Internal Revenue Bulletin 2000-42 (PDF rendition): IRS Revenue Rulings

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

INCOME TAX
Rev. Rul. 2000–48, page 349.
Low-income housing credit; satisfactory bond; “bond
factor” amounts for the period July through
September 2000. This ruling announces the monthly bond
factor amounts to be used by taxpayers who dispose of qual-
ified low-income buildings or interests therein during the peri-
od July through September 2000.
T.D. 8903, page 352.
Final regulations under section 1397E of the Code provide
guidance to state and local governments that issue qualified
zone academy bonds and to banks, insurance companies,
and other taxpayers that hold those bonds.
T.D. 8904, page 350.
Final regulations under sections 351, 354, 355, 356, and
1036 of the Code relate to the effective date of the defini-
tion of nonqualified preferred stock and the treatment of
nonqualified preferred stock and similar preferred stock re-
ceived by shareholders in certain reorganizations and distrib-
utions.
REG–103805–99, page 376.
Proposed regulations under section 1502 of the Code relate
to the common parent of a consolidated group as agent for
the members of the group. A public hearing is scheduled for
January 22, 2001.
Announcement 2000–82, page 385.
The IRS released new Form 8870, Information Return for
Transfers Associated With Certain Personal Benefit
Contracts. For taxable years beginning prior to January 1,
2000, organizations that pay premiums on “personal benefit
contracts,” as that term is used in section 170(f)(10) of the
Code, must file Form 8870 by the later of 90 days after this
announcement or the date the organization is required to file
its annual return. See also Notice 2000–24, 2000–17 I.R.B.
952.
EMPLOYEE PLANS
Rev. Proc. 2000–40, page 357.
Minimum funding standards; automatic change in fund-
ing method.This procedure provides approval to change the
funding method used to determine the minimum funding stan-
dard for defined benefit plans for plan years beginning on or
after January 1, 2000, to any one of the specific methods con-
tained therein. Rev. Proc. 95–51 superseded.
Rev. Proc. 2000–41, page 371.
Qualified defined benefit plan; change in funding
method.This procedure sets forth an updated procedure that
a plan administrator or plan sponsor may use to obtain
approval to change the funding method of its qualified defined
benefit plan. Rev. Proc. 78–37 superseded. Rev. Proc.
2000–4 modified.
EMPLOYMENT TAX
Page 354.
Railroad retirement; rate determination; quarterly.The
Railroad Retirement Board has determined that the rate of tax
imposed by section 3221 of the Code shall be 26 1/2 cents
for the quarter beginning October 1, 2000.
Internal Revenue
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Bulletin No. 2000–42
October 16, 2000
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page ii.
(Continued on the next page)

EXEMPT ORGANIZATIONS
Announcement 2000–82, page 385.
The IRS released new Form 8870, Information Return for
Transfers Associated With Certain Personal Benefit
Contracts. For taxable years beginning prior to January 1,
2000, organizations that pay premiums on “personal benefit
contracts,” as that term is used in section 170(f)(10) of the
Code, must file Form 8870 by the later of 90 days after this
announcement or the date the organization is required to file
its annual return. See also Notice 2000–24, 2000–17 I.R.B.
952.
Announcement 2000–84, page 385.
Application of tax laws to use of the Internet by
exempt organizations. The Service requests comments
on the need for guidance clarifying the application of Internal
Revenue Code provisions to use of the Internet by exempt
organizations.
EXCISE TAX
Notice 2000–54, page 356.
Determinations have been made to add nine polyether poly-
ol substances to the list of taxable substances in section
4672(a)(3) of the Code.
October 16, 20002000–42 I.R.B.

2000–42 I.R.B.October 16, 2000
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents 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 sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying pub-
lished rulings and procedures, the effect of subsequent leg-
islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a semiannual basis,
and are published in the first Bulletin of the succeeding semi-
annual period, respectively.
The IRS Mission
Provide America’s taxpayers top quality service by help-
ing them understand and meet their tax responsibilities
and by applying the tax law with integrity and fairness to
all.
Introduction
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

For a list of bond factor amounts applica-
ble to dispositions occurring during other
calendar years, see the following revenue
rulings: Rev. Rul. 98–3, 1998–1 C.B.
248, for dispositions occurring during the
calendar years 1996 and 1997;
Rev. Rul. 98–13, 1998–1 C.B. 686, for
dispositions occurring during the period
January through March 1998; Rev. Rul.
98–31, 1998–1 C.B. 1269, for disposi-
tions occurring during the period April
through June 1998; Rev. Rul. 98–45,
1998–2 C.B. 364, for dispositions occur-
ring during the period July through Sep-
tember 1998; Rev. Rul. 99–1, 1999–2
I.R.B. 4, for dispositions occurring during
the period October through December
1998; Rev. Rul. 99–54, 1999–51 I.R.B.
675, for dispositions occurring during the
calendar year 1999; Rev. Rul. 2000–22,
2000–16 I.R.B. 880, for dispositions oc-
curring during the period January through
March 2000; and Rev. Rul. 2000–31,
2000–26 I.R.B. 1269, for dispositions oc-
curring during the period April through
June 2000.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Gregory N. Doran of the Office
2000–42 I.R.B.349October 16, 2000
Section 42.—Low-Income
Housing Credit
Low-income housing credit; satis-
factory bond; “bond factor”
amounts for the period July through
September 2000. This ruling an-
nounces the monthly bond factor
amounts to be used by taxpayers who
dispose of qualified low-income build-
ings or interests therein during the pe-
riod July through September 2000.
Rev. Rul. 2000–48
In Rev. Rul. 90–60, 1990–2 C.B. 3, the
Internal Revenue Service provided guid-
ance to taxpayers concerning the general
methodology used by the Treasury De-
partment in computing the bond factor
amounts used in calculating the amount of
bond considered satisfactory by the Sec-
retary under § 42(j)(6) of the Internal
Revenue Code. It further announced that
the Secretary would publish in the Inter-
nal Revenue Bulletin a table of “bond fac-
tor” amounts for dispositions occurring
during each calendar month.
This revenue ruling provides in Table 1
the bond factor amounts for calculating
the amount of bond considered satisfac-
tory under § 42(j)(6) for dispositions of
qualified low-income buildings or inter-
ests therein during the period July through
September 2000.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Table 1
Rev. Rul. 2000–48
Monthly Bond Factor Amounts for Dispositions Expressed
As a Percentage of Total Credits
Calendar Year Building Placed in Service
or, if Section 42(f)(1) Election Was Made,
the Succeeding Calendar Year
Month of19871988198919901991199219931994199519961997
Disposition
Jul‘0039.7554.7867.3077.8479.3182.6186.0289.3892.8296.56100.53
Aug‘0039.7554.7867.3077.8479.0982.3985.7889.1492.5796.29100.25
Sep‘0039.7554.7867.3077.8478.8982.1785.5588.8992.3296.0499.99
Table 1 (cont’d)
Rev. Rul. 2000–48
Monthly Bond Factor Amounts for Dispositions Expressed
As a Percentage of Total Credits
Calendar Year Building Placed in Service
or, if Section 42(f)(1) Election Was Made,
the Succeeding Calendar Year
Month of199819992000
Disposition
Jul‘00104.92109.29112.52
Aug‘00104.64109.02112.52
Sep‘00104.37108.77112.52

of Associate Chief Counsel (Passthroughs
and Special Industries). For further infor-
mation regarding this revenue ruling, con-
tact Mr. Doran at (202) 622-3040 (not a
toll-free call).
Section 351.—Transfer to
Corporation Controlled by
Transferor
26 CFR 1.351–2: Receipt of property.
T.D. 8904
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Treatment of Nonqualified
Preferred Stock and Other
Preferred Stock in Certain
Exchanges and Distributions
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations relating to nonqualified
preferred stock. The regulations address
the effective date of the definition of non-
qualified preferred stock and the treat-
ment of nonqualified preferred stock and
similar preferred stock received by share-
holders in certain corporate reorganiza-
tions and distributions. The regulations
are necessary to reflect changes to the law
concerning these types of preferred stock
that were made by the Taxpayer Relief
Act of 1997.
EFFECTIVE DATE: These regulations
are effective October 2, 2000.
FOR FURTHER INFORMATION CON-
TACT: Richard E. Coss, (202) 622-7790
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
On January 26, 2000, the IRS and
Treasury published in the Federal Regis-
tera notice of proposed rulemaking
(REG–105089–99, 2000–6 I.R.B. 580
[65 F.R. 4203]) relating to nonqualified
preferred stock (as defined in section
351(g)(2) of the Internal Revenue Code)
(NQPS). The proposed regulations ad-
dress the effective date of the definition
of NQPS, and provide rules exempting
from treatment as NQPS certain pre-
ferred stock received by shareholders in
corporate reorganizations and distribu-
tions subject to sections 354, 355, and
356.
No comments responding to the notice
of proposed rulemaking were submitted,
and no public hearing was requested or
held. However, one commentator sug-
gested that the rule in the proposed regula-
tions interpreting section 351(g)(2)-
(C)(i)(II) (relating to preferred stock
transferred in connection with the perfor-
mance of services) should be expanded to
include transactions subject to section
351.
The IRS and Treasury agree with this
suggestion. Accordingly, these final regu-
lations extend the exemption from treat-
ment as NQPS in §1.356–7(c) to preferred
stock received by shareholders in certain
stock exchanges under section 351. The
proposed regulations are adopted as re-
vised by this Treasury decision.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assess-
ment is not required. It has also been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions and, because the regulations do not
impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Internal
Revenue Code, the notice of proposed
rulemaking preceding these regulations
was submitted to the Chief Counsel for
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
business.
Drafting Information
The principal author of these regula-
tions is Richard E. Coss of the Office of
Associate Chief Counsel (Corporate).
However, other personnel from the IRS
and Treasury participated in their develop-
ment.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding the following
entries in numerical order to read in part
as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.351–2 also issued under 26
U.S.C. 351(g)(4).
Section 1.354–1 also issued under 26
U.S.C. 351(g)(4).
Section 1.355–1 also issued under 26
U.S.C. 351(g)(4).
Section 1.356–7 also issued under 26
U.S.C. 351(g)(4). * * *
Section 1.1036–1 also issued under 26
U.S.C. 351(g)(4). * * *
Par. 2. Section 1.351–2 is amended by
adding paragraph (e) to read as follows:
§1.351–2 Receipt of property.
* * * * *
(e) See §1.356–7(a) for the applicabil-
ity of the definition of nonqualified pre-
ferred stock in section 351(g)(2) for stock
issued prior to June 9, 1997, and for stock
issued in transactions occurring after June
8, 1997, that are described in section
1014(f)(2) of the Taxpayer Relief Act of
1997, Public Law 105–34 (111 Stat. 788,
921). See §1.356–7(c) for the treatment
of preferred stock received in certain ex-
changes for common or preferred stock
described in section 351(g)(2)(C)(i)(II).
Par. 3. Section 1.354–1 is amended by
adding paragraph (f) to read as follows:
§1.354–1 Exchanges of stock and
securities in certain reorganizations.
* * * * *
(f) See §1.356–7(a) and (b) for the
treatment of nonqualified preferred stock
(as defined in section 351(g)(2)) received
in certain exchanges for nonqualified pre-
ferred stock or preferred stock. See
§1.356–7(c) for the treatment of preferred
stock received in certain exchanges for
common or preferred stock described in
section 351(g)(2)(C)(i)(II).
Par. 4. Section 1.355–1 is amended by
adding paragraph (d) to read as follows:
October 16, 20003502000–42 I.R.B.

