Internal Revenue Bulletin 1998-35 (PDF rendition): IRS Revenue Rulings

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

INCOME TAX
Rev. Rul. 98–41, page 6.
Employees’ trust’s unrelated business taxable in-
come.An employees’ trust’s proportionate share of the in-
come of a common trust fund is unrelated business taxable
income (UBTI) to the extent that it would have been if the in-
vestment producing the income had been made directly by
the employees’ trust. Rev. Rul. 67–301 modified.
Rev. Rul. 98–42, page 5.
LIFO; price indexes; department stores. The June
1998 Bureau of Labor Statistics price indexes are ac-
cepted for use by department stores employing the retail
inventory and last-in, first-out inventory methods for valuing
inventories for tax years ended on, or with reference to,
June 30, 1998.
ADMINISTRATIVE
REG–209813–96, page 9.
Proposed regulations under section 671 of the Code define
widely held fixed investment trusts, clarify the reporting oblig-
ations of the trustees of these trusts and the middlemen con-
nected with these trusts, and provide for he communication of
necessary tax information to beneficial owners of trust inter-
ests. A public hearing on the proposed regulations will be held
on November 5, 1998.
Notice 98–40, page 7.
Consolidated income tax returns.Treasury and the Ser-
vice intend to issue regulations under section 1502 of the
Code permitting taxpayers to elect not to apply the overall
foreign loss provisions under section 1.1502–9T of the In-
come Tax Regulations to consolidated return years begin-
ning before January 1, 1998. The notice also provides guid-
ance on how taxpayers can make the election.
Notice 98–45, page 7.
Definition of former Indian reservation in Oklahoma.
This notice provides the definition of “former Indian reserva-
tions in Oklahoma” for purposes of section 168(j)(6) of the
Code, as amended by the Taxpayer Relief Act of 1997.
Announcement 98–82, page 17.
This document provides notice of a public hearing on pro-
posed regulations, REG–251698–96, 1998–20 I.R.B. 14,
under section 1308 of the Code relating to the treatment of
corporate subsidiaries of S corporations. The hearing will be
held on September 9, 1998.
Internal Revenue
bbuulllleettiinn
Bulletin No. 1998–35
August 31, 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 19.
Announcements Relating to Court Decisions begin on page 4.
IRB 1998-35 8/26/98 12:31 PM Page 1

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.
IRB 1998-35 8/26/98 12:31 PM Page 2

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 semiannual basis
and are published in the first Bulletin of the succeeding semi-
annual 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.
IRB 1998-35 8/26/98 12:31 PM Page 3

August 31, 199841998–35 I.R.B.
It is the policy of the Internal Revenue
Service to announce at an early date
whether it will follow the holdings in cer-
tain cases. An Action on Decision is the
document making such an announcement.
An Action on Decision will be issued at
the discretion of the Service only on un-
appealed issues decided adverse to the
government. Generally, an Action on De-
cision is issued where its guidance would
be helpful to Service personnel working
with the same or similar issues. Unlike a
Treasury Regulation or a Revenue Ruling,
an Action on Decision is not an affirma-
tive statement of Service position. It is not
intended to serve as public guidance and
may not be cited as precedent.
Actions on Decisions shall be relied
upon within the Service only as conclu-
sions applying the law to the facts in the
particular case at the time the Action on
Decision was issued. Caution should be
exercised in extending the recommenda-
tion of the Action on Decision to similar
cases where the facts are different. More-
over, the recommendation in the Action
on Decision may be superseded by new
legislation, regulations, rulings, cases, or
Actions on Decisions.
Prior to 1991, the Service published ac-
quiescence or nonacquiescence only in
certain regular Tax Court opinions. The
Service has expanded its acquiescence
program to include other civil tax cases
where guidance is determined to be help-
ful. Accordingly, the Service now may ac-
quiesce or nonacquiesce in the holdings
of memorandum Tax Court opinions, as
well as those of the United States District
Courts, Claims Court, and Circuit Courts
of Appeal. Regardless of the court decid-
ing the case, the recommendation of any
Action on Decision will be published in
the Internal Revenue Bulletin.
The recommendation in every Action
on Decision will be summarized as ac-
quiescence, acquiescence in result only,
or nonacquiescence. Both “acquies-
cence” and “acquiescence in result only”
mean that the Service accepts the holding
of the court in a case and that the Service
will follow it in disposing of cases with
the same controlling facts. However, “ac-
quiescence” indicates neither approval
nor disapproval of the reasons assigned
by the court for its conclusions; whereas,
“acquiescence in result only” indicates
disagreement or concern with some or all
of those reasons. Nonacquiescence signi-
fies that, although no further review was
sought, the Service does not agree with
the holding of the court and, generally,
will not follow the decision in disposing
of cases involving other taxpayers. In ref-
erence to an opinion of a circuit court of
appeals, a nonacquiescence indicates that
the Service will not follow the holding on
a nationwide basis. However, the Service
will recognize the precedential impact of
the opinion on cases arising within the
venue of the deciding circuit.
The announcements published in the
weekly Internal Revenue Bulletins are
consolidated semiannually and annually.
The semiannual consolidation appears in
the first Bulletin for July and in the Cu-
mulative Bulletin for the first half of the
year, and the annual consolidation ap-
pears in the first Bulletin for the follow-
ing January and in the Cumulative Bul-
letin for the last half of the year.
The Commissioner ACQUIESCES in
the following decision:
McCormick v. Peterson,
1
CV93–2157 (E.D.N.Y. 1993),
Estate of Clara K. Hoover, Deceased,
Yetta Hoover Bidegain, Personal
Representative v. Commissioner,
2
69 F.3d 1044 (10th Cir. 1995)
Barry I. Fredericks v. Commis-
sioner,
3
No. 96–7748 (3rd Cir. 1997)
Announcement Relating to Court Decisions
1
Acquiescence relating to whether the taxpayer was subject to the frivolous return penalty under section 6702.
2
Acquiescence relating to whether the election of special use valuation under I.R.C. section 2032A precludes a valuation that takes into account a minority interest
discount under section 2031.
3
Acquiescence relating to whether the Court of Appeals erred in determining that the Service is equitably estopped from relying on a Form 872–A to indefinitely
extend the period of limitations when the Service’s actions misled the taxpayer into believing that the form was not in effect.
IRB 1998-35 8/26/98 12:31 PM Page 4

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
Percent Change
GroupsJuneJunefrom June 1997
19971998to June 1998
1
1. Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .541.0513.9–5.0
2. Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .644.1 618.6–4.0
3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .651.0659.31.3
4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .904.0906.70.3
5. Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .642.5623.1–3.0
6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .539.3567.75.3
7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .295.7308.34.3
8. Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . .569.4536.2–5.8
9. Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . . . . . . . . . . .415.3410.0–1.3
10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .625.0616.6–1.3
11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .589.8599.11.6
12. Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . .494.5494.60.0
13. Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1002.1 970.3–3.2
14. Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .752.1776.03.2
15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .913.5948.53.8
16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .673.2689.32.4
17. Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .592.4604.02.0
18. Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .808.1818.61.3
19. Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .243.5236.7–2.8
20. Radio and Television . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76.271.9–5.6
21. Recreation and Education
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109.5104.8–4.3
22. Home Improvements
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132.8133.10.2
23. Auto Accessories
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108.0107.2–0.7
Groups 1 – 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .602.5600.1–0.4
Groups 16 – 20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .465.9463.6–0.5
Groups 21 – 23: Misc. Goods
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112.2108.9–2.9
Store Total
3
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .554.8550.7–0.7
1
Absence of a minus sign before percentage change in this column signifies price increase.
2
Indexes on a January 1986=100 base.
3
The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor, to-
bacco, and contract departments.
1998–35 I.R.B.5August 31, 1998
Section 472.—Last-in, First-out
Inventories
26 CFR 1.472–1: Last-in, first-out inventories.
LIFO; price indexes; department
stores.The June 1998 Bureau of Labor
Statistics price indexes are accepted for
use by department stores employing the
retail inventory and last-in, first-out in-
ventory methods for valuing inventories
for tax years ended on, or with reference
to, June 30, 1998.
Rev. Rul. 98–42
The following Department Store Inven-
tory Price Indexes for June 1998 were is-
sued by the Bureau of Labor Statistics.
The indexes are accepted by the Internal
Revenue Service, under § 1.472–1(k) of
the Income Tax Regulations and Rev.
Proc. 86–46, 1986–2 C.B. 739, for appro-
priate application to inventories of depart-
ment stores employing the retail inven-
tory and last-in, first-out inventory
methods for tax years ended on, or with
reference to, June 30, 1998.
The Department Store Inventory Price
Indexes are prepared on a national basis
and include (a) 23 major groups of depart-
ments, (b) three special combinations of
the major groups - soft goods, durable
goods, and miscellaneous goods, and (c) a
store total, which covers all departments,
including some not listed separately, ex-
cept for the following: candy, food,
liquor, tobacco, and contract departments.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
IRB 1998-35 8/26/98 12:31 PM Page 5

