Internal Revenue Bulletin 1996-5 (PDF rendition): IRS Announcements

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

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Bulletin No. 1996–5
January 29, 1996
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
EE–20–95, page 15.
Proposed regulations under section 125 of the Code
relating to the effect of the Family and Medical Leave
Act of 1993 on the operation of cafeteria plans.
EE–35–95, page 19.
Proposed regulations under section 411 of the Code
provide guidance on calculation of an employee’s
accrued benefit derived from the employee’s contribu-
tions to a qualified defined benefit pension plan.
EE–53–95, page 23.
Proposed regulations clarifying certain requirements for
tax-exempt section 501(c)(5) organizations.
T.D. 8638, page 5.
INTL–9–95, page 24.
Temporary and proposed regulations under section 367
of the Code relating to certain transfers of domestic
stock or securities by U.S. persons to foreign corpora-
tions. A public hearing will be held on April 11, 1996.
EXEMPT ORGANIZATIONS
Announcement 96–6, page 43.
A list is given of organizations now classified as private
foundations.
Announcement 96–7, page 44.
A list is provided of organizations that no longer qualify
as organizations to which contributions are deductible
under section 170 of the Code.
EXCISE TAXES
T.D. 8639, page 12.
Final regulations under section 4941 of the Code that
clarify the definition of self-dealing for private
foundations.
ADMINISTRATIVE
Notice 96–6, page 27.
Closing of study project and moving of related no-rule
provisions. The IRS and the Treasury Department have
decided not to issue guidance at this time regarding
corporate combining transactions and are closing the
study project. In Rev. Proc. 96–22, this Bulletin, page
27, Rev. Proc. 96–3 is amplified and modified by
moving the provision in section 5.15 from section 5
(Areas Under Extensive Study) to section 3 (Areas In
Which Rulings or Determination Letters Will Not Be
Issued).
Rev. Proc. 96–22, page 27.
Areas in which advance rulings will not be issued
(Associate Chief Counsel (Domestic)). The No-Rule
provision with respect to ‘‘Combining Transactions’’
presently in section 5.15 of Rev. Proc. 96–3, 1996–1
I.R.B. 82, is moved from section 5 (Areas Under
Extensive Study) to section 3 (Areas In Which Rulings
or Determination Letters Will Not Be Issued). Rev.
Proc. 96–3 amplified and modified. See Notice 96–6,
this Bulletin, page 27, regarding the closing of the
study project.
(Continued on page 4)
Finding Lists begin on page 46.
Announcement of Declaratory Judgment Proceeding Under Section 7428 on page 44.

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

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Introduction
The Internal Revenue Bulletin is the authoritative
instrument of the Commissioner of Internal Revenue for
announcing official rulings and procedures of the
Internal Revenue Service and for publishing Treasury
Decisions, Executive Orders, Tax Conventions, legisla-
tion, court decisions, and other items of general
interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscrip-
tion basis. Bulletin contents of a permanent nature are
consolidated semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin
all substantive rulings necessary to promote a uniform
application of the tax laws, including all rulings that
supersede, revoke, modify, or amend any of those
previously published in the Bulletin. All published
rulings apply retroactively unless otherwise indicated.
Procedures relating solely to matters of internal
management are not published; however, statements of
internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the
Service on the application of the law to the pivotal facts
stated in the revenue ruling. In those based on
positions taken in rulings to taxpayers or technical
advice to Service field offices, identifying details and
information of a confidential nature are deleted to
prevent unwarranted invasions of privacy and to comply
with statutory requirements.
Rulings and procedures reported in the Bulletin do not
have the force and effect of Treasury Department
Regulations, but they may be used as precedents.
Unpublished rulings will not be relied on, used, or cited
as precedents by Service personnel in the disposition of
other cases. In applying published rulings and proce-
dures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be
considered, and Service personnel and others con-
cerned are cautioned against reaching the same
conclusions in other cases unless the facts and
circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on
provisions of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows:
Subpart A, Tax Conventions, and Subpart B, Legislation
and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellanous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and
Subparts. Also included in this part are Bank Secrecy
Act Administrative Rulings. Bank Secrecy Act Admin-
istrative Rulings are issued by the Department of the
Treasury’s Office of the Assistant Secretary
(Enforcement).
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemak-
ing and the disbarment and suspension list included in
this part, none of these announcements are consoli-
dated in the Cumulative Bulletins.
The first Bulletin for each month includes an index for
the matters published during the preceding month.
These monthly indexes are cumulated on a quarterly
and semiannual basis, and are published in the first
Bulletin of the succeeding quarterly and semi-annual
period, respectively.
The Bulletin Index-Digest System, a research and
reference service supplementing the Bulletin, may be
obtained from the Superintendent of Documents on a
subscription basis. It consists of four Services: Service
No. 1, Income Tax; Service No. 2, Estate and Gift
Taxes; Service No. 3, Employment Taxes; Service No.
4, Excise Taxes. Each Service consists of a basic
volume and a cumulative supplement that provides (1)
finding lists of items published in the Bulletin, (2)
digests of revenue rulings, revenue procedures, and
other published items, and (3) indexes of Public Laws,
Treasury Decisions, and Tax Conventions.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents U.S. Government Printing Office, Washington, D.C. 20402.

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HIGHLIGHTS
OF THIS ISSUE—Continued
ADMINISTRATIVE—Continued
Rev. Proc. 96–23, page 27.
Domestic asset/liability and investment yield percentages.
This procedure provides the domestic asset/liability
percentages and domestic investment yield percentages
for taxable years beginning after December 31, 1994,
for foreign companies doing insurance business in the
U.S. The percentages are necessary for computation of
the minimum effectively connected income under
section 842(b) for foreign companies conducting
insurance business for taxable years beginning after
December 31, 1994.
Rev. Proc. 96–24, page 28.
General rules and specifications for private printing of
Forms W–2 and W–3. Specifications are set forth for the
private printing of paper substitutes for tax year 1995
Form W–2, Wage and Tax Statement, and Form W–3,
Transmittal of Wage and Tax Statements. Rev. Prov.
95–20 superseded.

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Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 367.—Foreign Corporations
26 CFR 1.367(a)–3T: Treatment of transfers of
stock or securities to foreign corporations
(temporary).
T.D. 8638
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Certain Transfers of Domestic Stock
or Securities by U.S. Persons to
Foreign Corporations
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: These temporary regula-
tions provide the public with guidance
necessary to comply with the Tax Re-
form Act of 1984. These regulations
amend the Income Tax Regulations
with respect to certain transfers of
stock or securities of domestic corpora-
tions by United States persons to
foreign corporations pursuant to the
corporate organization, reorganization,
or liquidation provisions of the Internal
Revenue Code. This Treasury decision
also removes certain of the existing
temporary regulations regarding trans-
fers by U.S. persons of stock or
securities of both domestic and foreign
corporations. This action is necessary
to update the existing temporary reg-
ulations and to reflect certain of the
changes announced by Notice 87–85
(1987–2 C.B. 395) (with respect to
transfers of both domestic and foreign
stock or securities) and by Notice 94–
46 (1994–1 C.B. 356) (with respect to
transfers of stock or securities of a
domestic corporation). The text of
these temporary regulations also serves
as the text of the proposed regulations
set forth in the notice of proposed
rulemaking on this subject *** [INTL–
9–95, page 24, this Bulletin]. When
finalized, the regulations under section
367(a) relating to the transfer of stock
or securities will integrate the regula-
tions herein with the 1991 proposed
regulations relating to transfers of stock
or securities (see Proposed Rule
§§1.367(a)–3 and 1.367(a)–8, pub-
lished at 56 FR 41993, August 26,
1991).
EFFECTIVE DATE: April 17, 1994.
For further information, see the Applic-
ability and Effective Dates section under
SUPPLEMENTARY INFORMATION.
FOR FURTHER INFORMATION
CONTACT: Philip L. Tretiak at (202)
622–3860 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Applicability and Effective Dates
These regulations are generally ap-
plicable to transfers occurring after
April 17, 1994, the effective date of
Notice 94–46. However, the active
trade or business requirement (de-
scribed in §1.367(a)–3T(c)(1)(iii) of the
temporary regulations herein), which
was not contained in Notice 94–46, is
effective for transfers occurring after
January 25, 1996. Moreover, these
regulations remove as ‘‘deadwood’’
paragraphs (c)(1) through (c)(4), (d),
(e), (f), (g)(1)(iii) and (h)(1) of
§1.367(a)–3T of the existing temporary
regulations with respect to transfers
occurring after December 16, 1987, the
effective date of Notice 87–85.
Paperwork Reduction Act
These regulations are being issued
without prior notice and public proce-
dure pursuant to the Administrative
Procedure Act (5 U.S.C. 553). For this
reason, the collection of information
contained in these regulations has been
reviewed and, pending receipt and
evaluation of public comments, ap-
proved by the Office of Management
and Budget under control number
1545–1478. Responses to this collec-
tion of information are required in
order for U.S. shareholders that transfer
stock or securities in section 367(a)
exchanges to qualify for an exception
to the general rule of taxation under
section 367(a)(1).
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information
displays a valid control number.
For further information concerning
this collection of information, and
where to submit comments on the
collection of information and the ac-
curacy of the estimated burden, and
suggestions for reducing this burden,
please refer to the preamble to the
cross-referencing notice of proposed
rulemaking published in *** [INTL–9–
95, page 24, this Bulletin].
Books or records relating to a
collection of information must be re-
tained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
Background
On May 16, 1986, temporary and
proposed regulations under sections
367(a) and (d) and section 6038B were
published in the Federal Register (51
FR 17936). These regulations were
published to provide the public with
guidance necessary to comply with
changes made to the Internal Revenue
Code by the Tax Reform Act of 1984.
Included in the 1986 temporary regula-
tions was §1.367(a)–3T, concerning
transfers of stock or securities of
domestic or foreign corporations by
U.S. persons to foreign corporations.
Subsequently, the IRS and the Treasury
Department issued Notice 87–85
(1987–2 C.B. 395), which set forth
substantial changes to be made to
§1.367(a)–3T, effective with respect to
transfers occurring after December 16,
1987. A further notice of proposed
rulemaking, containing rules under sec-
tion 367(a), as well as under section
367(b), was published in the Federal
Reister on August 26, 1991 (56 FR
41993). The 1991 proposed section
367(a) regulations were generally based
upon the positions announced in Notice
87–85, but the regulations made certain
modifications to Notice 87–85, par-
ticularly with respect to transfers of
s t o c k o r s e c u r i t i e s o f f o r e i g n
corporations.
Most recently, the IRS and the
Treasury Department issued Notice 94–
46 (1994–1 C.B. 356), announcing
modifications to the positions set forth
in Notice 87–85 (and the 1991 pro-
posed regulations) with respect to
transfers of stock or securities of
domestic corporations occurring after
April 17, 1994. The temporary regula-
tions set forth herein generally incorpo-
rate the modifications announced in
Notice 94–46. The notice of proposed

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rulemaking on this subject in ***
[INTL–9–95, this Bulletin] supplements
and, where inconsistent with, super-
sedes, the 1991 proposed regulations
with respect to transfers of domestic
stock or securities occurring after April
17, 1994.
Notice 94–46 announced that the
regulations under section 367(a) would
be amended to deny nonrecognition
treatment to the transfer of stock or
securities of a domestic corporation by
a U.S. person to a foreign corporation
if all U.S. transferors owned in the
aggregate 50 percent or more of either
the total voting power or the total value
of the stock of the transferee foreign
corporation immediately after the ex-
change. (Under the approach taken in
Notice 87–85, transfers of domestic
stock or securities occurring prior to
April 18, 1994 (and after December 16,
1987) were generally denied nonrecog-
nition treatment only in the case of a
single U.S. transferor that owned more
than 50 percent of the total voting
power or the total value of the stock of
the transferee foreign corporation im-
mediately after the transfer or of a U.S.
transferor that held at least 5 percent
(but no more than 50 percent) of the
total voting power or the total value of
the stock of the transferee foreign
corporation immediately after the trans-
fer and that failed to enter into a gain
recognition agreement.)
In Notice 94–46, the IRS and the
Treasury Department invited comments
on possible exceptions to the general
rule set forth in the Notice, specifically
with respect to cases where (i) a
domestic corporation is acquired by a
foreign corporation that is engaged in
an active trade or business and that,
prior to the transaction, is unrelated to
the acquired corporation or its share-
holders, or (ii) the transferee foreign
corporation is a controlled foreign
corporation (within the meaning of
section 957) after the transfer. After
consideration of the comments re-
ceived, the IRS and the Treasury
Department have concluded that no
exceptions to the general rule are
warranted.
In the Notice, the IRS and the
Treasury Department also invited spe-
cific comment on whether special rules
should be provided to determine the
ownership of the transferee foreign
corporation in cases where the corpora-
tion is publicly traded. As described
below, in response to comments re-
ceived, the ‘‘cross-ownership’’ rules of
Notice 94–46 have been modified in a
way that will ameliorate the burdens of
identifying shareholders of publicly
traded (or widely-held) corporations
and that should reduce the impact of
the general rule on business combina-
tions involving unrelated U.S. and
foreign corporations that are engaged in
the active conduct of a trade or
business.
Need for Temporary Regulations
The rules contained in this Treasury
decision provide taxpayers with guid-
ance necessary to comply with Notice
94–46, which was effective with re-
spect to transfers of stock or securities
of domestic corporations to foreign
corporations occurring after April 17,
1994. The provisions of Notice 94–46
were made immediately effective to
forestall certain tax-avoidance transfers
by U.S. persons of the stock of U.S.-
based multinationals to foreign corpora-
tions. Because of the Notice’s immedi-
ate effective date, there is a need for
implementing regulations on which
both taxpayers and the Service may
rely with respect to current transfers.
Based on these considerations, it is
determined that immediate regulatory
guidance will ensure the efficient ad-
ministration of the tax laws and that it
would be impracticable and contrary to
the public interest to issue this Treas-
ury decision with prior notice under
section 553(b) or subject to the effec-
tive date limitation of section 553(d) of
title 5 of the United States Code.
Explanation of Provisions
Section 367(a)(1) generally treats a
transfer of property (including stock or
securities) by a U.S. person to a
foreign corporation in connection with
an exchange described in section 332,
351, 354, 356 or 361 as a taxable
exchange unless the transfer qualifies
for an exception to this general rule.
Temporary regulations published on
May, 16, 1986 (TD 8087) provided
exceptions in the case of certain
transfers of stock or securities of
domestic and foreign corporations (see
§1.367(a)–3T). Notice 87–85 an-
nounced modifications to those excep-
tions for transfers of domestic or
foreign stock or securities occurring
after December 16, 1987. Proposed
regulations issued on August 26, 1991
largely incorporated the positions set
forth in Notice 87–85, and expanded
the application of section 367(a) with
respect to certain transfers of stock or
securities of foreign corporations.
Notice 94–46 announced modifications
to the exceptions originally announced
in Notice 87–85, effective with respect
to certain transfers of stock or se-
curities of domestic corporations occur-
ring after April 17, 1994.
Both the temporary regulations
herein and the notice of proposed
rulemaking on this subject in ***
[INTL–9–95, this Bulletin] generally
incorporate the positions taken in
Notice 94–46, with modifications as
described below. As indicated pre-
viously, Notice 94–46 did not modify
the positions taken in Notice 87–85
governing the transfer of stock or
securities of a foreign corporation.
Until the 1991 proposed regulations are
finalized, the positions originally an-
nounced in Notice 87–85 will continue
to govern the availability of section
367(a) exceptions for transfers of stock
or securities of foreign corporations.
In addition to implementing the posi-
tions announced in Notice 94–46, this
Treasury decision removes those por-
tions of §1.367(a)–3T of the 1986
temporary regulations that Notice 87–
85 announced would no longer be ap-
plicable with respect to stock transfers
occurring after December 16, 1987.
This includes removal of the exceptions
in paragraphs (c)(1) through (4) (pro-
viding exceptions for certain transfers
of domestic stock or securities); of
paragraph (d) (providing exceptions for
certain transfers of foreign stock or
securities, including an exception for
transfers to a foreign corporation
organized in the same foreign country
as the corporation the stock of which is
being transferred); of paragraph (e)
(involving exceptions where stock is an
operating asset or where there is a
consolidation of an integrated busi-
ness); and of paragraph (f) (exceptions
where U.S. transferors obtain a limited
interest in the transferee foreign
corporation).
The temporary regulations herein
also incorporate (in paragraph (a)) the
1991 proposed regulations’ restatement
of the general rule applicable to out-
bound stock transfers (see Prop. Reg.
§1.367(a)–3(a)). This restatement re-
vises the general rule contained in the
1986 temporary regulations to reflect
changes to section 367 made by Con-
gress after promulgation of those reg-
ulations. For example, the 1986 tempo-

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rary regulations’ statement of the gen-
eral rule included transfers of stock or
securities in section 332 liquidations as
one of the transactions covered by
section 367(a) (see §1.367(a)–3T(a)).
The restatement of the general rule in
the temporary regulations herein re-
moves the reference to section 332
because an outbound transfer of stock
or securities pursuant to a section 332
liquidation is now covered by section
367(e)(2) and the regulations under
§1.367(e)–2T. Even though the tempo-
rary regulations under §1.367(e)–2T
have sunset (because they were pro-
mulgated as temporary regulations on
January 12, 1990 (TD 8280) and were
not finalized within three years of that
date), the Service announced its inten-
tion to follow the principles of those
regulations in the preamble to the final
regulations under section 367(e)(1) (see
the preamble to the final section
367(e)(1) regulations in TD 8472,
adopted January 15, 1993).
The revised statement of the general
rule herein refers explicitly to transfers
that may be indirect or constructive.
Thus, transactions that are recharac-
terized as indirect or constructive stock
transfers will be subject to the section
367(a) stock transfer regulations and
will be taxable unless an exception
applies.
The restatement of the general rule
herein is not intended to change the
1986 temporary regulations’ treatment
of a case in which stock or securities
of a foreign corporation are transferred
pursuant to a reorganization described
in section 368(a)(1)(B), including a
transaction that is described in both
section 368(a)(1)(B) and section 351. It
is anticipated, however, that the final
regulations issued with respect to an
outbound transfer of foreign stock or
securities will incorporate the princi-
ples of the 1991 proposed regulations,
and thus, for example, a transaction
described in both section 368(a)(1)(B)
and section 351 will be subject to
section 367(a).
Notice 87–85 and the 1991 Proposed
Regulations
Under Notice 87–85 and the 1991
proposed regulations, a U.S. transferor
of stock or securities that owns five
percent or more of either the total
voting power or the total value of the
transferee foreign corporation imme-
diately after the transfer generally is
not subject to current taxation under
section 367(a)(1) if that transferor
enters into a gain recognition agree-
ment (GRA). The term of the GRA is
five years if all U.S. transferors, in the
aggregate, own less than 50 percent of
both the total voting power and the
total value of the stock of the trans-
feree foreign corporation immediately
after the transfer, or ten years if the
U.S. transferors, in the aggregate, own
50 percent or more of either the total
voting power or the total value of the
stock of the transferee foreign corpora-
tion immediately after the transfer. U.S.
transferors that own an interest of less
than 5 percent in the transferee foreign
corporation immediately after the trans-
fer are not taxable under section
367(a)(1) and are not required to enter
into a GRA. If a single U.S. transferor
transfers stock or securities of a domes-
tic corporation and owns directly or by
attribution more than 50 percent of
either the total voting power or the
total value of the stock of the trans-
feree foreign corporation immediately
after the transfer, gain is recognized on
the exchange.
The determination whether (i) a U.S.
transferor owns five percent or more of
the transferee foreign corporation im-
mediately after the transfer, (ii) U.S.
transferors own in the aggregate 50
percent or more of the transferee
foreign corporation (and, thus, whether
a 10-year GRA is required), or (iii) a
single U.S. transferor owns more than
50 percent of the transferee foreign
corporation (and, thus, whether gain is
recognized) takes into account both
stock of the transferee foreign corpora-
tion received by the U.S. transferor(s)
in the exchange and stock in the
transferee foreign corporation owned
by the U.S. transferor(s) independent of
the exchange (referred to as cross-
ownership).
Notice 87–85 and the 1991 proposed
regulations presume that U.S. trans-
ferors own in the aggregate 50 percent
or more of the total voting power or
the total value of the transferee foreign
corporation immediately after the trans-
fer (and thus a ten-year GRA is re-
quired), unless U.S. transferors can
demonstrate otherwise (referred to as
the ownership presumption). The
ownership presumption contained in
both the Notice and the 1991 proposed
regulations actually consists of two
rebuttable presumptions, one relating to
ownership of stock in the U.S. corpora-
tion the stock or securities of which are
transferred (referred to as the U.S.
target company) and the other relating
to ownership of stock in the transferee
foreign corporation.
Under the first presumption, all
persons that exchange U.S. target com-
pany stock (or other property) for stock
of the transferee foreign corporation in
the exchange are presumed to be U.S.
persons. Thus, if shareholders of the
U.S. target company receive 50 percent
or more of the stock of the transferee
foreign corporation in the exchange,
U.S. transferors are presumed to own
50 percent or more of the stock of the
transferee foreign corporation imme-
diately after the transfer. Even if
application of this first presumption
does not result in U.S. transferors being
deemed to own at least 50 percent of
the total voting power or the total value
of the transferee foreign corporation
immediately after the transfer, the
second presumption may do so. The
second presumption is that U.S. trans-
ferors also own stock of the transferee
foreign corporation independent of the
exchange in an amount sufficient to
bring their total ownership immediately
after the exchange up to 50 percent.
This second component of the owner-
ship presumption is referred to as the
cross-ownership presumption.
Notice 94–46
Notice 94–46 modified the excep-
tions set forth in Notice 87–85 with
respect to post-April 17, 1994 transfers
of stock or securities of domestic
corporations. The purpose of Notice
94–46 was to forestall outbound trans-
fers that are structured to avoid or that
lay a foundation for future avoidance
of the Internal Revenue Code anti-
deferral regimes by imposing a share-
holder-level tax on such transfers.
Notice 94–46 stated that regulations
would provide that the transfer of stock
or securities of a domestic corporation
by a U.S. person to a foreign corpora-
tion described in section 367(a) would
be taxable if all U.S. transferors owned,
in the aggregate, 50 percent or more of
either the total voting power or the
total value of the stock of the trans-
feree corporation immediately after the
exchange. All U.S. transferors, regard-
less of their level of ownership, would
be subject to tax in such a case.
The rules of Notice 94–46 incorpo-
rated the ownership presumption of
Notice 87–85. As a result of the cross-