§1.355–1 Distribution of stock and
securities of a controlled corporation.
* * * * *
(d) Nonqualified preferred stock. See
§1.356–7(a) and (b) for the treatment of
nonqualified preferred stock (as defined
in section 351(g)(2)) received in certain
exchanges for (or in certain distributions
with respect to) nonqualified preferred
stock or preferred stock. See §1.356–7(c)
for the treatment of the receipt of pre-
ferred stock in certain exchanges for (or
in certain distributions with respect to)
common or preferred stock described in
section 351(g)(2)(C)(i)(II).
Par. 5. Section 1.356–7 is added to
read as follows:
§1.356–7 Rules for treatment of
nonqualified preferred stock and other
preferred stock received in certain
transactions.
(a) Stock issued prior to effective date.
Stock described in section 351(g)(2) is
nonqualified preferred stock (NQPS) re-
gardless of the date on which the stock is
issued. However, sections 351(g),
354(a)(2)(C), 355(a)(3)(D), 356(e), and
1036(b) do not apply to any transaction
occurring prior to June 9, 1997, or to any
transaction occurring after June 8, 1997,
that is described in section 1014(f)(2) of
the Taxpayer Relief Act of 1997, Public
Law 105–34 (111 Stat. 788, 921). For
purposes of this section, preferred stock
that is not NQPS is referred to as Quali-
fied Preferred Stock (QPS).
(b) Receipt of preferred stock in ex-
change for (or distribution on) substan-
tially identical preferred stock—(1) Gen-
eral rule. For purposes of sections
354(a)(2)(C)(i), 355(a)(3)(D), and
356(e)(2), preferred stock is QPS, even
though it is described in section
351(g)(2), if it is received in exchange for
(or in a distribution with respect to) pre-
ferred stock (the original preferred stock)
that is QPS, provided —
(i) The original preferred stock is QPS
solely because, on its issue date, either a
right or obligation described in clause (i),
(ii), or (iii) of section 351(g)(2)(A) was
not exercisable until after a 20-year pe-
riod beginning on the issue date, or the
right or obligation was exercisable within
the 20-year period beginning on the issue
date but was subject to a contingency
which made remote the likelihood of the
redemption or purchase, or the issuer’s (or
a related party’s) right to redeem or pur-
chase the stock was not more likely than
not to be exercised within a 20-year pe-
riod beginning on the issue date, or be-
cause of any combination of these rea-
sons; and
(ii) The stock received is substantially
identical to the original preferred stock.
(2) Substantially identical. The stock
received is substantially identical to the
original preferred stock if—
(i) The stock received does not contain
any term or terms that, in relation to any
term or terms of the original preferred
stock, either decrease the period in which
a right or obligation described in clause
(i), (ii), or (iii) of section 351(g)(2)(A)
can be exercised, or increase the likeli-
hood that such a right or obligation will
be exercised, or accelerate the timing of
the returns from the stock instrument, in-
cluding the timing of actual or deemed
dividends or other distributions received
on the stock; and
(ii) As a result of the exchange or distri-
bution, exercise of the right or obligation
does not become more likely than not to
occur within a 20-year period beginning
on the issue date of the original preferred
stock.
(3) Treatment of stock received. The
stock received will continue to be treated
as QPS in subsequent transactions involv-
ing such stock, and the principles of this
paragraph (b) apply to such transactions
as though the stock received is the origi-
nal preferred stock issued on the same
date as the original preferred stock.
(c) Stock transferred for services. For
purposes of sections 351(g)(1), 354(a)-
(2)(C)(i), 355(a)(3)(D), and 356(e)(2),
preferred stock containing a right or
obligation described in clause (i), (ii) or
(iii) of section 351(g)(2)(A) that is exer-
cisable only upon the holder’s separation
from service from the issuer or a related
person (as described in section
351(g)(3)(B)) will be treated as trans-
ferred in connection with the performance
of services (and representing reasonable
compensation) within the meaning of sec-
tion 351(g)(2)(C)(i)(II), if such preferred
stock is received in exchange for (or in a
distribution with respect to) existing stock
containing a similar right or obligation
(exercisable only upon separation from
service) and the existing stock was trans-
ferred in connection with the performance
of services for the issuer or a related per-
son (and represented reasonable compen-
sation when transferred). In applying the
rules relating to NQPS, the preferred
stock received will continue to be treated
as transferred in connection with the per-
formance of services (and representing
reasonable compensation) in subsequent
transactions involving such stock, and the
principles of this paragraph (c) apply to
such transactions.
(d) Rights to acquire stock. For pur-
poses of §1.356–6, the principles of para-
graphs (a), (b), and (c) of this section
apply.
(e) Examples. In the examples in this
paragraph (e), T and P are corporations, A
is a shareholder of T, and A surrenders and
receives (in addition to the stock ex-
changed in the examples) common stock in
the reorganizations described. The follow-
ing examples illustrate paragraphs (a), (b),
and (c) of this section:
Example 1. In 1995, A transfers property to T and
receives T preferred stock that is described in section
351(g)(2) in a transaction under section 351. In 2002,
pursuant to a reorganization under section
368(a)(1)(B), A surrenders the T preferred stock in
exchange for P NQPS. Under paragraph (a) of this
section, the T preferred stock issued to A in 1995 is
NQPS. However, because section 351(g) does not
apply to transactions occurring before June 9, 1997,
the T NQPS was not “other property” within the
meaning of section 351(b) when issued in 1995.
Under sections 354(a)(2)(C) and 356(e)(2), the P
NQPS received by A in 2002 is not “other property”
within the meaning of section 356(a)(1)(B) because it
is received in exchange for NQPS.
Example 2. T issues QPS to A on January 1, 2000
that is not NQPS solely because the holder cannot re-
quire T to redeem the stock until January 1, 2022. In
2007, pursuant to a reorganization under section
368(a)(1)(A) in which T merges into P, A surrenders
the T preferred stock in exchange for P preferred
stock with terms that are identical to the terms of the
T preferred stock, including the term that the holder
cannot require the redemption of the stock until Janu-
ary 1, 2022. Because the P stock and the T stock have
identical terms, and because the redemption did not
become more likely than not to occur within the 20-
year period that begins on January 1, 2000 (which is
the issue date of the T preferred stock) as a result of
the exchange, under paragraph (b) of this section, the
P preferred stock received by A is treated as QPS.
Thus, the P preferred stock received is not “other
property” within the meaning of section 356(a)(1)(B).
Example 3. The facts are the same as in Example
2, except that, in addition, in 2010, pursuant to a re-
capitalization of P under section 368(a)(1)(E), A ex-
changes the P preferred stock above for P NQPS that
permits the holder to require P to redeem the stock in
2020. Under paragraph (b) of this section, the P pre-
ferred stock surrendered by A is treated as QPS. Be-
2000–42 I.R.B.351October 16, 2000

cause the P preferred stock received by A in the recap-
italization is not substantially identical to the P pre-
ferred stock surrendered, the P preferred stock re-
ceived by A is not treated as QPS. Thus, the P
preferred stock received is “other property” within the
meaning of section 356(a)(1)(B).
Example 4. T issues preferred stock to A on Jan-
uary 1, 2000 that permits the holder to require T to
redeem the stock on January 1, 2018, or at any time
thereafter, but which is not NQPS solely because, as
of the issue date, the holder’s right to redeem is sub-
ject to a contingency that makes remote the likeli-
hood of redemption on or before January 1, 2020. In
2007, pursuant to a reorganization under section
368(a)(1)(A) in which T merges into P, A surrenders
the T preferred stock in exchange for P preferred
stock with terms that are identical to the terms of the
T preferred stock. Immediately before the ex-
change, the contingency to which the holder’s right
to cause redemption of the T stock is subject makes
remote the likelihood of redemption before January
1, 2020, but the P stock, although subject to the
same contingency, is more likely than not to be re-
deemed before January 1, 2020. Because, as a result
of the exchange of T stock for P stock, the exercise
of the redemption right became more likely than not
to occur within the 20-year period beginning on the
issue date of the T preferred stock, the P preferred
stock received by A is not substantially identical to
the T stock surrendered, and is not treated as QPS.
Thus, the P preferred stock received is “other prop-
erty” within the meaning of section 356(a)(1)(B).
Example 5. The facts are the same as in Example
4, except that, immediately before the merger of T
into P in 2007, the contingency to which the holder’s
right to cause redemption of the T stock is subject
makes it more likely than not that the T stock will be
redeemed before January 1, 2020. Because exercise
of the redemption right did not become more likely
than not to occur within the 20-year period begin-
ning on the issue date of the T preferred stock as a
result of the exchange, the P preferred stock re-
ceived by A is substantially identical to the T stock
surrendered, and is treated as QPS. Thus, the P pre-
ferred stock received is not “other property” within
the meaning of section 356(a)(1)(B).
Example 6. A is an employee of T. In connection
with A’s performance of services for T, T transfers to
A in 2000 an amount of T common stock that repre-
sents reasonable compensation. The T common
stock contains a term granting A the right to require
T to redeem the common stock, but only upon A’s
separation from service from T. In 2005, pursuant to
a reorganization under section 368(a)(1)(A) in
which T merges into P, A receives, in exchange for
A’s T common stock, P preferred stock granting a
similar redemption right upon A’s separation from
P’s service. Under paragraph (c) of this section, the
P preferred stock received by A is treated as trans-
ferred in connection with the performance of ser-
vices (and representing reasonable compensation)
within the meaning of section 351(g)(2)(C)(i)(II).
Thus, the P preferred stock received by A is QPS.
(f) Effective dates. This section applies
to transactions occurring on or after Octo-
ber 2, 2000.
Par. 6. Section 1.1036–1 is amended
by adding paragraph (d) to read as fol-
lows:
§1.1036–1 Stock for stock of the same
corporation.
* * * * *
(d) Nonqualified preferred stock. See
§1.356–7(a) for the applicability of the
definition of nonqualified preferred stock
in section 351(g)(2) for stock issued prior
to June 9, 1997, and for stock issued in
transactions occurring after June 8, 1997,
that are described in section 1014(f)(2) of
the Taxpayer Relief Act of 1997, Public
Law 105–34 (111 Stat. 788, 921).
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved September 25, 2000.
Jonathan Talisman,
Acting Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on Sep-
tember 29, 2000, 8:45 a.m., and published in the
issue of the Federal Register for October 2, 2000, 65
F.R. 58650)
Section 412.—Minimum Funding
Standards
A revenue procedure describes certain changes to
the funding method used to determine the minimum
funding standard for defined benefit plans for plan
years beginning on or after January 1, 2000. See
Rev. Proc. 2000–40, page 357.
A procedure describes a method whereby a plan
administrator or plan sponsor may obtain approval
for a change in funding method. See Rev. Proc.
2000–41, page 371.
Section 1397.—Other
Definitions and Special Rules
26 CFR 1.1397E–1: Qualified zone academy bonds.
T.D. 8903
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Qualified Zone Academy Bonds;
Obligations of States and
Political Subdivisions
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations relating to the Federal in-
come tax treatment of qualified zone
academy bonds. These regulations pro-
vide guidance to State and local govern-
ments that issue qualified zone academy
bonds and to banks, insurance companies,
and other taxpayers that hold those bonds.
These regulations make final certain tem-
porary regulations.
DATES: Effective Date: These regula-
tions are effective September 26, 2000.
Applicability Date: For dates of applic-
ability, see §1.1397E–1(k).
FOR FURTHER INFORMATION CON-
TACT: Timothy L. Jones or Allan B.
Seller at 202-622-3980 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
Background
Section 226(a) of the Taxpayer Relief
Act of 1997, Public Law 105-34 (111
Stat. 788), amended the Internal Revenue
Code (Code) by redesignating section
1397E as section 1397F and adding a new
section 1397E. Section 1397E authorizes
a type of debt instrument known as a
qualified zone academy bond.
Explanation of Provisions
In General
A qualified zone academy bond is a
taxable bond issued by a State or local
government, the proceeds of which are
used to enhance certain eligible public
schools. In lieu of receiving periodic in-
terest payments from the issuer, an eligi-
ble holder of a qualified zone academy
bond is generally allowed annual federal
income tax credits while the bond is out-
standing. These credits compensate the
holder for lending money to the issuer and
function as payments of interest on the
bond.
Temporary regulations (REG–119-
449–97, 1998–1 C.B. 667) interpreting
section 1397E were published on January
7, 1998 (63 F.R. 671), and amended on
October 16, 20003522000–42 I.R.B.

2000–42 I.R.B.353October 16, 2000
July 1, 1999 (64 F.R. 35573). The tempo-
rary regulations generally treat the al-
lowance of the credit as if it were a pay-
ment of interest on the bond.
Code section 1397E(e), as amended by
section 509 of the Ticket to Work and
Work Incentives Improvement Act of
1999, Public Law 106–170 (113 Stat.
1860), imposes a national limitation on
the amount of qualified zone academy
bonds that can be issued. For each applic-
able year, the IRS publishes a revenue
procedure allocating the national limita-
tion among the States and the posses-
sions.
Bonds Issued by a State or Local
Government
Section 1397E(d)(1)(B) requires that a
qualified zone academy bond be issued by
a State or local government within the ju-
risdiction of which a qualified zone acad-
emy (as defined in section 1397E(d)(4)) is
located. Commentators requested clarifi-
cation that, for these purposes, a State or
local government means a State or politi-
cal subdivision as defined for purposes of
section 103(c). Commentators also re-
quested that the final regulations include a
provision for the issuance of qualified
zone academy bonds on behalf of a State
or local government in a manner similar
to the issuance of obligations on behalf of
a State or political subdivision under sec-
tion 103.
The final regulations provide that, for
purposes of section 1397E(d)(1)(B), the
term State or local governmentmeans a
State or political subdivision as defined
for purposes of section 103(c). The final
regulations also specify that a qualified
zone academy bond may be issued on be-
half of a State or local government under
rules similar to those for determining
whether a bond issued on behalf of a State
or political subdivision constitutes an
obligation of that State or political subdi-
vision for purposes of section 103.
Private Business Contribution
Requirement
Section 1397E(d)(1)(C)(ii) requires the
issuer of a qualified zone academy bond
to certify that it has written assurances
that the private business contribution re-
quirement of section 1397E(d)(2) will be
met with respect to the qualified zone
academy. For these purposes, the private
business contribution requirement is met
if the eligible local education agency (as
defined in section 1397E(d)(4)(B)) has
written commitments from private entities
to make qualified contributions having a
present value as of the issue date of 10
percent or more of the proceeds of the
issue.
The Code does not define private enti-
tiesfor these purposes. Section
1397E(d)(2)(B) defines qualified contri-
butionas any contribution (of a type and
quality acceptable to the eligible local ed-
ucation agency) of (i) equipment for use
in the qualified zone academy, (ii) techni-
cal assistance in developing curriculum or
in training teachers in order to promote
appropriate market driven technology in
the classroom, (iii) services of employees
as volunteer mentors, (iv) internships,
field trips, or other educational opportuni-
ties outside the academy for students, or
(v) any other property or service specified
by the eligible local education agency.
Commentators requested clarification
of the meaning of private entitiesfor
these purposes. For example, commenta-
tors asked whether the term may include
an organization described in section
501(c)(3) or a private individual.
The final regulations provide that, for
purposes of section 1397E(d)(2)(A), the
term private entitiesincludes any person
(as defined in section 7701(a)) other than
the United States, a State or local govern-
ment, or any agency or instrumentality
thereof or related party with respect
thereto.
Commentators also sought clarification
regarding the meaning of qualified contri-
butionunder section 1397E(d)(2)(B).
The final regulations provide that cash re-
ceived with respect to a qualified zone
academy from a private entity constitutes
a qualified contribution if it is to be used
to purchase any property or service de-
scribed in section 1397E(d)(2)(B)(i), (ii),
(iii), (iv) or (v). The final regulations also
indicate that services of employees of the
eligible local education agency do not
constitute qualified contributions.
Issuer Certifications
Section 1397E(d)(1)(C) requires the is-
suer to certify (1) that it has written assur-
ances that the private business contribu-
tion requirement will be met, and (2) that
it has the written approval of the eligible
local education agency for the bond is-
suance. The Treasury and the IRS intend
that these certifications will be respected
and may be relied on by taxpayers if the
certifications are reasonably made.
95 Percent Test
Section 1397E(d)(1)(A) requires that
95 percent or more of the proceeds of an
issue of qualified zone academy bonds be
used for a qualified purpose described in
section 1397E(d)(5) with respect to a
qualified zone academy. The Treasury
and the IRS intend that the qualified pur-
poses set forth in section 1397E(d)(5) are
to be broadly interpreted. The Treasury
and the IRS also intend that issuers may
apply principles similar to the require-
ments of §1.142–2 (without regard to the
requirement therein that the period be-
tween the issue date and the first call date
not exceed 10 1/2 years) to cure an unex-
pected failure to spend 95 percent or more
of the proceeds of an issue for a qualified
purpose. Further, the Treasury and the
IRS intend that taxpayers may rely on an
issuer’s determination that a public school
(or academic program within a public
school) is a qualified zone academy for
purposes of section 1397E(d)(4) if the de-
termination has a reasonable basis.
Effective Dates
The final regulations apply to bonds
sold on or after September 26, 2000. In
addition, the final regulations permit elec-
tive, retroactive application to bonds sold
before September 26, 2000, of either of
the following sections of the regulations:
§1.1397E–1(c) (private business contri-
bution requirement) and §1.1397E–1(i)
(State or local government).
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assess-
ment is not required. It has also been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply. The Regula-
tory Flexibility Act (5 U.S.C. chapter 6)
does not apply because these regulations
do not impose a collection of information
on small entities. Pursuant to section
7805(f) of the Code, the notice of pro-