August 31, 199861998–35 I.R.B.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Stan Michaels of the Office of
Assistant Chief Counsel (Income Tax and
Accounting). For further information
regarding this revenue ruling, contact Mr.
Michaels on (202) 622-4970 (not a toll-
free call).
Section 584.—Common Trust
Funds
26 CFR 1.584–2: Income of participants in
common trust fund.
Employees’ trust’s unrelated busi-
ness taxable income.An employees’
trust’s proportionate share of the income
of a common trust fund is unrelated busi-
ness taxable income (UBTI) to the extent
that it would have been if the investment
producing the income had been made di-
rectly by the employees’ trust. Rev. Rul.
67–301 modified.
Rev. Rul. 98–41
In Rev. Rul. 67–301, 1967–2 C.B. 146,
an employees’ trust, formed under
§ 401(a) of the Internal Revenue Code
and exempt under § 501(a), invested in a
common trust fund that is exempt under
§ 584. Rev. Rul. 67–301 concludes, in
part, that the income of the common trust
fund is not unrelated business taxable in-
come (UBTI) in the hands of the employ-
ees’ trust.
Section 1.584–2(c)(3) of the Income
Tax Regulations provides that for taxable
years beginning on or after September 22,
1980, any amount of income or loss of the
common trust fund that is included in the
computation of a participant’s taxable in-
come for the taxable year shall be treated
as income or loss from an unrelated trade
or business to the extent that the amount
would have been income or loss from an
unrelated trade or business if the invest-
ments of the common trust fund had been
made directly by the participant.
The discussion of UBTI in Rev. Rul.
67–301 is inconsistent with § 1.584–
2(c)(3). Therefore, Rev. Rul. 67–301 is
modified to provide that the employees’
trust’s proportionate share of the income
of the common trust fund is UBTI to the
extent that it would have been if the in-
vestment producing the income had been
made directly by the employees’ trust.
EFFECT ON OTHER REVENUE
RULINGS
Rev. Rul. 67-301 is modified, effective
for taxable years beginning on or after
September 22, 1980.
DRAFTING INFORMATION
The principal author of this revenue
ruling is John Kramer of the Office of the
Assistant Chief Counsel (Passthroughs
and Special Industries). For further infor-
mation regarding this revenue ruling con-
tact John Kramer on (202) 622-3060 (not
a toll-free call).
IRB 1998-35 8/26/98 12:31 PM Page 6

1998–35 I.R.B.7August 31, 1998
Effective Date of Consolidated
Overall Foreign Loss Provisions
Notice 98–40
This notice announces that Treasury
and the Service intend to issue regulations
permitting taxpayers to elect to delay the
effective date of Treas. Reg. § 1.1502–9T,
published in the Federal Registeron Jan-
uary 12, 1998 (63 F.R. 1740), and modi-
fied on March 16, 1998 (63 F.R. 12641).
On January 12, 1998, Treasury and the
Service published in the Federal Regis-
terfinal, temporary and proposed regula-
tions (the “January 1998 regulations”) re-
lating to limitations on the use of certain
tax credits and related attributes by corpo-
rations filing consolidated income tax re-
turns. In general, the January 1998 regu-
lations relate to the separate return
limitation year (“SRLY”) provisions for
general business credits, alternative mini-
mum tax credits, foreign tax credits and
overall foreign loss accounts. The Janu-
ary 1998 regulations were generally ap-
plicable to consolidated return years be-
ginning on or after January 1, 1997.
On March 16, 1998, Treasury and the
Service published in the Federal Regis-
terfinal, temporary, and proposed regula-
tions (the “March 1998 regulations”)
modifying the effective date of the Janu-
ary 1998 regulations. The March 1998
regulations provide that the provisions of
the January 1998 regulations will apply
for consolidated return years for which
the due date (without extensions) of the
income tax return is after March 13,
1998. In lieu of applying this effective
date, however, the March 1998 regula-
tions permit a consolidated group to
choose to apply the effective date provi-
sions under the January 1998 regulations.
The March 1998 regulations provide that
taxpayers making this choice must apply
all those effective date provisions for all
relevant years. Thus, under the March
1998 regulations, such taxpayers are not
permitted to apply one provision of the
January 1998 regulations (e.g.,the gen-
eral business credit effective date) and
not another (e.g.,the foreign tax credit ef-
fective date).
On May 7, 1998, a public hearing was
held regarding the proposed January and
March regulations. At the hearing and in
written submissions, commentators ex-
pressed concern regarding the effective
dates contained in the January 1998 and
March 1998 regulations with respect to
the overall foreign loss account provi-
sions of Treas. Reg. § 1.1502–9T. The
commentators’ principal concern was that
these effective dates resulted in adverse
tax consequences not anticipated by tax-
payers with respect to business transac-
tions that occurred prior to the issuance of
the January 1998 regulations. Treasury
and the Service now believe that certain
of these consequences are inappropriate.
Accordingly, this notice announces that
Treasury and the Service intend to issue
regulations permitting taxpayers to elect
not to apply Treas. Reg. § 1.1502–9T (the
overall foreign loss account provisions) to
consolidated return years beginning before
January 1, 1998. A taxpayer that chooses
under the March 1998 regulations to apply
the effective date provisions under the
January 1998 regulations may also make
the election under this notice.
To make the election under this notice,
a taxpayer must write “Election Pursuant
to Notice 98–40” across the top of page 1
of an original or amended tax return for
each consolidated return year subject to
the election. For the first consolidated re-
turn year to which the overall foreign loss
provisions of Treas. Reg. § 1.1502–9T
apply (i.e.,the first year beginning on or
after January 1, 1998), such taxpayer
must write “Notice 98–40 Election in Ef-
fect in Prior Years” across the top of page
1 of the consolidated tax return for that
year. For purposes of applying Treas.
Reg. § 1.1502–9T with respect to such
year, any member with a balance in an
overall foreign loss account from a sepa-
rate return limitation year on the first day
of such year shall be treated as joining the
group on such first day.
Treasury and the Service intend to
amend the regulations under section 1502
to incorporate the guidance set forth in
this notice. Until the regulations are
amended, taxpayers may rely on the guid-
ance set forth in this notice.
For further information regarding this
notice, contact Trina Dang of the Office
of Associate Chief Counsel (Interna-
tional) at (202) 622-3880 (not a toll-free
call).
Former Indian Reservations in
Oklahoma
Notice 98–45
This notice defines “former Indian
reservations in Oklahoma” for purposes
of § 168(j)(6) of the Internal Revenue
Code, as amended by the Taxpayer Relief
Act of 1997 (the Act), Pub. L. No. 105–
34, 111 Stat. 788.
BACKGROUND
Sections 13321 and 13322 of the Om-
nibus Budget Reconciliation Act of 1993,
Pub. L. No. 103–66, 1993-3 C.B. 1, 146–
151, amended the Internal Revenue Code
by adding two provisions to the Code to
establish two Indian reservation-based
federal tax incentives. Section 45A gen-
erally provides an Indian employment
credit for certain wages and health insur-
ance costs paid or incurred by an em-
ployer whose employees are enrolled
members of an Indian tribe or the spouses
of enrolled members of an Indian tribe
who perform substantially all their ser-
vices for the taxpayer within an Indian
reservation and have a principal place of
abode on or near such reservation. Sec-
tion 168(j) generally provides more favor-
able depreciation for qualified Indian
reservation property (that is, certain de-
preciable property used predominantly in
the active conduct of a trade or business
within an Indian reservation and not regu-
larly used or located outside the reserva-
tion). Section 45A applies to wages and
health insurance costs paid or incurred
after December 31, 1993, in a taxable
year that begins on or before December
31, 2003. Section 168(j) applies to prop-
erty placed in service after December 31,
1993, and on or before December 31,
2003.
Section 45A(c)(7) states that the term
“Indian reservation” has the meaning
given the term by § 168(j)(6). Section
168(j)(6) (prior to its amendment by the
Act) provided that, for purposes of
§ 168(j), the term “Indian reservation”
Part III. Administrative, Procedural, and Miscellaneous
IRB 1998-35 8/26/98 12:31 PM Page 7