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ownership aspect of that presumption,
even if U.S. shareholders receive sig-
nificantly less than 50 percent of the
stock of a transferee foreign corpora-
tion in an exchange described in
section 367(a), the transaction could
still be taxable. If, for example, U.S.
shareholders of a U.S. target company
received 30 percent of the stock of a
transferee foreign corporation in an
e x c h a n g e d e s c r i b e d i n s e c t i o n
367(a)(1), those shareholders would be
presumed to own independently at least
an additional 20 percent of the stock of
the transferee foreign corporation im-
mediately after the transfer, with the
result that the exchange would be
taxable (unless the cross-ownership
presumption were rebutted). Commen-
tators argued that where a U.S. target
company and a foreign acquirer were
publicly traded or widely-held, tax-
payers’ ability to rebut the cross-
ownership aspect of the ownership
presumption was limited. As a result,
Notice 94–46 potentially had the effect
of forestalling acquisitions of U.S.
public companies by larger foreign
corporations in cases where they were
unrelated and both engaged in the
active conduct of a trade or business.
In response to comments received
from taxpayers, and in particular with
respect to the difficulties of rebutting
the cross-ownership presumption, these
temporary regulations modify positions
taken in Notice 94–46 in two signifi-
cant ways. First, the regulations shift
the ownership threshold from ‘‘50
percent or more’’ to ‘‘more than 50
percent’’ so that a U.S. transferor may
qualify for an exception to section
367(a) in cases where U.S. transferors,
in the aggregate, receive exactly 50
percent of the stock of the transferee
foreign corporation in the exchange.
The relaxation of the ownership thresh-
old was intended to give 50-50 joint
ventures involving unrelated U.S. and
foreign corporations that are engaged in
active businesses the option of using a
foreign transferee corporation. Where a
foreign corporation is smaller than a
U.S. corporation that it acquires, the
transaction will still generally be tax-
able; it would not be taxable if the U.S.
participant were the acquiring corpora-
tion in the transaction (or if another
U.S. holding company were the acquir-
ing corporation). Second, although the
regulation retains the presumption that
shareholders of the U.S. target com-
pany are U.S. persons, it does not, in
general, retain the cross-ownership pre-
sumption and no longer, as a general
matter, takes cross-ownership into ac-
count. The regulation counts cross-
ownership only in the limited circum-
stance where U.S. officers, directors,
and 5-percent or greater shareholders of
the U.S. target company own, in the
aggregate, more than 50 percent of the
total voting power or the total value of
the transferee foreign corporation im-
mediately after the transfer (a control
group case). In such a case, the
exchange is taxable to all U.S. trans-
ferors. The regulation allows taxpayers
to rely on Schedule 13–D or 13–G
filings made under the Securities Ex-
change Act of 1934 (15 USC 78m) to
identify 5-percent shareholders of pub-
lic companies for this purpose.
Although cross-ownership does not
count toward the 50 percent ownership
threshold (unless the control group case
applies), it is still relevant in determin-
ing whether a U.S. transferor owns five
percent or more of the transferee
foreign corporation under the rules
originally announced in Notice 87–85.
Moreover, cross-ownership continues to
be relevant for determining whether a
5-year or 10-year GRA is required
under the rules originally announced in
87–85, and, for these purposes, there
continues to be a rebuttable pre-
sumption.
In addition to the two modifications
described above that were made in
response to comments received with
respect to Notice 94–46, these regula-
tions contain a new active trade or
business requirement not contained in
Notice 94–46, which taxpayers must
meet in order to qualify for an
exception to the general rule of taxa-
tion under section 367(a). The IRS and
the Treasury Department added the
active trade or business requirement to
address abuse potential, in particular, in
a case in which a U.S. target company
is smaller than a foreign acquirer that
was formed and capitalized with a view
to enabling the smaller U.S. company
to move offshore. The IRS and the
Treasury Department believe that this
type of transaction presents an inap-
propriate opportunity for avoiding the
anti-deferral regime without payment of
the tax envisioned by Notice 94–46.
The IRS and the Treasury Department
believe that an exception to taxation is
proper only in cases where a combina-
tion of two active businesses is con-
templated and that the opportunity for
tax avoidance is ameliorated when such
businesses have been conducted for a
period of at least 36 months prior to
the exchange. Under the requirement
contained in the regulations, no excep-
tion to taxation is available unless
either the transferee foreign corporation
or an affiliate of that corporation was
engaged in the active conduct of a
trade or business for the entire 36-
month period prior to the exchange,
and unless such business is substantial
in relation to the business conducted by
the U.S. target company. For this
purpose, an affiliate is generally de-
fined by reference to the rules in
section 1504(a) (without the exclusion
of foreign corporations), and generally
includes a parent, subsidiary or brother-
sister corporation of the transferee
foreign corporation.
To summarize, under the temporary
regulations, a U.S. person that ex-
changes stock or securities in a U.S.
corporation for stock of a foreign
corporation in an exchange described in
section 367(a) will be taxable in cases
where:
(i)the 50 percent ownership threshold
is exceeded;
(ii)the control group case applies;
(iii)the active trade or business re-
quirement is not met; or
(iv)the exchanging U.S. shareholder
owns five percent or more of the stock
of the transferee foreign corporation
and fails to enter into a GRA and/or
satisfy the requirements of section
6038B.
The duration of the GRA in case (iv) is
5 years if the transferor can demon-
strate that all U.S. transferors in the
aggregate own less than 50 percent of
the total voting power or the total value
of the stock of the transferee foreign
corporation immediately after the trans-
fer or 10 years if U.S. transferors own
exactly 50 percent (or more than 50
percent as a result of cross-ownership)
of the transferee foreign corporation
immediately after the transfer. In all
cases other than those enumerated in (i)
through (iv) above, a U.S. person that
transfers stock or securities of a domes-
tic corporation in exchange for stock of
a transferee foreign corporation will not
be taxable under section 367(a) if
certain reporting requirements de-
scribed in the regulations are met.
Final regulations under section
367(a) are expected to address the
transfer of stock or securities of foreign
corporations and other matters con-
tained in the 1991 proposed regulations
that are not addressed herein.

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Special Analyses
It has been determined that this
temporary regulation is not a significant
regulatory action as defined in Execu-
tive Order 12866. Therefore, a regula-
tory assessment is not required. It also
has been determined that this regulation
does not have a significant impact on a
substantial number of small entities.
Thus, the Regulatory Flexibility Act (5
U.S.C. chapter 6) does not apply to
these regulations, and therefore, a Reg-
ulatory Flexibility Analysis is not re-
quired. Pursuant to section 7805(f) of
the Internal Revenue Code, a copy of
these temporary regulations will be
submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on their impact on
small business.
Drafting Information
The principal author of these regula-
tions is Philip L. Tretiak of the Office
of Associate Chief Counsel (Interna-
tional), within the Office of Chief
Counsel, Internal Revenue Service.
However, other personnel from the IRS
and Treasury Department participated
in their development.
******
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and
602 are amended as follows:
Part 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.367(a)–3T is
amended by revising paragraphs (a),
(c), (d), (e), (f), (g)(1) and (h)(1) to
read as follows:
§1.367(a)–3T Treatment of transfers
of stock or securities to foreign
corporations (temporary).
(a)In general. This section provides
rules concerning the transfer of stock
or securities by a U.S. person to a
foreign corporation in an exchange
described in section 367(a). In general,
a transfer of stock or securities by a
U.S. person (directly, indirectly or
constructively) to a foreign corporation
that is described in section 351, 354
(pursuant to a reorganization described
in section 368(a)(1)(B)) or section
361(a) or (b) is subject to section
367(a)(1) and, therefore, is treated as a
taxable exchange, unless one of the
exceptions set forth in paragraph (b),
(c) or (d) of this section applies. For
additional rules relating to an exchange
involving a foreign corporation in
connection with which there is a
transfer of stock, see section 367(b)
and the regulations under that section.
For additional rules regarding a transfer
of stock or securities in an exchange
described in section 361(a) or (b), see
section 367(a)(5) and any regulations
under that section.
******
(c)Transfers by U.S. persons of
stock or securities of domestic corpora-
tions to foreign corporations—(1) In
general. Except as provided in section
367(a)(5), a transfer of stock or se-
curities of a domestic corporation by a
U.S. person to a foreign corporation
that would otherwise be subject to
section 367(a)(1) under paragraph (a)
of this section shall not be subject to
section 367(a)(1) if the domestic corpo-
ration the stock or securities of which
are transferred (referred to as the U.S.
target company) complies with the re-
porting requirements in paragraph
(c)(4) of this section and if each of the
following four conditions is met:
(i)Fifty percent or less of both the
total voting power and the total value
of the stock of the transferee foreign
corporation is received in the transac-
tion, in the aggregate, by U.S. trans-
ferors (i.e., the amount of stock re-
ceived does not exceed the 50 percent
threshold).
(ii)No more than 50 percent of each
of the total voting power and the total
value of the stock of the transferee
foreign corporation is owned, in the
aggregate, immediately after the trans-
fer by U.S. persons who are either
officers or directors of the U.S. target
company or who are five-percent target
shareholders (as defined in paragraph
(c)(6)(iii) of this section) (i.e., there is
no control group). For purposes of this
paragraph (c)(1)(ii), any stock of the
transferee foreign corporation owned
by U.S. persons immediately after the
transfer will be taken into account,
whether or not it was received in the
exchange for stock or securities of the
U.S. target company.
(iii)In the case of a transfer oc-
curring after January 25, 1996, the
transferee foreign corporation or an
affiliate of the transferee foreign corpo-
ration has been engaged in the active
conduct of a trade or business, within
the meaning of §1.367(a)–2T(b)(2) and
(3), that is substantial in comparison to
the trade or business of the U.S. target
company, for the entire 36-month
period immediately preceding the date
of the transfer.
(iv)Either—
(A)The U.S. person is not a five-
percent transferee shareholder (as de-
fined in paragraph (c)(6)(ii) of this
section); or
(B)The U.S. person is a five-percent
transferee shareholder and enters into an
agreement to recognize gain with re-
spect to the U.S. target company stock
or securities it exchanged in the form
provided in paragraph (g) of this sec-
tion, as modified by paragraph (c)(3) of
this section (setting the duration of the
gain recognition agreement).
(2)Ownership Presumption. For
purposes of paragraph (c)(1) of this
section, persons who transfer stock or
securities of the U.S. target company or
other property in exchange for stock of
the transferee foreign corporation are
presumed to be U.S. persons. This pre-
sumption may be rebutted in accord-
ance with paragraph (c)(4)(ii) of this
section.
(3)Term of the gain recognition
agreement. If, immediately after the
transfer described in section 367(a)(1),
all U.S. transferors own in the aggre-
gate less than fifty percent of both the
total voting power and the total value
of the stock of the transferee foreign
corporation (counting both stock of the
transferee foreign corporation owned as
a result of the exchange as well as
stock of the transferee foreign corpora-
tion owned independently by such U.S.
transferors), the agreement to recognize
gain shall be in the form specified in
paragraph (g)(3) of this section. The
term of the agreement shall be ten
years, rather than the five years spec-
ified in paragraph (g)(3) of this section,
the waiver described in paragraph
(g)(4) of this section shall extend the
period for assessment of tax for an
additional five years, and the certifica-
tion and waiver described in paragraph
(g)(5) of this section must be filed for
an additional five years if—
(i)The five-percent transferee share-
holder cannot determine whether the

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condition in the preceding sentence is
satisfied; or
(ii)Immediately after the transfer,
all U.S. transferors own in the aggre-
gate fifty percent or more of either the
total voting power or the total value of
the stock of the transferee foreign
corporation (counting both stock of the
transferee foreign corporation owned as
a result of the exchange, as well as
stock of the transferee foreign corpora-
tion owned independently by such U.S.
transferors).
(4)Reporting requirements of U.S.
target company. (i) In order for a U.S.
person that transfers stock or securities
of a domestic corporation to qualify for
the exception to the general rule under
section 367(a)(1) provided by this
paragraph (c), the U.S. target company
must comply with the reporting re-
quirements contained in this paragraph
(c)(4). The U.S. target company must
attach to its timely filed U.S. income
tax return (or a subsequent, timely filed
amended return) for the taxable year in
which the transfer occurs a statement
titled ‘‘Section 367(a)—Reporting of
Cross-Border Transfer Under Reg.
§1.367(a)–3T(c)(4),’’ signed under
penalties of perjury by an officer of the
corporation, disclosing the following
information—
(A)A description of the transaction
in which a U.S. person or persons
transferred stock or securities in the
U.S. target company to the transferee
foreign corporation in a transfer other-
wise subject to section 367(a)(1);
(B)The amount (specified as to the
percentage of the total voting power
and the total value) of stock of the
transferee foreign corporation received
in the transaction, in the aggregate, by
persons who transferred stock or se-
curities of the U.S. target company or
other property. For additional informa-
tion that may be required to rebut the
ownership presumption of paragraph
(c)(2) of this section in cases where
more than 50 percent of either the total
voting power or the total value of the
stock of the transferee foreign corpora-
tion is received in the transaction, in
the aggregate, by persons who trans-
ferred stock or securities of the U.S.
target company or other property, see
paragraph (c)(4)(ii) of this section;
(C)The amount (if any) of trans-
feree foreign corporation stock owned
directly or indirectly (applying the
attribution rules of sections 267(c)(1)
and (5)) immediately after the ex-
change by the U.S. target company;
(D)A statement that there is no
control group within the meaning of
paragraph (c)(1)(ii) of this section;
(E)A list of U.S. persons who are
officers, directors or five-percent target
shareholders and the percentage of the
total voting power and the total value
of the stock of the transferee foreign
corporation owned by such persons
both immediately before and imme-
diately after the transaction; and
(F)A statement that the active trade
or business test described in paragraph
(c)(1)(iii) of this section is satisfied by
the transferee foreign corporation or an
affiliate and a description of such
business.
(ii)To rebut the ownership presump-
tion of paragraph (c)(2) of this section,
the U.S. target company must obtain
ownership statements (described in para-
graph (c)(6)(i) of this section) from a
sufficient number of persons that trans-
fer U.S. target company stock or se-
curities (or other property) in the
transaction that are not U.S. persons to
demonstrate that the 50 percent thresh-
old is not exceeded. In addition, the
U.S. target company must attach to its
timely filed U.S. income tax return (or a
subsequent, timely filed amended return)
for the taxable year in which the
transfer occurs a statement, titled ‘‘Sec-
tion 367(a)—Compilation of Ownership
Statements under Reg. §1.367(a)–
3T(c),’’ signed under penalties of per-
jury by an officer of the corporation,
disclosing the following information:
(A)The amount (specified as to the
percentage of the total voting power
and the total value) of stock of the
transferee foreign corporation received,
in the aggregate, by U.S. transferors;
(B)The amount (specified as to the
percentage of total voting power and
total value) of stock of the transferee
foreign corporation received, in the
aggregate, by foreign persons that filed
ownership statements;
(C)A summary of the information
tabulated from the ownership state-
ments, including—
(1) The names of the persons that
filed ownership statements stating that
they are not U.S. persons;
(2) The countries of residence and
citizenship of such persons; and
(3) The ownership of such persons
(by voting power and by value) in the
U.S. target company prior to the
exchange and the amount of stock of
the transferee foreign corporation (by
voting power and value) received by
such persons in the exchange.
(iii) For purposes of paragraph
(c)(4), an income tax return (including
an amended return) will be considered
timely filed if it is filed prior to the
time that the Internal Revenue Service
discovers that the reporting require-
ments of this paragraph have not been
satisfied.
(5)Special Rules—(i) Treatment of
partnerships. For purposes of para-
graph (c), if a partnership (whether
domestic or foreign) owns or transfers
stock or securities or other property in
an exchange described in section
367(a), each partner in the partnership,
and not the partnership itself, is treated
as owning and as having transferred a
proportionate share of the stock or
securities or other property. See
§1.367(a)–1T(c)(3).
(ii)Treatment of options. For pur-
poses of paragraph (c) of this section,
one or more options (or an interest
similar to an option) will be treated as
exercised and thus will be counted as
stock for purposes of determining
whether the 50 percent threshold is
exceeded or whether a control group
exists if a principal purpose of the
issuance or the acquisition of the
option (or other interest) was the
avoidance of the general rule contained
in section 367(a).
(iii)U.S. target has a vestigial
ownership interest in transferee foreign
corporation. In cases where, imme-
diately after the transfer, the U.S. target
company owns, directly or indirectly
(applying the attribution rules of sec-
tions 267(c)(1) and (5)) stock of the
transferee foreign corporation, that
stock will not in any way be taken into
account (and, thus, will not be treated
as outstanding) in determining whether
the 50 percent threshold under para-
graph (c)(1)(i) of this section is ex-
ceeded or whether a control group
under paragraph (c)(1)(ii) of this sec-
tion exists.
(iv)Attribution rule. The rules of
section 958 shall apply for purposes of
determining the ownership of stock,
securities or other property under this
paragraph (c).
(6)Definitions—(i) Ownership state-
ment. An ownership statement is a
statement, signed under penalties of
perjury, stating—
(A)The identity and taxpayer identi-
fication number, if any, of the person
making the statement;

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(B)That the person making the
statement is not a U.S. person (as de-
fined in paragraph (c)(6)(iv) of this
section);
(C)That the person making the
statement is not related to any U.S.
person to whom the stock or securities
owned by the person making the state-
ment are attributable under the rules of
section 958, or, if stock or securities
are so attributable, the identity and
taxpayer identification number of the
relevant U.S. person;
(D)The citizenship, permanent re-
sidence, home address, and U.S. ad-
dress, if any, of the person making the
statement; and
(E)The ownership such person has
(by voting power and by value) in the
U.S. target company prior to the
exchange and the amount of stock of
the transferee foreign corporation (by
voting power and value) received by
such person in the exchange.
(ii)Five-percent transferee share-
holder. A five-percent transferee share-
holder is a person that owns at least
five percent of either the total voting
power or the total value of the stock of
the transferee foreign corporation im-
mediately after the transfer described in
section 367(a)(1). For special rules
involving cases in which stock is held
by a partnership, see paragraph (c)(5)(i)
of this section.
(iii)Five-percent target shareholder.
A five-percent target shareholder is a
person that owns at least five percent
of either the total voting power or the
total value of the stock of the U.S.
target company immediately prior to
the transfer described in section
367(a)(1). If the stock of the U.S.
target company is described in Rule
13d–1(d) of Regulation 13D (17 CFR
240.13d–1(d)) (or any rule or regula-
tion to generally the same effect),
promulgated by the Securities and
Exchange Commission under the Se-
curities Exchange Act of 1934 (15 USC
78m), the existence or absence of
filings of Schedule 13–D or 13–G (or
any similar schedules) may be relied
upon for purposes of identifying five-
percent target shareholders. For special
rules involving cases in which U.S.
target company stock is held by a
partnership, see paragraph (c)(5)(i) of
this section.
(iv)U.S. Person. For purposes of
this section, a U.S. person is defined by
reference to §1.367(a)–1T(d)(1). For
application of the rules of this section
to stock or securities owned or trans-
ferred by a partnership that is a U.S.
person, however, see paragraph (c)(5)-
(i) of this section.
(v)U.S. Transferor. A U.S. trans-
feror is a U.S. person (as defined in
paragraph (c)(6)(iv) of this section)
who transfers directly, indirectly or
constructively stock or securities of the
U.S. target company or other property
in exchange for stock of the transferee
foreign corporation in an exchange
described in section 367.
(vi)Transferee foreign corporation.
A transferee foreign corporation is the
foreign corporation whose stock is re-
ceived in the exchange by U.S. persons.
(vii)Affiliate. An affiliate is a cor-
poration that is a member of the same
affiliated group (as defined in section
1504(a), without regard to section
1504(b)(3)) as the transferee foreign
corporation.
(7)Certain transfers in connection
with performance of services. Section
367(a)(1) shall not apply to a domestic
corporation’s transfer of its own stock
or securities in connection with the per-
formance of services, if the transfer is
considered to be to a foreign corporation
solely by reason of §1.83–6(d)(1).
(8)Examples. This paragraph (c) may
be illustrated by the following examples:
Example 1. Ownership presumption. (i) FC, a
foreign corporation, issues 51 percent of its stock
to the shareholders of S, a domestic corporation,
in exchange for their S stock, in a transaction
described in section 367(a)(1).
(ii)Under paragraph (c)(2) of this section, all
shareholders of S who receive stock of FC in the
exchange are presumed to be U.S. persons. Unless
this ownership presumption is rebutted, the
condition set forth in paragraph (c)(1)(i) of this
section will not be satisfied, and the exception in
paragraph (c)(1) of this section will not be
available. As a result, all U.S. persons that
transferred S stock will recognize gain on the
exchange. To rebut the ownership presumption, S
must comply with the reporting requirements con-
tained in paragraph (c)(4)(ii) of this section, ob-
taining ownership statements (described in para-
graph (c)(6)(i) of this section) from a sufficient
number of non-U.S. persons who received FC
stock in the exchange to demonstrate that the
amount of FC stock received by U.S. persons in
the exchange does not exceed 50 percent.
Example 2. Filing of Gain Recognition Agree-
ment. (i) The facts are the same as in Example 1,
except that FC issues only 40 percent of its stock
to the shareholders of S in the exchange. FC
satisfies the active trade or business test (de-
scribed in paragraph (c)(1)(iii) of this section).
A, a U.S. person, owns 10 percent of S’s stock
immediately before the transfer. All other share-
holders of S own less than five percent of its
stock. None of S’s officers or directors owns any
stock in FC immediately after the transfer. A will
own 15 percent of the stock of FC immediately
after the transfer, 4 percent received in the
exchange, and the balance being stock in FC that
A owned prior to and independent of the
transaction. No S shareholder besides A owns
five percent or more of FC immediately after the
transfer. The reporting requirements under para-
graph (c)(4)(i) of this section are satisfied.
(ii)The condition set forth in paragraph
(c)(1)(i) of this section is satisfied because, even
after application of the presumption in paragraph
(c)(2) of this section, U.S. transferors could not
receive more than 50 percent of FC’s stock in
the transaction. There is no control group
because five-percent target shareholders and
officers and directors of S do not, in the
aggregate, own more than 50 percent of the stock
of FC immediately after the transfer (A, the sole
five-percent target shareholder, owns 15 percent
of the stock of FC immediately after the transfer,
and no officers or directors of S own any stock
of FC immediately after the transfer). Therefore,
the condition set forth in paragraph (c)(1)(ii) of
this section is satisfied (and A’s cross-ownership
of FC stock is not taken into account). The facts
assume that the condition set forth in paragraph
(c)(1)(iii) of this section is satisfied. Thus, U.S.
persons that are not five-percent transferee
shareholders will not recognize gain on the
exchange of S shares for FC shares. A, a five-
percent transferee shareholder, will not be
required to include in income any gain realized
on the exchange in the year of the transfer if he
files a gain recognition agreement (GRA) and
complies with section 6038B. The duration of the
GRA is five years if all U.S. transferors own in
the aggregate less than 50 percent of the total
voting power and the total value of FC imme-
diately after the transfer, and ten years if this
condition is not satisfied. If A lacks the in-
formation to determine whether he is eligible to
file a five-year GRA (because the determination
includes a cross-ownership inquiry for all U.S.
transferors), he is required to file a ten-year
GRA.
Example 3. Control Group. (i) The facts are
the same as in Example 2, except that B, another
U.S. person, is a 5-percent target shareholder,
owning 25 percent of S’s stock immediately
before the transfer. B owns 40 percent of the
stock of FC immediately after the transfer, 10
percent received in the exchange, and the balance
being stock in FC that B owned prior to and
independent of the transaction.
(ii)A control group exists because A and B,
each a five-percent target shareholder within the
meaning of paragraph (c)(6)(iii) of this section,
together own more than 50 percent of FC imme-
diately after the transfer (counting both stock
received in the exchange and stock owned prior
to and independent of the exchange). As a result,
the condition set forth in paragraph (c)(1)(ii) of
this section is not satisfied, and all U.S. persons
(not merely A and B) who transferred S stock
will recognize gain on the exchange.
Example 4. Partnerships. (i) The facts are the
same as in Example 3, except that B is a
partnership (domestic or foreign) that has five
equal partners, only two of whom, X and Y, are
U.S. persons. X and Y are treated as the owners
and transferors of 5 percent each of the S stock
owned and transferred by B and as owners of 8
percent each of the FC stock owned by B imme-
diately after the transfer. Five-percent target
shareholders thus own a total of 31 percent of
the stock of FC immediately after the transfer
(A’s 15 percent, plus X’s 8 percent, plus Y’s 8
percent).