October 16, 20003542000–42 I.R.B.
posed rulemaking preceding these regula-
tions was sent to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on its impact on
small businesses.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by removing the entry
for Section 1.1397E–1T and adding a new
entry in numerical order to read in part as
follows:
Authority: 26 U.S.C. 7805 * * * Sec-
tion 1.1397E–1 also issued under 26
U.S.C. 1397E(b) and (d).
§1.1397E–1T [Redesignated as
§1.1397E–1]
Par. 2. Section 1.1397E–1T is redesig-
nated as ‘1.1397E–1.
Par. 3. Newly designated ‘1.1397E–1 is
amended as follows:
1. The section heading is revised.
2. Revising paragraphs (c), (f)(2), (i)
and (j).
3. Adding a new paragraph (k).
The revisions and addition read as fol-
lows:
§1.1397E–1 Qualified zone academy
bonds.
* * * * *
(c) Private business contribution re-
quirement—(1) Reasonable discount rate.
To determine the present value (as of the
issue date) of qualified contributions from
private entities under section
1397E(d)(2), the issuer must use a reason-
able discount rate. The credit rate deter-
mined under paragraph (b) of this section
is a reasonable discount rate.
(2) Definition of private entities. For
purposes of section 1397E(d)(2)(A), the
term private entitiesincludes any person
(as defined in section 7701(a)) other than
the United States, a State or local govern-
ment, or any agency or instrumentality
thereof or related party with respect
thereto. To determine whether a person is
related to the United States or a State or
local government under this paragraph
(c)(2), rules similar to those for determin-
ing whether a person is a related party
under §1.150–1(b) shall apply (treating
the United States as a governmental unit
for purposes of §1.150–1(b)).
(3) Qualified contribution. For pur-
poses of section 1397E(d)(2)(A), the term
qualified contributionmeans any contri-
bution (of a type and quality acceptable to
the eligible local education agency) of
any property or service described in sec-
tion 1397E(d)(2)(B)(i), (ii), (iii), (iv) or
(v). In addition, cash received with re-
spect to a qualified zone academy from a
private entity (other than cash received in-
directly from a person that is not a private
entity as part of a plan to avoid the re-
quirements of section 1397E) constitutes
a qualified contribution if it is to be used
to purchase any property or service de-
scribed in section 1397E(d)(2)(B)(i), (ii),
(iii), (iv) or (v). Services of employees of
the eligible local education agency do not
constitute qualified contributions.
* * * * *
(f) * * *
(2) Adjustment if the holder cannot use
the credit to offset a tax liability. If a holder
holds a qualified zone academy bond on the
credit allowance date but cannot use all or a
portion of the credit to reduce its income
tax liability (for example, because the
holder is not an eligible taxpayer or because
the limitation in section 1397E(c) applies),
the holder is allowed a deduction for the
taxable year that includes the credit al-
lowance date (or, at the option of the
holder, the next succeeding taxable year).
The amount of the deduction is equal to the
amount of the unused credit deemed paid
on the credit allowance date.
* * * * *
(i) State or local government—(1) In
general. For purposes of section
1397E(d)(1)(B), the term State or local
governmentmeans a State or political sub-
division as defined for purposes of section
103(c).
(2) On behalf of issuer. A qualified zone
academy bond may be issued on behalf of a
State or local government under rules simi-
lar to those for determining whether a bond
issued on behalf of a State or political sub-
division constitutes an obligation of that
State or political subdivision for purposes
of section 103.
(j) Cross-references. See section 171 and
the regulations thereunder for rules relating
to amortizable bond premium. See
§1.61–7(d) for the seller’s treatment of a
bond sold between interest payment dates
(credit allowance dates) and §1.61–7(c) for
the buyer’s treatment of a bond purchased
between interest payment dates (credit al-
lowance dates).
(k) Effective dates. Except as provided in
this paragraph (k), this section applies to
bonds sold on or after September 26, 2000.
Each of paragraphs (c) and (i) of this sec-
tion may be applied by issuers to bonds that
are sold before September 26, 2000.
Bob Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved September 19, 2000.
Jonathan Talisman,
Acting Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on Septem-
ber 25, 2000, 8:45 a.m., and published in the issue of
the Federal Register for September 26, 2000, 65 F.R.
57732)
Section 3221.—Rate of Tax
Determination of Quarterly Rate of
Excise Tax for Railroad Retirement
Supplemental Annuity Program
In accordance with directions in Section
3221(a) of the Railroad Retirement Tax Act
(26 U.S.C., Section 3221(c)), the Railroad
Retirement Board has determined that the
excise tax imposed by such Section 3221(c)
on every employer, with respect to having
individuals in his employ, for each work-
hour for which compensation is paid by
such employer for services rendered to him
during the quarter beginning October 1,
2000, shall be at the rate of 26 1/2 cents.
In accordance with directions in Section
15(a) of the Railroad Retirement Act of
1974, the Railroad Retirement Board has
determined that for the quarter beginning
October 1, 2000, 38.3 percent of the taxes
collected under Sections 3211(b) and
3221(c) of the Railroad Retirement Tax Act
shall be credited to the Railroad Retirement
Account and 61.7 percent of the taxes col-
lected under such Sections 3211(b) and
3221(c) plus 100 percent of the taxes col-
lected under Section 3221(d) of the Rail-
road Retirement Tax Act shall be credited to

the Railroad Retirement Supplemental Ac-
count.
Dated August 30, 2000.
By Authority of the Board.
Beatrice Ezerski,
Secretary to the Board.
(Filed by the Office of the Federal Register on Septem-
ber 11, 2000, 8:45 a.m., and published in the issue of
the Federal Register for September 12, 2000, 65 F.R.
55066)
2000–42 I.R.B.355October 16, 2000

October 16, 20003562000–42 I.R.B.
Tax on Certain Imported
Substances; Notice of
Determinations
Notice 2000–54
This notice announces determinations,
under Notice 89–61 (1989–1 C.B. 717),
that the list of taxable substances in
§ 4672(a)(3) will be modified to include
nine polyether polyol substances. This
modification is effective October 1, 1992.
Background
Under § 4672(a), an importer or ex-
porter of any substance may request that
the Secretary determine whether that sub-
stance should be listed as a taxable sub-
stance. The Secretary shall add the sub-
stance to the list of taxable substances in
§ 4672(a)(3) if the Secretary determines
that taxable chemicals constitute more
than 50 percent of the weight, or more
than 50 percent of the value, of the mate-
rials used to produce the substance. This
determination is to be made on the basis
of the predominant method of production.
Notice 89–61 sets forth the rules relating
to the determination process.
Determinations
On July 14, 2000, the Secretary deter-
mined that nine polyether polyol sub-
stances should be added to the list of tax-
able substances in § 4672(a)(3), effective
October 1, 1992.
The rate of tax prescribed for
poly(propylene)glycol, under § 4671-
(b)(3), is $7.74 per ton. This is based upon
a conversion factor for propylene of 0.781,
a conversion factor for chlorine of 1.31, and
a conversion factor for sodium hydroxide
of 1.43.
The rate of tax prescribed for
poly(propylene/ethylene)glycol, under
§ 4671(b)(3), is $7.16 per ton. This is
based upon a conversion factor for propy-
lene of 0.663, a conversion factor for chlo-
rine of 1.11, a conversion factor for sodium
hydroxide of 1.21, and a conversion factor
for ethylene of 0.123.
The rate of tax prescribed for poly
(propyleneoxy)glycerol, under § 4671(b)-
(3), is $6.38 per ton. This is based upon a
conversion factor for propylene of 0.645, a
conversion factor for chlorine of 1.08, and a
conversion factor for sodium hydroxide of
1.18.
The rate of tax prescribed for poly(ethyl-
eneoxy)glycerol, under § 4671(b)(3), is
$3.31 per ton. This is based upon a conver-
sion factor for ethylene of 0.681.
The rate of tax prescribed for poly
(propyleneoxy/ethyleneoxy)glycerol, un-
der § 4671(b)(3), is $7.20 per ton. This is
based upon a conversion factor for propy-
lene of 0.71, a conversion factor for chlo-
rine of 1.05, a conversion factor for sodium
hydroxide of 1.05, and a conversion factor
for ethylene of 0.126.
The rate of tax prescribed for poly
(propyleneoxy)sucrose, under § 4671(b)-
(3), is $4.18 per ton. This is based upon a
conversion factor for propylene of 0.423, a
conversion factor for chlorine of 0.707, and
a conversion factor for sodium hydroxide
of 0.773.
The rate of tax prescribed for poly
(propyleneoxy/ethyleneoxy)sucrose, un-
der § 4671(b)(3), is $6.11 per ton. This is
based upon a conversion factor for propy-
lene of 0.549, a conversion factor for chlo-
rine of 0.918, a conversion factor for
sodium hydroxide of 1.0, and a conversion
factor for ethylene of 0.14.
The rate of tax prescribed for poly
(propyleneoxy/ethyleneoxy)diamine, un-
der § 4671(b)(3), is $4.92 per ton. This is
based upon a conversion factor for propy-
lene of 0.498, a conversion factor for chlo-
rine of 0.833, and a conversion factor for
sodium hydroxide of 0.91.
The rate of tax prescribed for poly
(propyleneoxy/ethyleneoxy)benzenedia-
mine, under § 4671(b)(3), is $5.25 per ton.
This is based upon a conversion factor for
propylene of 0.491, a conversion factor for
chlorine of 0.821, a conversion factor for
sodium hydroxide of 0.897, and a conver-
sion factor for ethylene of 0.081.
The petitioner is Dow Chemical Com-
pany, a manufacturer and exporter of these
substances. No material comments were
received on this petition. The following in-
formation is the basis for the determina-
tions.
The nine polyether polyol substances are
liquids. They are produced predominantly
by the base-catalyzed reaction of cyclic
ethers, usually ethylene oxide and propy-
lene oxide, with active hydrogen-contain-
ing compounds (initiators) such as water,
glycols, polyols, and amines. The reaction
is carried out by a discontinuous batch
process at elevated temperatures and pres-
sures and under an inert atmosphere. The
particular substance produced depends
upon the oxides, initiators, reaction condi-
tions, and catalysts used. The stoichiomet-
ric amounts of oxide reacted on the initiator
determine the chain lengths and thus the
molecular weights. The HTS number for
these substances is 3907.20.00.
Poly(propylene)glycol
CAS number: 025322–69–4
Poly(propylene)glycol is derived from
the taxable chemicals propylene, chlorine,
and sodium hydroxide.
The stoichiometric material consump-
tion formula for this substance is:
n+1(C
3
H
6
(propylene) + Cl
2
(chlorine) + 2
NaOH (sodium hydroxide)) + H
2
O (water)
ÝC
3
H
8
O
2
(C
3
H
6
O)
n
(poly(propylene)gly-
col) + n+1(2 NaCl (sodium chloride) +
H
2
O (water))
Poly (propylene)glycol has been deter-
mined to be a taxable substance because a re-
view of its stoichiometric material consump-
tion formula shows that, based on the
predominant method of production, taxable
chemicals constitute at least 90 percent by
weight of the materials used in its production.
Poly(propylene/ethylene)glycol
CAS number: 053637–25–5
Poly(propylene/ethylene)glycol is de-
rived from the taxable chemicals propy-
lene, chlorine, sodium hydroxide, and
ethylene.
The stoichiometric material consump-
tion formula for this substance is:
n+1(C
3
H
6
(propylene) + Cl
2
(chlorine) +
2 NaOH (sodium hydroxide)) + H
2
O
(water) + m/2(2 C
2
H
4
(ethylene) + O
2
(oxygen)) ÝC
3
H
8
O
2
(C
3
H
6
O)
n
(C
2
H
4
O)
m
(poly(propylene/ethylene)glycol) + n+1(2
NaCl (sodium chloride) + H
2
O (water))
Poly(propylene/ethylene)glycol has
been determined to be a taxable substance
because a review of its stoichiometric ma-
terial consumption formula shows that,
based on the predominant method of pro-
duction, taxable chemicals constitute at
least 90 percent by weight of the materials
used in its production.
Part III. Administrative, Procedural, and Miscellaneous