means a reservation, as defined in either
section 3(d) of the Indian Financing Act
of 1974, 25 U.S.C. § 1452(d), or section
4(10) of the Indian Child Welfare Act of
1978, 25 U.S.C. § 1903(10). Section 3(d)
of the Indian Financing Act of 1974 de-
fines reservation to include “former In-
dian reservations in Oklahoma.”
Section 1604(c) of the Act (generally
effective as of January 1, 1994) amended
the definition of “Indian reservation”
under section 168(j)(6). Under the
amendment, only lands within the juris-
dictional area of an Oklahoma Indian
tribe (as determined by the Secretary of
the Interior) that are recognized by such
Secretary as an area eligible for trust land
status under 25 CFR Part 151 as in effect
on August 5, 1997 (the date of enact-
ment), are “former Indian reservations in
Oklahoma.”
DETERMINATION OF SECRETARY
OF THE INTERIOR AS TO THE
MEANING OF FORMER INDIAN
RESERVATIONS
The Secretary of the Interior has deter-
mined that, for purposes of section
168(j)(6), lands that are within the juris-
dictional area of an Oklahoma Indian
tribe are those lands within the boundaries
of the last treaties, Executive Orders, fed-
eral agreements, federal statutes, and Sec-
retarial Orders with the Oklahoma tribes.
The Secretary of the Interior also has de-
termined that any lands within the bound-
aries of the last treaties, Executive Orders,
federal agreements, federal statutes, and
Secretarial Orders with the Oklahoma
tribes are lands eligible for trust land sta-
tus under 25 CFR Part 151.
The areas of Oklahoma located outside
the boundaries of the last treaties, Execu-
tive Orders, federal agreements, federal
statutes, and Secretarial Orders with the
Oklahoma tribes are (1) the Cherokee
Outlet, (2) No Man’s Land (also known as
the Panhandle), (3) the historic Greer
County, and (4) those former Seminole
and Creek domain lands in central Indian
Territory that were deemed to be “unas-
signed lands.” The location of those areas
in Oklahoma that are outside the bound-
aries of the last treaties, Executive Orders,
federal agreements, federal statutes, and
Secretarial Orders with the Oklahoma In-
dian tribes can best be described in terms
of entire present-day counties that are in-
eligible (Alfalfa, Beaver, Cimarron,
Garfield, Grant, Greer, Harmon, Harper,
Jackson, Major, Texas, Woods, and
Woodward) and present-day counties that
are split by the boundaries, that is, part of
the county is eligible and part of the
county is not eligible (Beckham, Cana-
dian, Cleveland, Ellis, Kay, Kingfisher,
Logan, Noble, Oklahoma, Pawnee and
Payne).
ADDITIONAL INFORMATION
The Arkansas-Oklahoma District of the
Internal Revenue Service will make avail-
able a plain language description of the
boundary for each split county. Written
requests should include the name of the
applicable split county and be sent to the
following address: Internal Revenue Ser-
vice, 55 North Robinson Street, Mail Stop
4030-OKC, Attention: RSC, Oklahoma
City, OK 73102. The plain language de-
scription is also available on the Internet
at http://www.irs.ustreas.gov/prod/hot/
atn/oklahoma.html.
DRAFTING INFORMATION
CONTACT
The principal author of this notice is
Winston H. Douglas of the Office of the
Assistant Chief Counsel (Passthroughs
and Special Industries). For further infor-
mation regarding this notice contact Mr.
Douglas on (202) 622-3110 (not a toll-
free call). For information concerning the
boundaries, contact the Arkansas-Okla-
homa District office on (405) 297-4690
(not a toll-free call).
August 31, 199881998–35 I.R.B.
IRB 1998-35 8/26/98 12:31 PM Page 8

1998–35 I.R.B.9August 31, 1998
Notice of Proposed Rulemaking
and Notice of Public Hearing
Reporting Requirements for
Widely Held Fixed Investment
Trusts
REG–209813–96
AGENCY: Internal Revenue Service
(IRS), Treasury
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations that define widely
held fixed investment trusts, clarify the
reporting obligations of the trustees of
these trusts and the middlemen connected
with these trusts, and provide for the com-
munication of necessary tax information
to beneficial owners of trust interests.
This document also provides notice of a
public hearing on these proposed regula-
tions.
DATES: Written comments must be re-
ceived by, November 12, 1998. Requests
to speak (with outlines of oral comments)
at a public hearing scheduled for Thurs-
day, November 5, 1998 at 10 a.m. must be
submitted by October 15, 1998.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–209813–96),
room 5228, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. In the alternative, sub-
missions may be hand delivered between
the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (REG–209813–96),
Courier’s Desk, Internal Revenue Build-
ing, 1111 Constitution Avenue, NW,
Washington, DC. Alternatively, taxpayers
may submit comments electronically via
the Internet by selecting the “Tax Regs”
option on the IRS Home Page, or by sub-
mitting comments directly to the IRS In-
ternet site at http://www.irs.ustreas.gov/
prod/tax_regs/comments.html. The pub-
lic hearing will be held in room 2615, In-
ternal Revenue Building, 1111 Constitu-
tion Avenue, NW, Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Faith
Colson, (202) 622-3060; concerning sub-
missions and the hearing, LaNita Van
Dyke, (202) 622-7180 (not toll-free num-
bers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained
in this notice of proposed rulemaking has
been submitted to the Office of Manage-
ment and Budget for review in accor-
dance with the Paperwork Reduction Act
of 1995 (44 U.S.C. 3507(d)). Comments
on the collection of information should be
sent to the Office of Management and
Budget,Attn: Desk Officer for the De-
partment of Treasury, Office of Informa-
tion and Regulatory Affairs, Washington,
DC 20503, with copies to the Internal
Revenue Service,Attn: IRS Reports
Clearance Officer, OP:FS:FP, Washing-
ton, DC 20224. Comments on the collec-
tion of information should be received by,
October 13, 1998. Comments are specifi-
cally requested concerning:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the Internal
Revenue Service,including whether the
information will have practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collection of information may
be minimized, including through the ap-
plication of automated collection tech-
niques or other forms of information tech-
nology; and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of service to provide informa-
tion.
The collection of information in these
proposed regulations is in §1.671–4 of the
Income Tax Regulations. This informa-
tion is required to enable holders of trust
interests to report items of income, deduc-
tion, and credit of a widely held fixed in-
vestment trust under section 671. This in-
formation will be used by the IRS to
ensure that those items are reported accu-
rately by beneficial owners of trust inter-
ests. The collection of information is
mandatory. The likely respondents are
businesses and other for-profit institu-
tions.
Estimated total annual reporting bur-
den: 2,400 hours.
Estimated average annual burden hours
per respondent: 2 hours.
Estimated number of respondents:
1,200.
Estimated annual frequency of re-
sponses: Annually (but more often for a
trust providing information to certain per-
sons on request).
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
Books or records relating to the collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
This document contains proposed
amendments to the Income Tax Regula-
tions (26 CFR part 1) under section 671.
The proposed amendments are to be is-
sued under the authority of sections 671,
6034A, 6049(d)(7), and 7805.
A fixed investment trust is an arrange-
ment classified as a trust under
§301.7701–4(c). Beneficial interests in
these trusts are divided into units. The
Service treats these trusts as grantor trusts
under section 671 and the owners of the
beneficial interests, or units, as the
grantors. See Rev. Rul. 84–10 (1984–1
C.B. 155); Rev. Rul. 70–545 (1970–2
C.B. 7); Rev. Rul. 70–544 (1970–2 C.B.
6); Rev. Rul. 61–175 (1961–2 C.B. 128).
Under the proposed regulations, a widely
held fixed investment trustis a fixed in-
vestment trust in which any interest is
held by a middleman. For this purpose,
the term middlemanincludes, but is not
limited to, a custodian of a person’s ac-
count, a nominee, and a broker holding an
interest for a customer in street name.
The IRS and Treasury request comments
on the application and scope of these defi-
Part IV. Items of General Interest
IRB 1998-35 8/26/98 12:31 PM Page 9