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(ii)Because no control group exists, the
condition in paragraph (c)(1)(ii) of this section is
satisfied. The conditions in paragraphs (c)(1)(i)
and (iii) of this section also are satisfied. Thus,
U.S. persons that are not five-percent transferee
shareholders will not recognize gain on the
exchange of S shares for FC shares. A, X, and
Y, each a five-percent transferee shareholder,
will not be required to include in income in the
year of the transfer any gain realized on the
exchange if they file GRAs and comply with
section 6038B. The duration of the GRA is five
years if all U.S. transferors own in the aggregate
less than 50 percent of the total voting power
and the total value of FC immediately after the
transfer, and ten years if this condition is not
satisfied. If A, X, and Y lack the information to
determine whether they are eligible to file five-
year GRAs (because the determination includes a
cross-ownership inquiry for all U.S. transferors),
they are required to file ten-year GRAs.
(9)Effective date. This paragraph (c)
applies to transfers occurring after
April 17, 1994. However, paragraph
(c)(1)(iii) of this section applies only to
transfers occurring after January 25,
1996. For transfers occurring before
December 17, 1987, see §1.367(a)–
3T(c)(1) through (4) as contained in 26
CFR Part 1 revised April 1, 1995.
(d)Transfers of stock or securities
of foreign corporations. For guidance,
see Notice 87–85 (1987–2 C.B. 395).
See §601.601(d)(2) of this chapter.
(e)[Reserved.] For transfers occur-
ring before December 17, 1987, see
§1.367(a)–3T(e) as contained in 26
CFR Part 1 revised April 1, 1995.
(f)[Reserved.] For transfers occur-
ring before December 17, 1987, see
§1.367(a)–3T(f) as contained in 26
CFR Part 1 revised April 1, 1995.
(g)Transferor’s agreement to recog-
nize gain upon later disposition by
transferee—(1) In general. A transfer
of stock or securities shall not be
subject to section 367(a)(1) if—
(i)The transferor complies with the
reporting requirements of section 6038B
and any regulations thereunder; and
(ii)The transferor files a binding
agreement to recognize gain upon the
transferee corporation’s later disposi-
tion of the transferred stock or se-
curities, in accordance with the rules of
this section.
******
(h)Anti-abuse rules.
(1)[Reserved.] For transfers occur-
ring before December 17, 1987, see
§1.367(a)–3T(h)(1) as contained in 26
CFR Part 1 revised April 1, 1995.
******
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 3. The authority for citation for
part 602 continues to read as follows:
Authority: 26 U.S.C. 7805
Par. 4. In §602.101, paragraph (c) is
amended by revising the entry in the
table for ‘‘1.367(a)–3T’’ to read as
follows:
‘‘1.367(a)–3T............. 0026
............. 1478’’.
Dated: December 13, 1995.
Margaret Milner Richardson,
Commissioner of
Internal Revenue.
Approved:
Leslie Samuels,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
December 22, 1995, 8:45 a.m., and published
in the issue of the Federal Register for
December 26, 1995, 60 F.R. 66739)
Section 368.—Definitions relating to
corporate reorganizations
26 CFR 1.368–1: Purpose and scope of
exception of reorganization exchanges.
The No-Rule provision with respect to ‘‘Com-
bining Transactions’’ presently in section 5.15 of
Rev. Proc. 96–3, 1996–1 I.R.B. 82, is moved
from section 5 (Areas Under Extensive Study) to
section 3 (Areas In Which Rulings or Determina-
tion Letters Will Not Be Issued). Rev. Proc. 96–
3 amplified and modified. See also, Notice 96–6,
this Bulletin, regarding the closing of the study
project. See Rev. Proc. 96–22, page 27.
Section 842.—Foreign Companies
Carrying on Insurance Business
The domestic asset/liability percentages and
domestic investment yields necessary for foreign
companies doing insurance business in the U.S.
to compute their minimum effectively connected
net investment income under section 842(b) of
the Code are provided for taxable years begin-
ning after December 31, 1994. See Rev. Proc.
96–23, page 27.
Section 4941.—Taxes on Self-
Dealing
26 CFR 53.4941(d)–2: Specific acts of self-
dealing.
T.D. 8639
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 53
Excise Tax On Self-Dealing By
Private Foundations.
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final Regulations.
SUMMARY: This document contains
final regulations that clarify the defini-
tion of self-dealing for private founda-
tions. These regulations modify the
application of the self-dealing rules to
the provision by a private foundation of
directors’ and officers’ liability insur-
ance to disqualified persons. In general,
these regulations provide that indem-
nification by a private foundation or
provision of insurance for purposes of
covering the liabilities of the person in
his/her capacity as a manager of the
private foundation is not self-dealing.
Additionally, the amounts expended by
the private foundation for insurance or
indemnification generally are not in-
cluded in the compensation of the
disqualified person for purposes of
determining whether the disqualified
person’s compensation is reasonable.
DATES: These regulations are effective
December 20, 1995.
FOR FURTHER INFORMATION
CONTACT: Terri Harris or Paul Accet-
tura of the Office of the Associate
Chief Counsel (Employee Benefits and
E x e m p t O r g a n i z a t i o n s ) , I R S , a t
202-622-6070 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On January 3, 1995 proposed regula-
tions amending §53.4941(d)–2(f) [EE–
56–94, 1995–1 C.B. 855] under section
4941 of the Internal Revenue Code of
1986 were published in the Federal
Register (60 FR 82). The proposed
regulations provided that generally it
would not be self-dealing, nor treated
as the payment of compensation, if a
private foundation were to indemnify
or provide insurance to a foundation
manager in any civil judicial or civil

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administrative proceeding arising out of
the manager’s performance of services
on behalf of the foundation. After IRS
and Treasury consideration of the pub-
lic comments received regarding the
proposed regulations, the regulations
are adopted as revised by this Treasury
decision.
Explanation of Provisions
Section 4941(a) imposes a tax on
each act of self-dealing between a
disqualified person and a private foun-
dation. Section 4941(d)(1)(E) defines
self-dealing to include any direct or
indirect transfer to, or use by or for the
benefit of, a disqualified person of the
income or assets of a private founda-
tion. Prior to this Treasury decision,
§53.4941(d)–2(f)(1) provided that
provision of insurance for the payment
of chapter 42 taxes by a private
foundation for a foundation manager
was self-dealing unless the premium
amounts were included in the compen-
sation of the foundation manager. The
payment of chapter 42 taxes by the
private foundation on behalf of the
foundation manager was self-dealing
whether or not the amounts were in-
cluded in the manager’s compensation.
Section 53.4941(d)–2(f)(3) provided
that the indemnification of certain
expenses by a private foundation for a
foundation manager’s defense in a
judicial or administrative proceeding
involving chapter 42 taxes was not
self-dealing. Such expenses must have
been reasonably incurred by the man-
ager in connection with such proceed-
ing. Also, the manager must have been
successful in such defense, or such
proceeding must have been terminated
by settlement, and the manager must
not have acted willfully and without
reasonable cause with respect to the act
or failure to act which led to the
liability for tax under chapter 42.
This Treasury decision expands the
scope of the regulations to cover
indemnification and insurance pay-
ments made by a private foundation to
or on behalf of a foundation manager
in connection with any civil proceeding
arising from the manager’s perform-
ance of services for the private founda-
tion. The regulations also clarify the
distinction between the treatment of
indemnification and insurance pay-
ments under chapter 42 and the treat-
ment of these same items for income
tax purposes.
The proposed regulations resulted in
some confusion as to whether certain
indemnification and insurance pay-
ments would be considered compensa-
tory or non-compensatory. The final
regulations have been revised to
provide greater clarity. They divide
indemnification payments and insur-
ance coverage into non-compensatory
and compensatory categories, described
comprehensively in §53.4941(d)–2(f)(3)
and (4). The second and third sentences
of §53.4941(d)–2(f)(1) of the proposed
regulations have been removed because
their substance was incorporated into
§53.4941(d)–2(f)(4). Generally, the
non-compensatory category includes in-
demnification and insurance payments
that cover expenses reasonably incurred
in proceedings that do not result from a
willful act or omission of the manager
undertaken without reasonable cause.
These payments are viewed as expenses
for the foundation’s administration and
operation rather than compensation for
the manager’s services. The compensa-
tory category includes indemnification
or insurance payments that cover taxes
(including taxes imposed by chapter
42), penalties or expenses of correction,
expenses that were not reasonably in-
curred, or expenses for proceedings
that result from a willful act or
omission of the manager undertaken
without reasonable cause. These pay-
ments are viewed as being exclusively
for the benefit of the manager, not the
foundation.
The regulations provide that non-
compensatory indemnification and in-
surance payments are not affected by
the prohibition against self-dealing.
Conversely, compensatory indemnifica-
tion and insurance payments are con-
sidered acts of self-dealing unless they
are added to the benefiting manager’s
total compensation for purposes of
determining whether that compensation
is reasonable. If the total compensation
is not reasonable, the foundation will
have engaged in an act of self-dealing.
In some instances, a foundation may
purchase an insurance policy that pro-
vides both non-compensatory and com-
pensatory coverage. Some commenta-
tors have recommended that no alloca-
tion of insurance premiums be required
when a single policy of this sort is
purchased. These commentators argue
that the allocation requirement places
an undue burden on private founda-
tions. After careful consideration, the
IRS and the Treasury Department have
decided to retain the allocation provi-
sion in the final regulations. The self-
dealing rules were meant to discourage
foundations from relieving managers of
penalties, taxes and expenses of correc-
tion, as well as expenses ultimately
resulting from the manager’s willful
violation of the law. A rule that did not
require an allocation to determine
whether the disqualified person’s com-
pensation is reasonable for purposes of
chapter 42 could have the opposite
effect. The insurance allocation rules
are now set forth in §53.4941(d)–
2(f)(5).
Some commentators requested a
clearer statement of what is meant by
the statement that indemnification or
insurance premiums are to be treated as
compensation to the benefiting founda-
tion manager. The IRS and the Treas-
ury Department agree that further clar-
ification is desirable. Accordingly,
§53.4941(d)–2(f)(7) has been added. It
provides that treatment as compensa-
tion for the limited purpose of deter-
mining whether compensation is rea-
sonable under chapter 42 is separate
and distinct from treatment as income
to the benefiting manager under the
income tax provisions. Whether any
amount of indemnification or insurance
is included in the manager’s gross
income for individual income tax pur-
poses is determined in accordance with
section 132, without regard to the
treatment of such amounts under chap-
ter 42.
Finally, a provision has been added
to the regulations specifying that a
foundation may disregard de minimis
benefits when calculating the total
amount of compensation paid to an
officer, director or foundation manager
for purposes of determining whether
that compensation is reasonable. In this
context, a de minimis benefit is one
excluded from gross income under
section 132(a)(4). This provision makes
explicit a Service position that has
previously been reflected in the instruc-
tions to the Form 990–PF.
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It has also been
determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) and the Regulatory Flex-
ibility Act (5 U.S.C. chapter 6) do not

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apply to these regulations, and, there-
fore, a Regulatory Flexibility Analysis
is not required. Pursuant to section
7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking
preceding these regulations was submit-
ted to the Chief Counsel for Advocacy
of the Small Business Administration
for comment on its impact on small
business.
Drafting Information
The principal author of this Treasury
decision is Terri Harris, Office of the
Associate Chief Counsel (Employee
Benefits and Exempt Organizations),
IRS. However, personnel from other
offices of the IRS and the Treasury
Department participated in their
development.
******
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 53 is
amended as follows:
PART 53—FOUNDATION AND
SIMILAR EXCISE TAXES
Paragraph 1. The authority for part
53 continues to read as follows:
Authority 26 U.S.C. 7805.
Par. 2. Section 53.4941(d)–2 is
amended as follows:
1.Paragraph (f)(1) is amended by
removing the second and third
sentences and revising the fourth
sentence.
2.Paragraph (f)(3) is revised.
3.Paragraph (f)(4) is redesignated
as paragraph (f)(9).
4.New paragraphs (f)(4) through
(f)(8) are added.
The additions and revisions read as
follows:
§53.4941(d)–2 Specific acts of self-
dealing.
******
(f)Transfer or use of the income or
assets of a private foundation—(1) In
general. * * * For purposes of the
preceding sentence, the purchase or
sale of stock or other securities by a
private foundation shall be an act of
self-dealing if such purchase or sale is
made in an attempt to manipulate the
price of the stock or other securities to
the advantage of a disqualified person.
* * *
******
(3)Non-compensatory indemnifica-
tion of foundation managers against
liability for defense in civil proceed-
ings. (i) Except as provided in
§53.4941(d)–3(c), section 4941(d)(1)
shall not apply to the indemnification
by a private foundation of a foundation
manager, with respect to the manager’s
defense in any civil judicial or civil
administrative proceeding arising out of
the manager’s performance of services
(or failure to perform services) on
behalf of the foundation, against all
expenses (other than taxes, including
taxes imposed by chapter 42, penalties,
or expenses of correction) including
attorneys’ fees, judgments and settle-
ment expenditures if—
(A)Such expenses are reasonably
incurred by the manager in connection
with such proceeding; and
(B)The manager has not acted
willfully and without reasonable cause
with respect to the act or failure to act
which led to such proceeding or to
liability for tax under chapter 42.
(ii)Similarly, except as provided in
§53.4941(d)–3(c), section 4941(d)(1)
shall not apply to premiums for insur-
ance to make or to reimburse a founda-
tion for an indemnification payment
allowed pursuant to this paragraph
(f)(3). Neither shall an indemnification
or payment of insurance allowed pur-
suant to this paragraph (f)(3) be treated
as part of the compensation paid to
such manager for purposes of determin-
ing whether the compensation is rea-
sonable under chapter 42.
(4)Compensatory indemnification of
foundation managers against liability
for defense in civil proceedings. (i) The
indemnification by a private foundation
of a foundation manager for compensa-
tory expenses shall be an act of self-
dealing under this paragraph unless
when such payment is added to other
compensation paid to such manager the
total compensation is reasonable under
chapter 42. A compensatory expense
for purposes of this paragraph (f) is—
(A)Any penalty, tax (including a
tax imposed by chapter 42), or expense
of correction that is owed by the
foundation manager;
(B)Any expense not reasonably in-
curred by the manager in connection
with a civil judicial or civil administra-
tive proceeding arising out of the
manager’s performance of services on
behalf of the foundation; or
(C)Any expense resulting from an
act or failure to act with respect to
which the manager has acted willfully
and without reasonable cause.
(ii)Similarly, the payment by a
private foundation of the premiums for
an insurance policy providing liability
insurance to a foundation manager for
expenses described in this paragraph
(f)(4) shall be an act of self-dealing
under this paragraph (f) unless when
such premiums are added to other
compensation paid to such manager the
total compensation is reasonable under
chapter 42.
(5)Insurance Allocation. A private
foundation shall not be engaged in an
act of self-dealing if the foundation
purchases a single insurance policy to
provide its managers both the noncom-
pensatory and the compensatory cover-
age discussed in this paragraph (f),
provided that the total insurance pre-
mium is allocated and that each man-
ager’s portion of the premium attributa-
ble to the compensatory coverage is
included in that manager’s compensa-
tion for purposes of determining rea-
sonable compensation under chapter 42.
(6)Indemnification. For purposes of
this paragraph (f), the term indem-
nification shall include not only reim-
bursement by the foundation for ex-
penses that the foundation manager has
already incurred or anticipates incurring
but also direct payment by the founda-
tion of such expenses as the expenses
arise.
(7)Taxable Income. The determina-
tion of whether any amount of indem-
nification or insurance premium dis-
cussed in this paragraph (f) is included
in the manager’s gross income for
individual income tax purposes is made
on the basis of the provisions of
chapter 1 and without regard to the
treatment of such amount for purposes
of determining whether the manager’s
compensation is reasonable under chap-
ter 42.
(8)De minimis items. Any property
or service that is excluded from income
under section 132(a)(4) may be dis-
regarded for purposes of determining
whether the recipient’s compensation is
reasonable under chapter 42.
******

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Margaret Milner Richardson.
Commissioner of
Internal Revenue.
Approved December 12, 1995.
Leslie Samuels,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
December 19, 1995, 8:45 a.m., and published
in the issue of the Federal Register for
December 20, 1995, 60 F.R. 65566)
Section 6011.—General Requirement
of Return, State or List
Printing of substitutes for Form W–2, Wage
and Tax Statements, and Form W–3, Transmittals
of Income and Tax Statements. See Rev. Proc.
96–23, page 27.
Section 6041.—Information at Source
26 CFR 1.6041–1: Return of information as to
payments of $600 or more.
Printing of substitutes for Form W–2, Wage
and Tax Statements, and Form W–3, Transmittal
of Income and Tax Statements. See Rev. Proc.
96–23, page 27.
26 CFR 1.6041–2: Return of information as to
payments to employees.
Printing of substitutes for Form W–2, Wage
and Tax Statement, and Form W–3, Transmittal
of Income and Tax Statements. See Rev. Proc.
96–23, page 27.
Section 6051.—Receipts for
Employees
26 CFR 31.6051–1: Statements for employees.
Printing of substitutes for Form W–2, Wage
and Tax Statement, and Form W–3, Transmittal
of Income and Tax Statements. See Rev. Proc.
96–23, page 27.
26 CFR 31.6051–2: Information on Form W–3
and Internal Revenue Service copies of Form
W–2.
Printing of substitutes for Form W–2, Wage
and Tax Statement, and Form W–3, Transmittal
of Income and Tax Statements. See Rev. Proc.
96–23, page 27.
Section 6071.—Time for Filing
Returns and Other Documents
26 CFR 31.6071(a)–1: Time for filing returns
and other documents.
Printing of substitutes for Form W–2, Wage
and Tax Statement, and Form W–3, Transmittal
of Income and Tax Statements. See Rev. Proc.
96–23, page 27.
Section 6081.—Extension of Time for
Filing Returns
26 CFR 31.6081(a)–1: Extension of time for
filing returns.
Printing of substitutes for Form W–2, Wage
and Tax Statement, and Form W–3, Transmittal
of Income and Tax Statements. See Rev. Proc.
96–23, page 27.
Section 6091.—Place for Filing
Returns or Other Documents
Printing of substitutes for Form W–2, Wage
and Tax Statement, and Form W–3, Transmittal
of Income and Tax Statements. See Rev. Proc.
96–23, page 27.
Notice of Proposed Rulemaking
Effect of the Family and Medical
Leave Act on the Operation of
Cafeteria Plans
EE–20–95
AGENCY: Internal Revenue Service
(IRS), Treasury
ACTION: Notice of proposed rule-
making.
SUMMARY: This document contains
proposed regulations relating to caf-
eteria plans that reflect changes made
by the Family and Medical Leave Act
of 1993. The proposed regulations pro-
vide the public with guidance needed
to comply with the Act and affect
employees who participate in cafeteria
plans.
DATES: Written comments and re-
quests for a public hearing must be
received by March 20, 1996.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (EE–20–95), Room
5228, Internal Revenue Service, POB
7604, Ben Franklin Station, Wash-
ington, DC 20044. In the alternative,
submissions may be hand delivered
between the hours of 8 a.m. and 5 p.m.
to: CC:DOM:CORP:R (EE–20–95),
Courier’s Desk, Internal Revenue Serv-
ice, 1111 Constitution Avenue NW.,
Washington, DC.
FOR FURTHER INFORMATION
CONTACT: Concerning the regula-
tions, Catherine Fuller, (202) 622-6080;
concerning submissions and the hear-
ing, Mike Slaughter, (202) 622-8452
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
additions to the Income Tax Regula-
tions (26 CFR Part 1) under section
125 of the Internal Revenue Code of
1986 (Code). These additions are pro-
posed to conform the regulations to the
Family and Medical Leave Act of 1993
(FMLA), Public Law 103–3. FMLA
imposes certain requirements on
employers regarding coverage, includ-
ing family coverage, under group
health plans for employees taking
FMLA leave, and regarding the restora-
tion of benefits to employees who
return from FMLA leave. This notice
of proposed rulemaking addresses a
number of the principle questions that
have been raised about how these
FMLA requirements affect the opera-
tion of cafeteria plans (including flex-
ible spending arrangements) maintained
under section 125 of the Code. The
rules in this notice of proposed
rulemaking supplement the proposed
Income Tax Regulations under section
125 of the Code. Except as otherwise
provided in this notice of proposed
rulemaking, all of the existing rules
governing cafeteria plans, including the
nondiscrimination rules, continue to
apply.
The requirements pertaining to
FMLA leave, including the employer’s
obligation to maintain coverage under a
group health plan during FMLA leave
and to restore benefits upon return
from FMLA leave, are established by
FMLA, not the Code. The U.S. Depart-
ment of Labor, in 29 CFR Part 825,
has published rules interpreting the
requirements of FMLA, and the De-
partment of Labor has jurisdiction
relating to those rights or obligations.
This notice of proposed rulemaking
does not interpret FMLA; it provides