2000–42 I.R.B.357October 16, 2000
Poly(propyleneoxy)glycerol
CAS number: 025791–96–2
Poly(propyleneoxy)glycerol is derived
from the taxable chemicals propylene,
chlorine, and sodium hydroxide.
The stoichiometric material consump-
tion formula for this substance is:C
3
H
8
O
3
(glycerine) + n(C
3
H
6
(propylene) + Cl
2
(chlorine) + 2 NaOH (sodium hydroxide))
ÝC
3
H
8
O
3
(C
3
H
6
O)
n
(poly(propyle-
neoxy)glycerol) + n(2 NaCl (sodium
chloride) + H
2
O (water))
Poly(propyleneoxy)glycerol has been
determined to be a taxable substance be-
cause a review of its stoichiometric mate-
rial consumption formula shows that,
based on the predominant method of pro-
duction, taxable chemicals constitute at
least 85 percent by weight of the materials
used in its production.
Poly(ethyleneoxy)glycerol
CAS number: 031694–55–0
Poly(ethyleneoxy)glycerol is derived
from the taxable chemical ethylene.
The stoichiometric material consump-
tion formula for this substance is: C
3
H
8
O
3
(glycerine) + m/2(2 C
2
H
4
(ethylene) + O
2
(oxygen)) ÝC
3
H
8
O
3
(C
2
H
4
O)
m
(poly(eth-
yleneoxy)glycerol)
Poly(ethyleneoxy)glycerol has been
determined to be a taxable substance be-
cause a review of its stoichiometric mate-
rial consumption formula shows that,
based on the predominant method of pro-
duction, taxable chemicals constitute
more than 50 percent by weight of the
materials used in its production.
Poly(propyleneoxy/ethyleneoxy)glycerol
CAS number: 009082–00–2
Poly(propyleneoxy/ethyleneoxy)glyce-
rol is derived from the taxable chemicals
propylene, chlorine, sodium hydroxide, and
ethylene.
The stoichiometric material consump-
tion formula for this substance is: C
3
H
8
O
3
(glycerine) + n(C
3
H
6
(propylene) + Cl
2
(chlorine) + 2 NaOH (sodium hydroxide))
+ m/2(2 C
2
H
4
(ethylene) + O
2
(oxygen)) Ý
C
3
H
8
O
3
(C
3
H
6
O)
n
(C
2
H
4
O)
m
(poly(propyle-
neoxy/ethyleneoxy)glycerol) + n(2 NaCl
(sodium chloride) + H
2
O (water))
Poly(propyleneoxy/ethyleneoxy)glyc-
erol has been determined to be a taxable
substance because a review of its stoi-
chiometric material consumption formula
shows that, based on the predominant
method of production, taxable chemicals
constitute at least 85 percent by weight of
the materials used in its production.
Poly(propyleneoxy)sucrose
CAS number: 009049–71–2
Poly(propyleneoxy)sucrose is derived
from the taxable chemicals propylene,
chlorine, and sodium hydroxide.
The stoichiometric material consump-
tion formula for this substance is:
C
12
H
22
O
11
(sucrose) + n(C
3
H
6
(propylene)
+ Cl
2
(chlorine) + 2 NaOH (sodium hy-
droxide)) ÝC
12
H
22
O
11
(C
3
H
6
O)
n
(poly(propyleneoxy)sucrose) + n(2 NaCl
(sodium chloride) + H
2
O (water))
Poly(propyleneoxy)sucrose has been de-
termined to be a taxable substance because
a review of its stoichiometric material con-
sumption formula shows that, based on the
predominant method of production, tax-
able chemicals constitute at least 65 per-
cent by weight of the materials used in its
production.
Poly(propyleneoxy/ethyleneoxy)sucrose
CAS number: 026301–10–0
Poly(propyleneoxy/ethyleneoxy) su-
crose is derived from the taxable chemicals
propylene, chlorine, sodium hydroxide,
and ethylene.
The stoichiometric material consumption
formula for this substance is: C
12
H
22
O
11
(su-
crose) + n(C
3
H
6
(propylene) + Cl
2
(chlorine)
+ 2 NaOH (sodium hydroxide)) + m/2(2
C
2
H
4
(ethylene) + O
2
(oxygen)) Ý
C
12
H
22
O
11
(C
3
H
6
O)
n
(C
2
H
4
O)
m
(poly(propy-
leneoxy/ethyleneoxy)sucrose) + n(2 NaCl
(sodium chloride) + H
2
O (water))
Poly(propyleneoxy/ethyleneoxy) su-
crose has been determined to be a taxable
substance because a review of its stoichio-
metric material consumption formula
shows that, based on the predominant
method of production, taxable chemicals
constitute at least 75 percent by weight of
the materials used in its production.
Poly(propyleneoxy/ethyleneoxy)diamine
CAS number: 031568–06–6
Poly(propyleneoxy/ethyleneoxy)di-
amine is derived from the taxable chemi-
cals propylene, chlorine, and sodium hy-
droxide.
The stoichiometric material consump-
tion formula for this substance is:
C
4
H
12
N
2
O (aminoethylethanolamine) +
n(C
3
H
6
(propylene) + Cl
2
(chlorine) + 2
NaOH (sodium hydroxide)) ÝC
4
H
12
N
2
O(C
3
H
6
O)
n
(poly(propyleneoxy/ethyl-
eneoxy)diamine) + n(2 NaCl (sodium
chloride) + H
2
O (water))
Poly(propyleneoxy/ethyleneoxy) di-
amine has been determined to be a taxable
substance because a review of its stoi-
chiometric material consumption formula
shows that, based on the predominant
method of production, taxable chemicals
constitute at least 60 percent by weight of
the materials used in its production.
Poly(propyleneoxy/ethyleneoxy)benzen
ediamine
CAS number: 067800–94–6
Poly(propyleneoxy/ethyleneoxy)ben-
zenediamine is derived from the taxable
chemicals propylene, chlorine, sodium
hydroxide, and ethylene.
The stoichiometric material consump-
tion formula for this substance is:
C
7
H
10
N
2
(ortho–toluenediamine) +
n(C
3
H
6
(propylene) + Cl
2
(chlorine) + 2
NaOH (sodium hydroxide)) + m/2(2 C
2
H
4
(ethylene) + O
2
(oxygen)) ÝC
7
H
10
N
2
(C
3
H
6
O)
n
(C
2
H
4
O)
m
(poly(propyle-
neoxy/ethyleneoxy)benzenediamine) +
n(2 NaCl (sodium chloride) + H
2
O
(water))
Poly(propyleneoxy/ethyleneoxy)ben-
zenediamine has been determined to be a
taxable substance because a review of its
stoichiometric material consumption for-
mula shows that, based on the predomi-
nant method of production, taxable chem-
icals constitute at least 60 percent by
weight of the materials used in its produc-
tion.
The principal author of this notice is
Ruth Hoffman, Office of Associate Chief
Counsel (Passthroughs and Special Indus-
tries). For further information regarding
this notice contact Ruth Hoffman at (202)
622-3130 (not a toll-free number).
26 CFR 601.201: Rulings and determination
letters.
(Also, Part I, § 412.)
Rev. Proc. 2000–40
TABLE OF CONTENTS
SECTION 1. PURPOSE AND SCOPE

October 16, 20003582000–42 I.R.B.
SECTION 2. BACKGROUND
SECTION 3. APPROVAL FOR
SPECIFIED CHANGES
.01 Approval 1 - Unit Credit
.02 Approval 2 - Level percent of com-
pensation aggregate method
.03 Approval 3 - Level dollar aggregate
method
.04 Approval 4 - Level percent of com-
pensation individual aggregate
method
.05 Approval 5 - Level dollar individual
aggregate method
.06 Approval 6 - Level percent of com-
pensation frozen initial liability
method
.07 Approval 7 - Level dollar frozen ini-
tial liability method
.08 Approval 8 - Level percent of com-
pensation individual entry age nor-
mal method
.09 Approval 9 - Level dollar individual
entry age normal method
.10 Approval 10 - Asset valuation
method change to fair market value
.11 Approval 11 - Asset valuation
method change to average market
value without phase-in
.12 Approval 12 - Asset valuation
method change to average market
value with phase-in
.13 Approval 13 - Valuation date change
to first day of plan year
.14 Approval 14 - Change in method for
valuing ancillary benefits
.15 Approval 15 - Asset valuation
method change to smoothed market
value without phase-in
.16 Approval 16 - Asset valuation
method change to smoothed market
value with phase-in
.17 Approval 17 - Asset valuation
method change to average market
value with alternative phase-in
SECTION 4. SPECIAL APPROVALS
.01 Approvals to remedy unreasonable
allocation of costs
.02 Approval for change in funding
method for fully funded terminated
plans
.03 Approval for takeover plans
.04 Approval for change in valuation
software
.05 Approval for de minimis mergers
.06 Approval for mergers with same plan
year and first or last day merger date
.07 Approval for certain mergers with
transition period no more than 12
months
.08 Approval for certain mergers with
transition period more than 12
months
SECTION 5. GENERAL RULES
RELATING TO FUNDING METHODS
.01 Amortization bases
.02 Consistent compensation limitation
in normal cost determination
.03 Consistent compensation inclusion
in normal cost determination
SECTION 6. RESTRICTIONS UNDER
REVENUE PROCEDURE
.01 General restrictions
(1) Schedule B filed
(2) Administrator approval
(3) Waiver/amortization period exten-
sion
(4) Plans under examination
(5) Terminated plans
(6) Non-applicability if shortfall
method is discontinued
.02 Additional restrictions for approvals
in section 3
(1) Non-applicability for reversion
cases
(2) Non-applicability for plans using
universal life insurance products
(3) Four-year limitation on changes
(4) Non-applicability when liabilities
adjusted for assets
(5) Non-applicability if benefit accru-
als are frozen under the plan
(6) Non-applicability if negative nor-
mal cost or negative unfunded lia-
bility results from the change
(7) Non-applicability if change in
method is being made pursuant to
a spin-off or merger
SECTION 7. EFFECTIVE DATE
SECTION 8. EFFECT ON OTHER
REVENUE PROCEDURES
DRAFTING INFORMATION
SECTION 1. PURPOSE AND SCOPE
.01 This revenue procedure provides
approval to change the funding method
used to determine the minimum funding
standard for defined benefit plans as fur-
ther described below. The approval under
this revenue procedure is granted in ac-
cordance with § 412(c)(5) of the Internal
Revenue Code and section 302(c)(5) of
the Employee Retirement Income Secu-
rity Act of 1974 (ERISA). Section 3 pro-
vides approval to change the funding
method of the plan to one of seventeen
methods, including a change in the asset
valuation method to one of six asset valu-
ation methods, a change in the valuation
date to the first day of the plan year, and a
change in the method for valuing ancil-
lary benefits to the method used to value
retirement benefits. Section 4 provides
approvals for certain changes that become
necessary or expedient under special cir-
cumstances.
.02 Any changes in funding method
under this revenue procedure must sat-
isfy the rules of Section 5 concerning the
continued maintenance of certain amorti-
zation bases, the creation of an amortiza-
tion base resulting from the change in
method (method change base), and the
amortization period for the method
change base. Taxpayers, plan administra-
tors, and enrolled actuaries are cautioned
to consider the overall restrictions for
use of this procedure (see section 6.01),
the additional restrictions for approval of
any of the changes listed in section 3
(see section 6.02), and specific restric-
tions described under each of the ap-
provals. Approval for changes not pro-
vided by this revenue procedure may be
requested from the Internal Revenue Ser-
vice.
.03 The funding method changes ap-
proved in this revenue procedure also
apply for purposes of § 404. However,
calculations under the funding method
for purposes of § 404 may require cer-
tain modifications to elements in the cal-
culations. For example, for purposes of
§ 412, the value of assets used in the de-
termination of the normal cost under an
aggregate funding method is adjusted for
any credit balance or funding deficiency
in the funding standard account. The
value of assets is not adjusted in that
manner for purposes of § 404 but is, in-
stead, adjusted for any undeducted con-
tributions (see § 1.404(a)–14(d)(2) of the
Income Tax Regulations).
.04 The application of a funding
method must conform to all of the re-

2000–42 I.R.B.359October 16, 2000
quirements of the regulations under
§ 412. Thus, for example, in a method
which allocates liabilities among different
elements of past and future service, the al-
location of liabilities must be reasonable
as required under § 1.412(c)(3)–1(c)(5).
SECTION 2. BACKGROUND
.01 Section 412(c)(5)(A), as amended,
and section 302(c)(5)(A) of ERISA, Pub.
L. 93–406, 1974–3 C.B. 1, 40, as
amended, state that if the funding method
of a plan is changed, the new funding
method shall become effective only if the
change is approved by the Secretary.
.02 Section 1.412(c)(1)–1 provides
that the term “funding method”, when
used in § 412 of the Code, has the same
meaning as the term “actuarial cost
method” in section 3(31) of ERISA. Sec-
tion 1.412(c)(1)–1 of the regulations fur-
ther provides that the funding method of a
plan includes not only the overall funding
method used by the plan but also each
specific method of computation used in
applying the overall method. Therefore,
for example, the funding method of a plan
includes the date on which assets and lia-
bilities are valued (the valuation date).
The funding method also includes the def-
inition of compensation which is used to
determine the normal cost or accrued lia-
bility. Furthermore, a change in a particu-
lar aspect of a funding method does not
change any other aspects of that method.
For example, a change in funding method
from the unit credit to the level dollar in-
dividual entry age normal method does
not change the current valuation date or
asset valuation method used for the plan.
.03 Section 1.412(c)(2)–1 generally
provides that a change in the actuarial val-
uation method used to value the assets of
a plan is a change in funding method that
requires approval under
§ 412(c)(5) of the Code.
.04 Rev. Proc. 95–51, 1995–2 C.B.
431, as modified by Rev. Proc. 98–10,
1998–1 C.B. 279, and by Rev. Proc.
99–45, 1999–49 I.R.B. 603, granted ap-
proval for certain changes in funding
method. Rev. Proc. 2000–41, 2000–42
I.R.B. 371, provides the procedure by
which a plan administrator or plan spon-
sor may obtain approval of the Secretary
of the Treasury for a change in funding
method.
SECTION 3. APPROVAL FOR
SPECIFIED CHANGES
Subject to the applicability restrictions
of section 6 and to the individual condi-
tions under each method below, approval
is granted for a change to one of the fol-
lowing funding methods. The develop-
ment of the normal cost is described for
each of the funding methods provided in
subsections .01, through .09. For funding
methods that directly calculate an accrued
liability, within the meaning of Rev. Rul.
81–13, 1981–1 C.B. 229, the development
of the accrued liability is also described.
.01 Approval 1. Approval is granted
for a change in funding method to the unit
credit funding method described below.
(1) This approval does not apply if the
plan is a cash balance plan. For this pur-
pose, a cash balance plan is a defined ben-
efit plan that defines any portion of an em-
ployee’s benefits by reference to the
employee’s hypothetical account, where
such hypothetical account is determined
by reference to hypothetical allocations
and hypothetical earnings that are de-
signed to mimic the actual allocations of
contributions and earnings to an em-
ployee’s account that would occur under a
defined contribution plan.
(2) Under this method, the normal cost
is the sum of the individual normal costs
for all active participants. An individual
normal cost is the sum of the normal costs
for the various benefits valued using the
method. The normal cost for each benefit
is the present value of the portion of the
projected benefit at each expected separa-
tion date that is allocated to the current
plan year as set forth in paragraphs (5) and
(6) below. For purposes of this approval,
separation date includes any date of bene-
fit commencement, if earlier.
(3) The accrued liability under the
method is the sum of the individual ac-
crued liabilities for each participant. An
individual’s accrued liability is the sum of
the accrued liabilities for the various bene-
fits valued using the method. The accrued
liability for each benefit is the present
value of the portion of the projected bene-
fit at each expected separation date that is
allocated to prior plan years as set forth in
paragraphs (4), (5), and (6) below.
(4) For a participant other than an ac-
tive participant, or for a beneficiary, the
projected benefit is the accrued retirement
benefit, or other plan benefit, under the
terms of the plan and the projected benefit
is allocated to prior plan years.
(5) For an active participant, when
valuing all benefits other than ancillary
benefits that are not directly related to the
accrued retirement benefit, the projected
benefit related to a particular separation
date is the benefit determined for the par-
ticipant under the plan’s benefit for-
mula(s) calculated using the projected
compensation and the projection, under
respective assumptions, of any other
components that would be used in the
calculation of the benefit on the expected
separation date. The projected benefit at
each expected separation date is allocated
to the years of credited service as fol-
lows.
(a) The portion of the projected benefit
allocated to the current plan year is deter-
mined as
(i) the benefit that would be deter-
mined for the participant under the plan’s
benefit formula(s) calculated using the
projected compensation, if applicable,
and the projection, under respective as-
sumptions, of any other components that
would be used in the calculation of the
benefit on the expected separation date,
except taking into account only credited
service through the end of the current plan
year, minus
(ii) the benefit that would be deter-
mined for the participant under the plan’s
benefit formula(s) calculated using the
projected compensation, if applicable,
and the projection, under respective as-
sumptions, of any other components that
would be used in the calculation of the
benefit on the expected separation date,
except taking into account only credited
service through the beginning of the cur-
rent plan year.
(b) The portion of the projected bene-
fit allocated to prior plan years is the ben-
efit determined for the participant under
the plan’s benefit formulas calculated
using the projected compensation, if ap-
plicable, and the projection, under respec-
tive assumptions, of any other compo-
nents that would be used in the
calculation of the benefit on the expected
separation date, except taking into ac-
count only credited service through the
beginning of the current plan year (i.e.,
the amount in subparagraph (a)(ii)
above).
(c) Notwithstanding that the alloca-