August 31, 1998101998–35 I.R.B.
nitions, including the appropriateness of a
de minimis rule as to the number of mid-
dlemen.
Interests in widely held fixed invest-
ment trusts are often held in the street
name of a middleman, who holds such in-
terests on behalf of the beneficial owners.
Thus, trustees frequently do not know the
identity of the beneficial owners and are
not in a position to communicate neces-
sary tax information directly to such own-
ers. Currently, there are no tax informa-
tion reporting rules specifically providing
for the sharing of tax information among
trustees, middlemen, and beneficial own-
ers of these trusts.
On December 21, 1995, final regula-
tions (T.D. 8633) under section 671, relat-
ing to the information reporting require-
ments of grantor trusts, were published in
1996–1 C.B. 119. See §1.671–4. While
drafting the final regulations, the IRS and
Treasury concluded that special reporting
requirements were needed for widely held
fixed investment trusts but that such guid-
ance fell outside the scope of the final reg-
ulations. The preamble to the final regula-
tions stated that the IRS and Treasury
anticipated providing guidance for these
trusts in a separate project and invited
comments from interested taxpayers and
practitioners regarding such guidance.
In developing these proposed regula-
tions, the IRS and Treasury have contin-
ued to solicit comments from the public.
Comments were received from various in-
dustry members and practitioners, and
these proposed regulations take such
comments into account. The proposed
regulations are intended to clarify the re-
porting requirements of trustees and mid-
dlemen and to ensure that beneficial own-
ers of trust interests receive accurate and
timely tax reporting information. The
IRS and Treasury welcome comments on
specific instances of industry practice that
differ significantly from the framework of
these proposed regulations and on sugges-
tions to tailor the reporting requirements
to account for those differences.
Explanation of Provisions
A. General Framework of Reporting
Rules
The information reporting framework
in the proposed regulations is similar to
that for regular interests in a real estate
mortgage investment conduit. See
§1.6049–7.
Under the proposed regulations, the re-
sponsibility for information reporting lies
primarily with the person in the owner-
ship chain who holds a unit interest for a
beneficial owner and is, therefore, in the
best position to communicate with, and
provide tax information to, the beneficial
owner. Thus, a brokerage firm that holds
a unit interest directly for an individual as
a middleman will have the primary oblig-
ation to report to the IRS and to provide
tax information to the individual. Simi-
larly, if a unit interest is held directly by
an individual and not through a middle-
man, the trustee is to report to the IRS and
to provide tax information to the individ-
ual. Information reporting generally is
not required for interests held by exempt
recipients.Middlemen and trustees, how-
ever, are to make trust tax information
available upon request to exempt recipi-
ents.
Appropriate adjustments may be neces-
sary to other information reporting rules
to make them compatible with these pro-
posed regulations.
B. Trustee or Middleman to Report to the
IRS on Form 1099
Under proposed §1.671–4(j)(2)(i)(A), a
trustee must report to the IRS, on the ap-
propriate Forms 1099, the gross amount
of trust income (determined in accordance
with proposed §1.671–4(j)(6)(i)) attribut-
able to a unit interest holder who holds an
interest in the trust directly and not
through a middleman. Similarly, under
proposed §1.671–4(j)(2)(i)(B), a middle-
man must report for any unit interest
holder on whose behalf or account the
middleman holds an interest. (To comply
with this requirement, middlemen may re-
quest the necessary tax information from
the trustee. See the discussion below.) In
addition, the trustee or middleman is to
report on the appropriate Form 1099 the
gross proceeds from the sale or other dis-
position of a trust asset that is attributable
to the unit interest holder. Forms 1099
are not required for any unit interest
holder who is an exempt recipient, as de-
fined in proposed §1.671–4(j)(1).
C. Statements to be Furnished to the
Beneficial Owners of Unit Interests
Every middleman or trustee required to
file with the IRS a Form 1099 under these
proposed regulations for a unit interest
holder must furnish to the unit interest
holder a written statement providing the
holder with necessary tax reporting infor-
mation including: (1) the items of income
(determined in accordance with proposed
§1.671–4(j)(6)(i)), deduction, and credit
of the trust attributable to the unit interest
holder; (2) if any trust asset has been sold
or otherwise disposed of during the calen-
dar year, the portion of the gross proceeds
relating to the trust asset which is attribut-
able to the unit interest holder, the date of
sale or disposition of the trust asset, and
the percentage of that trust asset that has
been sold or disposed of; and (3) any
other information necessary for the unit
interest holder to accurately report the in-
come, deductions, and credits of the trust
attributable to the unit interest as required
under section 671.
In addition, to enable unit interest hold-
ers to calculate gain or loss on the disposi-
tion of a trust asset, if a trust sells or dis-
poses of a trust asset during a particular
calendar year, the proposed regulations
require the trustee or middleman to in-
clude, with the statement to the holder, a
schedule showing the portion (expressed
as a percentage) of the total fair market
value of all the assets held by the trust that
the trust asset sold or disposed of repre-
sented as of the last day of each quarter
that the asset was held by the trust. It is
contemplated that, in the absence of more
accurate information, this information
may be used by the unit interest holder to
determine the percentage of the holder’s
basis in its unit interest that the disposed
asset represents, so that the holder may
calculate its gain or loss on the disposition
of the asset.
The IRS and Treasury welcome com-
ments on whether the approach taken in
the proposed regulations to communicate
information to enable the holder of a unit
interest to calculate its basis in a trust
asset is effective, or whether a different
approach, which continues to be consis-
tent with the taxation of grantor trusts,
would be more effective. In addition, the
IRS and Treasury invite comments on
whether, for trusts consisting of fungible
assets, an approach other than the pro-
posed asset-by-asset approach for report-
ing sales and determining basis is admin-
istratively feasible or whether an
IRB 1998-35 8/26/98 12:31 PM Page 10