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guidance on the cafeteria plan rules
that apply to an employee in circum-
stances to which FMLA and the Labor
Regulations thereunder also apply. The
Department of Labor has advised the
Department of the Treasury, including
the Internal Revenue Service (IRS),
that the provisions of this notice of
proposed rulemaking do not conflict
with, and are not inconsistent with, the
provisions of FMLA or the Labor
Regulations thereunder.
Special Analyses
It has been determined that this
notice of proposed rulemaking is not a
significant regulatory action as defined
in EO 12866. Therefore, a regulatory
assessment is not required. It also has
been determined that section 553(b) of
the Administrative Procedure Act (5
U.S.C. chapter 5) and the Regulatory
Flexibility Act (5 U.S.C. chapter 6) do
not apply to these regulations, and,
therefore, a Regulatory Flexibility
Analysis is not required. Pursuant to
section 7805(f) of the Code, this notice
of proposed rulemaking will be submit-
ted to the Chief Counsel for Advocacy
of the Small Business Administration
for comment on its impact on small
business.
Comments and Requests for a Public
Hearing
Before these proposed regulations
are adopted as final regulations, consid-
eration will be given to any written
comments (a signed original and eight
(8) copies) that are submitted timely to
the IRS. All comments will be avail-
able for public inspection and copying.
A public hearing may be scheduled if
requested in writing by a person that
timely submits written comments. If a
public hearing is scheduled, notice of
the date, time, and place for the
hearing will be published in the Federal
Register.
Drafting Information
The principal author of these regula-
tions is Catherine Fuller, Office of
Associate Chief Counsel (Employee
Benefits and Exempt Organizations).
However, other personnel from the IRS
and Department of the Treasury partici-
pated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and rec-
ordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority for part 1
continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.125–3 is added to
read as follows:
§1.125–3 Effect of the Family and
Medical Leave Act (FMLA) on the
operation of cafeteria plans.
Q-1:May an employee taking FMLA
leave revoke an existing election of
group health plan coverage under a
cafeteria plan?
A-1: Yes. An employee taking
FMLA leave may revoke an existing
election of group health plan coverage
(including a health flexible spending
arrangement (FSA)) under a cafeteria
plan for the remaining portion of the
coverage period. See 29 CFR 825.209-
(e). FMLA also requires that an
employee be permitted to choose to be
reinstated in the group health plan
coverage (including a health FSA)
provided under a cafeteria plan upon
returning from FMLA leave if the
employee’s group health plan coverage
terminated while on FMLA leave
(either by revocation or nonpayment of
premiums). Such an employee is en-
titled, under FMLA, to be reinstated on
the same terms as prior to taking
FMLA leave (including family or
dependent coverage). See 29 CFR
825.209(e) and 825.215(d). However,
the employee has no greater right to
benefits for the remainder of the plan
year than an employee who has been
continuously working during the plan
year. In addition to the rights granted
under FMLA, such an employee has
the right to revoke or change elections
(e.g., because of changes in family
status or significant cost or coverage
changes imposed by a third-party
provider) under the same terms and
conditions as are available to em-
ployees participating in the cafeteria
plan who are not on FMLA leave.
Q-2:Who is responsible for making
premium payments under a cafeteria
plan when an employee on FMLA leave
continues group health plan coverage?
A-2:An employee is entitled to
continue group health plan coverage
(including a health FSA) during FMLA
leave whether or not provided under a
health FSA or other component of a
cafeteria plan. See 29 CFR 825.209(b).
An employee making premium pay-
ments under a cafeteria plan who
chooses to continue group health plan
coverage (including a health FSA)
while on FMLA leave is responsible
for the share of group health premiums
that the employee was paying while
working, such as amounts paid pur-
suant to a salary reduction agreement.
The employer must continue to contrib-
ute the share of the cost of the
employee’s coverage that the employer
was paying before the employee com-
menced FMLA leave. See 29 CFR
825.100(b) and 825.210(a).
Q-3:What payment options are re-
quired or permitted to be offered under
a cafeteria plan to an employee who
continues group health plan coverage
(including a health FSA) while on
unpaid FMLA leave, and what is the
tax treatment of these payments?
A-3: (a) In general A cafeteria plan
may, on a nondiscriminatory basis,
offer one or more of the following
payment options (subject to the limita-
tions described in paragraph (b) of this
Q&A-3) to an employee who continues
group health plan coverage (including a
health FSA) while on unpaid FMLA
leave. These options are referred to in
this section as pre-pay, pay-as-you-go
and catch-up.
(1)Pre-pay. (i) Under the pre-pay
option, a cafeteria plan may permit an
employee to pay, prior to commence-
ment of the FMLA leave period, the
amounts due for the FMLA leave
period. However, the Labor Regula-
tions under FMLA provide that under
no circumstances may the employer
mandate that an employee pre-pay the
amounts due for the leave period. See
29 CFR 825.210(c)(3) and (4).
(ii)Contributions under the pre-pay
option may be made on a pre-tax salary
reduction basis from any taxable com-
pensation (including the cashing out of
unused sick days or vacation days).
These contributions will not be in-
cluded in the employee’s gross income,
provided that all cafeteria plan require-
ments are satisfied. For example, see

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Q&A-5 of this section regarding
restrictions on pre-tax salary reduction
contributions when an employee’s
FMLA leave spans two cafeteria plan
years.
(iii)Contributions under the pre-pay
option may also be made on an after-
tax basis. See §1.125–1, Q&A-5.
1
(2)Pay-as-you-go. (i) Under the
pay-as-you-go option, employees may
pay their share of the premium pay-
ments on the same schedule as pay-
ments would be made if the employee
were not on leave or under any other
payment schedule permitted by the
Labor Regulations at 29 CFR 825.210-
(c) (i.e., on the same schedule as
payments are made under the Consoli-
dated Omnibus Reconciliation Act of
1985, Public Law 99–272; under the
employer’s existing rules for payment
by employees on leave without pay; or
under any other system voluntarily
agreed to between the employer and the
employee that is not inconsistent with
t h i s s e c t i o n o r w i t h 2 9 C F R
825.210(c)).
(ii)Contributions under the pay-as-
you-go option are generally made by
the employee on an after-tax basis.
However, contributions may be made
on a pre-tax basis to the extent that the
contributions are made from taxable
compensation (e.g., cashing out unused
sick or vacation days) that is due the
employee during the leave period, and
provided that all cafeteria plan require-
ments are satisfied.
(iii)An employer is not required to
continue the health coverage of an
employee who fails to make required
premium payments while on FMLA
leave. See 29 CFR 825.212. However,
if the employer chooses to continue the
health coverage of an employee who
fails to make required premium pay-
ments while on FMLA leave, the
employer is entitled to recoup those
payments as set forth in paragraph
(a)(3)(i) of this Q&A-3. See also
Q&A-6 of this section regarding
coverage under a health FSA when an
employee fails to make the required
premium payments while on FMLA
leave.
(3)Catch-up. (i) An employer that
continues providing group health
coverage to an employee who does not
pay premiums on FMLA leave is, to
1
Published as a proposed rule at 49 FR 19321
[EE–16–79, 1984–1 C.B. 563] (May 7, 1984).
the extent provided under the Labor
Regulations, permitted to utilize the
c a t c h - u p o p t i o n t o r e c o u p t h e
employee’s share of premium pay-
ments. See, e.g., 29 CFR 825.212(b).
(ii)Where an employee is electing
to use the catch-up option, the
employer and the employee must agree
in advance of the coverage period that:
the employee elects to continue health
coverage while on unpaid FMLA leave;
the employer will assume responsibility
for advancing payment of the premiums
on the employee’s behalf during the
FMLA leave; and these advance
amounts must be paid by the employee
when the employee returns from FMLA
leave.
(iii)Contributions under the catch-
up option may be made on a pre-tax
salary reduction basis when the
employee returns from FMLA leave
from any available taxable compensa-
tion (including the cashing out of
unused sick days and vacation days).
These contributions will not be in-
cluded in the employee’s gross income,
provided that all cafeteria plan require-
ments are satisfied.
(iv)Contributions under the catch-up
option may also be made on an after-
tax basis. See §1.125–1, Q&A-5.
2
(b)Exceptions Cafeteria plans may
offer (pursuant to 29 CFR 825.210(c))
one or more of the payment options
described in paragraph (a) of this
Q&A-3, with the following exceptions:
(1)The pre-pay option cannot be
the sole option offered to employees on
FMLA leave. However, the cafeteria
plan may include pre-payment as an
option for employees on FMLA leave,
even if such option is not offered to
employees on non-FMLA leave-
without-pay.
(2)The catch-up option can be the
sole option offered to employees on
FMLA leave if and only if the catch-up
option is the sole option offered to
employees on non-FMLA leave-
without-pay.
(3)A cafeteria plan cannot offer
employees on FMLA leave a choice of
either the pre-pay option or the catch-
up option without also offering the
pay-as-you-go option, if the pay-as-
you-go option is offered to employees
on non-FMLA leave-without-pay.
2
Published as a proposed rule at 49 FR 19321
(May 7, 1984).
(c)Voluntary waiver of employee
payments In addition to the foregoing
payment options, an employer may
voluntarily waive, on a nondiscrimina-
tory basis, the requirement that
employees who elect to continue health
coverage while on FMLA leave pay the
amounts the employees would other-
wise be required to pay for the leave
period.
Q-4:Do the special FMLA require-
ments concerning an employee who
continues group health plan coverage
under a cafeteria plan apply if the
employee is on paid FMLA leave?
A-4:No. The Labor Regulations
provide that, if an employee’s FMLA
leave is substituted paid leave as
described at 29 CFR 825.207 and the
employee continues group health plan
coverage while on FMLA leave, the
employee’s share of the premiums must
be paid by the method normally used
during any paid leave (i.e., salary
reduction). See 29 CFR 825.210(b).
Q-5:What restrictions apply to con-
tributions when an employee’s FMLA
leave spans two cafeteria plan years?
A-5:(a) Contributions to a cafeteria
plan during FMLA leave will not be
included in an employee’s gross in-
come, provided that the plan complies
with all cafeteria plan requirements.
Among other requirements, a plan may
not operate in a manner that enables
employees on FMLA leave to defer
compensation from one cafeteria plan
year to a subsequent cafeteria plan
year. See §1.125-2, Q&A-5.
3
(b)The following example illustrates
this Q&A-5:
Example. Employee A elects health coverage
under a calendar year cafeteria plan maintained
by Employer X. A’s premium for health cover-
age is $100 per month throughout the 12-month
period of coverage. A takes FMLA leave for 12
weeks beginning on October 31 after making 10
months worth of premiums totalling $1000 (10
months 3 $100 = $1000). A maintains health
coverage while on FMLA leave. A utilizes the
pre-pay option by cashing-out A’s unused sick
days in order to make the required premium
payments due while A is on FMLA leave.
Because A cannot defer compensation from one
plan year to a subsequent plan year, A may pre-
pay the premiums due in November and Decem-
ber (i.e., $100 per month) on a pre-tax basis, but
A cannot pre-pay the premium payment due in
January on a pre-tax basis. If A participates in
the cafeteria plan in the subsequent plan year, A
3
Published as a proposed rule at 54 FR 9460
[EE–130–86, 1989–1 C.B. 944] (March 7, 1989).

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must use another option (e.g., pay-as-you-go or
catch-up) to make the premium payment due in
January.
Q-6:Are there special rules con-
cerning employees taking FMLA leave
who participate in health FSAs offered
under a cafeteria plan?
A-6: (a) In general (1) A health plan
that is a flexible spending arrangement
(FSA) offered under a cafeteria plan
must conform to the generally applica-
ble rules in this section concerning
employees who take FMLA leave.
Thus, FMLA requires that an employee
taking FMLA leave be permitted to—
(i)continue coverage under a health
FSA while on FMLA leave; or
(ii)revoke an existing health FSA
election under the cafeteria plan for the
remainder of the coverage period. See
29 CFR 825.209(e).
(2)FMLA also requires the plan to
permit the employee to be reinstated in
the health FSA upon return from
FMLA leave on the same terms as
prior to taking FMLA leave. See 29
CFR 825.215(d) and paragraph (b)(2)
of this Q&A-6. However, reinstatement
is at the employee’s election and under
no circumstances may an employer
require an employee whose coverage
has terminated while on FMLA leave
to reinstate coverage under a health
FSA upon return from FMLA leave.
See 29 CFR 825.214(a).
(b)Uniform Coverage Rule (1)
Q&A-7(b)(2) of §1.125–2
4
(the uni-
form coverage rule) applies during the
FMLA leave period as long as the
employee continues health coverage.
Therefore, regardless of the payment
option selected under Q&A-3 of this
section, for so long as the employee
continues coverage (or for so long as
the employer continues the coverage of
an employee who fails to make the
required contributions as described in
Q&A-3(a)(2)(iii) of this section), the
full amount of the elected coverage,
less any prior reimbursements, must be
available to the employee at all times,
including the FMLA leave period.
(2)(i) If an employee’s coverage
under the health FSA terminates while
the employee is on FMLA leave, the
employee is not entitled to receive
reimbursements for claims incurred
during the period when the coverage is
terminated. If that employee subse-
4
Published as a proposed rule at 54 FR 9460
(March 7, 1989).
quently elects to be reinstated in the
health FSA upon return from FMLA
leave for the remainder of the plan
year, the employee may not retroac-
tively elect health FSA coverage for
claims incurred during the period when
the coverage was terminated. Further,
the employee is not entitled to greater
FSA benefits relative to premiums paid
than an employee who has been contin-
uously working during the plan year.
See 29 CFR 825.216. Therefore, if an
employee elects to be reinstated in a
health FSA upon return from FMLA
leave, the employee’s coverage for the
remainder of the plan year is equal to
the employee’s election for the 12-
month period of coverage (or such
shorter period as provided under
§1.125–2
5
), prorated for the period
during the FMLA leave for which no
premiums were paid, and reduced by
prior reimbursements.
(ii)An employee on FMLA leave
has the right to revoke or change
elections (e.g., because of changes in
family status) under the same terms
and conditions that apply to employees
participating in the cafeteria plan who
are not on FMLA leave. Thus, notwith-
standing the rules described in para-
graph (b)(2)(i) of this Q&A-6, an
employee who returns from FMLA
leave may make a new health FSA
election for the remainder of the plan
year if return from leave without pay
constitutes a change of family status
under the employer’s cafeteria plan.
(3)The following examples illustrate
the rules in this Q&A-6:
Example 1: (a) Employee A elects $1200
worth of coverage under a calendar year health
FSA provided under a cafeteria plan, with an
annual premium of $1200. A is permitted to pay
the $1200 through pre-tax salary reduction
amounts of $100 per month throughout the 12-
month period of coverage. A incurs no medical
expenses prior to April 1. On April 1, A takes
FMLA leave after making three months worth of
contributions totalling $300 (3 months 3 $100 =
$300). The plan does not permit a revocation of
election on account of a change in family status.
However, pursuant to A’s rights under FMLA, A
elects to terminate coverage upon going on
FMLA leave. Consequently, A makes no pre-
mium payments for the months of April, May,
and June, and A is not entitled to submit claims
or receive reimbursements for expenses incurred
during this period. A returns from FMLA leave
and elects to be reinstated in the health FSA on
July 1.
(b)Under FMLA, A has no greater right to
benefits upon reinstatement than if A had been
5
Published as a proposed rule at 54 FR 9460
(March 7, 1989).
continuously working during the plan year.
Therefore, A is reinstated to A’s annual election
(i.e., $1200) prorated for the period during the
FMLA leave for which no premiums were paid
(i.e., reduced for 3 months or 1/4 of the plan
year) less prior reimbursements (i.e., $0). Conse-
quently, A’s coverage for the remainder of the
plan year equals $900. A must also begin making
premium payments of $100 per month for the
remainder of the plan year.
Example 2: Assume the same facts as Example
1 except that A incurs medical expenses totaling
$200 in February and obtains reimbursement of
these expenses. The results are the same as in
Example 1, except that A’s coverage for the
remainder of the plan year equals $700.
Example 3: Assume the same facts as Example
1 except that prior to taking FMLA leave, A
elects to continue health FSA coverage during
the FMLA leave. The plan permits A (and A
elects) to use the catch-up payment option
described in Q&A-3 of this section, and as
further permitted under the plan, A chooses to
repay the $300 in missed payments on a ratable
basis over the remaining six-month period of
coverage (i.e., $50 per month). Thus, A’s
monthly premium payments for the remainder of
the plan year will be $150 ($100 + $50).
Q-7: Are employees entitled to non-
health benefits while taking FMLA
leave?
A-7:FMLA does not require an em-
ployer to maintain an employee’s non-
health benefits (e.g., life insurance)
during FMLA leave. An employee’s
entitlement to benefits other than group
health benefits under a cafeteria plan
during a period of FMLA leave is to be
determined by the employer’s estab-
lished policy for providing such bene-
fits when the employee is on non-
FMLA leave (paid or unpaid). See 29
CFR 825.209(h). Therefore, an em-
ployee who takes FMLA leave is
entitled to revoke an election of non-
health benefits under a cafeteria plan to
the same extent employees taking non-
FMLA leave are permitted to revoke
elections of non-health benefits under a
cafeteria plan. For example, election
changes are permitted due to changes
of family status or upon enrollment for
a new plan year. See §1.125–2,
Q&A-6(c)
6
and §1.125–1, Q&A-8
7
.
However, the FMLA regulations
provide that, in certain cases, an
employer may continue an employee’s
non-health benefits under the em-
ployer’s cafeteria plan while the
employee is on FMLA leave to ensure
that the employer can meet its respon-
sibility to provide equivalent benefits to
6
Published as a proposed rule at 54 FR 9460
(March 7, 1989).
7
Published as a proposed rule at 49 FR 19321
(May 7, 1984).

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the employee upon return from unpaid
FMLA. If the employer continues an
employee’s non-health benefits during
FMLA leave, the employer is entitled
to recoup the costs incurred for paying
the employee’s share of the premiums
during the FMLA leave period. See 29
CFR 825.213(b). In addition, a caf-
eteria plan must, as required by FMLA,
permit an employee whose coverage
terminated while on FMLA leave
(either by revocation or nonpayment of
premiums) to be reinstated in the
cafeteria plan on return from FMLA
leave. See 29 CFR 825.214(a) and
825.215(d).
Q-8:How may taxpayers rely on
these proposed regulations?
A-8:(a) The guidance provided by
the questions and answers in this
section may be relied upon to comply
with provisions of section 125 and will
be applied by the Internal Revenue
Service in resolving issues arising
under cafeteria plans and related Inter-
nal Revenue Code sections. If final
regulations are more restrictive than the
guidance in this section, the regulations
will not be applied retroactively. No
inference, however, should be drawn
regarding issues not expressly raised
that may be suggested by a particular
question or answer or by the inclusion
or exclusion of certain questions.
(b)The Department of Labor has
advised the Department of the Treas-
ury, including the Internal Revenue
Service, that the provisions of this
section are not inconsistent with the
provisions of FMLA and the Labor
Regulations thereunder.
Margaret Milner Richardson,
Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
December 20, 1995, 8:45 a.m., and published
in the issue of the Federal Register for
December 21, 1995, 60 F.R. 66229)
Notice of Proposed Rulemaking
Allocation of Accrued Benefits
Between Employer and Employee
Contributions
EE–35–95
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rule-
making.
SUMMARY: This document contains
proposed regulations that provide guid-
ance on calculation of an employee’s
accrued benefit derived from the
employee’s contributions to a qualified
defined benefit pension plan. These
regulations are issued to reflect changes
to the applicable law made by the
Omnibus Budget Reconciliation Act of
1987 (OBRA ’87) and the Omnibus
Budget Reconciliation Act of 1989
(OBRA ’89). OBRA ’87 and OBRA
’89 amended the law to change the
accumulation of employee contributions
and the conversion of those accumu-
lated contributions to employee-derived
accrued benefits.
DATES: Written comments and re-
quests for a public hearing must be
received by March 21, 1996.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (EE–35–95), Room
5228, Internal Revenue Service, POB
7604, Ben Franklin Station, Wash-
ington, DC 20044. In the alternative,
submissions may be hand delivered
between the hours of 8 a.m. and 5 p.m.
to: CC:DOM:CORP:R (EE–35–95),
Courier’s Desk, Internal Revenue Serv-
ice, 1111 Constitution Avenue, NW.,
Washington, DC.
FOR FURTHER INFORMATION
CONTACT: Concerning the regula-
tions, Janet A. Laufer, (202) 622-4606,
concerning submissions, Michael
Slaughter, (202) 622-7190 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to regulations containing
rules for computing an employee’s
accrued benefit derived from the
employee’s contributions to a qualified
defined benefit pension plan. The pro-
posed amendments reflect changes
made to section 411(c)(2) by the
Omnibus Budget Reconciliation Act of
1987, Public Law 100–203 (OBRA
’87), and the Omnibus Budget Recon-
ciliation Act of 1989, Public Law 101–
239 (OBRA ’89). OBRA ’87 and
OBRA ’89 changed the interest rates
used to accumulate an employee’s
contributions to normal retirement age.
OBRA ’89 also changed the manner in
which the accumulated contributions
are converted to an annual benefit
payable at normal retirement age, and
removed a limitation on the employee-
derived accrued benefit contained in
prior law.
Section 411(c)(1) provides that an
employee’s accrued benefit derived
from employer contributions as of any
applicable date is the excess, if any, of
the accrued benefit for the employee as
of that date over the accrued benefit
derived from contributions made by the
employee as of that date. Section
411(c)(2)(B) provides that in the case
of a defined benefit plan, the accrued
benefit derived from contributions
made by an employee as of any ap-
plicable date is the amount equal to the
employee’s contributions accumulated
to normal retirement age using the
interest rate(s) specified in section
411(c)(2)(C), expressed as an actu-
arially equivalent annual benefit com-
mencing at normal retirement age using
an interest rate which would be used by
the plan under section 417(e)(3), as of
the determination date. If the em-
ployee-derived accrued benefit is deter-
mined with respect to a benefit other
than an annual benefit in the form of a
single life annuity (without ancillary
benefits) commencing at normal retire-
ment age, section 411(c)(3) requires
that the employee-derived accrued ben-
efit be the actuarial equivalent of the
benefit determined under section
411(c)(2).
Under section 411(c)(2)(C)(iii)(I),
effective for plan years beginning after
December 31, 1987, the interest rate
used to accumulate an employee’s con-
tributions until the determination date
is 120 percent of the Federal mid-term
rate under section 1274 of the Internal
Revenue Code (Code). For the period
between the determination date and
n o r m a l r e t i r e m e n t a g e , s e c t i o n
411(c)(2)(C)(iii)(II) provides that the
interest rate used to accumulate an
employee’s contributions is the interest
rate which would be used under the
plan under section 417(e)(3) as of the
determination date. As noted above,
section 411(c)(2)(B) provides that the
interest rate which would be used
under the plan under section 417(e)(3)
as of the determination date also
applies for purposes of converting the
accumulated contributions to an annual
benefit commencing at normal retire-
ment age. The Retirement Protection
Act of 1994, Public Law 103–465
(RPA ’94) amended section 417(e) to
change the applicable interest rate