October 16, 20003602000–42 I.R.B.
tions in subparagraphs (a) and (b) only
take into account credited service as of the
beginning and end of the plan year, if a
participant is expected to satisfy an eligi-
bility requirement for a particular benefit
that is being valued (e.g., subsidized early
retirement benefit) as of an expected sepa-
ration date, the amounts in subparagraphs
(a) and (b), and in paragraph (6) below,
must be determined as if the employee has
satisfied the eligibility requirement.
(d) The portion of the projected benefit
allocated to prior plan years may not be
less than the participant’s actual accrued
benefit as of the beginning of the current
plan year. In addition, the benefit deter-
mined as of the end of the current plan
year in subparagraph (a)(i) above may not
be less than the participant’s estimated ac-
crued benefit as of the end of the current
plan year.
(6) For active participants, when valu-
ing ancillary benefits that are not directly
related to the accrued retirement benefit,
the projected benefit related to a particular
separation date is the benefit determined
for the participant under the plan’s benefit
formula(s) calculated using the projected
compensation and the projection, under
respective assumptions, of any other com-
ponents that would be used in the calcula-
tion of the benefit on the expected separa-
tion date. The portion of the projected
benefit allocated to the current plan year is
the projected benefit at the expected sepa-
ration date divided by the number of years
of service the participant will have at such
date. The portion of such projected bene-
fit allocated to prior years of service is the
projected benefit multiplied by a fraction,
the numerator of which is the number of
years of service at the beginning of the
plan year, and the denominator of which is
the number of years of service the partici-
pant will have at the expected separation
date.
(7) The unfunded liability equals the
total accrued liability less the actuarial
value of plan assets. All present values are
determined as of the valuation date.
(8) The following examples illustrate
the application of the method.
(a) Example 1. The retirement benefit under the
terms of a plan is equal to 1.3% of high 1-year com-
pensation per year of service, but not less than the
top-heavy minimum of 2% of high 5-year average
compensation for each year the plan is top-heavy
(not exceeding 20%), as required under § 416(c).
Compensation under the plan is limited to $100,000.
The plan has been top-heavy only for the last 7
years. Employee E has 10 years of service at the be-
ginning of the current plan year. E’s compensation
for that year is $30,000. The compensation is as-
sumed to increase at the rate of 5% compounded
yearly. The particular benefit being valued is the
early retirement benefit anticipated to commence at
the expected separation date 7 years in the future
(i.e., after completion of 17 years of service). At this
separation date, the employee will be eligible for
early retirement, and will have projected compensa-
tion of $40,202, and projected high 5-year average
compensation of $36,552. The allocated benefits
determined for Employee E at the beginning and end
of the plan year, and on the separation date, are
shown in the table below.
Determined As of the
Allocated Benefit Beginning of
Determined Under PlanPlan YearEnd of Plan YearSeparation Date
(1) 1.3% Benefit Formula$5,226
1
$5,749
1
$8,885
3
(2) Top-Heavy Formula$5,117
2
$5,848
2
$7,310
3
(3) Allocated Benefit
(greater of (1) and (2))$5,226$5,848$8,885
FOOTNOTES
1
$5,226 = $40,202 x 1.3% x 10; $5,749 = $40,202 x 1.3% x 11
2
$5,117 = $36,552 x 2.0% x 7; $5,848 = $36,552 x 2.0% x 8
3
$8,885 = $40,202 x 1.3% x 17; $7,310 = $36,552 x 2.0% x 10
The benefit allocated to the current year is $622
($5,848- $5,226), and the benefit allocated to prior
years is $5,226. In this case, the projected benefit at
the separation date is based on the 1.3% benefit for-
mula, and the current year’s benefit allocation of the
projected benefit results in an amount which is
based on the 1.3% benefit formula at the beginning
of the year and on the top-heavy formula at the end
of the year.
(b) Example 2: Plan B is an accumulation plan
within the meaning of § 1.401(a)(4)–12. The benefit
formula under Plan B for each plan year is 1% of
compensation for such year. The sum of the amounts
for each of the years constitutes an employee’s bene-
fit. The accrued benefit at any date under Plan B is the
benefit payable at normal retirement age for the years
of service to date. Employee F has 3 years of service
at the beginning of the year. The benefit being valued
is the normal retirement benefit payable at the normal
retirement date (the date Employee F reaches normal
retirement age). At normal retirement age, Employee
F will have 20 years of service. Compensation is as-
sumed to increase at a rate of 5% per year. Employee
F’s compensation was $28,665, $27,170, and $26,000
for the prior year, the second prior year, and the third
prior year, respectively. For valuation purposes, Em-
ployee F’s compensation for the current year is as-
sumed to be $30,098. During the preceding plan year,
Plan B was amended effective on the first day of the
current plan year to provide that with respect to all
prior plan years, the normal retirement benefit is up-
dated to the greater of the benefit actually accumu-
lated as of the beginning of the current plan year or
1% of the preceding year’s compensation multiplied
by the number of years of service prior to the begin-
ning of the current plan year.
The benefit determined for Employee F, taking
into account only credited service through the begin-
ning of the current plan year under the plan’s benefit
formula is $860 (the greater of (a) $818 ((1% x
$26,000) + (1% x $27,170) + (1% x $28,665)), or
(b) $860 (1% x $28,665 x 3)). Taking the amend-
ment into account, the projected benefit payable at
normal retirement age is $8,637 ($860 + (1% x
$30,098 x 25.84), where 25.84 is the accumulation
of $1 payable at the end of the year for 17 years de-
termined at 5% interest). For purposes of allocating
the projected benefit, changes in compensation as-
sumed for later plan years are not taken into account
in accordance with the plan’s benefit formula. The
benefit allocated to the current plan year is $301
((860 + (1% x $30,098)) - 860).
.02 Approval 2. Approval is granted
for a change in funding method to the

2000–42 I.R.B.361October 16, 2000
level percent of compensation aggregate
funding method described below.
(1) This approval applies only to plans
which provide for compensation-related
benefits.
(2) Under this method, the normal cost
is calculated in the aggregate as the nor-
mal cost accrual rate multiplied by the
total compensation of all active partici-
pants.
(a) The normal cost accrual rate is
(i) the total present value of future
benefits of all participants and beneficia-
ries less adjusted assets, divided by
(ii) the total, for all active participants,
of the present value of the compensation
expected to be paid to each participant for
each year of the participant’s anticipated
future service, determined as of the par-
ticipant’s attained age.
(b) For this purpose, the adjusted as-
sets are equal to
(i) the actuarial value of the assets,
plus
(ii) the sum of the outstanding bal-
ances of the amortization bases estab-
lished on account of funding waivers
under § 412(b)(2)(C), switchback to the
regular funding standard under § 412(b)-
(2)(D), use of the shortfall method under
§ 1.412(c)(1)–2, and the transition under
§ 1.412(c)(3)–2(d), minus
(iii) the credit balance (or plus the
funding deficiency), if any, in the funding
standard account.
.03 Approval 3. Approval is granted
for a change in funding method to the
level dollar aggregate funding method de-
scribed below.
(1) Under this method, the normal cost
is calculated in the aggregate as the nor-
mal cost per active participant multiplied
by the number of active participants.
(a) The normal cost per active partici-
pant is
(i) the total present value of future
benefits of all participants and beneficia-
ries, less adjusted assets, divided by
(ii) the total, for all active participants,
of the present value of an annuity of $1
per year for every year of a participant’s
anticipated future service, determined as
of the participant’s attained age.
(b) For this purpose, the adjusted as-
sets are equal to
(i) the actuarial value of the assets,
plus
(ii) the sum of the outstanding bal-
ances of the amortization bases estab-
lished on account of funding waivers
under § 412(b)(2)(C), switchback to the
regular funding standard under § 412(b)-
(2)(D), use of the shortfall method under
§ 1.412(c)(1)–2 of the regulations, and the
transition under § 1.412(c)(3)–2(d), minus
(iii) the credit balance (or plus the
funding deficiency), if any, in the funding
standard account.
.04 Approval 4. Approval is granted
for a change in funding method to the
level percent of compensation individual
aggregate funding method described
below.
(1) This approval applies only for
plans which provide for compensation-re-
lated benefits.
(2) This approval does not apply if the
actuarial value of assets is less than the
present value of benefits for inactive par-
ticipants and beneficiaries, or if the
amount in paragraph (3)(b)(i) is less than
zero.
(3) Under this method, the normal cost
is the sum of the individual normal costs
for each active participant.
(a) The normal cost for an active par-
ticipant is
(i) the present value of future benefits
for the participant, less allocated ad-
justed assets, divided by
(ii) the ratio of (A) the present value
of the compensation expected to be paid
to the participant for each year of the
participant’s anticipated future service,
determined as of the participant’s at-
tained age, to (B) the participant’s cur-
rent compensation.
(b) For this purpose, allocated ad-
justed assets are calculated as follows:
(i) First, the adjusted value of the as-
sets is equal to:
(A) the actuarial value of the assets,
plus
(B) the sum of the outstanding bal-
ances of the amortization bases estab-
lished on account of funding waivers
under § 412(b)(2)(C), switchback to the
regular funding standard under § 412
(b)(2)(D), use of the shortfall method
under § 1.412(c)(1)–2, and the transition
under § 1.412(c)(3)–2(d), minus
(C) the credit balance (or plus the
funding deficiency), if any, in the fund-
ing standard account, minus
(D) any liabilities retained by the plan
for any inactive participant or benefi-
ciary.
(ii) In the first year the method is
used, the allocated adjusted value of the
assets for an active participant is calcu-
lated by allocating the adjusted value of
the assets in proportion to the present
value of accrued benefits, or in propor-
tion to the accrued liability determined
under one of the immediate gain funding
methods described in subsection .01 or
.08.
(iii) For years subsequent to the first
year in which the method is used, the ad-
justed value of the assets is allocated to
an active participant in the proportion
that
(A) the sum of the allocated adjusted
assets and calculated normal cost as of
the valuation date for the prior year for
that active participant bears to
(B) the total of the amounts in (A) for
all active participants.
.05 Approval 5. Approval is granted
for a change in funding method to the
level dollar individual aggregate funding
method described below.
(1) This approval does not apply if the
actuarial value of assets is less than the
present value of benefits of inactive par-
ticipants and beneficiaries, or if the
amount in paragraph (2)(b)(i) is less than
zero.
(2) Under this method, the normal cost
is the sum of the individual normal costs
for each active participant.
(a) The normal cost for an active partic-
ipant is
(i) the present value of future benefits
for the participant less allocated adjusted
assets, divided by
(ii) the present value of an annuity of
$1 per year for every year of the partici-
pant’s anticipated future service, deter-
mined as of the participant’s attained age.
(b) For this purpose, allocated adjusted
assets are calculated as follows:
(i) First, the adjusted value of the assets
is equal to:
(A) the actuarial value of the assets, plus
(B) the sum of the outstanding balances
of the amortization bases established on
account of funding waivers under
§ 412(b)(2)(C), switchback to the regular
funding standard under § 412(b)(2)(D),
use of the shortfall method under
§ 1.412(c)(1)-2, and the transition under
§ 1.412(c)(3)-2(d), minus
(C) the credit balance (or plus the fund-