1998–35 I.R.B.11August 31, 1998
aggregate approach would be more appro-
priate and on the manner in which such an
aggregate approach would be applied.
D. Information to be Furnished to
Middlemen by Trusts
In general, information reporting is not
required for unit interests held by exempt
recipients.To enable such persons to re-
ceive necessary trust information, how-
ever, §1.671–4(j)(3)(iii) of the proposed
regulations provides that middlemen, ex-
empt recipients, and certain other persons
may request from the trust tax informa-
tion for a calendar quarter, computed as of
the last day of the quarter specified, or for
a calendar year, computed as of Decem-
ber 31 of the year specified. The tax re-
porting information the trust is to make
available includes: (1) all items of in-
come (determined in accordance with
proposed §1.671–4(j)(6)(i)), deduction,
and credit of the trust for the period speci-
fied; (2) if any trust asset has been sold or
otherwise disposed of during the period
specified, the gross proceeds received by
the trust for the trust asset, the date of sale
or disposition, and the percentage of that
trust asset that has been sold or disposed
of; (3) the number of units outstanding on
the last business day of the period speci-
fied; and (4) any other information neces-
sary for the unit interest holder to accu-
rately report the income, deductions, and
credits attributable to the portion of the
trust treated as owned by the holder, as re-
quired under section 671. In addition, if a
trust asset is sold or otherwise disposed of
during the period specified, the trust must
provide a schedule showing the portion
(expressed in terms of a percentage) of
the total fair market value of all the assets
held by the trust that the asset sold or dis-
posed of represented as of the last day of
each calendar quarter that the trust held
the asset.
E. Special Rules
A beneficial owner of a unit interest
must report trust items consistent with the
owner’s method of accounting. See, e.g.,
Rev. Rul. 84–10. For administrative con-
venience, and with the intent of being
consistent with industry practice, how-
ever, the proposed regulations require a
trust to provide tax information as if the
trust were a taxpayer using the cash re-
ceipts and disbursements method of tax
accounting (cash method). Although a
trust must provide tax information to unit
holders as if the trust were a cash method
taxpayer, the trust must provide informa-
tion necessary for such holders to comply
with the original issue discount rules and
other provisions requiring the inclusion of
accrued amounts regardless of the
holder’s method of accounting. The IRS
and Treasury are continuing to study, and
welcome comments on, whether to re-
quire trusts to provide tax reporting infor-
mation to accommodate the different
methods of accounting used by the bene-
ficial owners of a trust.
In the case of a widely held fixed in-
vestment trust that holds a pool of debt in-
struments subject to section 1272(a)-
(6)(C)(iii), the proposed regulations
require that middlemen, unit interest
holders, exempt recipients, and noncalen-
dar-year taxpayers be provided with cer-
tain additional information that is neces-
sary for compliance with the market
discount rules and, where applicable, sec-
tion 1272(a)(6) (as amended by section
1004 of the Taxpayer Relief Act of 1997,
Public Law 105–34, 111 Stat. 788, 911
(1997)). This additional information in-
cludes information necessary to compute
(1) the accrual of market discount, includ-
ing the type of information required under
§1.6049–7(f)(2)(i)(G) in the case of a
REMIC regular interest or a collateralized
debt obligation not issued with original
issue discount; and (2) the accrual of orig-
inal issue discount and market discount,
including the type of information required
under §1.6049–7(f)(2)(ii)(E), (F), (I), and
(K) in the case of a REMIC regular inter-
est or a collateralized debt obligation that
is issued with original issue discount.
The IRS and Treasury request comments
on whether similar information reporting
requirements, for example, reporting of
information necessary to compute the ac-
crual of market discount, should be ex-
tended to widely held fixed investment
trusts that hold instruments (or pools of
instruments) not subject to section
1272(a)(6)(C).
To enable a beneficial owner to comply
fully with section 671 and section 67
(where applicable), §1.671–4(j)(6)(i) of
the proposed regulations requires the
amount of trust income to be reported by
the trustee to be the gross amount of in-
come generated by the trust assets (other
than from the sale or other disposition of
trust assets). Thus, in the case of a trust
that receives a payment net of an expense,
the payment must be grossed up to reflect
the deducted expense. Trustees must also
have, and make available, information re-
garding the trust’s affected expenses (as
defined in §1.67–2T(i)(1)) for the calen-
dar year. In addition, in the case of a unit
interest holder that is an affected investor
(as defined in §1.67–2T(h)(1)), the trustee
or middleman must provide such unit in-
terest holder with information regarding
the holder’s proportionate share of the
trust’s affected expenses for the calendar
year.
The proposed regulations also require
the trust to separately state any other item
that, if taken into account separately by
any unit interest holder, could result in an
income tax liability for that unit interest
holder different from that which would
result if the unit interest holder did not
take the item into account separately. The
IRS and Treasury request comments on
whether this requirement is administra-
tively feasible in the context of a widely
held fixed investment trust or whether a
different approach, also consistent with
the taxation of grantor trusts, would be
more appropriate.
F. Coordination with Backup
Withholding Rules
Section 1.671–4(j)(7) of the proposed
regulations contains provisions to coordi-
nate these regulations with the backup
withholding rules.
Proposed Effective Date
These regulations are proposed to
apply to calendar years beginning on or
after the date that final regulations are
published in the Federal Register.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It is hereby certified
that these regulations will not have a sig-
nificant economic impact on a substantial
number of small entities. This certifica-
tion is based on the fact that the regula-
tions generally clarify existing reporting
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August 31, 1998121998–35 I.R.B.
obligations and are expected, for the most
part, to have a minimal impact on indus-
try practice. Thus, the regulations will
not result in a significant economic im-
pact on any entity subject to the regula-
tions. Further, the reporting burdens in
these regulations will fall primarily on
large brokerage firms, large banks, and
other large entities acting as trustees or
middlemen, most of which are not small
entities within the meaning of the Regula-
tory Flexibility Act (5 U.S.C. chapter 6).
Thus, a substantial number of small enti-
ties will not be affected. Therefore, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, this notice of proposed rulemaking
will be submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on its impact on
small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written com-
ments (a signed original and eight (8)
copies) that are submitted timely (in the
manner described in the ADDRESSES
caption) to the IRS. All comments will be
available for public inspection and copy-
ing.
A public hearing has been scheduled
for Thursday, November 5, 1998 at 10
a.m., in room 2615, Internal Revenue
Building, 1111 Constitution Avenue, NW,
Washington, DC. Because of access re-
strictions, visitors will not be admitted be-
yond the Internal Revenue Building lobby
more than 15 minutes before the hearing
starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral com-
ments at the hearing must submit written
comments by, November 12, 1998, and
submit an outline of the topics to be dis-
cussed and the time to be devoted to each
topic (signed original and eight (8)
copies) by October 15, 1998.
A period of 10 minutes will be allotted
to each person for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Faith Colson, Office of Assistant
Chief Counsel (Passthroughs and Special
Industries). However, other personnel
from the IRS and Treasury Department
participated in their development.
*****
Proposed Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 301
are proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.671–4 also issued under 26
U.S.C. 671, 26 U.S.C. 6034A, and 26
U.S.C. 6049(d)(7).
Par. 2. Section 1.671–4 is amended by
revising paragraph (a) and adding para-
graph (j) to read as follows:
§1.671–4 Method of reporting.
(a) Portion of trust treated as owned by
the grantor or another person.Except as
otherwise provided in paragraphs (b) and
(j) of this section, items of income, deduc-
tion, and credit attributable to any portion
of a trust which, under the provisions of
subpart E (section 671 and following),
part I, subchapter J, chapter 1 of the Inter-
nal Revenue Code, is treated as owned by
the grantor or another person are not re-
ported by the trust on Form 1041, but are
shown on a separate statement to be at-
tached to that form. Paragraph (j) of this
section provides special reporting rules
for widely held fixed investment trusts.
Section 301.7701–4(e)(2) of this chapter
provides guidance on how the reporting
rules in this paragraph (a) apply to an en-
vironmental remediation trust.
* * * * *
(j) Special rules applicable to widely
held fixed investment trusts. The report-
ing rules contained in this paragraph (j)
apply to any widely held fixed investment
trust.
(1) Definitions.For purposes of this
paragraph (j):
Affected expenses.The term affected
expenseshas the meaning given that term
by §1.67–2T(i)(1).
Affected investor.The term affected in-
vestorhas the meaning given that term by
§1.67–2T(h)(1).
Exempt recipient.An exempt recipient
is any person described in paragraphs
(j)(2)(iv)(A) through (R) of this section.
Middleman. Amiddlemanis any per-
son who holds an interest in an arrange-
ment classified as a trust under
§301.7701–4(c) of this chapter, and sub-
ject to subpart E, part I, subchapter J,
chapter 1 of the Internal Revenue Code,
on behalf of, or for the account of, another
person, or who otherwise acts in a capac-
ity as an intermediary for the account of
another person, at any time during the cal-
endar year. A middleman includes, but is
not limited to—
(i) A custodian of a person’s account,
such as a bank, financial institution, or
brokerage firm acting as custodian of an
account;
(ii) A nominee, including the joint
owner of an account or instrument except
if the joint owners are husband and wife;
and
(iii) A broker (as defined in section
6045(c)(1) and §1.6045-1(a)(1)) holding
an interest for a customer in street name.
Requesting person.Arequesting per-
sonis a person specified in paragraph
(j)(3)(iii)(A) of this section who is enti-
tled to request from the trustee the infor-
mation specified in paragraph (j)(3)(ii) of
this section.
Trustee. Trusteemeans the trustee of a
widely held fixed investment trust.
Unit interest holder.Aunit interest
holderis any person who holds a direct or
indirect interest, including a beneficial in-
terest, in a widely held fixed investment
trust at any time during the calendar year.
Widely held fixed investment trust.A
widely held fixed investment trustis an
arrangement classified as a trust under
§301.7701–4(c) of this chapter, and sub-
ject to subpart E, part I, subchapter J,
chapter 1 of the Internal Revenue Code,
in which any interest is held by a middle-
man.
(2) Form 1099 requirement for trustees
and middlemen—(i) Obligation to file
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1998–35 I.R.B.13August 31, 1998
Form 1099 with the Internal Revenue Ser-
vice. Except as provided in paragraph
(j)(2)(iv) of this section—
(A) Every trustee must file with the In-
ternal Revenue Service the appropriate
Forms 1099 reporting the information
specified in paragraph (j)(2)(ii) of this
section with respect to any unit interest
holder who holds an interest in the trust
directly and not through a middleman;
and
(B) Every middleman must file with
the Internal Revenue Service the appro-
priate Forms 1099, reporting the informa-
tion specified in paragraph (j)(2)(ii) of
this section with respect to any unit inter-
est holder on whose behalf or account the
middleman holds an interest in the trust or
acts in a capacity as an intermediary.
(ii) Information to be reported.The fol-
lowing information must be reported to
the Internal Revenue Service on the ap-
propriate Forms 1099—
(A) The name, address, and taxpayer
identification number of the unit interest
holder;
(B) The name, address, and taxpayer
identification number of the person re-
quired to file the form;
(C) The amount of trust income (deter-
mined in accordance with paragraph
(j)(6)(i) of this section) attributable to the
unit interest holder for the calendar year
for which the return is made;
(D) In the case of the sale or other dis-
position of a trust asset during the calen-
dar year, the portion of the gross proceeds
relating to the trust asset that is attribut-
able to the unit interest holder; and
(E) Any other information required by
the Forms 1099.
(iii) Time and place for filing Forms
1099. The Forms 1099 required to be
filed with the Internal Revenue Service by
trustees or middlemen pursuant to para-
graph (j)(2)(i) of this section must be filed
on or before February 28 of the year fol-
lowing the year for which the Forms 1099
are being filed. The returns must be filed
with the appropriate Internal Revenue
Service Center, at the address listed in the
instructions for the Forms 1099. For ex-
tensions of time for filing returns under
this section, see §1.6081–1. For magnetic
media filing requirements, see
§301.6011-2 of this chapter.
(iv) Forms 1099 not required.A Form
1099 is not required for a unit interest
holder that is an exempt recipient. How-
ever, if the trustee or middleman backup
withholds under section 3406 on pay-
ments made to a unit interest holder (be-
cause, for example, the unit interest
holder has failed to furnish a Form W-9
on request), then the trustee or middleman
is required to make a return under this
section, unless the trustee or middleman
refunds the amount withheld in accor-
dance with §31.6413(a)–3 of this chapter.
An exempt recipient is generally exempt
from information reporting without filing
a certificate claiming exempt status unless
the provisions of this paragraph (j)(2)(iv)
require the unit interest holder to file a
certificate. A trustee or middleman may
in any case require a unit interest holder
not otherwise required to file a certificate
under this paragraph (j)(2)(iv) to file a
certificate in order to qualify as an exempt
recipient. See §31.3406(h)–3(a)(1)(iii)
and (c)(2) of this chapter for the certifi-
cate that a unit interest holder must pro-
vide if a trustee or middleman requires the
certificate in order to treat the unit interest
holder as an exempt recipient under this
paragraph (j)(2)(iv). A trustee or middle-
man may treat a unit interest holder as an
exempt recipient based upon a properly
completed form as described in
§31.3406(h)–3(e)(2) of this chapter, its
actual knowledge that the unit interest
holder is a person described in this para-
graph (j)(2)(iv), or the indicators de-
scribed in this paragraph (j)(2)(iv). Any
unit interest holder who ceases to be an
exempt recipient shall, no later than 10
days after such cessation, notify the
trustee or middleman in writing when it
ceases to be an exempt recipient. For pur-
poses of this paragraph (j)—
(A) Corporation. A corporation, as de-
fined in section 7701(a)(3), whether do-
mestic or foreign, is an exempt recipient.
In addition, for purposes of this paragraph
(j)(2)(iv), the term corporation includes a
partnership all of whose members are cor-
porations described in this paragraph
(j)(2)(iv), but only if the partnership files
with the trustee or middleman a properly
completed form as described in
§31.3406(h)–3(e)(2) of this chapter. Ab-
sent actual knowledge otherwise, a trustee
or middleman may treat a unit interest
holder as a corporation (and, therefore, as
an exempt recipient) if one of the require-
ments of paragraph (j)(2)(iv)(A)(1), (2),
(3), or (4), is met at the time a unit interest
holder acquires an interest in the trust.
(1) The name of the unit interest holder
contains an unambiguous expression of
corporate status (that is, Incorporated,
Inc., Corporation, Corp., P.C., (but not
Company or Co.)) or contains the term in-
surance company, indemnity company,
reinsurance company,or assurance com-
pany,or its name indicates that it is an en-
tity listed as a per se corporation under
§301.7701–2(b)(8)(i) of this chapter.
(2) The trustee or middleman has on
file a corporate resolution or similar docu-
ment clearly indicating corporate status.
For this purpose, a similar document in-
cludes a copy of Form 8832, filed by the
unit interest holder to elect classification
as an association under §301.7701–3(c)
of this chapter.
(3) The trustee or middleman receives a
Form W-9 which includes an EIN and a
statement from the unit interest holder
that it is a domestic corporation.
(4) The trustee or middleman receives a
withholding certificate described in
§1.1441–1(e)(2)(i), that includes a certifi-
cation that the person whose name is on
the certificate is a foreign corporation.
(B) Tax exempt organization.Any or-
ganization that is exempt from taxation
under section 501(a) is an exempt recipi-
ent. A custodial account under section
403(b)(7) shall be considered an exempt
recipient under this paragraph. A trustee
or middleman may treat an organization as
an exempt recipient under this paragraph
(j)(2)(iv)(B) without requiring a certificate
if the organization’s name is listed in the
compilation by the Commissioner of orga-
nizations for which a deduction for chari-
table contributions is allowed, if the name
of the organization contains an unambigu-
ous indication that it is a tax-exempt orga-
nization, or if the organization is known to
the trustee or middleman to be a tax-ex-
empt organization.
(C) Individual retirement plan.An in-
dividual retirement plan as defined in sec-
tion 7701(a)(37) is an exempt recipient.
A trustee or middleman may treat any
such plan of which it is the trustee or cus-
todian as an exempt recipient under this
paragraph (j)(2)(iv)(C) without requiring
a certificate.
(D) United States.The United States
Government and any wholly-owned
agency or instrumentality thereof are ex-
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August 31, 1998141998–35 I.R.B.
empt recipients. A trustee or middleman
may treat a person as an exempt recipient
under this paragraph (j)(2)(iv)(D) without
requiring a certificate if the name of such
person reasonably indicates it is described
in this paragraph (j)(2)(iv)(D).
(E) State.A State, the District of Co-
lumbia, a possession of the United States,
a political subdivision of any of the fore-
going, a wholly-owned agency or instru-
mentality of any one or more of the fore-
going, and a pool or partnership composed
exclusively of any of the foregoing are ex-
empt recipients. A trustee or middleman
may treat a person as an exempt recipient
under this paragraph (j)(2)(iv)(E) without
requiring a certificate if the name of such
person reasonably indicates it is described
in this paragraph (j)(2)(iv)(E) or if such
person is known generally in the commu-
nity to be a State, the District of Columbia,
a possession of the United States or a po-
litical subdivision or a wholly-owned
agency or instrumentality or any one or
more of the foregoing (for example, an ac-
count held in the name of “Town of S” or
“County of T” may be treated as held by
an exempt recipient under this paragraph
(j)(2)(iv)(E)).
(F) Foreign government.A foreign
government, a political subdivision of a
foreign government, and any wholly-
owned agency or instrumentality of either
of the foregoing are exempt recipients. A
trustee or middleman may treat a foreign
government or a political subdivision
thereof as an exempt recipient under this
paragraph (j)(2)(iv)(F) without requiring a
certificate provided that its name reason-
ably indicates that it is a foreign govern-
ment or provided that it is known to the
trustee or middleman to be a foreign gov-
ernment or a political subdivision thereof
(for example, an account held in the name
of the “Government of V” may be treated
as held by a foreign government).
(G) International organization.An in-
ternational organization and any wholly-
owned agency or instrumentality thereof
are exempt recipients. The term interna-
tional organizationshall have the mean-
ing ascribed to it in section 7701(a)(18).
A trustee or middleman may treat a unit
interest holder as an international organi-
zation without requiring a certificate if the
unit interest holder is designated as an in-
ternational organization by executive
order (pursuant to 22 U.S.C. 288 through
288f).
(H) Foreign central bank of issue.A
foreign central bank of issue is an exempt
recipient. A foreign central bank of issue
is a bank which is by law or government
sanction the principal authority, other