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under section 417(e)(3) and to specify
the applicable mortality table under that
s e c t i o n . E x a m p l e s c o n t a i n e d i n
§1.411(c)–1(c)(6) of these proposed
regulations reflect a plan that has been
amended to comply with the interest
rate and mortality table specifications
enacted in RPA ’94.
Explanation of Provisions
1.Conversion calculation
Prior to OBRA ’89, section 411(c)-
(2)(B) specified that the conversion
factor to be used for purposes of
computing the employee-derived ac-
crued benefit was 10 percent for a
straight life annuity commencing at
normal retirement age of 65 (i.e.,
multiply the accumulated contributions
by .10), and that for other normal
retirement ages the conversion factor
was to be determined in accordance
with regulations prescribed by the
Secretary. Section 1.411(c)–1(c)(2) of
the existing regulations provides that
for normal retirement ages other than
age 65, the conversion factor shall be
the factor as determined by the
Commissioner.
Rev. Rul. 76–47 (1976–1 C.B. 109)
sets forth in tabular form the conver-
sion factors to be used for determining
the accrued benefit derived from
employee contributions when the nor-
mal retirement age under the plan is
other than age 65 or when the normal
form of benefit is other than a single
life annuity (without ancillary benefits).
Rev. Rul 76–47 further provides that
where no standard factor is available, a
conversion factor must be determined
using an interest rate of 5 percent and
the UP–1984 mortality table (without
age setback).
OBRA ’89 deleted the ten percent
conversion factor in section 411(c)-
(2)(B) and replaced it with the require-
ment that the accumulated contributions
at normal retirement age be expressed
as an annual benefit commencing at
normal retirement age using an interest
rate which would be used under the
plan under section 417(e)(3) (as of the
determination date). This change was
effective retroactively to the effective
date of the OBRA ’87 provision
relating to section 411(c)(2)(C) (the
first day of the first plan year begin-
ning after December 31, 1987).
To reflect the OBRA ’89 amend-
ments, these proposed regulations de-
fine appropriate conversion factor with
respect to an accrued benefit expressed
in the form of an annual benefit that is
nondecreasing for the life of the
participant as the present value of an
annuity in the form of that annual
benefit commencing at normal retire-
ment age at a rate of $1 per year. This
amount is to be computed using the
interest rate and mortality table which
would be used under the plan under
section 417(e)(3) and §1.417(e)–1T. To
reflect the post-OBRA ’89 conversion
factor definition and to conform to
common actuarial practice, these pro-
posed regulations would change the
multiplied by language in §1.411(c)–
1(c)(1) to divided by.
2.Accumulated contributions
As added by the Employee Retire-
ment Income Security Act of 1974
(ERISA), section 411(c)(2)(C) provided
that employee contributions were to be
accumulated using a standard interest
rate of 5 percent for years beginning on
or after the effective date of that
section. OBRA ’87 changed the interest
rate under section 411(c)(2)(C) to 120
percent of the applicable Federal mid-
term rate under section 1274 for plan
years after 1987. OBRA ’89 again
amended section 411(c)(2)(C) to pro-
vide that 120 percent of the applicable
Federal mid-term rate under section
1274 is to be used for accumulating
contributions only up to the determina-
tion date. For the period from the
determination date to normal retirement
age, the interest rate which would be
used under the plan under section
417(e)(3) (as of the determination date)
must be used for accumulating contri-
butions for the period from the deter-
mination date to normal retirement age.
Accordingly, these proposed regula-
tions would amend paragraph (3) of
§1.411(c)–1(c) to reflect those rates. As
stated above, RPA ’94 amended section
417(e)(3) to change the applicable
interest rate. See §1.417(e)–1T.
3.Determination date
Section 1.411(c)–1(c)(5)(i) defines
the term determination date for pur-
poses of section 411(c)(2)(C)(iii), in a
case in which a participant will receive
his or her entire accrued benefit de-
rived from employee contributions in
any one of the following forms (de-
scribed in paragraph (c)(5)(ii)): an
annuity that is substantially nonincreas-
ing, substantially nonincreasing install-
ment payments for a fixed number of
years, or a single sum distribution. In
such a case, the term determination
date means the date on which distribu-
tion of such benefit commences. For
this purpose, an annuity that is non-
increasing except for automatic in-
creases to reflect increases in the
consumer price index is considered to
be an annuity that is substantially
nonincreasing.
Thus, for example, for purposes of
section 411(c)(2)(C)(iii), in the case of
a distribution of the employee’s entire
accrued benefit (or the employee’s
entire employee-derived accrued bene-
fit) in the form of a nonincreasing
single life annuity payable commencing
either at normal retirement age or at
early retirement age, the determination
date is the date the annuity commences.
Similarly, in the case of a single sum
distribution of accumulated employee
contributions (i.e., employee contribu-
tions plus interest computed at or
above the section 411(c) required rates)
upon termination of employment with a
deferred annuity benefit derived solely
from employer contributions, the deter-
mination date is the date of distribution
of the single sum of accumulated em-
ployee contributions.
Alternatively, the plan may provide
that the determination date is the
annuity starting date, as defined in
§1.401(a)–20, Q&A-10.
Under §1.411(c)–1(c)(5)(iii) of these
regulations, where a participant will
receive a distribution that is not de-
scribed in paragraph (c)(5)(i), the deter-
mination date will be as provided by
the Commissioner.
4 .E l i m i n a t i o n o f l i m i t a t i o n o n
employee-derived accrued benefit
P r i o r t o O B R A ’ 8 9 , s e c t i o n
411(c)(2)(E) of the Code limited the
accrued benefit derived from employee
contributions to the greater of (1) the
employee’s accrued benefit under the
plan, or (2) the sum of the employee’s
mandatory contributions, without inter-
est. Section 7881(m)(1)(C) of OBRA
’89 deleted that provision. Section
7881(m)(1)(D) of OBRA ’89 added
section 411(a)(7)(D) to the Code,
which provides that the accrued benefit
of an employee shall not be less than
the amount determined under section
411(c)(2)(B) with respect to the

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employee’s accumulated contributions.
Accordingly, these proposed regula-
tions delete the rule included in
§1.411(c)–1(d) of the existing regula-
tions, which reflects the pre-OBRA ’89
rule.
5.Delegation of authority
Section 1.411(c)–1(d) of these pro-
posed regulations provides that the
Commissioner may prescribe additional
guidance on calculating the accrued
benefit derived from employer or
employee contributions under a defined
benefit plan.
Effective Date
These amendments are proposed to
be effective for plan years beginning
on or after January 1, 1997. For
example, assume that under a plan the
employee’s date of termination of
employment is treated as the deter-
mination date, and distribution of the
employee’s entire employee-derived ac-
crued benefit (as determined under the
terms of the plan then in effect) occurs
or commences prior to the first day of
the plan year beginning in 1997. In that
case, with respect to interest credits
under section 411(c)(2)(C)(iii) for plan
years beginning after 1987, the Service
will not treat the plan as having failed
to satisfy the requirements of section
411(c), nor will it require that addi-
tional amounts be credited in the cal-
culation of the employee-derived ac-
crued benefit in order to satisfy the
requirements of section 411(c) after
final regulations become effective,
merely because the date the employee’s
employment terminated was treated as
the determination date, provided that
interest is credited in accordance with
section 411(c)(2)(C)(iii)(I) for the
period before the date the employee
terminated employment and in accord-
ance with section 411(c)(2)(C)(iii)(II)
thereafter.
Once amendments to the regulations
under §1.411(c)–1 are adopted in final
form, the Service will obsolete or
modify Rev. Rul. 76–47, Rev. Rul. 78–
202 (1978–2 C.B. 124) and Rev. Rul.
89–60 (1989–1 C.B. 113) as necessary
or appropriate.
Taxpayers may rely on these pro-
posed regulations for guidance pending
the issuance of final regulations.
Special Analyses
It has been determined that this
notice of proposed rulemaking is not a
significant regulatory action as defined
in EO 12866. Therefore, a regulatory
assessment is not required. It also has
been determined that section 553(b) of
the Administrative Procedure Act (5
U.S.C. chapter 5) and the Regulatory
Flexibility Act (5 U.S.C. chapter 6) do
not apply to these regulations, and,
therefore, a Regulatory Flexibility
Analysis is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, this notice of proposed rulemak-
ing will be submitted to the Chief
Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations
are adopted as final regulations, consid-
eration will be given to any written
comments (a signed original and eight
(8) copies) that are submitted timely to
the IRS. All comments will be avail-
able for public inspection and copying.
A public hearing may be scheduled if
requested in writing by a person that
timely submits written comments. If a
public hearing is scheduled, notice of
the date, time, and place for the
hearing will be published in the Federal
Register.
Drafting Information
The principal author of these regula-
tions is Janet A. Laufer, Office of the
Associate Chief Counsel (Employee
Benefits and Exempt Organizations).
However, other personnel from the IRS
and Treasury Department participated
in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and rec-
ordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.411(c)–1 is
amended by:
1.Revising paragraphs (c)(1), (c)(2),
(c)(3), (c)(5) and (c)(6).
2.Revising paragraph (d).
3.Adding paragraph (g).
The additions and revisions read as
follows:
§1.411(c)–1 Allocation of accrued
benefits between employer and
employee contributions.
******
(c)Accrued benefit derived from
mandatory employee contributions to a
defined benefit plan—(1) General Rule.
In the case of a defined benefit plan (as
defined in section 414(j)), the accrued
benefit derived from contributions
made by an employee under the plan as
of any applicable date in the form of an
annual benefit commencing at normal
retirement age and nondecreasing for
the life of the participant is equal to the
amount of the employee’s accumulated
contributions (determined under para-
graph (c)(3) of this section) divided by
the appropriate conversion factor with
respect to that form of benefit (deter-
mined under paragraph (c)(2) of this
section). Paragraph (e) of this section
provides rules for actuarial adjustments
where the benefit is to be determined
in a form other than the form described
in this paragraph (c)(1).
(2)Appropriate conversion factor.
For purposes of this paragraph, with
respect to a form of annual benefit
commencing at normal retirement age
described in paragraph (c)(1), the term
appropriate conversion factor means
the present value of an annuity in the
form of that annual benefit commenc-
ing at normal retirement age at a rate
of $1 per year, computed using an
interest rate and mortality table which
would be used under the plan under
section 417(e)(3) and §1.417(e)–1T (as
of the determination date).
(3)Accumulated contributions. For
purposes of section 411(c) and this
section, the term accumulated contribu-
tions means the total of—
(i)All mandatory contributions made
by the employee (determined under
paragraph (c)(4) of this section);
(ii)Interest (if any) on such contri-
butions, computed at the rate provided
by the plan to the end of the last plan
year to which section 411(a)(2) does
not apply (by reason of the applicable
effective dates);

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(iii)Interest on the sum of the
amounts determined under paragraphs
(c)(3)(i) and (ii) of this section com-
pounded annually at the rate of 5
percent per annum from the beginning
of the first plan year to which section
411(a)(2) applies (by reason of the
applicable effective date) to the begin-
ning of the first plan year beginning
after December 31, 1987;
(iv)Interest on the sum of the
amounts determined under paragraphs
(c)(3)(i) through (iii) of this section
compounded annually at 120 percent of
the Federal mid-term rate(s) (as in
effect under section 1274(d) of the
Internal Revenue Code for the first
month of a plan year) for the period
beginning with the first plan year
beginning after December 31, 1987 and
ending on the determination date; and
(v)Interest on the sum of the
amounts determined under paragraphs
(c)(3)(i) through (iv) of this section
compounded annually, using an interest
rate which would be used under the
plan under section 417(e)(3) and
§1.417(e)–1T (as of the determination
date), from the determination date to
the date on which the employee would
attain normal retirement age.
******
(5)Determination date—(i) For pur-
poses of section 411(c) and this sec-
tion, in a case in which a participant
will receive his or her entire accrued
benefit derived from employee contri-
butions in any one of the forms de-
scribed in paragraph (c)(5)(ii), the term
determination date means the date on
which distribution of such benefit
commences. Alternatively, in such a
case, the plan may provide that the
determination date is the annuity start-
ing date with respect to that benefit, as
defined in §1.401(a)–20, Q&A-10.
(ii)Paragraph (c)(5)(i) applies to the
following forms: an annuity that is
substantially nonincreasing (e.g., an
annuity that is nonincreasing except for
automatic increases to reflect increases
in the consumer price index), substan-
tially nonincreasing installment pay-
ments for a fixed number of years, or a
single sum distribution.
(iii)In a case in which a participant
will receive a distribution that is not
described in paragraph (c)(5)(i), the
determination date will be as provided
by the Commissioner.
(6)Examples.
(i)Facts. (A) In the following examples,
Employer X maintains a qualified defined benefit
plan that required mandatory employee contribu-
tions for 1987 and prior years, but not for years
after 1987. The plan year is the calendar year.
The plan provides for a normal retirement age of
65 and for 100 percent vesting in the employer-
derived portion of a participant’s accrued benefit
after 5 years of service.
(B)The terms of the plan provide that the
normal form of benefit is a level monthly amount
commencing at normal retirement age and
payable for the life of the participant. A plan
participant who elects not to receive benefits in
the form of the qualified joint and survivor
annuity provided by the plan may elect to
receive a single-sum distribution of the present
value of his or her accrued benefit upon
termination of employment.
(C)As of January 1, 1995, the plan was
amended to provide that, for purposes of
computing actuarially equivalent benefits, the
single sum is calculated using the unisex version
of the 1983 GAM mortality table (as provided in
Revenue Ruling 95–6 (1995–1 C.B. 80)), and
interest at the rate equal to the annual rate of
interest on 30-year Treasury securities for the
first calendar month preceding the first day of
the plan year during which the annuity starting
date occurs.
(D)Under the plan, employee contributions
are accumulated at 3 percent interest for plan
years beginning before 1976, 5 percent interest
for plan years beginning after 1975 and before
1988, and interest at 120 percent of the Federal
mid-term rate (as in effect under section 1274(d)
for the first month of the plan year) for plan
years beginning after 1987 until the determina-
tion date. Under the plan, the determination date
is defined as the annuity starting date. For the
period from the determination date until the date
on which the employee attains normal retirement
age, interest is credited at the interest rate which
would be used under the plan under section
417(e)(3) as of the determination date.
(E)A, an unmarried participant, terminates
employment with X on January 1, 1997 at age 56
with 15 years of service. As of December 31,
1987, A’s total accumulated mandatory employee
contributions to the plan, including interest
compounded annually at 5 percent for plan years
beginning after 1975 and before 1988, equaled
$3,021. A receives his or her accrued benefit in
the form of an annual single life annuity
commencing at normal retirement age. A’s
annuity starting date is January 1, 2006, and
therefore the determination date is January 1,
2006.
(ii)Annuity at Normal Retirement Age—
Determination of Employee-Derived and Total
Plan Vested Accrued Benefit.
Example 1.
For purposes of this example, it is assumed
that A’s total accrued benefit under the plan in
the normal form of benefit commencing at
normal retirement age is $2,949 per year. A’s
benefit, as of January 1, 2006, would be
determined as follows:
(1)Determine A’s total accrued benefit in the
form of an annual single life annuity commenc-
ing at normal retirement age under the plan’s
formula ($2,949 per year payable at age 65).
(2)Determine A’s accumulated contributions
with interest to January 1, 1997. As of December
31, 1987, A’s accumulated contributions with
interest under the plan provisions were $3,021.
A’s employee contributions are accumulated
from December 31, 1987 to January 1, 1997
using 120 percent of the Federal mid-term rate
under section 1274(d). This rate is 10.61 percent
for 1988, 11.11 percent for 1989, 9.57 percent
for 1990, 9.78 percent for 1991, 8.10 percent for
1992, 7.63 percent for 1993, 6.40 percent for
1994, and 9.54 percent for 1995. It is assumed
for purposes of this example that 120 percent of
the Federal mid-term rate is 7.00 percent for
each year between 1996 and 2006, and that the
30-year Treasury rate for December 2005 is 8.00
percent. Thus, A’s contributions accumulated to
January 1, 1997, equal $6,480.
(3)Determine A’s accumulated contributions
with interest to normal retirement age (January 1,
2006) using, for the 1996 plan year and for years
until normal retirement age, 120 percent of the
Federal mid-term rate under section 1274(d),
which is assumed to be 7.00 percent ($11,913).
(4)Determine the accrued annual annuity
benefit derived from A’s contributions by divid-
ing A’s accumulated contributions determined in
paragraph (3) of this Example 1 by the plan’s
appropriate conversion factor. The plan’s appro-
priate conversion factor at age 65 is 9.196, and
the accrued benefit derived from A’s contribu-
tions would be $11,913/ 9.196 = $1,295.
(5)Determine the accrued benefit derived
from employer contributions as the excess, if
any, of the employee’s accrued benefit under the
plan over the accrued benefit derived from
employee contributions ($2,949 – $1,295 =
$1,654 per year).
(6)Determine the vested percentage of the
accrued benefit derived from employer contribu-
tions under the plan’s vesting schedule (100
percent).
(7) Determine the vested accrued benefit
derived from employer contributions by multiply-
ing the accrued benefit derived from employer
contributions by the vested percentage ($1,654 x
100 percent = $1,654 per year).
(8) Determine A’s vested accrued benefit in
the form of an annual single life annuity
commencing at normal retirement age by adding
the accrued benefit derived from employee
contributions and the vested accrued benefit
derived from employer contributions, the sum of
paragraphs (4) and (7) of this Example 1 ($1,295
+ $1,654 = $2,949 per year).
Example 2.
This example assumes the same facts as
Example 1 except that A’s total accrued benefit
under the plan in the normal form of benefit
commencing at normal retirement age is $1,000
per year. A’s benefit, as of January 1, 2006,
would be determined as follows:
(1)Determine A’s total accrued benefit in the
form of an annual single life annuity commenc-
ing at normal retirement age under the plan’s
formula ($1,000 per year payable at age 65).
(2)Determine A’s accumulated contributions
with interest to January 1, 1997 ($6,480 from
paragraph 2 of Example 1).
(3)Determine A’s accumulated contributions
with interest to normal retirement age (January 1,
2006) ($11,913 from paragraph 3 of Example 1).
(4)Determine the accrued annual annuity
benefit derived from A’s contributions by divid-
ing A’s accumulated contributions determined in
paragraph (3) of this Example 2 by the plan’s
appropriate conversion factor ($1,295 from para-
graph 4 of Example 1).
(5)Determine the accrued benefit derived
from employer contributions as the excess, if

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any, of the employee’s accrued benefit under the
plan over the accrued benefit derived from
employee contributions. Because the accrued
benefit derived from employee contributions
($1,295) is greater than the employee’s accrued
benefit under the plan ($1,000), the accrued
benefit derived from employer contributions is
zero, and A’s vested accrued benefit in the form
of an annual single life annuity commencing at
normal retirement age is $1,295 per year.
(d)Delegation to Commissioner.
The Commissioner may prescribe addi-
tional guidance on calculating the
accrued benefit derived from employee
contributions under a defined benefit
plan through publication in the Internal
Revenue Bulletin of revenue rulings,
notices, or other documents (see
§601.601(d)(2) of this chapter).
(e)* * *
(f)* * *
(g)Effective date. Paragraphs (c)(1),
(c)(2), (c)(3), (c)(5), (c)(6) and (d) of
this section are effective for plan years
beginning on or after January 1, 1997.
Margaret Milner Richardson,
Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
December 21, 1995, 8:45 a.m., and published
in the issue of the Federal Register for
December 22, 1995, 60 F.R. 66532)
Notice of Proposed Rulemaking
Requirements for Tax Exempt Section
501(c)(5) Organizations
EE–53–95
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of Proposed Rule-
making.
SUMMARY: This document contains
proposed regulations clarifying certain
requirements of section 501(c)(5). The
requirements are being clarified to
provide needed guidance to organiza-
tions as to the requirements an organi-
zation must meet in order to be exempt
from tax as an organization described
in section 501(c)(5).
DATES: Written comments and re-
quests for a public hearing must be
received by March 20, 1996.
ADDRESSES: Send submissions to:
C C : D O M : C O R P : T : R ( E E – 5 3 – 9 5 ) ,
Room 5228, Internal Revenue Service,
POB 7604, Ben Franklin Station,
Washington, DC 20044. In the alterna-
tive, submissions may be hand deliv-
ered between the hours of 8 a.m. and 5
p.m. to: CC:DOM:CORP:T:R (EE–53–
95), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue
NW., Washington, DC.
FOR FURTHER INFORMATION
CONTACT: Robin Ehrenberg, (202)
622-6080 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This notice of proposed rulemaking
clarifies the scope of the exemption
provided in section 501(c)(5) of the
Internal Revenue Code for labor, agri-
cultural and horticultural organizations.
An income tax exemption for labor
organizations was first provided in the
Corporation Excise Tax Act of 1909,
Public Law No. 61–5, 36 Stat. 11, 112–
118, and has been in effect continu-
ously since that time. A labor organiza-
tion is an entity that is organized ‘‘to
protect and promote the interests of
labor.’’ Portland Cooperative Labor
Temple Association v. Commissioner,
39 B.T.A. 450 (1939), acq., 1939–1
C.B. 28. The principal purpose of the
organization must be to better the
working conditions of people engaged
in a common pursuit. See, Treas. Reg.
§1.501(c)(5)–1. Organizations meeting
this requirement have traditionally
engaged in collective action directed
toward the workers’ common objective
of improving working conditions. They
include labor unions that negotiate with
employers on behalf of workers for
improved wages, fringe benefits, hours
and similar working conditions, and
certain union-controlled organizations,
like strike funds, that provide benefits
to workers that enhance the union’s
ability to bargain effectively. See Rev.
Rul. 67–7 (1967–1 C.B. 137). They do
not include strike funds that provide
income to union members but are not
controlled by unions. See Rev. Rul.
76–420 (1976–2 C.B. 153). Such an
organization will not pay the strike
benefits ‘‘with the objective of better-
ing conditions of employment, but by
reason of its contractual agreements
with the workers.’’
Labor organizations may also meet
the requirements of section 501(c)(5)
by providing benefits that directly
improve working conditions or com-
pensate for unpredictable hazards that
interrupt work. Examples of such bene-
fits include operating a dispatch hall to
match union members with work as-
signments and providing industry stew-
ards who represent employees with
grievances against management. See
Rev. Rul. 75–473 (1975–2 C.B. 213);
Rev. Rul. 77–5 (1977–1 C.B. 148). On
the other hand, managing saving and
investment plans for workers, including
retirement plans, does not bear directly
on working conditions. See Rev. Rul.
77–46 (1977–1 C.B. 147). Accordingly,
section 501(c)(5) has not been applied
to organizations that manage retirement
savings plans as their principal activity.
Nevertheless, in Morganbesser v.
United States, 984 F.2d 560 (2d Cir.
1993), the court held that a trust
managing a pension benefit plan pur-
suant to a collective bargaining agree-
ment qualified as a labor organization
described in section 501(c)(5). The IRS
and the Treasury Department believe
that this decision is contrary to existing
law, and the IRS is issuing an action
on decision reflecting its view that the
Morganbesser court erred in its hold-
ing. These proposed regulations are a
clarification of the existing legal
standard.
Like labor organizations, agricultural
and horticultural organizations must
also better the conditions of those
engaged in a common pursuit in order
to be described in section 501(c)(5).
See §1.501(c)(5)–1. There is no au-
thority indicating that the law is to be
interpreted differently for agricultural
and horticultural organizations than for
labor organizations. Accordingly, the
proposed regulations clarify the law as
it applies to all section 501(c)(5)
organizations.
Certain organizations have taken the
position in refund actions that they are
labor organizations described in section
501(c)(5) even though their principal
activity was to manage retirement
savings plans for workers. In addition,
some such foreign organizations have
claimed exemption from withholding
on dividend, interest and similar in-
come that they have earned. The IRS
will continue to oppose these claims
for refund and exemption from with-
holding.
A health plan is not a retirement
savings plan. Thus, the IRS will
continue to follow Rev. Rul. 62–17