October 16, 20003622000–42 I.R.B.
ing deficiency), if any, in the funding stan-
dard account, minus
(D) any liabilities retained by the plan
for any inactive participant or beneficiary.
(ii) In the first year the method is used,
allocated adjusted assets for an active par-
ticipant is calculated by allocating the ad-
justed value of the assets in proportion to
the present value of accrued benefits, or in
proportion to the accrued liability deter-
mined under one of the immediate gain
funding methods described in subsection
.01 or .09.
(iii) For years subsequent to the first
year in which the method is used, the ad-
justed value of the assets is allocated to an
active participant in the proportion that
(A) the sum of the allocated adjusted as-
sets and calculated normal cost as of the
valuation date for the prior year for that ac-
tive participant bears to
(B) the total of the amounts in (A) for
all active participants.
.06 Approval 6. Approval is granted
for a change in funding method to the
level percent of compensation frozen ini-
tial liability funding method described
below.
(1) This approval applies only for plans
which provide for compensation-related
benefits.
(2) Under this method, the normal cost
is calculated in the aggregate, for every
year the method is used including the
first, as the normal cost accrual rate multi-
plied by the total compensation of all ac-
tive participants.
(a) The normal cost accrual rate is
(i) the total present value of future ben-
efits of all participants and beneficiaries
less the sum of the actuarial value of as-
sets and the unfunded liability, divided by
(ii) the total, for all active participants,
of the present value of the compensation
expected to be paid to each participant for
each year of the participant’s anticipated
future service, determined as of the par-
ticipant’s attained age.
(b) As of the date of change, the un-
funded liability is set equal to the un-
funded accrued liability determined under
the level percentage of compensation in-
dividual entry age normal funding method
described in subsection .08.
(c) For years subsequent to the plan
year of the change in method, the un-
funded liability equals
(i) the unfunded liability for the prior
plan year, plus the normal cost for the
prior plan year (the result adjusted with
appropriate interest to the valuation date),
minus the actual contribution(s) for the
prior plan year (adjusted with appropriate
interest to the valuation date), and
(ii) the unfunded liability is further in-
creased (or decreased) by the amount of
any base established on the valuation date
which results from a plan amendment or a
change in assumptions. Such bases are
amortized over the period(s) described in
§ 412(b)(2)(B) or § 412(b)(3)(B), as ap-
plicable.
.07 Approval 7. Approval is granted
for a change in funding method to the
level dollar frozen initial liability funding
method described below.
(1) Under this method, the normal cost
is calculated in the aggregate, for every
year the method is used including the
first, as the normal cost per active partici-
pant multiplied by the number of active
participants.
(a) The normal cost per active partici-
pant is
(i) the total present value of future ben-
efits of all participants and beneficiaries
less the sum of the actuarial value of as-
sets and the unfunded liability, divided by
(ii) the total, for all active participants,
of the present value of an annuity of $1
per year for every year of a participant’s
anticipated future service, determined as
of the participant’s attained age.
(b) As of the date of change, the un-
funded liability is set equal to the unfunded
accrued liability determined under the level
dollar individual entry age normal funding
method described in subsection .09.
(c) For years subsequent to the plan
year of the change in method, the un-
funded liability equals
(i) the unfunded liability for the prior
plan year, plus the normal cost for the
prior plan year (the result adjusted with
appropriate interest to the valuation date),
minus the actual contribution(s) for the
prior plan year (adjusted with appropriate
interest to the valuation date), and
(ii) the unfunded liability is further in-
creased (or decreased) by the amount of
any base established on the valuation date
which results from a plan amendment or a
change in assumptions. Such bases are
amortized over the period(s) described in
§ 412(b)(2)(B) or § 412(b)(3)(B), as ap-
plicable.
.08 Approval 8. Approval is granted
for a change in funding method to the
level percent of compensation individual
entry age normal funding method de-
scribed below.
(1) This approval does not apply if the
alternative minimum funding standard ac-
count is used at any time within the 5-year
period commencing with the first day of
the plan year for which the change is
made.
(2) This approval applies only for plans
which provide for compensation-related
benefits.
(3) Under this method, the normal cost
is the sum of the individual normal costs
for all active participants. For an active
participant, the normal cost is the partici-
pant’s normal cost accrual rate, multiplied
by the participant’s current compensation.
(a) The normal cost accrual rate equals
(i) the present value of future benefits
for the participant, determined as of the
participant’s entry age, divided by
(ii) the present value of the compensa-
tion expected to be paid to the participant
for each year of the participant’s antici-
pated future service, determined as of the
participant’s entry age.
(b) In calculating the present value of
future compensation, the salary scale
must be applied both retrospectively and
prospectively to estimate compensation in
years prior to and subsequent to the valua-
tion year based on the compensation used
for the valuation.
(c) The accrued liability is the sum of
the individual accrued liabilities for all
participants and beneficiaries. A partici-
pant’s accrued liability equals the present
value, at the participant’s attained age, of
future benefits less, the present value at
the participant’s attained age of the indi-
vidual normal costs payable in the future.
A beneficiary’s accrued liability equals
the present value, at the beneficiary’s at-
tained age, of future benefits. The un-
funded accrued liability equals the total
accrued liability less the actuarial value of
assets.
(d) Under this method, the entry age
used for each active participant is the par-
ticipant’s age at the time he or she would
have commenced participation if the plan
had always been in existence under cur-
rent terms, or the age as of which he or
she first earns service credits for purposes
of benefit accrual under the current terms

2000–42 I.R.B.363October 16, 2000
of the plan. Alternatively, the entry age
may be determined as the age at the valu-
ation date next following the time de-
scribed in the preceding sentence.
.09 Approval 9. Approval is granted
for a change in funding method to the
level dollar individual entry age normal
funding method described below.
(1) This approval does not apply if the
alternative minimum funding standard ac-
count is used at any time within the 5-year
period commencing with the first day of
the plan year for which the change is
made.
(2) Under this method, the normal cost
is the sum of the individual normal costs
for all active participants.
(a) For an active participant, the indi-
vidual normal cost equals
(i) the present value of future benefits
for the participant, determined as of the
participant’s entry age, divided by
(ii) the present value of an annuity of
$1 per year for every year of the partici-
pant’s anticipated future service, deter-
mined as of the participant’s entry age.
(b) The accrued liability is the sum of
the individual accrued liabilities for all
participants and beneficiaries. A partici-
pant’s accrued liability equals the present
value, at the participant’s attained age, of
future benefits, less the present value at
the participant’s attained age of the indi-
vidual normal costs payable in the future.
A beneficiary’s accrued liability equals
the present value, at the beneficiary’s at-
tained age, of future benefits. The un-
funded accrued liability equals the total
accrued liability less the actuarial value of
the plan assets.
(c) Under this method, entry age used
for each active participant is the partici-
pant’s age at the time he or she would
have commenced participation if the plan
had always been in existence under cur-
rent terms, or the age as of which he or
she first earns service credits for purposes
of benefit accrual under the current terms
of the plan. Alternatively, the entry age
may be determined as the age at the valu-
ation date next following the time de-
scribed in the preceding sentence.
.10 Approval 10. Approval is granted
for a change in asset valuation method to
fair market value as defined in
§ 1.412(c)(2)–1(c).
.11 Approval 11. Approval is granted
for a change in asset valuation method to
the average value as defined in
§ 1.412(c)(2)–1(b)(7) (which does not
have a phase-in), or to any alternative for-
mulation that is algebraically equivalent
to this average value. The asset value de-
termined under the method will be ad-
justed to be no greater than 120% and no
less than 80% of the fair market value de-
fined in § 1.412(c)(2)–1(c).
For example, under § 1.412(c)-
(2)–1(b)(7), if the averaging period is five
years, the average value is based on the
fair market value of assets in the current
year and the adjusted values of assets for
the prior four years as provided in
§ 1.412(c)(2)–1(b)(8). An alternative for-
mulation which is algebraically equiva-
lent to this method is one in which the av-
erage value of assets is equal to the fair
market value on the valuation date, minus
decreasing fractions (4/5, 3/5, 2/5 and 1/5,
in this example) of the appreciation and
depreciation of the assets in each of the
four preceding years. The stated averag-
ing period may not exceed five (5) plan
years.
.12 Approval 12. Approval is granted
for a change in asset valuation method to
the average value (as defined in
§ 1.412(c)(2)–1(b)(7)), modified to use
the phase-in described below, or to any al-
ternative formulation that is algebraically
equivalent to this average value. The asset
value determined under the method will
be adjusted to be no greater than 120%
and no less than 80% of the fair market
value defined in § 1.412(c)(2)–1(c).
In the first year this method is used, the
average value is calculated as in Approval
11, except that the adjusted values for all
but the most recent prior year are replaced
by the adjusted value for the most recent
prior year. In the second year, the average
is calculated as in Approval 11, except
that the values for all but the most recent
two prior years are replaced by the ad-
justed value for the second most recent
prior year. This process is continued until
values for all prior years in the averaging
period are phased in. The stated averaging
period may not exceed five (5) plan years.
.13 Approval 13. Approval is granted
for a change in the valuation date to the
day that is the first day of the plan year.
.14 Approval 14. Approval is granted
to change the funding method used for
valuing ancillary benefits to the funding
method used to value retirement benefits,
if the prior method for valuing ancillary
benefits had been the one-year term
method. For this purpose, ancillary bene-
fits are defined in § 1.412(c)(3)–1(f)(2)
and include pre-retirement death and dis-
ability benefits.
.15 Approval 15. Approval is granted
for a change in asset valuation method to
the smoothed market value (without
phase-in) described below, or to any alter-
native formulation that is algebraically
equivalent to this smoothed value. The
asset value determined under the method
will be adjusted to be no greater than
120% and no less than 80% of the fair
market value defined in § 1.412(c-
(2)–1(c).
Under this method, the actuarial value
of assets is equal to the market value of
assets less a decreasing fraction (i.e.,
(n-1)/n, (n-2)/n, etc., where n equals the
number of years in the smoothing period)
of the gain or loss for each of the preced-
ing n-1 years. The stated smoothing pe-
riod may not exceed five (5) plan years.
Under this method, a gain or loss for a
year is determined by calculating the dif-
ference between the expected value of the
assets for the year and the market value of
the assets at the valuation date. The ex-
pected value of the assets for the year is
the market value of the assets at the valua-
tion date for the prior year brought for-
ward with interest at the valuation interest
rate to the valuation date for the current
year plus contributions minus disburse-
ments (i.e., benefits and expenses), all ad-
justed with interest at the valuation rate to
the valuation date for the current year. If
the expected value is less than the market
value, the difference is a gain. Con-
versely, if the expected value is greater
than the market value, the difference is a
loss.
For example, if the smoothing period is
five years, the actuarial value of the assets
will be the market value of the plan’s as-
sets, with gains subtracted or losses added
at the rates described as follows:
(i) 4/5 of the prior year’s gain or loss
(ii) 3/5 of the second preceding year’s
gain or loss
(iii) 2/5 of the third preceding year’s gain
or loss
(iv) 1/5 of the fourth preceding year’s
gain or loss
.16 Approval 16. Approval is granted
for a change in asset valuation method to

October 16, 20003642000–42 I.R.B.
the smoothed market value (with phase-
in) described below, or to any alternative
formulation that is algebraically equiva-
lent to this smoothed value. The asset
value determined under the method will
be adjusted to be no greater than 120%
and no less than 80% of the fair market
value defined in § 1.412(c)(2)–1(c).
In the first year this method is used the
actuarial value of assets is equal to the
market value as of the valuation date. In
each subsequent year, the smoothed value
is calculated in the same manner as in Ap-
proval 15, except that the only gains or
losses recognized are those occurring in
the year of the change and in later years.
The stated smoothing period may not ex-
ceed five (5) plan years.
.17 Approval 17. Approval is granted
for a change in asset valuation method to
the average value (as defined in § 1.412-
(c)(2)–1(b)(7)), modified to use the alter-
native phase-in as described below, or to
any alternative formulation that is alge-
braically equivalent to this average. The
asset value determined under the method
will be adjusted to be no greater than
120% and no less than 80% of the fair
market value defined in § 1.412-
(c)(2)–1(c).
In the first year this method is used, the
actuarial value of assets is equal to the
market value. In the second year, the av-
erage value is calculated in the same man-
ner as in Approval 11, except that the av-
eraging period is two years. In the third
year, the average value is calculated in the
same manner as in Approval 11, except
that the averaging period is three years.
This process continues until the stated av-
eraging period (not to exceed five years)
is reached.
SECTION 4. SPECIAL APPROVALS
.01 Approvals to Remedy Unreason-
able Allocation of Costs.
(1) If a plan uses an individual aggregate
funding method and an individual normal
cost becomes negative for a participant,
approval is granted to re-allocate excess
assets to other participants in proportion to
the present value of accrued benefits, or in
proportion to the accrued liability deter-
mined under the immediate gain funding
method described in section 3.01, section
3.08 (only if the normal cost for a partici-
pant is determined as a level percent of
compensation under the plan’s method),
section 3.09 (only if the normal cost for a
participant is determined as a level dollar
amount under the plan’s method) or in pro-
portion to the allocated adjusted assets
prior to the reallocation. For this purpose,
excess assets are defined as the excess, if
any, of the assets currently allocated to the
participant over the present value of the
participant’s future benefits.
(2) If a plan uses a spread gain funding
method which establishes an initial un-
funded liability using an immediate gain
funding method (e.g., frozen initial liabil-
ity or attained age normal), and the nor-
mal cost and/or unfunded liability be-
come(s) negative, then, in the case where
the normal cost under the plan’s method is
determined as a level percentage of com-
pensation, approval is granted to reestab-
lish the unfunded liability under the fund-
ing method described in section 3.01 if
the unfunded liability was originally es-
tablished under the unit credit method, or
under the funding method described in
section 3.08 if the unfunded liability was
originally established under the entry age
normal method. See Rev. Rul. 81–213,
1981–2 C.B. 101, regarding whether a
funding method is a spread gain funding
method or an immediate gain funding
method. In the case where the normal cost
under the plan’s method is determined as
a level dollar amount, approval is granted
to reestablish the unfunded liability under
the funding method described in section
3.01 if the unfunded liability was origi-
nally established under the unit credit
method, or under the funding method de-
scribed in section 3.09 if the unfunded lia-
bility was originally established under the
entry age normal method. If the reestab-
lished unfunded liability is less than zero,
approval is granted to change to the ag-
gregate funding method described in sec-
tion 3.02 (if the normal cost under the
plan’s method is determined as a level
percent of compensation), or section 3.03
(if the normal cost under the plan’s
method is determined as a level dollar
amount).
(3) If a plan that uses a spread gain
funding method which establishes an ini-
tial unfunded liability using an immediate
gain funding method (e.g., frozen initial
liability or attained age normal), becomes
fully funded within the meaning of § 412-
(c)(6) (without taking into account § 412-
(c)(7)(A)(i)(I)), approval is granted to
change to the aggregate funding method
described in section 3.02 (if the normal
cost under the plan’s method is deter-
mined as a level percent of compensa-
tion), or section 3.03 (if the normal cost
under the plan’s method is determined as
a level dollar amount).
(4) If a plan uses an individual aggregate
funding method and the actuarial value of
plan assets is less than the present value of
benefits for inactive participants and bene-
ficiaries, or if the actuarial value of the as-
sets, plus the sum of the outstanding bal-
ances of the amortization bases established
on account of funding waivers under
§ 412(b)(2)(C), switchback to the regular
funding standard under § 412(b)(2)(D), use
of the shortfall method under § 1.412-
(c)(1)–2, and the transition under
§ 1.412(c)(3)–2(d), minus the credit bal-
ance (or plus the funding deficiency), if
any, in the funding standard account, minus
any liabilities retained by the plan for any
inactive participant or beneficiary is less
than zero, approval is granted to change to
the aggregate funding method described in
section 3.02 (if the normal cost under the
plan’s method is determined as a level per-
cent of compensation), or section 3.03 (if
the normal cost under the plan’s method is
determined as a level dollar amount).
(5) If a plan provides that no participant
may accrue a benefit as of a date that is no
later than the first day of the plan year, ap-
proval is granted to change to the unit
credit method described in section 3.01.
.02 Approval for Change in Funding
Method for Fully Funded Terminated
Plans.
(1) For a plan year during which a plan
is terminated, the funding method may be
changed to a method described in para-
graph (2) provided that the conditions set
forth in paragraph (3) are satisfied. As
part of the change in method, the valua-
tion date may be changed to the date of
termination or the first day of the plan
year, and the asset valuation method may
be changed to value plan assets at fair
market value.
(2) A method is described in this sub-
section if the normal cost for the plan year
is the present value of the benefits accru-
ing in the plan year, and the accrued lia-
bility is the present value of the benefits
accrued as of the first day of the plan year.
(3) The conditions in this subsection
are satisfied if:

2000–42 I.R.B.365October 16, 2000
(a) As of the date of termination, the
fair market value of the assets of the plan
(exclusive of contributions receivable) is
not less than the present value of all bene-
fit liabilities (whether or not vested), and
(b) if applicable, a timely notice of in-
tention to terminate was filed with the
Pension Benefit Guaranty Corporation
(PBGC).
.03 Approval for Takeover Plans.
(1) Approval is granted by this para-
graph for a change in funding method
where all the conditions set forth in para-
graphs (2) through (4) are satisfied.
(2) There has been both a change in the
enrolled actuary for the plan and a change
in the business organization providing ac-
tuarial services to the plan.
(3) The method used by the new actu-
ary is substantially the same as the
method used by the prior actuary, and is
consistent with the information contained
in the prior actuarial valuation reports or
prior Schedules B of Form 5500. Also, the
method used by the new actuary must be
applied to the prior year (using the as-
sumptions of the prior actuary) and the
absolute value of each resulting differ-
ence in normal cost, accrued liability (if
directly computed under the method) and
actuarial value of assets, that is attribut-
able to the change in cost method, does
not exceed five percent (5%) of the re-
spective amounts calculated by the prior
actuary for that year.
(4) The change in costs due to the
change in method is treated in the same
manner as an experience gain or loss, un-
less the actuarial assumptions are being
changed, in which case the change in
method is treated as part of the change in
assumptions.
.04 Approval for Change in Valuation
Software
(1) Approval is granted for a change in
method that results from a change in valu-
ation software where all the conditions set
forth in paragraphs (2) through (8) are sat-
isfied. Note that certain changes in valua-
tion software may not constitute changes
in funding method. For example, the up-
date of the valuation software to incorpo-
rate the actual social security taxable wage
base for the current year is not a change in
funding method. Also, if all of the results
of each specific computation are the same
after the change in valuation software,
there is no change in funding method.
(2) There has been a modification to
the computations in the valuation soft-
ware or a different valuation software sys-
tem has been used. Examples of modifi-
cations to the computations in the
valuation software include a change from
commutation functions to direct calcula-
tion of actuarial values, changes in the
rounding conventions or changes to cor-
rect errors or inefficiencies in the compu-
tations. Examples of using a different val-
uation software system include a change
in the spreadsheet software (e.g., Lotus 1-
2-3 to Excel) or a change in the actuarial
software vendor.
(3) The underlying method is un-
changed and is consistent with the infor-
mation contained in the prior actuarial
valuation reports and prior Schedules B of
Form 5500.
(4) The modification to the computa-
tions in the valuation software or the use of
a different valuation software system is de-
signed to produce results that are no less
accurate than the results produced prior to
the modification or change.
(5) The net charge to the funding stan-
dard account for the year (or for the prior
year) determined using the new software
does not differ from the net charge to the
funding standard account determined using
the old software (all other factors being
held constant) by more than two percent
(2%).
(6) A change in valuation software re-
quiring approval was not made for the
prior plan year.
(7) Section 4.04 (Approval for Takeover
Plans) of this revenue procedure is not ap-
plicable to the change.
(8) The effect of the change in method is
treated in the same manner as an experi-
ence gain or loss, unless the actuarial as-
sumptions are being changed, in which
case the effect of the change in method is
treated as part of the effect of the change in
assumptions.
.05 Approval for De MinimisMergers
(1) Approval is granted for a change in
method in connection with a merger de-
scribed in paragraph (2) where the proce-
dures set forth in paragraphs (3) through
(5) below are followed.
(2) The merger involves the merger of a
smaller plan (within the meaning of
§ 1.414(l)–1(h)(1)) and a larger plan
(within the meaning of § 1.414(l)–1(h)(1)).
For purposes of this paragraph (2), the
rules of §§ 1.414(l)–1(h)(2), 1.414-
(l)–1(h)(3), and 1.414(l)–1(h)(4) apply in
determining whether a merger is de min-
imis.
(3) For the period from the beginning of
the plan year of the smaller plan to the date
of the merger, the charges and credits to
the funding standard account for the
smaller plan are determined without regard
to the merger. If that period is less than a
full 12-month plan year, the charges and
credits to the funding standard account for
the smaller plan for this period are ratably
adjusted using the principles of Rev. Rul.
79–237, 1979–2 C.B. 190, in the same
manner as if the date of the merger was the
date of plan termination of the smaller
plan. The deductible limit under § 404 for
contributions to the smaller plan is deter-
mined by treating the period from the be-
ginning of the plan year to the date of
merger as a short plan year and following
the procedure set forth in section 5 of Rev.
Proc. 87–27, 1987–1 C.B. 769. Schedule B
of Form 5500 is filed for the smaller plan
for the period from the beginning of the
plan year of the smaller plan to the date of
the merger. Any contributions made for the
smaller plan after the date of the merger,
but not later than 8 1/2 months after the
date of the merger, are credited to the fund-
ing standard account of the smaller plan
for this period. For purposes of applying
§ 4971(b) (but not § 4971(a)) with respect
to the smaller plan, any funding deficiency
that existed for the smaller plan is consid-
ered corrected as of the date of merger.
(4) If the valuation date for the larger
plan for the plan year in which the merger
occurs precedes the date of the merger, the
charges and credits to the funding standard
account for the larger plan for that plan
year are determined without regard to the
merger. Consequently, Schedule B of Form
5500 for the plan year of the larger plan in
which the merger occurs is filed without
regard to the merger in such a case. Simi-
larly, the deductible limit determined under
§ 404 with respect to the plan year of the
larger plan in which the merger occurs is
determined without regard to the merger.
(5) For the actuarial valuation of the
larger plan as of the valuation date coinci-
dent with or next following the date of the
merger, the funding method (including
asset valuation method) used is that for
the larger plan, and the funding method
(including asset valuation method) used

October 16, 20003662000–42 I.R.B.
for the smaller plan is disregarded. The
charges and credits to the funding stan-
dard account for the larger plan are deter-
mined by treating the net effect of the
change in assets and liabilities due to the
merger in the same manner as any other
gain or loss experienced by the larger
plan. Consequently, any amortization
bases, credit balances, or funding defi-
ciencies with respect to the smaller plan
are disregarded for purposes of applying
§ 412 and § 4971 with respect to the
larger plan.
.06 Approval for Certain Mergers With
Same Plan Year And Merger Date of First
or Last Day of Plan Year
(1) Approval is granted for a change in
method that results from a merger of one
plan with another plan in a given plan
year where all the conditions set forth in
paragraphs (2) through (6) are satisfied,
and the procedures set forth in paragraphs
(7) through (13) are followed.
(2) The merger is not a de minimis
merger within the meaning of § 1.414-
(l)–1(h).
(3) The funding method (without re-
gard to the asset valuation method) used
for each of the plans is a method de-
scribed in section 3.
(4) Both plans have the same plan year
and a valuation date that is either the first
or last day of the plan year.
(5) The date of the merger is either the
first day of the plan year or the last day of
the plan year of the two plans.
(6) In a case in which the date of the
merger is the first day of the plan year,
neither plan has a funding deficiency for
the prior plan year. In a case in which the
date of the merger is the last day of the
plan year, neither plan has a funding defi-
ciency for the plan year of the merger
(after taking into account contributions
made after the date of the merger as pro-
vided in paragraph (13) below).
(7) If the date of the merger is the first
day of the plan year, the minimum fund-
ing standard of § 412 and the deductible
limit of § 404 are determined for the
merged plan for the entire plan year in
which the merger occurs in the manner
provided in paragraphs (8), (9), (10), (11),
and (12) below. Consequently, for the
plan year in which the merger occurs,
only one Schedule B of Form 5500 is
filed for the merged plan in such a case.
(8) If the same asset valuation method
(in all respects) is used for each of the two
plans, the asset valuation method of the
merged plan is that method. If the same
asset valuation method (in all respects) is
not used for each of the two plans (for ex-
ample, the smoothing period is three
years for one of the plans and five years
for the other plan), the asset valuation
method used for the merged plan must be
an asset valuation method described in
section 3.
(9) If the funding method (without re-
gard to the asset valuation method) used
for each of the two plans is the same, that
funding method is continued for the plan
after the merger. If the funding method
(without regard to the asset valuation
method) used for each of the two plans is
not the same, then the funding method
used for the ongoing plan is continued
after the merger. For this purpose, the on-
going plan is the plan as designated by the
plan administrator (within the meaning of
§ 414(g)), whose name and plan number
will continue to be reported on Schedule
B of Form 5500 for years after the
merger. The funding method used for the
plan which is not the ongoing plan is dis-
regarded.
(10) An experience gain or loss is de-
termined separately for each of the two
plans, for the period prior to the date of
the merger, without regard to the merger
and any associated changes (i.e., changes
in funding method, actuarial assumptions,
or plan benefits). The preceding sentence
applies only to the extent that an experi-
ence gain or loss would have been deter-
mined under the methods used for the
plans prior to the merger.
(11) All amortization bases that were
maintained for the two plans continue to
be maintained for the merged plan to the
extent they would be maintained under
the funding method used for the merged
plan. The credit balances, if any, of each
of the two plans from the prior year are
carried forward to the current plan year
and combined.
(12) If an unfunded liability is deter-
mined under the funding method used for
the ongoing plan, it must be determined
after any change in actuarial assumptions
and methods (including a change in asset
valuation method pursuant to paragraph
(8)). In the case of such a funding method
that is a spread gain method, the unfunded
liability is redetermined in the same man-
ner that the unfunded liability was origi-
nally determined for the ongoing plan.
Therefore, the amortization base estab-
lished pursuant to the rules of section
5.01(2) will reflect any change of actuarial
assumptions and methods. For purposes of
this paragraph, a spread gain method is any
method that does not directly calculate an
accrued liability. See Rev. Rul. 81–13 for
whether a funding method directly calcu-
lates an accrued liability.
(13) If the date of the merger is the last
day of the plan year, the minimum fund-
ing standard under § 412 and the de-
ductible limit under § 404 for each of the
plans for the plan year in which the
merger occurs are determined without re-
gard to the merger. Consequently, sepa-
rate Schedules B of Form 5500 are filed
for the plans for the plan year in which the
merger occurs without regard to the
merger in such a case. Any contribution
for the plan year that is made to the trust
after the date of the merger may be cred-
ited on either of the Schedules B provided
that the contribution is made for such plan
within the period described in § 412-
(c)(10). For the plan year following the
plan year in which the merger occurs, the
minimum funding standard and the de-
ductible limit are determined for the plan
after the merger by following the proce-
dures set forth in paragraphs (8), (9), (10),
(11) and (12) above as if the merger oc-
curred on the first day of such following
plan year.
.07 Approval for Certain Mergers With
Transition Period No More Than 12
Months
(1) Approval is granted for a change in
method that results from a merger of one
plan with another plan where all the con-
ditions set forth in paragraphs (2) through
(7) are satisfied, and the procedures set
forth in paragraphs (8) through (15) are
followed.
(2) The merger is not a de minimis
merger within the meaning of § 1.414-
(l)–1(h).
(3) The funding method (without re-
gard to the asset valuation method) used
for each of the plans is a method de-
scribed in section 3.
(4) Each of the plans, prior to the
merger, had a valuation date that was the
first day of the plan year.
(5) The plans do not have the same plan
year, or, if both plans have the same plan