than the government itself, issuing instru-
ments intended to circulate as currency.
See §1.895-1(b)(1). A trustee or middle-
man may treat a person as a foreign cen-
tral bank of issue (and, therefore, as an
exempt recipient) without requiring a cer-
tificate provided that such person is
known generally in the financial commu-
nity as a foreign central bank of issue or if
its name reasonably indicates that it is a
foreign central bank of issue.
(I) Securities and commodities dealer.
A dealer in securities, commodities, or
notional principal contracts that is regis-
tered as such under the laws of the United
States or a State or under the laws of a
foreign country is an exempt recipient. A
trustee or middleman may treat a dealer as
an exempt recipient under this paragraph
(j)(2)(iv)(I) without requiring a certificate
if the person is known generally in the in-
vestment community to be a dealer meet-
ing the requirements set forth in this para-
graph (j)(2)(iv)(I) (for example, a
registered broker-dealer or a person listed
as a member firm in the most recent pub-
lication of members of the National Asso-
ciation of Securities Dealers, Inc.).
(J) Real Estate Investment Trust. A real
estate investment trust, as defined in sec-
tion 856 and §1.856-1, is an exempt recip-
ient. A trustee or middleman may treat a
person as a real estate investment trust
(and, therefore, as an exempt recipient)
without requiring a certificate if the person
is known generally in the investment com-
munity as a real estate investment trust.
(K) Entity registered under the Invest-
ment Company Act of 1940. An entity
registered at all times during the taxable
year under the Investment Company Act
of 1940, as amended (15 U.S.C. 80a–1),
(or during such portion of the taxable year
that it is in existence), is an exempt recip-
ient. An entity that is created during the
taxable year will be treated as meeting the
registration requirement of the preceding
sentence provided that such entity is so
registered at all times during the taxable
year for which such entity is in existence.
A trustee or middleman may treat such an
entity as an exempt recipient under this
paragraph (j)(2)(iv)(K) without requiring
a certificate if the entity is known gener-
ally in the investment community to meet
the requirements of the preceding sen-
tence.
(L) Common trust fund.A common
trust fund, as defined in section 584(a), is
an exempt recipient. A trustee or middle-
man may treat the fund as an exempt re-
cipient without requiring a certificate pro-
vided that its name reasonably indicates
that it is a common trust fund or provided
that it is known to the trustee or middle-
man to be a common trust fund.
(M) Financial institution.A financial
institution such as a bank, mutual savings
bank, savings and loan association, build-
ing and loan association, cooperative
bank, homestead association, credit
union, industrial loan association or bank,
or other similar organization, whether or-
ganized in the United States or under the
laws of a foreign country is an exempt re-
cipient. A financial institution also in-
cludes a clearing organization defined in
§1.163–5(c)(2)(i)(D)(8) and the Bank for
International Settlements. A trustee or
middleman may treat any person de-
scribed in the preceding sentence as an
exempt recipient without requiring a cer-
tificate if the person’s name (including a
foreign name, such as “Banco” or
“Banque”) reasonably indicates the unit
interest holder is a financial institution de-
scribed in the preceding sentence.
(N) Trust.A trust which is exempt
from tax under section 664(c) (i.e., a char-
itable remainder annuity trust or a charita-
ble remainder unitrust) or is described in
section 4947(a)(1) (relating to certain
charitable trusts) is an exempt recipient.
A trustee or middleman which is a trustee
of the trust may treat the trust as an ex-
empt recipient without requiring a certifi-
cate.
(O) Middlemen.A middleman, as de-
fined in paragraph (j)(1) of this section, is
an exempt recipient.
(P) Brokers.A broker, as defined in
section 6045(c) and §1.6045-1(a)(1), is an
exempt recipient.
(Q) Real estate mortgage investment
conduit.A real estate mortgage invest-
ment conduit, as defined in section
860D(a), is an exempt recipient.
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1998–35 I.R.B.15August 31, 1998
(R) A widely held fixed investment
trust. A widely held fixed investment
trust, as defined in paragraph (j)(1) of this
section, is an exempt recipient.
(3) Trustee’s requirement to furnish in-
formation to middlemen, exempt recipi-
ents, and noncalendar-year taxpayers—
(i) In general.The trustee must cause to
be printed in a publication generally read
by and available to requesting persons,
the name, address, and telephone number
of a representative or official of the trust
who will provide the information speci-
fied in paragraph (j)(3)(ii) of this section
to such persons. The trustee must provide
the information in the time and manner
prescribed in paragraph (j)(3)(iii)(C) of
this section to requesting persons who re-
quest the information in the manner pre-
scribed in paragraph (j)(3)(iii)(B) of this
section.
(ii) Information required to be re-
ported. For each calendar quarter or cal-
endar year specified, the trustee must
have available and provide, upon request,
the following information computed as of
the last day of the quarter, or computed as
of December 31 of the year specified—
(A) The name of the trust, the name
and address of the trustee of the trust, and
the employer identification number of the
trust;
(B) The Committee on Uniform Secu-
rity Identification Procedure (CUSIP)
number, account number, serial number
or other identifying number of the trust;
(C) All items of income (determined in
accordance with paragraph (j)(6)(i) of this
section), deduction, and credit of the trust,
expressed both as a total dollar amount
for the trust and as a dollar amount per
unit outstanding on the last day of the pe-
riod requested;
(D) If any trust asset has been sold or
otherwise disposed of during the period
requested, the gross proceeds received by
the trust for the trust asset, the date of sale
or disposition of the trust asset, and the
percentage of that trust asset that has been
sold or disposed of. The trust must also
provide a schedule showing the portion
(expressed in terms of a percentage) of
the total fair market value of all the assets
held by the trust that the asset sold or dis-
posed of represented as of the last day of
the quarter for each quarter that the asset
was held by the trust;
(E) The amount of affected expenses of
the trust expressed both as a total dollar
amount and as a dollar amount per unit
outstanding on the last day of the period
requested;
(F) In the case of a widely held fixed
investment trust that holds a pool of debt
instruments subject to section 1272(a)-
(6)(C)(iii), the information required by
paragraph (j)(6)(ii) of this section;
(G) The number of units outstanding on
the last business day of the period re-
quested; and
(H) Any other information necessary
for a unit interest holder that is the benefi-
cial owner of a trust interest to properly
report the income, deductions, and credits
attributable to the portion of the trust
treated as owned by the unit interest
holder under section 671. For this pur-
pose, the trustee shall separately state any
trust item that, if taken into account sepa-
rately by a unit interest holder, could re-
sult in an income tax liability for that unit
interest holder different from that which
would result if the unit interest holder did
not take the item into account separately.
(iii) Providing and requesting trust in-
formation—(A) Requesting persons. The
following persons that hold an interest in
a trust may request the information speci-
fied in paragraph (j)(3)(ii) of this section
from that trust—
(1) Any middleman;
(2) Any broker who holds a unit inter-
est on its own behalf;
(3) Any other exempt recipient who
holds an interest directly and not through
a middleman;
(4) Any noncalendar-year unit interest
holder who holds a trust interest directly
and not through a middleman; and
(5) A representative or agent for a per-
son specified in paragraphs (j)(3)(iii)(A)-
(1) through (4) of this section.
(B) Manner of requesting information
from the trust.A requesting person may
request the information specified in para-
graph (j)(3)(ii) of this section in writing or
by telephone. The request must specify
the calendar quarters or years for which
the information is needed.
(C) Time and manner of furnishing in-
formation—(1) Manner of furnishing in-
formation.The information specified in
paragraph (j)(3)(ii) of this section may be
furnished as follows—
(i) By telephone;
(ii) By written statement sent by first
class mail to the address provided by the
requesting person;
(iii) By causing it to be printed in a
publication generally read by and avail-
able to requesting persons and by notify-
ing the requesting person in writing or by
telephone of the publication in which it
will appear, the date on which it will ap-
pear, and, if possible, the page on which it
will appear; or
(iv) By any other method agreed to by
the parties.
(2) Time for furnishing the information.
The trustee must furnish, or cause to be
furnished, the information specified in
paragraph (j)(3)(ii) of this section on or
before the later of—
(i) The 30th day after the close of the
period for which the information was re-
quested; or
(ii) The day that is 2 weeks after the re-
ceipt of the request.
(4) Requirement of furnishing state-
ment to unit interest holder—(i) In gen-
eral.Every trustee or middleman re-
quired to file appropriate Forms 1099
under paragraph (j)(2)(i) of this section
with respect to a particular unit interest
holder must furnish to that unit interest
holder (the person whose identifying
number is required to be shown on the
form) a written statement showing the in-
formation required by paragraph (j)(4)(ii)
of this section.
(ii) Information required to be provided
on written statement. The written state-
ment must specify for the calendar year
for which the return is made the following
information—
(A) The name of the trust and the
CUSIP number, account number, serial
number, or other identifying number for
the trust or unit interest;
(B) The name, address, and taxpayer
identification number of the person re-
quired to send the statement;
(C) All items of income (determined in
accordance with paragraph (j)(6)(i) of this
section), deduction, and credit of the trust
attributable to the unit interest holder;
(D) If any trust asset is sold, or other-
wise disposed of during the calendar year,
the portion of the gross proceeds relating
to the trust asset that is attributable to the
unit interest holder, the date of sale or dis-
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August 31, 1998161998–35 I.R.B.
position of the trust asset, and the percent-
age of that trust asset that has been sold or
otherwise disposed of. A schedule show-
ing the portion (expressed in terms of a
percentage) of the total fair market value
of all the assets held by the trust that the
asset sold or disposed of represented as of
the last day of the quarter for each quarter
that the asset was held by the trust must
be included with the statement;
(E) In the case of a unit interest holder
that is an affected investor, the affected
expenses that are attributable to the unit
interest holder;
(F) In the case of a widely held fixed
investment trust that holds a pool of debt
instruments subject to section 1272(a)(6)-
(C)(iii), the information required by para-
graph (j)(6)(ii) of this section;
(G) Any other information necessary
for a unit interest holder to properly report
the income, deductions, and credit attrib-
utable to the unit interest holder under
section 671. For this purpose, the trustee
or middleman, as the case may be, shall
separately state any trust item that, if
taken into account separately by any unit
interest holder, could result in an income
tax liability for that unit interest holder
different from that which would result if
the unit interest holder did not take the
item into account separately; and
(H) A statement that the items of in-
come, deduction, and credit and other in-
formation shown on the statement must
be taken into account in computing the
taxable income and credits of the unit in-
terest holder on the income tax return of
the unit interest holder.
(iii) Due date and other requirements
with respect to statement required to be
furnished to the unit interest holder.The
statement required to be furnished to the
unit interest holder under this paragraph
(j)(4) for a calendar year must be fur-
nished to the holder after April 30 of that
year and on or before March 15 of the
year following the year for which the
statement is being furnished. The person
sending the statement must maintain in its
records a copy of the statement furnished
to the unit interest holder for a period of 3
years from the due date for furnishing
such statement specified in this paragraph
(j)(4).
(5) Requirement that middlemen fur-
nish information to exempt recipients and
noncalendar-year taxpayers.For each
calendar quarter or calendar year speci-
fied, any exempt recipient listed in para-
graph (j)(2)(iv) of this section and any
noncalendar-year unit interest holder may
request from the middleman who holds
the unit interest on behalf of, or for the ac-
count of, the unit interest holder, the in-
formation listed in paragraph (j)(4)(ii)(A)
through (G) of this section computed as of
the last day of the calendar quarter speci-
fied, or computed as of December 31 of
the year specified. The middleman must
provide in writing or by telephone the in-
formation listed in paragraph (j)(4)(ii)(A)
through (G) of this section to any such re-
quester on or before the later of the 45th
day after the close of the period for which
the information was requested, or that day
that is 4 weeks after the receipt of the re-
quest.
(6) Special rules.For purposes of this
paragraph (j):
(i) Determination of trust income.
Trust income is to be determined in the
following manner—
(A) The trust is to be treated as a calen-
dar year taxpayer using the cash receipts
and disbursements method of accounting;
and
(B) The amount of trust income for the
calendar year is the gross amount of in-
come generated by the trust assets (other
than from the sale or other disposition of
trust assets). Thus, in the case of a trust
that receives a payment net of an expense,
the payment must be grossed up to reflect
the deducted expense.
(ii) Widely held fixed investment trust
holding pool of debt instruments subject
to section 1272(a)(6)(C)(iii).In the case
of a widely held fixed investment trust
that holds a pool of debt instruments sub-
ject to section 1272(a)(6)(C)(iii), request-
ing persons, unit interest holders, exempt
recipients, and noncalendar-year taxpay-
ers must be provided, as required under
paragraphs (j)(3)(ii)(F), (j)(4)(ii)(F), and
(j)(5), respectively, of this section, infor-
mation necessary to compute—
(A) The accrual of market discount, in-
cluding the type of information required
under paragraphs §1.6049-7(f)(2)(i)(G) in
the case of a REMIC regular interest or a
collateralized debt obligation not issued
with original issue discount; and
(B) The accrual of original issue dis-
count and market discount, including the
type of information required under
§1.6049–7(f)(2)(ii)(E), (F), (I), and (K) in
the case of a REMIC regular interest or a
collateralized debt obligation that is is-
sued with original issue discount.
(7) Backup withholding requirements.
Every trustee and middleman filing a
Form 1099 under this section shall be
considered a payor within the meaning of
§31.3406(a)–2 of this chapter. The oblig-
ation of a trustee or middleman as payor
to backup withhold shall be determined
pursuant to section 3406 and the regula-
tions promulgated thereunder.
(8) Penalties for failure to comply.
Every trustee and middleman who has a
reporting obligation under this paragraph
(j) and who fails to comply is subject to
the penalties provided by sections 6721,
6722, and any other applicable penalty
provisions.
(9)Effective date.Trustees and mid-
dlemen must report in accordance with
this paragraph (j) for calendar years be-
ginning on or after the date that the final
regulations are published in the Federal
Register.
Par. 3. Section 1.6049-7 is amended by
adding a sentence to the end of paragraph
(f)(4) to read as follows:
§1.6049–7 Returns of information with
respect to REMIC regular interests and
collateralized debt obligations.
* * * * *
(f) * * *
(4) * * * For rules regarding a widely
held fixed investment trust that holds a
pool of debt instruments subject to section
1272(a)(6)(C)(iii), see §1.671-4(j).
* * * * *
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 4. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 5. Section 301.6109-1 is amended
by revising the last sentence of paragraph
(a)(2)(i) to read as follows:
§301.6109–1 Identifying numbers.
(a) * * *
(2) * * * (i) * * * If the trustee has not
already obtained a taxpayer identification
number for the trust, the trustee must ob-
tain a taxpayer identification number for
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1998–35 I.R.B.17August 31, 1998
the trust as provided in paragraph (d)(2)
of this section in order to report pursuant
to §1.671–4(a), (b)(2)(i)(B), (b)(3)(i), or
(j) of this chapter.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
August 12, 1998, 8:45 a.m., and published in the
issue of the Federal Register for August 13, 1998, 63
F.R. 43354.)
S Corporation Subsidiaries;
Hearing
Announcement 98–82
AGENCY: Internal Revenue Service,
Treasury.
ACTION: Notice of public hearing on
proposed regulations.
SUMMARY: This document provides
notice of a public hearing on proposed
regulations relating to the treatment of
corporate subsidiaries of S corporations.
In addition, this document announces that
persons wishing to testify who are outside
the Washington, DC area, will be able to
make their presentations from one of two
Internal Revenue Service remote telecon-
ference sites.
DATES: The public hearing will be held
September 9, 1998, beginning at 1:00
p.m. (EDT). Requests to speak and out-
lines of oral comments must be received
by Wednesday, August 20, 1998.
ADDRESSES: The public hearing will
be held in room 3411, Internal Revenue
Building, 1111 Constitution Avenue, NW,
Washington, DC. The addresses of the re-
mote teleconference sites are listed below
under Supplementary Information.
FOR FURTHER INFORMATION CON-
TACT: Mike Slaughter of the Regulations
Unit, Assistant Chief Counsel (Corpo-
rate), (202) 622-7180 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
The subject of the public hearing is pro-
posed regulations under section 1308 of
the Internal Revenue Code. These pro-
posed regulations (REG–251698–96) ap-
peared in the Federal Register(63 F.R.
19864 [1998–20 I.R.B. 14]) on Wednes-
day, April 22, 1998.
The hearing will be held in room 3411
of the Internal Revenue Building, 1111
Constitution Avenue, NW. Washington,
DC, and in two teleconference sites listed
below:
Federal Building, 5th Floor
Room 5003
300 N. Los Angeles Street
Los Angeles, California
Robert A. Young Building
2nd Floor, Conference Room
1222 Spruce Street
St. Louis, MO 63103
The rules of §601.601 (a)(3) of the
“Statement of Procedural Rules” (26 CFR
part 601) shall apply with respect to the
public hearing. Persons who have sub-
mitted written comments within the time
prescribed in the notice of proposed rule-
making and who also desire to present
oral comments at the hearing on the pro-
posed regulations should submit not later
than Wednesday, August 20, 1998, an out-
line of the oral comments/testimony to be
presented at the hearing and the time they
wish to devote to each subject.
Each speaker (or group of speakers rep-
resenting a single entity) will be limited to
10 minutes for an oral presentation exclu-
sive of the time consumed by the question
from the panel for the government and an-
swers to these question.
Because of controlled access restric-
tion, attendees cannot be admitted beyon
d the lobby of the Internal Revenue build-
ing until 12:30 p.m. Hearing times at the
remote teleconference sites will be con-
current with the hearing in Washington,
DC. (i.e., 10 a.m. PDT and 12 noon CDT)
Due to limited seating capacity at the
remote teleconference sites, no more than
12 people may be accommodated at any
one time in each teleconference room.
Seating in the teleconference rooms will
be made available based on the order of
presentations. IRS personnel will be
available at the remote teleconference
sites to assist speakers in using the tele-
conference equipment.
The Service will prepare an agenda
showing the scheduling of speakers and
will make copies of the agenda available
free of charge at the hearing. Testimony
will begin with the speakers at the remote
teleconference sites in the following
order: Los Angeles, St. Louis, and will
conclude with presentations by the speak-
ers in Washington, DC.
Cynthia E. Grigsby,
Chief, Regulations Unit,
Assistant Chief Counsel (Corporate).
(Filed by the Office of the Federal Register on
August 12, 1998, 8:45 a.m., and published in the
issue of the Federal Register for August 13, 1998, 63
F.R. 43353.)
IRB 1998-35 8/26/98 12:31 PM Page 17