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(1962–1 C.B. 87) (regarding a labor
organization providing health benefits)
even in circumstances where a majority
of the organization’s members are
retired. Furthermore, the IRS will con-
tinue to recognize that negotiating the
terms of a retirement plan and other
postretirement benefits and designating
one or more representatives to the
board of a multiemployer pension trust
are proper activities for a labor organi-
zation. The proposed regulations are
not intended to apply to or affect any
other provision of federal law, includ-
ing provisions of the Employee Retire-
ment Income Security Act of 1974
(ERISA) administered by the Secretary
of Labor.
Explanation of Provisions
The proposed regulations add a new
paragraph to §1.501(c)(5)–1 providing
that an organization is not an organiza-
tion within the meaning of section
501(c)(5) if the organization’s principal
activity is to manage savings or invest-
ment plans or programs, including
retirement savings plans. Proposed Ef-
fective Date These regulations are pro-
posed to be effective December 21,
1995.
Special Analyses
It has been determined that this
notice of proposed rulemaking is not a
significant regulatory action as defined
in EO 12866. Therefore, a regulatory
assessment is not required. It also has
been determined that section 553(b) of
the Administrative Procedure Act (5
U.S.C. chapter 5) and the Regulatory
Flexibility Act (5 U.S.C. chapter 6) do
not apply to these regulations, and,
therefore, a Regulatory Flexibility
Analysis is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, this notice of proposed rulemak-
ing will be submitted to the Chief
Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small business.
Comments and Public Hearing
Before these proposed regulations
are adopted as final regulations, consid-
eration will be given to any written
comments (a signed original and eight
(8) copies) that are submitted timely to
the IRS. All comments will be avail-
able for public inspection and copying.
A public hearing may be scheduled if
requested in writing by a person that
timely submits written comments. If a
public hearing is scheduled, notice of
the date, time, and place for the
hearing will be published in the Federal
Register.
Drafting Information
The principal author of these regula-
tions is Robin Ehrenberg, Office of
Associate Chief Counsel (Employee
Benefits and Exempt Organizations).
However, other personnel from the IRS
and Treasury Department participated
in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and rec-
ordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
Part 1—Income Taxes
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.501(c)(5)-1 is
amended by:
1.Redesignating paragraph (b) as
paragraph (c).
2.Adding a new paragraph (b) to
read as follows:
§ 1.501(c)(5)–1 Labor, agricultural,
and horticultural organizations.
******
(b)(1) An organization is not an
organization described in section
501(c)(5) if the principal activity of the
organization is to receive, hold, invest,
disburse, or otherwise manage funds
associated with savings or investment
plans or programs, including pension or
other retirement savings plans or pro-
grams.
(2)Example. Trust A is organized
in accordance with a collective bargain-
ing agreement between a labor union
and multiple employers. Representa-
tives of both the employers and the
union serve as trustees. Trust A re-
ceives funds from the employers who
are subject to the agreement, invests
the funds and uses the funds and
accumulated earnings to pay pension
benefits to union members as specified
in the agreement. It also provides
information to union members about
their retirement benefits and assists
them with administrative tasks associ-
ated with the benefits. Most of Trust
A’s activities are devoted to these
functions. From time to time, Trust A
also participates in the renegotiation of
the collective bargaining agreement.
Because Trust A’s principal activity is
to manage funds associated with a
pension plan, it is not an organization
described in section 501(c)(5).
******
Margaret Milner Richardson,
Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
December 20, 1995, 8:45 a.m., and published
in the issue of the Federal Register for
December 21, 1995, 60 F.R. 66228)
Notice of Proposed Rulemaking and
Notice of Public Hearing
Certain Transfers of Domestic Stock
or Securities by U.S. Persons to
Foreign Corporations
INTL–9–95
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing by cross-reference to temporary
regulations and notice of public
hearing.
SUMMARY: In *** [T.D. 8638, page
5, this Bulletin], the IRS is issuing
temporary regulations revising the rules
under section 367(a) with respect to
certain transfers of stock or securities
of domestic corporations by United
States persons pursuant to the corporate
organization, reorganization or liquida-
tion provisions of the Internal Revenue
Code. The text of those temporary
regulations also serves as the text of
these proposed regulations. This docu-
ment also provides notice of a public
hearing on these proposed regulations.
DATES: Written comments must be
received by March 25, 1996. Outlines

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of topics to be discussed at the public
hearing scheduled for April 11, 1996,
at 10 a.m. must be received by March
21, 1996.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (INTL 0009–95),
Room 5228, Internal Revenue Service,
POB 7604, Ben Franklin Station,
Washington, DC 20044. In the alterna-
tive, submissions may be hand deliv-
ered between the hours of 8 a.m. and 5
p.m. to: CC:DOM:CORP:R (INTL–
0009–95), Courier’s Desk, Internal
Revenue Service, 1111 Constitution
Ave. NW., Washington, DC. The pub-
lic hearing will be held in the IRS
Auditorium, Internal Revenue Building,
1111 Constitution Avenue NW., Wash-
ington, DC.
FOR FURTHER INFORMATION
CONTACT: Concerning the regula-
tions, Philip L. Tretiak at (202)
622-3860; concerning submissions and
the hearing, Christina Vasquez at (202)
622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in this notice of proposed
rulemaking has been submitted to the
Office of Management and Budget for
review in accordance with the Paper-
work Reduction Act of 1995 (44
U.S.C. 3507).
Comments on the collection of infor-
mation should be sent to the Office of
Management and Budget, Attn: Desk
Officer for the Department of Treasury,
Office of Information and Regulatory
Affairs, Washington, DC 20503, with
copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer,
T:FP, Washington, DC 20224. Com-
ments on the collection of information
should be received by February 26,
1996.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information
displays a valid control number.
The collection of information is in
§1.367(a)–3T(c)(4). This information is
required by the IRS as a condition for a
taxpayer to qualify for an exception to
the general rule of taxation under
section 367(a)(1). This information will
be used to determine whether a tax-
payer properly qualifies for a claimed
exception. The respondents generally
will be U.S. corporations, probably
U.S. multinationals, that are acquired
by foreign companies pursuant to non-
recognition exchanges or that engage in
joint ventures with foreign companies.
Responses to this collection of informa-
tion by the relevant U.S. corporations
are required in order for the share-
holders of such corporations to qualify
for an exception to the general rule
under section 367(a)(1).
Books or records relating to a col-
lection of information must be retained
as long as their contents may become
material in the administration of any
internal revenue law. Generally, tax
returns and tax return information are
confidential, as required by 26 U.S.C.
6103.
Estimated total annual reporting bur-
den: 1,000 hours. The estimated annual
burden per respondent varies from 1
hour to 20 hours, depending on individ-
ual circumstances, with an estimated
average of 10 hours.
Estimated number of respondents:
100.
Estimated annual frequency of re-
sponses: Once.
Background
The temporary regulations published
in the *** [T.D. 8638, page 00, this
Bulletin] amend the Income Tax Reg-
ulations (26 CFR part 1) relating to
section 367(a). The temporary regula-
tions contain rules relating to the
transfer of stock or securities by a
United States person to a foreign
corporation in an exchange described in
section 367(a).
The text of those temporary regula-
tions also serves as the text of these
proposed regulations. The preamble to
the temporary regulations explains the
temporary regulations. Final regulations
under section 367(a) regarding transfers
of stock or securities will integrate the
proposed regulations herein with the
notice of proposed rulemaking pub-
lished on August 26, 1991, in the
Federal Register (56 FR 41993). Thus,
the proposed regulations herein supple-
ment and, where inconsistent with,
s u p e r s e d e , t h e 1 9 9 1 p r o p o s e d
regulations.
Special Analyses
It has been determined that this
notice of proposed rulemaking is not a
significant regulatory action as defined
in Executive Order 12866. Therefore, a
regulatory assessment is not required. It
has also been determined that this
regulation does not have a significant
impact on a substantial number of
small entities. Thus, the Regulatory
Flexibility Act (5 U.S.C. chapter 6)
does not apply to these regulations, and
therefore, a Regulatory Flexibility
Analysis is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, this notice of proposed rulemak-
ing will be submitted to the Chief
Counsel for Advocacy of the Small
Business Administration for comment
on their impact on small business.
Comments and Notice of Public
Hearing
Before these proposed regulations
are adopted as final regulations, consid-
eration will be given to any written
comments (a signed original and eight
(8) copies) that are submitted timely to
the Internal Revenue Service. All com-
ments will be available for public
inspection and copying.
A public hearing has been scheduled
for April 11, 1996, at 10 a.m. in the
IRS Auditorium. Because of access
restrictions, visitors will not be admit-
ted beyond the 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
comments at the hearing must submit
written comments by March 25, 1996,
and submit an outline of the topics to
be discussed and the time to be devoted
to each topic (signed original and eight
(8) copies) by March 21, 1996.
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 pro-
posed regulations is Philip L. Tretiak
of the Office of Associate Chief
Counsel (International), Internal Reve-
nue Service. However, other personnel

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from the IRS and Treasury Department
participated in their development.
List of Subjects in 26 CFR Part 1
Income tax, Reporting and rec-
ordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
Authority: 26 U.S.C. 7805. * * *
Par. 2. New §1.367–9 is added to
read as follows:
§1.367(a)–9 Transfers by U.S. persons
of stock or securities of domestic
corporations to foreign corporations.
[The text of this proposed section is
the same as the text of paragraphs (a),
(c), (d), (e), (f), (g)(1) and (h)(1) of
§1.367–3T published elsewhere in ***
[T.D. 8638, this Bulletin].]
Margaret Milner Richardson,
Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
December 22, 1995, 8:45 a.m., and published
in the issue of the Federal Register for
December 26, 1995, 60 F.R. 66771)

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Part III. Administrative, Procedural, and Miscellaneous
Notice 96–6
In Rev. Proc. 94–76, 1994–2 C.B.
825, the Internal Revenue Service
announced that it had commenced a
project to study whether certain trans-
actions qualifying as corporate reorga-
nizations under §368 circumvent the
purposes of General Utilities repeal,
necessitating corrective regulations un-
der §337(d). The transactions under
study included any transaction in which
one corporation owns stock in a second
corporation, the first corporation is not
an ‘‘80-percent distributee’’ of the
second corporation under §337(c), and
the two corporations are combined (a
‘‘corporate combining transactions’’).
The IRS and the Treasury Department
have decided not to issue guidance at
this time regarding corporate combin-
ing transactions and are closing this
project.
Rev. Proc. 94–76 and section 5.15 of
Rev. Proc. 96–3, 1996–1 I.R.B. 82,
state that the IRS will not issue
advance rulings on the tax con-
sequences of corporate combining
transactions while the study of such
transactions is being undertaken. The
IRS will amplify and modify Rev.
Proc. 96–3 by moving section 5.15
from section 5 (Areas Under Extensive
Study) to section 3 (Areas In Which
Rulings Or Determination Letters Will
Not Be Issued). No inference is in-
tended by this notice as to the tax
treatment of corporate combining trans-
actions under current law.
For further information regarding
this notice, contact Keith Stanley of the
Office of Assistant Chief Counsel
(Corporate) at (202) 622-7530 (not a
toll-free call).
26 CFR 601.201: Rulings and determination
letters.
(Also §§368; 1.368–1.)
Rev. Proc. 96–22
SECTION 1. PURPOSE
This revenue procedure amplifies and
modifies Rev. Proc. 96–3, 1996–1
I.R.B. 82, which sets forth areas of the
Internal Revenue Code under the juris-
diction of the Associate Chief Counsel
(Domestic) and the Associate Chief
Counsel (Employee Benefits and Ex-
empt Organizations) relating to issues
on which the Internal Revenue Service
will not issue advance letter rulings or
determination letters.
SECTION 2. BACKGROUND
In Rev. Proc. 94–76, 1994–2 C.B.
825, currently reflected in section 5.15
of Rev. Proc. 96–3, the IRS stated that
while it was studying whether certain
transactions qualifying as corporate
reorganizations under §368 circumvent
the purposes of General Utilities re-
peal, the IRS would not issue advance
rulings on the tax consequences of the
transactions under study. In notice 96–
6, the IRS announced that this study is
being closed.
SECTION 3. PROCEDURE
Rev. Proc. 96–3 is amplified by
adding to section 3 (Areas In Which
Rulings Or Determination Letters Will
Not Be Issued) the provision presently
in section 5.15, and is modified by
deleting the provision from section 5
(Areas Under Extensive Study).
DRAFTING INFORMATION
For further information regarding
this revenue procedure, contact Keith
Stanley of the Office of Assistant Chief
Counsel (Corporate) at (202) 622-7530
(not a toll-free call).
26 CFR 601.105: Examination of returns and
claims for refund, credit or abatement;
determination of correct tax liability.
(Also Part I, §842.)
Rev. Proc. 96–23
SECTION 1. PURPOSE
This revenue procedure provides the
domestic asset/liability percentages and
domestic investment yields needed by
foreign life insurance companies and
foreign property and liability insurance
companies to compute their minimum
effectively connected net investment
income under §842(b) of the Internal
Revenue Code for taxable years begin-
ning after December 31, 1994. Instruc-
tions are provided for computing for-
eign insurance companies’ liabilities for
the estimated tax and installment pay-
ments of estimated tax for taxable
years beginning after December 31,
1994. For more specific guidance re-
garding the computation of the amount
of net investment income to be in-
cluded by a foreign insurance company
on its U.S. income tax return, see
Notice 89–96, 1989–2 C.B. 417. For
the domestic asset/liability percentage
and domestic investment yield, as well
as instructions for computing foreign
insurance companies’ liabilities for
estimated tax and installment payments
of estimated tax for taxable years
beginning after December 31, 1993, see
Rev. Proc. 95–26, 1995–1 C.B. 703.
SEC. 2. CHANGES.
.01DOMESTIC ASSET/LIABILITY
PERCENTAGES FOR 1995. The Sec-
retary determines the domestic asset/
liability percentage separately for life
insurance companies and property and
liability insurance companies. For the
first taxable year beginning after De-
cember 31, 1994, the relevant domestic
asset/liability percentages are:
114.7 percent for foreign life insur-
ance companies, and
165.8 percent for foreign property
and liability insurance companies.
.02 DOMESTIC INVESTMENT
YIELDS FOR 1995. The Secretary is
required to prescribe separate domestic
investment yields for foreign life insur-
ance companies and for foreign prop-
erty and liability insurance companies.
For the first taxable year beginning
after December 31, 1994, the relevant
domestic investment yields are:
8.4 percent for foreign life insurance
companies, and
6.4 percent for foreign property and
liability insurance companies.
The domestic investment yields pro-
vided in this revenue procedure are
based on tax return data rather than
NAIC statement data.
SEC. 3. APPLICATION—
ESTIMATED TAXES
To compute estimated tax and the
installment payments of estimated tax
due for taxable years beginning after
December 31, 1994, a foreign insur-
ance company must compute its esti-
mated tax payments by adding to its

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income other than net investment in-
come the greater of (i) its net in-
vestment income as determined under
§ 842(b)(5) that is actually effectively
connected with the conduct of a trade
or business within the United States for
the relevant period, or (ii) the minimum
effectively connected net investment
income under §842(b) that would
result from using the most recently
available domestic asset/liability per-
centage and domestic investment yield.
Thus, for installment payments due
after the release of this revenue proce-
dure, the domestic asset/liability per-
centages and the domestic investment
yields provided in this revenue proce-
dure must be used to compute the
minimum effectively connected net in-
vestment income. However, if the due
date of an installment is less than 20
days after the date this revenue proce-
dure is published in the Internal Reve-
nue Bulletin, the asset/liability percent-
ages and domestic investment yields
provided in Rev. Proc. 95–26 may be
used to compute the minimum effec-
tively connected net investment income
for such installment. For further guid-
ance in computing estimated tax, see
Notice 89–96.
SEC. 4. EFFECTIVE DATE
This revenue procedure is effective
for taxable years beginning after De-
cember 31, 1994.
SEC. 5. DRAFTING INFORMATION
The principal author of this revenue
procedure is Mary Gillmarten of the
Office of the Associate Chief Counsel
(International). For further information
about this revenue procedure, please
contact Ms. Gillmarten at (202)
622-3870 (not a toll free call), or write
to the Internal Revenue Service, Office
of the Associate Chief Counsel (Inter-
national), 1111 Constitution Avenue,
N.W., Washington, D.C. 20224, Atten-
tion: CC:INTL:Br.5, Room 4562.
General Rules for Filing and
Specifications for the Private Printing
of Substitute Forms W–2 and W–3
26 CFR 601.602: Forms and instructions.
(Also Part I, Sections 6011, 6041, 6051, 6071,
6081, 6091; 1.6041–1, 1.6041–2, 31.6051–1,
31.6051–2, 31.6071(a)–1, 31.6081(a)–1.)
Rev. Proc. 96–24
PART A. GENERAL
SECTION 1. PURPOSE
.01The purpose of this revenue
procedure is to provide the general
rules for filing and to state the
requirements of the Internal Revenue
Service (IRS) and the Social Security
Administration (SSA) for reproducing
paper substitutes for Form W–2, Wage
and Tax Statement, and Form W–3,
Transmittal of Wage and Tax State-
ments, for amounts paid during the
1996 calendar year. The information
reported on Forms W–2 and W–3 is
required to establish tax liability for
employees and their eligibility for
Social Security and Medicare benefits.
.02Forms W–2 and W–3 have only
minor changes for 1996. Please see
‘‘Nature of Changes’’ (Section 2, be-
low) and the exhibits at the end of this
revenue procedure for changes to the
Form W–2 and W–3.
.03For the purpose of this revenue
procedure, a substitute form is one that
is not printed by IRS. A substitute
Form W–2 or W–3 MUST conform to
the specifications in this revenue
procedure to be acceptable to the IRS.
Preparers should also refer to the
separate instructions for Forms W–2
and the instructions on Form W–3 for
details on how to complete these forms.
See Part C, Sec. 4.01, for information
on ordering the official IRS forms and
instructions. See Part B, Sec. 2, for
requirements for substitute forms fur-
nished to employees.
.04IRS has instituted a centralized
call site to answer questions related to
information returns (Forms W–2, W–3,
1099, etc.). The call-site phone number
is 304-263-8700 (not a toll-free num-
ber). The number for Telecommunica-
tion Device for the Deaf (TDD) is
304-267-3367 (not a toll-free number).
.05IRS has established a personal
computer based Information Reporting
Program Bulletin Board System (IRP–
BBS) at the IRS Martinsburg Comput-
ing Center (IRS/MCC). This system
provides access to the forms and
publications relating to information
returns, news of the latest changes, the
ability to receive answers to specific
questions, access to shareware, and
other features. The IRP–BBS is avail-
able for public use and can be reached
by dialing 304-264-7070 (not a toll-
free number). The IRP–BBS is compat-
ible with most modems. For more
information concerning this system,
call IRS/MCC at 304-263-8700 (not a
toll-free number).
.06Employers are reminded that
under Section 6722 of the Internal
Revenue Code (IRC) they can be as-
sessed a penalty of $50 per Form W–2
that is not furnished to an employee on
a form acceptable to the IRS (up to
$100,000). To be acceptable to IRS, the
Form W–2 must be either the ‘‘offi-
cial’’ form or a substitute form with
the core data placed exactly as spec-
ified in Part B., Section 2.04 of this
Revenue Procedure. No IRS office is
authorized to allow deviations from this
Revenue Procedure.
.07This revenue procedure super-
sedes Rev. Proc. 95–20, 1995–13 I.R.B.
(Reprinted as Publication 1141, Re-
vised 3–95).
SEC. 2. NATURE OF CHANGES
.01The text and exhibits were up-
dated for tax year 1996.
.02Only 7 inch width Forms W–2
and W–3 are acceptable for SSA pro-
cessing. The exhibits for the printing
of 7
1
⁄2 and 8 inch width Forms W–2
and W–3 have been removed because
7.5 and 8 inch forms cannot be put
through SSA scanning equipment. Key-
ing from the paper documents will be
necessary for any 7.5 and 8 inch
forms submitted to SSA.
.03A barcode is now required for
copies B, C, and 2 of Forms W–2 (see
Part B, Section 2.02 below).
.04 Any questions pertaining to
Copy A of Form W–2 should be sub-
mitted to SSA. Questions regarding
Copies B, C, and 2, should be submit-
ted to IRS (see Part B, Section 3.01
below).
.05A change in the SSA address to
which Form W–2, Copy A, should be
submitted has been added. Also, a new
zip code has been added for those
employers submitting Form W–2, copy
A by certified mail. The use of a
different zip code will allow SSA to
better handle filings by certified mail
(see Part B,Section 1.10 below).
.06The words For Paperwork Re-
duction Act Notice, see separate in-
structions,’’ must be printed in red
OCR drop-out ink on Forms W–2,
Copy A.
.07The form number and title must
be printed in red OCR drop-out ink on

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Form W–2, Copy A, and Form W–3.
The tax year should remain printed in
black ink.
.08Military employers are now re-
quired to report basic quarters, subsis-
tence allowances, and combat pay pro-
vided to their employees in box 13 of
Form W–2 using code Q.
.09Information has been added rec-
ommending that if employment termi-
nated before December 31, 1996, that
the employee receive a copy of their
W–2 any time after employment ends.
Also, if the employee requests their
Form W–2 it should be given within 30
days of the request or the final wage
payment, whichever is later. If the
business closes, Copy ‘‘A’’ of the
Form W–2 may be filed with the Social
Security Administration as soon as they
are completed. It is not necessary to
wait until January 1 of the following
year (see Part A, section 3.06 below).
.10The Catalog Number, shown on
the 1996 Form W–2 as ‘‘Cat. No.
10134D’’, and the Catalog Number
shown on the 1996 Form W–3 as No.
10159Y, is used for IRS distribution
purposes and should not be printed on
substitute Forms W–3 or W–2 (Copy A
or employee copies).
.11Various editorial changes were
made.
SEC. 3. GENERAL RULES FOR
FILING FORMS W–2
.01Employers MUST use magnetic
media for filing with SSA if they
prepare and file 250 or more 1996
Forms W–2 (Copy A). This require-
ment applies unless:
1The employer can establish that
filing on magnetic media will result in
undue hardship, AND
2The employer is granted a waiver
of the requirement by IRS.
To request a waiver of the magnetic
media filing requirement, for the cur-
rent tax year only, submit Form 8508,
Request for Waiver From Filing Infor-
mation Returns on Magnetic Media, to:
If by Postal Service:
Internal Revenue Service
Martinsburg Computing Center
P.O. Box 1359
Martinsburg, WV 25401–1359
Or, if by truck or air freight:
IRS—Martinsburg Computing
Center
Magnetic Media Reporting
Route 9 and Needy Road
Martinsburg, WV 25401.
Forms may also be FAXED to the IRS/
MCC at (304) 264-5602.
Form 8508 may be obtained by
calling 1-800-829-3676. Form 8508
also may be obtained directly from the
IRS Martinsburg Computing Center
(IRS/MCC) at the above address or by
calling 304-263-8700 (not a toll-free
number). The number for Telecom-
munication Device for the Deaf (TDD)
is 304-267-3367 (not a toll-free num-
ber). It is recommended that completed
requests for waivers (Form 8508) be
submitted at least 45 days before but
no later than the due date of the return
(see Sec. 3.06, below). The requestor
will receive an approval or denial letter
from IRS, but must allow at least 30
days for IRS to respond. If you have
any questions concerning Form 8508,
contact IRS/MCC at the address or
phone number shown above. Employers
who do not comply with the magnetic
media filing requirements for Form W–
2 and who are not granted a waiver
may be subject to certain penalties.
Since many states and local govern-
ments accept Form W–2 data on
magnetic media, savings may be ob-
tained if magnetic media is used for
filing with both SSA and state or local
governments. In many instances, the
state or local government is willing to
accept the data format specifications set
out in SSA’s Technical Instruction
Bulletin No. 4, Magnetic Media Re-
porting. You must contact each individ-
ual state or local taxing agency to
receive approval and make arrange-
ments to file on magnetic media.
EMPLOYERS WHO FILE FORM
W–2 INFORMATION ON MAG-
NETIC MEDIA WITH SSA MUST
NOT SEND THE SAME DATA TO
SSA ON PAPER FORMS W–2. This
would result in duplicate reporting and
may subject the filer to penalties
imposed by the IRS.
.02TIB–4, Magnetic Media Re-
porting, Submitting Annual W–2 Copy
A Information to the Social Security
Administration, (SSA Pub. No. 42–007,
revised Oct., 1995) contains the specifi-
cations and procedures for filing Form
W–2 information on magnetic media
with SSA. Specifications for both tape
and diskette reporting for Forms W–2
are included in this Technical Instruc-
tions Bulletin (TIB–4).
.03TIB–4 may be obtained by writ-
ing to:
Social Security Administration
OCRO, DEA
Attn: Resubmittal Unit
300 North Greene Street
Baltimore, MD 21201.
Employers may call their local SSA
Magnetic Media Coordinator (MMC) to
obtain the TIB–4 (see list of Magnetic
Media Coordinators’ telephone num-
bers in the Appendix). The TIB–4 is
also on the SSA Annual Wage Report-
ing Bulletin Board System/AWRBBS.
The number for the AWRBBS is (410)
965–1133 (not a toll-free number).
Employers using magnetic media are
cautioned to obtain the most recent
revision of the TIB–4 and supplements
due to possible changes in the specifi-
cations and procedures.
.04Employers not using magnetic
media must file a paper Copy A of
Form W–2 with SSA on either the IRS
printed official form or a privately
printed substitute paper form that ex-
actly meets the specifications shown in
Parts B and C.
.05Employers can design their own
statements to give to employees. This
applies to both employers who file with
SSA either on magnetic media or paper
Forms W–2, Copy A. Employee state-
ments designed by employers must
comply with the requirements shown in
Parts B and C, below.
NOTE: Copy A must not be filed on
paper with SSA when the same Form
W–2 information is filed on magnetic
media. Therefore, magnetic media
filers who use the official IRS printed
form or any other pre-printed form are
advised not to print Copy A, or to
discard a printed Copy A, to prevent
duplicate information from being sub-
mitted to SSA.
.061996 Forms W–2, whether filed
on magnetic media or paper, must be
submitted to SSA on or before Febru-
ary 28, 1997. In addition, the employee
copies must be furnished to the
employee on or before January 31,
1997. If employment ended before
December 31, 1996, the employee may
be furnished their copy any time after
employment ends. However, If the
employee requests Form W–2, you
must furnish him or her the completed
copies within 30 days of the request or
the final wage payment, whichever is
later. This requirement is met if the
form is properly addressed, mailed, and
postmarked on or before the due date.
If the business closes, Copy A of the
Form W–2 may be filed with the Social
Security Administration as soon as they

