years.
Section 5. Effective Date
.01 In general, this revenue procedure
is effective for plan years commencing on
or after January 1, 1997.
.02 For plan years beginning in 1997,
§4.04(3) of Rev. Proc. 95–51 may be ap-
plied as originally issued or as modified
by §4.04 of this revenue procedure.
.03 The modification made by §4.05
of this revenue procedure to §5.01(2) of
Rev. Proc. 95–51 (Creation of a funding
method change base) is effective only for
plan years commencing on or after Janu-
ary 1, 1998.
.04 If the funding method for the plan
was changed in accordance with §4.01 of
Rev. Proc. 95–51 (Approval to anticipate
scheduled benefit increases) as originally
issued and the amortization period for the
amortization base established as a result
of the method change was 10 years, the
plan sponsor may either, (1) retain the 10
year period, or (2) file an amended Sched-
ule B for the year of the change and for
any subsequent years reflecting a 30 year
amortization period for such base.
Section 6. Effect on Other Revenue
Procedures
Rev. Proc. 95–51 is clarified and modi-
fied.
Section 7. Comments Requested
Concerning Mergers
The Service requests written comments
concerning potential standard procedures
that can be used for a change in funding
method in connection with a plan spin-off
or merger. Comments and information
should be sent to: Commissioner of the
Internal Revenue Service, Attention:
CP:E:EP:A:1, Washington, DC 20224.
Drafting Information
The principal author of this revenue
procedure is Todd Newman of the Em-
ployee Plans Division. For further infor-
mation regarding this revenue procedure,
call (202) 622-6076 between 2:30 and
3:30 Eastern time (not a toll free number)
Monday through Thursday. Mr. New-
man’s number is (202) 622-6262 (also not
a toll free number).

January 12, 1998381998–2 I.R.B.January 12, 1998381998–2 I.R.B.
Employee Plans; Examination
Guidelines
Announcement 98–1
The Internal Revenue Service has de-
veloped proposed examination guidelines
for employee plans examiners to use
when examining issues relating to em-
ployer deductions under §404 of the In-
ternal Revenue Code and the minimum
funding standards under §412. The
guidelines provide technical background
and guidance as to issues that should be
considered during an examination. The
guidelines are not intended to be all inclu-
sive, and may be modified based on spe-
cific issues encountered by the examiners
during an examination.
As with earlier examination guidelines,
the Service is seeking public comments
on the proposed guidelines before they
are finalized for the Internal Revenue
Manual.
Copies of these guidelines have been
made available to the tax reporting ser-
vices. The guidelines are also available
from the Service. Requests for a copy of
the examination guidelines may be sub-
mitted in writing to the following address:
Internal Revenue Service
Assistant Commissioner (Employee
Plans and Exempt Organizations)
Attention: CP:E:EP:FC Room 2236
Washington, DC 20224
Written comments on the guidelines
may be submitted to the
above address on or before April 13,
1998 to the above address.
Items of General Interest
Form 8023 To Replace Form
8023–A
Announcement 98–2
New Form 8023, Election Under Sec-
tion 338 for Corporations Making Quali-
fied Stock Purchases, is available. It re-
places Form 8023–A, Corporate Quali-
fied Stock Purchases. Taxpayers can use
new Form 8023 to make elections under
section 338 of the Internal Revenue Code
with respect to any qualified stock pur-
chase (“QSP”) (as defined at section
338(d)(3)) occurring after 1996. For elec-
tions under section 338 with respect to
any QSPoccurring during 1997, taxpay-
ers may use either the new Form 8023 or
the old Form 8023–A. New Form 8023
can be downloaded from the Internet or
the Internal Revenue Information Ser-
vices, using a computer and modem, or
ordered by telephone, as shown below.
Deletions from Cumulative List
of Organizations Contributions
to Which are Deductible Under
Section 170 of the Code
Announcement 98–3
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 organizaion 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 January 12, 1998,
and would end on the date the court first
determines that the organization is not de-
scribed in section 170(c)(2) as more par-
ticularly set forth in section 7428 (c)(1).
For individual contributors, the maximum
deduction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were
the basis for revocation.
Bainbridge Women’s Club
Richmond, VA
There to Care, Inc.
Toledo, OH
Part IV. Items of General Interest
Request by—Number or Address
Internet:
World Wide Web www.irs.ustreas.gov
FTPftp.irs.ustreas.gov
Telnetiris.irs.ustreas.gov
Computer and 703-321-8020
modem(modem settings are N,
8, 1)
Telephone800-TAX-FORM
(800-829-3676)

1998–2 I.R.B39January 12, 1998
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”)
that have an effect on previous rulings
use the following defined terms to de-
scribe the effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to 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

January 12, 1998401998–2 I.R.B.
1
Acumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1997–27 through
1997–52 will be found in Internal Revenue Bulletin
1998–1, dated January 5, 1998.
Numerical Finding List
1
Bulletin 1998–1
Revenue Procedures:
98–1, 1998–1 I.R.B. 1
98–2, 1998–1 I.R.B. 74
98–3, 1998–1 I.R.B. 100
98–4, 1998–1 I.R.B. 113
98–5, 1998–1 I.R.B. 155
98–6, 1998–1 I.R.B. 183
98–7, 1998–1 I.R.B. 222
98–8, 1998–1 I.R.B. 225

1998–2 I.R.B41January 12, 1998
Finding List of Current Action on
Previously Published Items
1
Bulletin 1998–1
Revenue Procedures:
97–1
Superseded by
98–1, 1998–1 I.R.B. 7
97–2
Superseded by
98–2, 1998–1 I.R.B. 74
97–3
Superseded by
98–3, 1998–1 I.R.B. 100
97–4
Superseded by
98–4, 1998–1 I.R.B. 113
97–5
Superseded by
98–5, 1998–1 I.R.B. 155
97–6
Superseded by
98–6, 1998–1 I.R.B. 183
97–7
Superseded by
98–7, 1998–1 I.R.B. 222
97–8
Superseded by
98–8, 1998–1 I.R.B. 225
97–21
Superseded by
98–2, 1998–1 I.R.B. 74
97–53
Superseded by
98–3, 1998–1 I.R.B. 100
1
Acumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1997–27 through 1997–52 will be found in Internal
Revenue Bulletin 1998–1, dated January 5, 1998.

January 12, 1998421998–2 I.R.B.
Notes

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