August 31, 1998181998–35 I.R.B.
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of 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
IRB 1998-35 8/26/98 12:31 PM Page 18

1998–35 I.R.B.19August 31, 1998
Numerical Finding List
1
Bulletins 1998–29 through 34
Announcements:
98–62, 1998–29 I.R.B. 13
98–68, 1998–29 I.R.B. 14
98–69, 1998–30 I.R.B. 16
98–70, 1998–30 I.R.B. 17
98–71, 1998–30 I.R.B. 17
98–72, 1998–31 I.R.B.14
98–73, 1998–31 I.R.B.14
98–74, 1998–31 I.R.B.15
98–75, 1998–31 I.R.B.15
98–76, 1998–32 I.R.B.64
98–77, 1998–34 I.R.B.30
98–78, 1998–34 I.R.B.30
98–79, 1998–34 I.R.B.31
98–80, 1998–34 I.R.B.32
Notices:
98–36, 1998–29 I.R.B. 8
98–37, 1998–30 I.R.B.13
98–38, 1998–34 I.R.B.7
98–39, 1998–33 I.R.B.11
98–41, 1998–33 I.R.B.12
98–42, 1998–33 I.R.B.12
98–43, 1998–33 I.R.B.13
98–44, 1998–34 I.R.B.7
Railroad Retirement Quarterly Rate:
1998–31 I.R.B. 7
Proposed Regulations:
REG–246256–96, 1998–34 I.R.B.9
REG–104641–97, 1998–29 I.R.B. 9
REG–116608–97, 1998–29 I.R.B. 12
REG–119227–97, 1998–30 I.R.B. 13
REG–110332–98, 1998–33 I.R.B.18
REG–110403–98, 1998–29 I.R.B.11
Revenue Procedures:
98–40, 1998–32 I.R.B. 6
98–41, 1998–32 I.R.B. 7
98–42, 1998–28 I.R.B. 9
98–43, 1998–29 I.R.B. 8
98–44, 1998–32 I.R.B. 11
98–45, 1998–34 I.R.B.8
Revenue Rulings:
98–34, 1998–31 I.R.B. 12
98–35, 1998–30 I.R.B. 4
98–36, 1998–31 I.R.B.6
98–37, 1998–32 I.R.B.5
98–38, 1998–32 I.R.B.4
98–39, 1998–33 I.R.B.4
98–40, 1998–33 I.R.B.4
Treasury Decisions:
8771, 1998–29 I.R.B. 6
8772, 1998–31 I.R.B. 8
8773, 1998–29 I.R.B. 4
8774, 1998–30 I.R.B. 5
8775, 1998–31 I.R.B.4
8776, 1998–33 I.R.B.6
8777, 1998–34 I.R.B.4
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1998–1 through 1998–28
will be found in Internal Revenue Bulletin 1998–29,
dated July 20, 1998.
IRB 1998-35 8/26/98 12:31 PM Page 19