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are completed. It is not necessary to
wait until after January 1st of the
following year to file them. Failure to
timely file with SSA or to timely
provide the employee copies may sub-
ject the employer to penalties.
Employers needing additional time to
file Form W–2 information (paper or
magnetic media) with SSA may request
an extension of time to file by submit-
ting Form 8809, Request for Extension
of Time to File Information Returns, to
the IRS/MCC at the address (or alter-
native address) listed in Sec. 3.01,
above. The extension request should be
filed as early as possible, but must be
postmarked no later than the due date
of the forms (February 28, 1997).
Forms may be FAXED to the IRS/
MCC at (304) 264-5602. DO NOT SEND
FORM 8809 TO SSA.
NOTE: APPROVAL OF THE EX-
TENSION IS NOT AUTOMATIC. Ap-
proval or denial is based on administra-
tive criteria and guidelines. The
requestor will receive an approval or
denial letter from IRS and must allow
at least 30 days for IRS to respond.
Form 8809 may be obtained by calling
1-800-829-3676, or by contacting IRS/
MCC (See the address and phone
number in Sec. 3.01, above).
.07If requesting extensions of time
for more than 10 employers, IRS
encourages filers to submit the request
on tape, tape cartridge, 5
1
⁄4 or 3
1
⁄2-inch
diskette, or electronically through the
Information Reporting Program Bul-
letin Board System (IRP–BBS). Trans-
mitters who submit requests for multi-
ple payers will receive one approval
letter with an attached list of payers
covered under that approval. Publica-
tion 1220, Specifications for Filing
Forms 1098, 1099 series, 5498 and W–
2G Electronically or on Magnetic
Media, provides information on how to
file requests for extensions of time on
tape, diskette, or electronically.
NOTE: Approval of extensions to file
(disclosure of return information) will
be made only to those third party filers
and/or transmitters for whom IRS has
received disclosure authorization.
SEC. 4. GENERAL RULES FOR FILING
FORM W–3
.01Employers submitting Forms W–
2 (Copy A) on paper to SSA must
transmit Forms W–2 with Form W–3.
.02Form W–3 must be the same
width (7 inches) as the Forms W–2
filed.
.03Form W–3 should only be used
to transmit paper Forms W–2 (Copy
A). Magnetic media filers do not file
Form W–3. Employers using magnetic
media must transmit Form W–2 data
with Form 6559, Transmitter Report
and Summary of Magnetic Media, (and
Form 6559–A, Continuation Sheet for
Form 6559, if necessary). These forms
may be obtained by calling either your
SSA MMC (see listing in Appendix) or
IRS at 1-800-829-3676.
PART B. REQUIREMENTS FOR FILING
PAPER SUBSTITUTES
SEC. 1. REQUIREMENTS FOR
SUBSTITUTE ‘‘PRIVATELY PRINTED’’
FORMS SUBMITTED TO SSA (FORMS
W–2, COPY A, AND FORMS W–3)
.01Employers may file privately
printed substitute Forms W–2 and W–3
with SSA. The substitute form must be
an exact replica of the IRS printed
form (or official reproduction proof)
with respect to layout and contents
because it will be read by machine.
The dimensions of a substitute form
may differ as far as width (see Sec.
1.05, below). The Government Printing
Office (GPO) symbol must be deleted
(see Sec. 1.16, below). The specifica-
tions and allowable tolerances for the
Copy A of substitute Forms W–2 are
provided later in this Revenue Proce-
dure. See Exhibit A for Form W–2
specifications. The specifications for
Forms W–3 are provided in Exhibit B.
.02Paper for substitute Forms W–2,
Copy A, and Form W–3 (cut sheets and
continuous pinfeed forms) that are to
be filed with SSA must be white 100%
bleached chemical wood, 18–20 pound
paper only, optical character recogni-
tion (OCR) bond produced in accord-
ance with the specifications shown as
follows:
Paper Requirements
1 Acidity: pH value,
average, not less than 4.5
2Basis Weight 17 3 22
500 cut sheets.......18–20
M e t r i c e q u i v a l e n t
grams per. sq. meter60–75
A tolerance of 65 pct.
shall be allowed.
3 S t i f f n e s s : A v e r a g e ,
each direction, not less
than Gurley milli-
grams—
Cross direction....50
Machine direction..80
4 T e a r i n g S t r e n g t h :
Average, each direc-
tion, not less than—
Grams..............40
5Opacity: Average, not
less than—Percent....82
6 Reflectivity: Average
not less than—percent 68
7Thickness:
Average............ inch 0.0038
Metric equivalent....mm 0.097
A t o l e r a n c e o f
60 . 0 0 0 5 i n c h
(0.0127mm) shall be
allowed.
Paper shall not vary
more than 0.0004 inch
(0.012mm) from one
edge to the other.
8Porosity: Average, not
less than—seconds...10
9Finish (smoothness):
Average, each side—
seconds.............20–55
( F o r i n f o r m a t i o n
only, the Sheffield
equivalent unit.......170–d100
10 Dirt: Average, each
side, not to exceed—
Parts per million.....8
NOTE: Reclaimed fiber in any per-
centage is permitted, provided the
requirements of this standard are met.
DO NOT USE RECYCLED PAPER.
.03 All printing for Copy A (of
Forms W–2) and Form W–3 will be in
red OCR dropout ink, as specified
below, except for the form identifying
numbers ’22222’ or ’33333’ at the top
of the form and the descriptive infor-
mation at the bottom (see Exhibits C
and D) that will be printed in non-
reflective black ink. All other printing
will be in red OCR dropout ink meet-
ing, or comparable to, the specifica-
tions in this paragraph. The OCR
dropout ink for paper Forms W–2,
Copy A, and W–3 is specified as Flint
Ink (formerly Sinclair and Valentine)
J-6983 red ink or equivalent. This is
the same ink that is used for Copy A of
the Form 1099 series. The use of this is
required for 1996 Forms W–3 and W–
2, Copy A.
NOTE: Printing in any other red OCR
dropout ink must be cleared by contact-

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ing Banc-Tech Corp., Attn: Forms
Designer & Analyst, P.O. Box 660204,
MS-77, Dallas, TX 75266 (214-579-
6927—This is a voice mail number.
Leave a message and your call will be
returned).
.04Type must be substantially iden-
tical in size and shape with correspond-
ing type on the official form. The form
identifying number MUST be printed in
black ink using an OCRA font; 10
characters per inch.
1On Form W–3 and Copy A of
Forms W–2, all the perimeter rules
must be 1-point (0.014 inch), while all
other rules must be one-half point
(0.007 inch).
2Vertical rules must be parallel to
the left edge of the form; horizontal
rules parallel to the top edge.
.05Two official Forms W–2 (Copy
A), or one official Form W–3 are
contained on a single page that is 7
inches wide (exclusive of any snap-
stubs) by 11 inches deep. The form
identifying number for the official
forms (7 inches wide) is ’22222’ (5
digits) for Form W–2 and ’33333’ (5
digits) for Form W–3. The top margin
for 1996 Forms W–3 and W–2, Copy
A is .375 inch (3/8 inch). The right
margin must be .15 inch and the left
margin .35 inch (plus or minus .0313
inch). The margins are unchanged from
1995. Margins must be free of all
printing. For Forms W–2, Copy A, the
combination width of Box 1, ‘‘Control
number’’, and the box containing the
form identifying number (22222) must
always be 2.0 inches. For Form W–3,
the combined width of these boxes
must always be 2.2 inches.
NOTE: All form identifying numbers
are to be printed in black ink, using
OCRA font, printed 10 characters per
inch.
.06The depth of the individual
image on a page must be the same as
that of the IRS printed forms. For Form
W–2, the depth is 5.5 inches (see
Exhibit A). The depths of the Form W–
3 on a page must be 4.4 inches (see
Exhibit B).
.07The words ‘‘Do NOT Cut or
Separate Forms on This Page’’ must
be printed in red OCR dropout ink
between the two Forms W–2 on Copy
A only (see Exhibit A). Perforations
are required on all copies (except Copy
A) to enable the separation of individ-
ual forms. Continuous pinfeed copy A
forms must be separated at the page
perforation into individual 11 ‘‘deep
pages before submission to SSA. The
pinfeed strips must also be removed.
However, the two W–2 documents
contained on the 11’’ deep page must
not be separated.
.08The words ‘‘For Paperwork Re-
duction Act Notice, see separate in-
structions’’, must be printed in red
OCR drop-out ink on Forms W–2,
Copy A (see Exhibit A for format and
location).
.09The Office of Management and
Budget (OMB) Number must be printed
on each ply of Form W–2 and W–3
(see Exhibits A and B for format and
location).
.10The statement ‘‘Please return
this entire page with the accompanying
Forms W–2 to the Social Security Ad-
ministration, Data Operations Center,
Wilkes-Barre, PA. 18769-0001. If you
use certified mail to file, change the
zip code to ‘‘18769-0002.’’ Household
employers filing Forms W–2 for house-
hold employees should send the forms
to the same address shown above.
.11The Paperwork Reduction Act
Notice must be printed on Form W–3
(see Exhibit B for format and location).
.12Privately printed continuous sub-
stitute Forms W–2, Copy A, must be
perforated at each 1188 page depth. No
perforations are allowed between the
individual forms (5
1
⁄2 inch Forms W–2)
on a single copy page of Copy A.
Continuous pinfeed Copy A forms must
be separated at the page perforation
prior to submitting them to SSA. Two
Copy A forms are contained on one
page. The two copies must remain
together on the page. Only the pages
are to be separated (burst). Perforations
are required between all the other
individual copies on a page (Copies 1,
B, C, 2, and D) included in the set.
.13The back of a substitute Form
W–2, Copy A, and Form W–3 (page 1)
must be free of all printing.
.14Spot carbons are NOT permitted
for Copy A of Forms W–2 or for Form
W–3. Interleaved carbon should be
black and must be of good quality to
assure legibility of information on all
copies and to preclude smudging.
.15Chemical transfer paper is per-
mitted for Form W–2, Copy A, and
Form W–3 only if the following
standards are met:
1Only chemically backed paper is
acceptable for Copy A.
2Carbon coated forms are not per-
mitted. Front and back chemically
treated paper cannot be processed
properly by machine.
3 Chemically transferred images
must be black in color.
.16The GPO symbol must not be
placed on substitute Copy A of Forms
W–2.
.17The Catalog Number, shown on
the 1996 Form W–2 as ‘‘Cat. No.
10134D’’, and the Catalog Number
shown on the 1996 Form W–3 as ‘‘Cat.
No. 10159Y’’, is used for IRS distribu-
tion purposes and should not be printed
on substitute forms.
SEC. 2. REQUIREMENTS FOR
SUBSTITUTE FORMS FURNISHED TO
EMPLOYEES (COPIES B, C, AND 2 OF
FORMS W–2)
.01All employers (including those
who file on magnetic media and do not
file a paper Copy A) must furnish
employees with at least two copies of
the Forms W–2 (three or more for
employees required to file a state, city,
or local income tax return). The dimen-
sions of these copies (Copies B, C,
etc.) but not copy A, may be expanded
from the dimensions of the official
form to allow space for conveying
additional information, such as addi-
tional entries required for Boxes 13 or
14, withholding from pay for health
insurance, union dues, bonds, charity,
etc. The requirement that a maximum
of three items are permitted in Box 13
of Form W–2 applies only to the paper
Copy A that is filed with SSA. As long
as sufficient space is provided on the
substitute employee copies, as many
items as needed may be placed in Box
13 or box 14. Also, on these copies
(Copies B, C, etc.), the size of these
boxes may be adjusted. (However, see
the minimum sizes for certain boxes,
below). This may permit the employer
to eliminate other statements or notices
that would otherwise be furnished to
employees.
1The MAXIMUM allowable dimen-
sions for employee copies of Forms
W–2 are:
(a)depth should be no more than 6.5
inches;
(b)width should be no more than
8.5 inches.
2The MINIMUM allowable dimen-
sions for employee copies of Forms
W–2 are:
(a)2.67 inches by 5.0 inches.
(b)horizontal or vertical format is
permitted.

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NOTE: These minimum and maximum
size specifications are for 1996 only
and may change for future years. The
maximum width of 8.5 inches is for
employee copies of Form W–2 only.
The width of the paper Copy A,
submitted to SSA, is specified in Part
B, section 1.05 above.
.02Beginning in 1996, a barcode is
required for copies B,C, and 2 of
Forms W–2. This barcode will be
electronically imaged on a Kodak I923
scanner and read by software devel-
oped for IRS by Loral Federal Systems.
This three digit barcode will identify
the form as a 1996 Form W–2. The 5
WA designation is to be shown at the
bottom from the left to the center of
the form in a 3 of 9 format printed in
black ink with a density of 3.9
characters per inch and .4 inch high.
Allow at least .125 inch unprinted area
on all four sides of the barcode. IRS
expects a variation in width of the
barcode depending upon the type of
output device being used. However, we
expect the quality of the output device
to produce legible print for both the
barcode and the information entered on
the forms (see Exhibit E).
.03The paper for all copies should
be white. The substitute Copy B (or its
equal), that employees are instructed to
attach to their Federal income tax
return, must be at least 12 pound paper
(basis 17 3 22–500), while the other
copies furnished the employee should
be at least 9-pound paper (basis 17 3
22–500).
.04Interleaved carbon and chemical
transfer paper for employee copies
must meet the following standards:
1All copies must be CLEARLY
LEGIBLE;
2All copies must have the ca-
pability to be photocopied; and
3Fading must not be of such a
degree as to preclude legibility and the
ability to photocopy.
In general, black chemical transfer
inks are preferred; other colors are
permitted only if the above standards
are met. ‘‘Spot carbons’’ are NOT
permitted (See Part B Sec. 1.15, above,
for standards for chemical transfer
paper for Copy A.)
.05 The following requirements
govern the private printing of employee
copies of Forms W–2. All substitutes
must be a form, which contains boxes,
box numbers, and box titles that, where
applicable, match the IRS printed form.
The placement, numbering, and size of
certain boxes (the ‘‘core’’ information)
is specified as follows:
1The items and box numbers that
constitute the core data are:
B o x 1 — W a g e s , t i p s , o t h e r
compensation,
Box 2—Federal income tax withheld,
Box 3—Social Security Wages/
Railroad Retirement Com-
pensation,
Box 4—Social Security tax withheld/
Railroad Retirement Tax
Withheld,
Box 5—Medicare wages and tips/
Railroad Retirement Tips,
and
Box 6—Medicare tax withheld/
Railroad Retirement Tax
Withheld.
NOTE: Railroad employees may not be
subject to Social Security coverage but
are subject to Railroad Retirement Tax
Tier I and II coverage. Railroad Com-
pensation employers may make the
above modifications to Forms W–2 but
only for substitute Forms W–2 fur-
nished to employees and not for any
Copy A forms to be filed with SSA.
The ‘‘core’’ boxes must be printed in
the exact order on each line as on the
IRS printed form (see the Exhibits at
the end of this revenue procedure).
Boxes 1 and 2 must be next to each
other, with Boxes 3 and 4 below on the
next line, and Boxes 5 and 6 on the
line below Boxes 3 and 4.
2The block of core data (Boxes 1
through 6) must be placed in the upper
right of the form. Substitute employee
copies of Form W–2, which are printed
using a vertical format with dimensions
smaller than the IRS printed form, may
have the core data entirely on the top
of the form (see Exhibit F). In no
instance will boxes or other informa-
tion be permitted to the right of the
core data. Standard margins or a small
amount of other blank space may ap-
pear to the top or right of this data.
The form title, number, or copy (Copy
B, C, etc.) may be at the top of the
form. Also, a reversed or blocked-out
area to accommodate a postal permit
number or other postal considerations
is permitted at the upper right of the
form.
3Boxes 1 through 6 must each be a
minimum of 1
3
⁄8 inches wide and
1
⁄4
inch deep.
4Other required boxes:
—Employer identification number
(EIN),
—Employer’s name, address, and
ZIP code,
—Employee’s Social Security num-
ber, and
—Employee’s name, address, and
ZIP code.
These items are required to be present
on the form and must be in boxes
similar to those on the IRS printed
form. However, they may be placed in
any location, other than the top or
upper right. The lettering system used
on the IRS printed form (‘‘a’’ through
‘‘f’’) need not be used. The employer’s
EIN may be included in the box for the
employer’s name and address. If this is
done, a separate box for the EIN is not
required. The Control number box (Box
‘‘a’’ on the IRS printed form) is not
required.
5The Tax Year (1996) MUST be
clearly printed on all copies of sub-
stitute Forms W–2. It is recommended
(but not required) that this information
be located to the right of the form title
on the lower left of the Form W–2.
6If applicable, Social Security tips
MUST be shown separately from Social
Security wages. A separate box is not
required unless Social Security tips are
to be reported.
Boxes 1 and 2 on Copy B are re-
quired to be outlined in bold 2-point
rule (see Exhibit E) or highlighted in
some manner to distinguish these
boxes.
7If a box for Advance EIC (Earned
Income Credit) payments (Box 9) is
present, the box must be outlined in
bold 2-point rule or highlighted in
some manner to distinguish this box.
However, if no amounts are paid for
Advance EIC, this box is not required
and may be omitted by printers. Do not
use Box 9 for any other purpose than
reporting Advance EIC payments.
8If Allocated tips (Box 8) are being
reported for the individual employee
(or class of employees that are being
provided Forms W–2), it is recom-
mended (but not required) that this box
also be outlined in bold 2-point rule or
highlighted on Copy B. However, if
allocated tips are not being reported,
this box may be omitted by printers.
9If Form W–2 contains additional
data concerning payroll deductions
(e.g., saving bonds withholding, retire-
ment withholding, or payroll savings),
there should be a special highlighting
of the areas pertaining to Federal
income tax withheld; wages, tips, and

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other compensation; or Advance EIC
(Earned Income Credit) payments that
are related to those items.
10Employers who are required to
report or withhold state income tax
information are required to include the
following boxes on substitute Forms
W–2:
Box 16—State and Employer’s state
i d e n t i f i c a t i o n ( I . D . )
number,
Box 17—State wages, tips, etc., and
Box 18—State income tax withheld.
11Employers who are required to
report or withhold local income tax
information are required to include the
following boxes on substitute Forms
W–2:
Box 19—Locality name
Box 20—Local wages, tips, etc., and
Box 21—Local income tax.
12If state or local tax information is
required, this information is also con-
sidered ‘‘core data.’’ The state and
local information MUST be placed at
the bottom of the form. See the
exhibits at the end of this revenue
procedure.
13Other boxes on the IRS printed
form (Boxes 7 through 15) need not
appear on substitute Forms W–2
provided to employees unless an
employer has that item of information
to report to an employee. For example,
if an employee did not have Social
Security tips (Box 7), Allocated tips
(Box 8), or Advance EIC payments
(Box 9), the form could be printed
without these boxes. However, if the
employer had provided amounts for
dependent care benefits, those amounts
would be required to be reported
separately and shown in a box labeled
‘‘Box 10, Dependent care benefits,’’ as
on the IRS printed form and the
exhibits in this revenue procedure.
14Employers may use other head-
ings for Boxes 13 and 14 as needed.
For example, if an employer will only
be reporting amounts for a 401(k) type
retirement plan in Box 13, the
employee copies of Form W–2 may be
printed labeling Box 13 as ‘‘401(k)
Plan.’’ Also, if an employer had two
items that may be reported in Box 13,
they may divide the box into ‘‘Box
13a’’ and ‘‘Box 13b,’’ labeling the
boxes as appropriate. This applies only
to Boxes 13 and 14.
NOTE: If you are a military employer
and provide your employee with basic
quarters, subsistence allowances, and
combat pay, report the amount in box
13 using code Q.
.06Substitute forms for employees
(Copies B, C, and 2 of Forms W–2)
must meet the following requirements:
1All copies of Forms W–2 must
clearly show the form number, the
form title, and the tax year. The title of
Form W–2 is ‘‘Wage and Tax State-
ment.’’ It is recommended (but not
required) that this be located on the
bottom left of Form W–2. The refer-
ence to the Department of the
Treasury—Internal Revenue Service
must be on all copies of Form W–2
provided to the employee. It is recom-
mended (but not required) that this be
located on the bottom right of Form
W–2.
2If the substitute forms are not
labeled as to the disposition of the
copies, then written notification must
be provided to each employee as
specified below:
(a)The first copy of the form (Copy
B) is filed with the employee’s Federal
tax return.
(b)The second copy of the form
(Copy C) is for the employee’s records.
(c)If applicable, the third copy
(Copy 2) of the form is filed with the
employee’s state, city, or local income
tax return.
3If the substitute forms are labeled,
the forms must contain the applicable
description:
‘‘Copy B, to be filed with em-
ployee’s Federal tax return,’’ and
‘‘Copy C, for employee’s records,’’ it
is recommended (but not required) that
this be located on the lower left of
Form W–2. The designation ‘‘Form
W–2, it is recommended (but not
required) that this be located on the
lower left of Form W–2 and Depart-
ment of the Treasury—Internal Reve-
nue Service.’’ It is recommended (but
not required) that this be located on the
lower right of Form W–2.
4Instructions similar to those con-
tained on the back of Copy C of the
official form MUST be provided to
each employee. While employers may
modify or delete certain information in
these instructions, (such as modifica-
tion for employees of railroad to cover
Railroad Retirement Tier I and II
Compensation and Taxes) the instruc-
tions MUST include the exact language
concerning the Earned Income Credit
(EIC) as is contained on the official
form. Employers are allowed to delete
information in these instructions (ex-
cept the EIC explanation) that do not
apply to the employee. For example, if
none of the employees have dependent
care benefits (Box 10), the employer
may delete the instructions for that
item. Also, if an employer will only be
reporting amounts for a 401(k) plan in
Box 13, those instructions may be
modified to cover only Section 401(k)
contributions.
NOTE: Printers are cautioned that
the rules set forth here (Part B. Sec. 2)
apply to employee copies (Copies B, C,
etc.) only. Paper filers who send Copy
A of Form W–2 to SSA must follow
the requirements in Part B. Sec. 3,
below for those paper submissions.
SEC. 3. GENERAL RULES FOR FILING
‘‘PAPER SUBSTITUTES’’ FOR FORMS
W–2 AND W–3
.01Paper substitutes that conform
totally to the specifications contained in
this revenue procedure may be pri-
vately printed without the prior ap-
proval of the IRS. Penalties may be
assessed for not complying with the
form specifications set forth in this
publication. SUBSTITUTE FORMS
THAT DO NOT CONFORM TO-
TALLY TO THESE SPECIFICA-
TIONS ARE NOT ACCEPTABLE.
This applies to both paper substitutes
that are filed with SSA and those that
are given to employees. Substitute
Copy A of Form W–2 and Form W–3
may be submitted to IRS and SSA for
review. Forms should
not be submitted
to IRS or SSA for specific approval.
However, if you are uncertain of any
specification set forth herein and want
that specification clarified, you may
submit a letter citing the specification
in question, your interpretation of that
specification, and an example of how
the form would appear if produced
using your understanding of the specifi-
cation. Any questions pertaining to
Copies B, C, and 2 of Forms W–2
should be sent to:
Internal Revenue Service
ATTN: Substitute Form W–2
Coordinator
CP:CO:SC: A Room 7238
1111 Constitution Avenue, N.W.
Washington, DC 20224
Any questions pertaining to Copy A,
Form W–2, and Form W–3 should be
forwarded to:
Social Security Administration
Data Operations Center

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1150 E. Mountain Drive
Wilkes-Barre, PA 18702-7997
Attn: Phylis Passetti
NOTE: You should allow at least 30
days for the IRS and SSA to respond.
.02Forms W–2 and W–3 are subject
to annual review and possible change.
Employers are cautioned against over-
stocking supplies of privately printed
substitutes.
.03Copies of the current year, IRS
printed Forms W–2 and W–3 and the
instructions for these forms may be
obtained from most IRS offices or by
calling 1-800-829-3676. The IRS
provides only cut sheet sets. Reproduc-
tion proofs of the official Forms W–2
and W–3 are also available. See Part C,
Sec. 4, below, for information on
ordering reproduction proofs.
.04Substitute Forms W–2 and W–3
transmitted to SSA should generally
contain only data that is required by
the Form W–2, the Form W–2 instruc-
tions, and this Revenue Procedure.
.05Substitute Forms W–2, Copy A,
and W–3 are machine imaged and
scanned by Social Security, therefore
these forms must meet the same
specifications as Forms W–2 and W–3
produced by IRS. The vertical and
horizontal spacing for all Federal pay-
ment and data boxes on Form W–2
must be in compliance with the specifi-
cations contained herein.
.06All ballot boxes on Forms W–2,
Copy A (Box 15), and W–3 (Box ‘‘b’’)
must be 8-point boxes.
NOTE: If a box is marked, more than
50% of the applicable ballot box must
be covered by an ‘‘X’’.
.07Copy A of Form W–2 and Form
W–3 must have the form producer’s
EIN entered to the left of ‘‘Department
of Treasury’’.
PART C. ADDITIONAL INSTRUCTIONS
SEC. 1. INSTRUCTIONS FOR FORMS
PRINTERS
.01Except as provided below, if
magnetic media is not used for filing
with SSA, the substitute copies of
Forms W–2 assembly should be ar-
ranged in the same order as the IRS
printed Forms W–2. Copy A should be
first, followed sequentially by perfo-
rated sets (Copies 1, B, C, 2, and D).
The substitute form to be filed by the
employer with SSA must carry the
designation ‘‘Copy A.’’
NOTE: Magnetic media filers do not
submit Copy A of Form W–2 or Form
W–3. Form 6559 is the transmittal for
magnetic media filed Form W–2 data.
1It is not a requirement that pri-
vately printed substitute forms contain
a copy to be retained by employers
(Copy D). However, employers must be
prepared to verify or duplicate this
information if it is requested by the
IRS or SSA. Paper filers that do not
keep Copy D should be able to
generate a facsimile of Copy A in case
of loss.
2Except as provided in the arrange-
ment of the official assemblies, addi-
tional copies that may be prepared by
employers shall not be placed ahead of
the copy ‘‘For EMPLOYEE’S REC-
ORDS,’’ Form W–2 (Copy C).
3Instructions similar to those con-
tained on the back of Copy C of the
official form MUST be provided to
each employee. These instructions may
be printed on the back of the substitute
Copy C or may be provided to em-
ployees on a separate statement. Do not
print these instructions on the back of
Copy B (filed with the employee’s
Federal income tax return) or the copy
that is to be filed with the employee’s
state or local returns.
.02All privately printed Forms W–2
(Copy A) must have the tax year, form
number, and form title printed on the
bottom face of each form using identi-
cal type to that of the official format.
Only the form number and title must be
printed in red OCR drop-out ink. The
tax year should remain printed in
black ink. This requirement also ap-
plies to Form W–3.
.03The substitute Form W–2, Copy
B, which employees attach to their
Federal income tax return, must be at
least 12-pound paper (basis 17 3 22–
500) while the other copies furnished
to employee’s should be at least
9-pound paper (basis 17 3 22–500).
.04Employee copies of Forms W–2
(Copies B, C, etc.), including those that
are printed on a single sheet of paper,
MUST be produced so as to be easily
separated by the employee. Perforations
between the individual copies that are
printed on a single sheet of paper
satisfy this requirement.
.05The Form W–2, Copy A, and the
OCR bond Form W–3 that are filed
with SSA must have no printing on the
reverse side.
.06 Instructions similar to those
provided as part of the official form
must be provided as part of any sub-
stitute Form W–3.
.07All privately printed Forms W–3
must have the tax year, form number,
and form title printed on the bottom
face of each substitute Form W–3,
using identical type to that of the
official format.
.08The copy of the substitute Form
W–3 that contains the instructions and
is to be retained by the employer
should be at least 18-pound paper
(basis 17 3 22–500).
SEC. 2. INSTRUCTIONS FOR
EMPLOYERS
.01Only originals or ribbon copies
of Copy A (Forms W–2) and Form
W–3 may be filed with SSA. Carbon
copies and photocopies are not
acceptable.
.02Employers should type or ma-
chine print entries on forms whenever
possible and provide good quality data
entries by using a high quality type
face, inserting data in the middle of
blocks that are well separated from
other printing and guidelines, and
taking any other measures that will
guarantee clear, sharp images. The
employer must provide a machine
scannable form for Copy A. The
employer must also provide payee
copies (Copies B, C, and 2) that are
legible and capable of being pho-
tocopied (by the employee).
.03 The Employer Identification
Number (EIN) may be entered in the
Employer’s name and address box on
Copy A of Forms W–2 (Box ‘‘c’’ on
the IRS printed Form W–2). If this is
done, the EIN need not be entered in
the box provided for the EIN (Box
‘‘b’’ on the IRS printed Form W–2).
The EIN must be entered in Box ‘‘e’’
of the Form W–3.
.04The employer’s name, address,
and EIN may be preprinted.
.05The optional employer’s state
number may be pre-printed in the
employer’s name, address, and ZIP
code box. If this is done, the
Employer’s state I.D. Number section
in Box 16 of Forms W–2 need not be
completed, as long as the applicable
state taxing authority does not object.
Please check with the appropriate
state taxing authority before doing
this.
.06Generally, an agent that has an
approved Form(s) 2678, Employer Ap-

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pointment of Agent, should enter its
name as the employer in box c of Form
W–2, and file one Form W–2. How-
ever, if the agent is acting as an agent
for two or more employers, or is an
employer and is acting as an agent for
another employer, and pays social
security wages in excess of the wage
base to an individual, special reporting
for payments to that individual is
needed. The agent should file separate
Forms W–2 reflecting the wages paid
by each employer. Box c of Form W–2
should include name of agent, agent for
(name of employer), and address of
agent. Each Form W–2 should reflect
the EIN of the agent in box b. In
addition the employer’s EIN should be
shown in box h of Form W–3.
.07The preparation and filing in-
structions for Forms W–2 are contained
in the 1996 Instructions for Form W–2.
The preparation and filing instructions
for Form W–3 are contained as part of
the 1996 Form W–3 snap set assembly.
.08To avoid confusion and ques-
tions by employees, employers are
encouraged to delete the following
items from the employee copies of
Forms W–2 that are provided to
employees:
1Form identifying number (e.g.,
22222);
2The words ‘‘subtotal’’ and ‘‘void’’
and their boxes;
3Any other captions or box number
that would not be of any informational
use to employees (unless otherwise
required).
.09Employers should use the IRS
supplied label when filing form W–3
with SSA. The label should be placed
inside the brackets printed in boxes
‘‘e’’ and ‘‘f’’.
SEC. 3. OFFICE OF MANAGEMENT
AND BUDGET (OMB)
REQUIREMENTS FOR SUBSTITUTE
FORMS
.01The Paperwork Reduction Act
requires: (1) OMB approval of IRS tax
forms, (2) that each form (all copies)
show the OMB approval number and,
when appropriate, the form’s expiration
date, and (3) that the form (or its
instructions) state why IRS is collecting
the information, how we will use it and
whether it must be given to us. The
official IRS form (or instructions) will
contain this information.
.02As it applies to substitute IRS
forms, this means:
1.All substitute forms (all copies)
must show the OMB number as it
appears on the official IRS printed
form (see Exhibits A and B).
2.The OMB number must be in one
of the following formats:
OMB No. 1545–0008 (preferred),
or
OMB # 1545–0008
3.You must inform the users of
your substitute forms of the reasons for
IRS collection, use, and requirements,
as stated in the instructions for the
official IRS form.
Sec. 4. REPRODUCTION PROOFS
.01The catalog for ordering repro-
duction proofs (repro-proofs) is mailed
annually to requestors of record, and on
request to other users. Tax Practi-
tioners, tax form printers, and others
wishing to obtain reproduction proofs
should call the toll-free number for
ordering IRS forms and publications
(1-800-829-3676) and ask for Publica-
tion 1192 (Catalog No. 60045P), Cata-
log of Reproducible Forms, Instruc-
tions and Publications, which includes
the order blank (Form 6747) for
obtaining reproduction proofs. Written
requests for Publication 1192 may be
sent to:
Internal Revenue Service
Eastern Area Distribution Center
ATTN: Repro Coordinator
4300 Carolina Ave.
Richmond, VA 23222
.02Publication 1192 contains item
number, title, and the individual costs
for each reproduction proof. Payment
must be submitted with Form 6747
when requesting reproduction proofs.
.03List of Social Security Admin-
istrations Magnetic Media Coordinators
is included in the Appendix.
Sec. 5 EFFECT ON OTHER
REVENUE PROCEDURES
.01Rev. Proc. 95–20, 1995–1 C.B.
668 (Reprinted as Publication 1141,
Revised 3–95), is superseded.

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APPENDIX

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EXHIBIT A

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EXHIBIT B

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EXHIBIT C

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EXHIBIT D

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EXHIBIT E

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EXHIBIT F

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431996 –23 I.R.B.
Part IV. Items of General Interest
Foundations Status of Certain
Organizations
Announcement 96–6
The following organizations have
failed to establish or have been unable
to maintain their status as public
charities or as operating foundations.
Accordingly, grantors and contributors
may not, after this date, rely on
previous rulings or designations in the
Cumulative List of Organizations (Pub-
lication 78), or on the presumption
arising from the filing of notices under
section 508(b) of the Code. This listing
does not indicate that the organizations
have lost their status as organizations
described in section 501(c)(3), eligible
to receive deductible contributions.
Former Public Charities. The fol-
lowing organizations (which have been
treated as organizations that are not
private foundations described in section
509(a) of the Code) are now classified
as private foundations:
Accent on Education, Mattoon, IL
Brass Ring Society of Oklahoma,
Inc., Tulsa, OK
Care Center of Kansas City, Kansas
City, KS
Cassandra Manning Ballet Theatre
Inc., Davenport, IA
Chicago Conservatory Society,
Chicago, IL
Chicago Dodgers Youth Organization,
Chicago, IL
Community Parents Reinvestment,
Inc., Tampa, FL
Community Service Foundation of
Bay County, Inc., Panama City, FL
Coraopolis Economic Revitalization
Corporation, Caraopolis, PA
Davies Manor Association, Memphis,
TN
Douglas Visions Committee, Inc.,
Plano, TX
Familyland Foundation, Inc., Ft.
Myers, FL
Fans Field Neighborhood
Development Corporation, Decator,
IL
First Ozark Housing Development
Corporation, Mountain Home, AR
Firstnight Inc., Villa Park, IL
First Liberty Institute Inc., Fairfax,
VA
Forrestville Valley School Foundation,
Forreston, IL
Fortress International Inc., Springfield,
IL
Friends of the Friendless, Inc.,
Bronx, NY
Gold Cross Foundation, Washington,
DC
Grace Lutheran Church Foundation of
Grand Island Nebraska Inc., Grand
Island, NE
Grace West Early Childhood Learning
& Development Ctr Program Inc.,
Newark, NJ
Grand by Standers, Kansas City, KS
Grand Ma’s Hands, Charlotte, NC
Growing Wild Over Arizona, Inc.,
Phoenix, AZ
Haddock Corporation, Morrisville, NC
Hand Up Society, Omah, NE
Haserv Inc., Elizabeth, NJ
Hawthorne Artistic Dance Company
Inc., Jefferson City, MO
Heart to Heart Inc., Marshall, MN
Hearts in Harmony, Inc., San
Antonio, TX
H E C A P, Inc., Decatur, GA
H I S Ministries Inc., Orange, TX
Hudson County Push Foundation Inc.,
Jersey City, NJ
Indian Business, Inc., Crandon, WI
Johnny Johnson Ministries, Inc.,
Louisville, KY
Junior Achievement, Eastern Shore
Inc., Salisbury, MD
Junior Golf Center of St. Louis,
Clayton, MO
Kankakee Eastside Jr. Football
League, Kankakee, IL
Kurtz Cultural Center Incorporated,
Winchester, VA
L B G I Educational Services,
Chicago, IL
Leland and Lucille Strahl Educational
Trust, Ashton, SD
Literacy Council of Mercer County,
Sharon, PA
Love Letters Inc., Chicago, IL
Luverne Hockey Club, Luverne, MN
Magda Inc., Baltimore, MD
Main Street Keokuk Inc., Keokuk, IA
Main Street La Grange, La Grange,
IL
Mark R. Pryor Foundation, Winona,
MN
McDowell County Museum
Commission, Inc., Kimball, WV
Mid-Atlantic Association of Ministries
with Older Adults, Richmond, VA
Mildred Ford Maternity Home,
Midland, TX
Missouris Young Woman of the
Year, Hazel Wood, MO
Monelison Youth Football
Association, Madison Heights, VA
Moss and Barnett Foundation,
Minneapolis, MN
Mystery Entertainment Inc., Wheaton,
MD
National Association of Professional
Baseball League Sports
Administration Grant Program, St.
Petersburg, FL
National Drive to Cure Paralysis Inc.,
Baltimore, MD
National Housing Preservation
Corporation, Nashville, TN
National Wellness Coalition,
Washington, DC
Newark Educational Council Inc.,
Newark, NJ
Newton Greenway Coalition,
Huntingdon Valley, PA
Nurses for Human Development
Education, Inc., Jonesboro, AR
Offspring Organization Inc.,
Plainfield, NJ
Omega Infinity Enterprises Inc.,
Baltimore, MD
Oromo Support Committee Inc.,
Minneapolis, MN
Project Now Housing Foundation,
Rock Island, IL
Ralph and Della Haskett Memorial,
Jasper, AL
Ray and Rosette Doerhoff Scholarship
Trust, Jefferson City, MO
Recovery Housing, Inc., Knoxville,
TN
Recycling Coalition of South Dakota
Inc., Sioux Falls, SD
Red Feathers Inc., Pierre, SD
Round Lake Organization of People
Support, Round Lake, IL
Russell Horton Memorial Scholarship
Fund, Inc., Naperville, IL
Saint Peters Church Preservation
Committee, Dixon, IL
Santa Fe Jazz Foundation, Inc., Santa
Fe, NM
Scott Terry and Brian Sample
Scholarship Fund, Coweto, OK

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441996 –23 I.R.B.
Senior Care Corp., Staten Island, NY
Southeast Milwaukee Area Crime
Stoppers Inc., Oak Creek, WI
Sowing Precious Seed, Kearney, MO
St. Paul-Minneapolis Adult
Rehabilitation Therapy,
Minneapolis, MN
Sumneytown Yoga Fellowship,
Sumneytown, PA
Support Ministries, Inc., Decatur, AL
The Friends of the Birmingham
Museum of Art, Birmingham, AL
The Orange Bowl Committee, Miami,
FL
The Tax Information Forum Inc.,
Chicago, IL
Thema Literary Society, Metairie, LA
Toddlers Learning Center, Plainfield,
NJ
Toledo O E S Foundation, Toledo, IA
Trasitional Services Inc., Towson,
MD
Victory Jubilee Choral Arts
Foundation, Washington, DC
W A C D L Foundation Inc.,
Milwaukee, WI
Wesser Institute of Ecology Ltd.,
Almond, NC
West Ellis Education Foundation
Corp., West Ellis, WI
Wyoming Valley Aids Council,
Wilkes-Barre, PA
Yes That’s A F A C T, Richmond,
VA
Youth Education Strategies, Inc.,
Columbus, GA
Youth Media Corporation, Kansas
City, MO
If an organization listed above sub-
mits information that warrants the
renewal of its classification as a public
charity or as a private operating foun-
dation, the Internal Revenue Service
will issue a ruling or determination
letter with the revised classification as
to foundation status. Grantors and
contributors may thereafter rely upon
such ruling or determination letter as
provided in section 1.509(a)–7 of the
Income Tax Regulations. It is not the
practice of the Service to announce
such revised classification of founda-
tion status in the Internal Revenue
Bulletin.
Deletions from Cumulative List of
Organizations Contributions to Which
Are Deductible Under Section 170 of
the Code
Announcement 96–7
The names of organizations that no
longer qualify as organizations de-
scribed in section 170(c)(2) of the
Internal Revenue Code of 1986 are
listed below.
Generally, the Service will not dis-
allow deductions for contributions
made to a listed organization on or
before the date of announcement in the
Internal Revenue Bulletin that an orga-
nization no longer qualifies. However,
the Service is not precluded from
disallowing a deduction for any contri-
butions made after an organization
ceases to qualify under section
170(c)(2) if the organization has not
timely filed a suit for declaratory
judgment under section 7428 and if the
contributor (1) had knowledge of the
revocation of the ruling or determina-
tion letter, (2) was aware that such
revocation was imminent, or (3) was in
part responsible for or was aware of
the activities or omissions of the
organization that brought about this
revocation.
If on the other hand a suit for
declaratory judgment has been timely
filed, contributions from individuals
and organizations described in section
170(c)(2) that are otherwise allowable
will continue to be deductible. Protec-
tion under section 7428(c) would begin
on 1996, and would end on the date the
court first determines that the organiza-
tion is not described in section
170(c)(2) as more particularly set forth
in section 7428(c)(1). For individual
contributors, the maximum deduction
protected is $1,000, with a husband and
wife treated as one contributor. This
benefit is not extended to any individ-
ual who was responsible, in whole or
in part, for the acts or omissions of the
organization that were the basis for
revocation.
The Children, Inc.
San Francisco, CA
Detroit Center for the Performing Arts
Grosse Point, MI
Foundation of Bowling Proprietors
Association of Wisconsin, Inc.
Pewaukee, WI
Imani Corporation
Milwaukee, WI
Section 7428(c) Validation of Certain
Contributions Made During Pendency
of Declaratory Judgment Proceedings
This announcement serves notice to
potential donors that the organization
listed below has recently filed a timely
declaratory judgment suit under section
7428 of the Code, challenging revoca-
tion of its status as an eligible donee
under section 170(c)(2).
Protection under section 7428(c) of
the Code begins on the date that the
notice of revocation is published in the
Internal Revenue Bulletin and ends on
the date on which a court first deter-
mines that an organization is not
described in section 170(c)(2), as more
particularly set forth in section
7428(c)(1). In the case of individual
contributors, the maximum amount of
contributions protected during this
period is limited to $1,000.00, with a
husband and wife being treated as one
contributor. This protection is not
extended to any individual who was
responsible, in whole or in part, for the
acts or omissions of the organization
that were the basis for the revocation.
This protection also applies (but with-
out limitation as to amount) to organi-
zations described in section 170(c)(2)
which are exempt from tax under
section 501(a). If the organization
ultimately prevails in its declaratory
judgment suit, deductibility of contribu-
tions would be subject to the normal
limitations set forth under section 170.
Shirley Caesar Outreach Ministries,
Inc.
Durham, NC
Eastern Orthodox Christian Church in
America
New Albany, OH
Saint Ignatius Orthodox Church
Albany, OH
Saint Nicholas Orthodox Church
Albany, OH

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

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Numerical Finding List
1
Bulletins 1996–1 through 1996–4
Announcements:
96–1, 1996–2 I.R.B. 57
96–2, 1996–2 I.R.B. 57
96–3, 1996–2 I.R.B. 57
96–4, 1996–3 I.R.B. 50
96–5, 1996–4 I.R.B. 99
Notices:
96–2, 1996–2 I.R.B. 15
96–1, 1996–3 I.R.B. 30
96–4, 1996–4 I.R.B. 69
Proposed Regulations:
EE–34–95, 1996–3 I.R.B. 49
IA–33–95, 1996–4 I.R.B. 99
Revenue Procedures:
96–1, 1996–1 I.R.B. 8
96–2, 1996–1 I.R.B. 60
96–3, 1996–1 I.R.B. 82
96–4, 1996–1 I.R.B. 94
96–5, 1996–1 I.R.B. 129
96–6, 1996–1 I.R.B. 151
96–7, 1996–1 I.R.B. 185
96–8, 1996–1 I.R.B. 187
96–9, 1996–2 I.R.B. 15
96–10, 1996–2 I.R.B. 17
96–11, 1996–2 I.R.B. 18
96–12, 1996–3 I.R.B. 30
96–13, 1996–3 I.R.B. 31
96–14, 1996–3 I.R.B. 41
96–15, 1996–3 I.R.B. 41
96–16, 1996–3 I.R.B. 45
96–17, 1996–4 I.R.B. 69
96–18, 1996–4 I.R.B. 73
96–19, 1996–4 I.R.B. 80
96–20, 1996–4 I.R.B. 88
96–21, 1996–4 I.R.B. 96
Revenue Rulings:
96–1, 1996–1 I.R.B. 7
96–2, 1996–2 I.R.B. 5
96–3, 1996–2 I.R.B. 14
96–6, 1996–2 I.R.B. 8
96–4, 1996–3 I.R.B. 16
96–5, 1996–3 I.R.B. 29
96–7, 1996–3 I.R.B. 12
96–8, 1996–4 I.R.B. 62
96–9, 1996–4 I.R.B. 5
96–10, 1996–4 I.R.B. 27
96–11, 1996–4 I.R.B. 28
1
A cumulative list of all Revenue Rulings,
Revenue Procedures, Treasury Decisions, etc.,
published in Internal Revenue Bulletins 1995–27
through 1995–52 will be found in Internal
Revenue Bulletin 1996–1, dated January 2, 1996.
Treasury Decisions:
8630, 1996–3 I.R.B. 19
8631, 1996–3 I.R.B. 7
8632, 1996–4 I.R.B. 6
8633, 1996–4 I.R.B. 20
8634, 1996–3 I.R.B. 17
8635, 1996–3 I.R.B. 5
8636, 1996–4 I.R.B. 64
8637, 1996–4 I.R.B. 29
8640, 1996–2 I.R.B. 10

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

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NOTES

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NOTES

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NOTES