August 31, 1998201998–35 I.R.B.
Finding List of Current Action on
Previously Published Items
1
Bulletins 1998–29 through 34
*Denotes entry since last publication
Revenue Procedures:
83–58
Obsoleted by
98–37, 1998–32 I.R.B. 5
Revenue Rulings:
57–271
Obsoleted by
98–37, 1998–32 I.R.B. 5
71–277
Obsoleted by
98–37, 1998–32 I.R.B. 5
71–434
Obsoleted by
98–37, 1998–32 I.R.B. 5
71–574
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–75
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–120
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–121
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–122
Obsoleted by
98–37, 1998–32 I.R.B. 5
74–77
Obsoleted by
98–37, 1998–32 I.R.B. 5
75–19
Obsoleted by
98–37, 1998–32 I.R.B. 5
76–562
Obsoleted by
98–37, 1998–32 I.R.B. 5
77–214
Obsoleted by
98–37, 1998–32 I.R.B. 5
79–106
Obsoleted by
98–37, 1998–32 I.R.B. 5
83–113
Obsoleted by
98–37, 1998–32 I.R.B. 5
85–143
Obsoleted by
98–37, 1998–32 I.R.B. 5
88–8
Obsoleted by
98–37, 1998–32 I.R.B. 5
88–76
Obsoleted by
98–37, 1998–32 I.R.B. 5
Revenue Rulings—Continued
88–79
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–4
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–5
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–6
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–30
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–38
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–49
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–50
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–53
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–81
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–91
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–92
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–93
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–5
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–6
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–30
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–51
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–79
Obsoleted by
98–37, 1998–32 I.R.B. 5
95–2
Obsoleted by
98–37, 1998–32 I.R.B. 5
95–9
Obsoleted by
98–37, 1998–32 I.R.B. 5
Revenue Rulings—Continued
97–37
Obsoleted by
98–39, 1998–33 I.R.B. 4
1
A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1998–1 through 1998–28 will be found in Internal
Revenue Bulletin 1998–29, dated July 20, 1998.
IRB 1998-35 8/26/98 12:31 PM Page 20

1998–35 I.R.B.21August 31, 1998
Notes
IRB 1998-35 8/26/98 12:31 PM Page 21

August 31, 1998221998–35 I.R.B.
Notes
IRB 1998-35 8/26/98 12:31 PM Page 22

IRB 1998-35 8/26/98 12:31 PM Page 23

INTERNAL REVENUE BULLETIN
The Introduction on page 3 describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold
on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superintendent of
Documents when their subscriptions must be renewed.
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The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
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ly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the
Superintendent of Documents.
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Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
detach entire page, and mail to the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. Please
allow two to six weeks, plus mailing time, for delivery.
WE WELCOME COMMENTS ABOUT THE
INTERNAL REVENUE BULLETIN
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page
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IRB 1998-35 8/26/98 12:31 PM Page 24