2000–42 I.R.B.367October 16, 2000
year, the date of the merger is not the first
day or the last day of the plan year.
(6) The period from the first day of the
plan year of the plan that is not the ongo-
ing plan to the end of the plan year of the
ongoing plan (as defined in section
4.06(9) above) in which the merger takes
place (the “transition period”) does not
exceed 12 months.
(7) The ongoing plan does not have a
funding deficiency for the prior plan year,
and the plan that is not the ongoing plan
does not have a funding deficiency for the
short plan year described in (8) below.
(8) For the period from the beginning
of the plan year of the plan that is not the
ongoing plan to the date of the merger
(the “short plan year”), the charges and
credits to the funding standard account for
such plan are determined without regard
to the merger. For the short plan year, the
charges and credits to the funding stan-
dard account for that plan are ratably ad-
justed using the principles of Rev. Rul.
79–237 in the same manner as if the date
of the merger was the date of plan termi-
nation of that plan, and a Schedule B of
Form 5500 is filed for the short plan year.
Any contributions made for that plan after
the date of the merger, but not later than 8
1/2 months after the date of the merger,
are credited to the funding standard ac-
count of that plan for the short plan year.
(9) Charges and credits attributable to
the plan that is not the ongoing plan for the
period, if any, from the date of the merger
to the end of the plan year of the ongoing
plan (the “interim period”) are determined
without regard to the merger as set forth in
this paragraph. Accordingly, the charges
and credits are determined based upon the
funding method, actuarial assumptions,
and valuation results used for purposes of
paragraph (8) above, and are ratably ad-
justed to reflect the length of the interim
period. Such charges and credits should
include interest to reflect the period from
the valuation date (of the plan that is not
the ongoing plan) to the date of the merger,
as well as interest for the interim period.
The credit balance, if any, at the end of the
short plan year described in paragraph (8)
above is carried forward to the beginning
of the interim period.
(10) Unless the date of the merger is
the first day of the plan year of the ongo-
ing plan, the funding standard account for
the ongoing plan for the plan year in
which the merger occurs is determined in
steps. In the first step the funding stan-
dard account for the ongoing plan is de-
termined without regard to the merger. In
the second step, charges and credits attrib-
utable to the plan that is not the ongoing
plan are determined for the interim period
as described in paragraph (9) above. In
the third step the charges and credits from
the first two steps are combined in a man-
ner similar to the treatment for separate
plans under § 413(c)(4)(A) except that the
credit balance or funding deficiency for
each plan at the end of the year are com-
bined to determine an overall credit bal-
ance or funding deficiency. Schedule B
of Form 5500 is filed for the ongoing plan
for the plan year in which the merger oc-
curred with the combined entries to the
funding standard account as described
above. The other entries on the Schedule
B (e.g. lines dealing with accrued liabil-
ity) should be those for the ongoing plan
without regard to the merger.
(11) For the plan year of the ongoing
plan following the plan year in which the
merger occurs the funding method for the
ongoing plan is determined in accordance
with the rules set forth in paragraphs (11),
(12), and (13). If the same asset valuation
method (in all respects) is used for each of
the two plans, the asset valuation method
of the merged plan is that method. If the
same asset valuation method (in all re-
spects) is not used for each of the two
plans (for example, the smoothing period
is three years for one of the plans, and
five years for the other plan), the asset
valuation method used for the merged
plan must be an asset valuation method
described in section 3. If the funding
method (without regard to the asset valua-
tion method) used for each of the two
plans is the same, that funding method is
continued for the plan after the merger. If
the funding method (without regard to the
asset valuation method) used for each of
the two plans is not the same, then the
funding method used for the ongoing plan
is continued after the merger. The fund-
ing method used for the plan which is not
the ongoing plan is disregarded.
(12) An experience gain or loss is de-
termined separately for each of the two
plans, for the period prior to the valuation
date for the plan year following the plan
year in which the merger occurred, with-
out regard to the merger and any associ-
ated changes (i.e., changes in funding
method, actuarial assumptions, or plan
benefits). The preceding sentence applies
only to the extent that an experience gain
or loss would have been determined under
the methods used for the plans prior to the
merger.
(13) All amortization bases that were
maintained for the two plans continue to
be maintained for the ongoing plan to the
extent they would be maintained under
the funding method used for the ongoing
plan. If an unfunded liability is deter-
mined under the funding method used for
the ongoing plan, it must be determined
after any change in actuarial assumptions
and methods (including a change in asset
valuation method pursuant to paragraph
(12)). In the case of a funding method
that is a spread gain method, the unfunded
liability is redetermined in the same man-
ner that the unfunded liability was origi-
nally determined for the ongoing plan.
Therefore, the amortization base estab-
lished pursuant to the rules of section
5.01(2) will reflect any change of actuar-
ial assumptions and methods. For pur-
poses of this paragraph, a spread gain
method is any method that does not di-
rectly calculate an accrued liability. See
Rev. Rul. 81–13 for whether a funding
method directly calculates an accrued lia-
bility.
(14) The deductible limit under § 404
for the plan that is not the ongoing plan
for the short plan year is determined,
without regard to the merger, following
the procedures set forth in section 5 of
Rev. Proc. 87–27. The deductible limit
under § 404 for the plan that is the ongo-
ing plan is determined for the plan year in
which the merger occurs as the sum of the
limit determined for the plan without re-
gard to the merger plus the limit deter-
mined with respect to the plan that is not
the ongoing plan for the interim period
described in paragraph (9) above.
(15) If the date of the merger is the first
day of the plan year of the ongoing plan,
the minimum funding standard and the
deductible limit under § 404 are deter-
mined under this paragraph (15). The
minimum funding standard and de-
ductible limit under § 404 are determined
for the short plan year as described in
paragraphs (8) and (14) above as if the
merger occurred on the last day of the
preceding plan year of the ongoing plan.

October 16, 20003682000–42 I.R.B.
However, as there is no interim period,
the calculations described in paragraphs
(9) and (10) are not made. Instead, the
minimum funding standard and de-
ductible limit under § 404 for the plan
year of the merger will fully reflect the
merger in the manner described in para-
graphs (11), (12), and (13).
(16) The following example illustrates
the application of this subsection.
(a) Plan A has a plan year that begins on Octo-
ber 1 and ends on the following September 30. The
valuation date for Plan A is October 1, the first day
of the plan year.
(b) Plan B has a plan year that begins on July 1
and ends on the following June 30. The valuation
date for Plan B is July 1, the first day of the plan
year.
(c) Plan A is merged into Plan B on April 1,
2001.
(d) An actuarial valuation was made with re-
spect to Plan A as of October 1, 2000, for the plan
year commencing October 1, 2000, using the entry
age normal method as described in section 3.09 with
the actuarial value of the assets determined using the
smoothing method described in section 3.15. The
valuation interest rate for Plan A is 6 percent. The
relevant valuation results are as follows: the normal
cost equals $5,000; the unfunded accrued liability
equals $50,000; the credit balance from the prior
year equals $10,000; the amortization charges
equals $6,938; and the outstanding balance of amor-
tization bases equal $60,000. Plan A has no un-
funded current liability. No contribution was made
to Plan A for the short plan year from October 1,
2000, through April 1, 2001.
(e) An actuarial valuation was made with re-
spect to Plan B as of July 1, 2000, for the plan year
commencing July 1, 2000, using the entry age nor-
mal method as described in section 3.08 with the ac-
tuarial value of the assets determined as the fair mar-
ket value of the assets. The valuation interest rate for
Plan B is 8 percent. The relevant valuation results
are as follows: the normal cost equals $8,000; the
unfunded accrued liability equals $101,000; the
credit balance from the prior year equals $19,000;
the amortization charges equal $11,428; and the out-
standing balance of amortization bases equals
$120,000. Plan B has no unfunded current liability.
(f) For Plan A, the period from October 1, 2000,
to April 1, 2001, is treated as a short plan year for
purposes of § 412. The charges and credits to the
funding standard are determined based upon the Oc-
tober 1, 2000, actuarial valuation without regard to
the merger and are ratably adjusted to reflect the
short plan year from October 1, 2000, to April 1,
2001. A Schedule B of Form 5500 is filed for the
short plan year with the relevant entries for the fund-
ing standard account reported as follows: the nor-
mal cost is $2,500 (1/2 times $5,000), the amortiza-
tion charge is $3,469 (1/2 times $6,938), and the
interest on the normal cost and amortization charge
is $176 (for the period from October 1, 2000,
through April 1, 2001). Thus, the total charges are
$6,145. The credits to the funding standard account
that are reported on the Schedule B are $10,295 rep-
resenting the prior year credit balance of $10,000
plus $295 interest for the short plan year. As a re-
sult, a credit balance of $4,150 ($10,295 less
$6,145) is reported on the Schedule B as of April 1,
2001.
(g) For Plan B, the minimum funding standard
for the plan year beginning July 1, 2000, is deter-
mined in steps as described in paragraph (10)
above.
First, the minimum funding standard is deter-
mined for Plan B without regard to the merger using
the July 1, 2000, actuarial valuation. Thus, the nor-
mal cost would be $8,000, the amortization charge
would be $11,428, and interest on these amounts
(using the 8 percent interest rate) would be $1,554,
and the total charges would be $20,982. The credits
(without regard to employer contributions) would
be the credit balance of $19,000 plus interest (at 8
percent) of $1,520 for total credits of $20,520. Ac-
cordingly, Plan B would have a funding deficiency
of $462 ($20,982 minus $20,520) if there were no
employer contributions and the merger was disre-
garded.
Second, charges and credits attributable to Plan
A are determined for the interim period (from April
1, 2001 (the date of the merger) to June 30, 2001
(the end of the plan year of the ongoing plan in
which the merger occurs)). The charges consist of a
normal cost of $1,287 (3/12 of $5,000 adjusted for
one half years interest at 6 percent), an amortization
charge of $1,786 (3/12 of $6,938 adjusted for one
half years interest at 6 percent), plus interest of $45
(for the interim period at 6 percent) for total charges
of $3,118. The credits (without regard to employer
contributions) consist of the credit balance of
$4,150 (from the Schedule B for the short plan year
from October 1, 2000, to April 1, 2001) plus interest
(at 6 percent for the interim period) of $61 for total
credits of $4,211. Accordingly, for the interim pe-
riod from April 1, 2001, to June 30, 2001, the
charges and credits attributable to Plan A would re-
sult in a credit balance of $1,093 (the excess of
$4,211 over $3,118) if there were no employer con-
tribution and the merger was disregarded.
Third, the charges and credits for the first two
steps are combined except that the credit balance or
funding deficiency that were separately determined
at the end of the year are combined to determine an
overall credit balance or funding deficiency. Thus,
the charges reported on the 2000 Schedule B for
Plan B would consist of a normal cost of $9,287
($8,000 plus $1,287), an amortization charge of
$13,214 ($11,428 plus $1,786), interest charge of
$1,599, and total charges of $24,100 ($20,982 plus
$3,118). The credits reported on the 2000 Schedule
B for Plan B would consist of a prior year credit
balance of $23,150 ($19,000 plus $4,150), interest
credits of $1,581 ($1,520 plus $61), and total cred-
its of $24,731 ($20,520 plus $4,211). The credit
balance reported on the 2000 Schedule B as of June
30, 2001, would be $631 ($1,093 minus $462).
(h) With the July 1, 2001, actuarial valuation
for Plan B, the funding method for the plan as
merged is the entry age normal method with the ac-
tuarial value of the assets determined using a
method described in section 3. An amortization
base is established pursuant to section 5 to reflect
the change in funding method.
.08 Approval for Other Mergers With
Transition Period More Than 12 Months
(1) Approval is granted for a change in
method that is otherwise described in
section 4.07 (except that the transition
period described in section 4.07(6) ex-
ceeds 12 months) if the procedures set
forth in paragraphs (2) through (6) are
followed. If, however, the date of the
merger is the first day of the plan year of
the ongoing plan, the merger is treated as
occurring on the day before the first day
of the plan year of the ongoing plan. In
such a case, the length of the transition
period would be less than 12 months, and
the rules of section 4.07 apply.
(2) For the period from the beginning
of the plan year of the plan that is not the
ongoing plan to the date of the merger
(the “short plan year”), the charges and
credits to the funding standard account
for that plan are determined without re-
gard to the merger. For the short plan
year, the charges and credits to the fund-
ing standard account for that plan are rat-
ably adjusted using the principles of Rev.
Rul. 79–237 in the same manner as if the
date of the merger was the date of plan
termination of that plan, a Schedule B of
Form 5500 is filed for that plan for the
short plan year. Any contributions made
for that plan after the date of the merger,
but not later than 8 1/2 months after the
date of the merger, are credited to the
funding standard account of that plan for
the short plan year.
(3) Charges and credits attributable to
the plan that is not the ongoing plan for
the period from the date of the merger to
the end of the plan year of the plan that is
the ongoing plan (the “interim period”)
are determined without regard to the
merger as set forth in this paragraph (3).
Accordingly, the charges and credits are
determined based upon the funding
method, actuarial assumptions, and valu-
ation results used for purposes of para-
graph (2) above.
(a) For the period from the date of the
merger to the date that would have been
the end of the plan year of the plan that is
not the ongoing plan had there been no
merger (the “first partial period”), the
charges and credits to the funding stan-
dard account are determined by ratably
adjusting the charges and credits deter-
mined under paragraph (2) above to re-
flect the length of the first partial period.
Such charges and credits should include
interest to reflect the period from the val-
uation date (of the plan that is not the on-

2000–42 I.R.B.369October 16, 2000
going plan) to the date of the merger, as
well as interest for the interim period. The
credit balance at the end of the short plan
year described in paragraph (2) above is
carried forward to the beginning of the
first partial period.
(b) For the period from the date that
would have been the end of the plan year
of the plan that is not the ongoing plan
had there been no merger to the end of the
plan year of the ongoing plan in which the
merger occurs (the “second partial pe-
riod”), the charges and credits to the fund-
ing standard account are determined
based upon the expected normal cost
amortization charge, and amortization
credit from the valuation used for pur-
poses of paragraph (2) above, and are rat-
ably adjusted to reflect the length of the
second partial period. Such charges and
credits should include interest for the sec-
ond partial period. In addition, if the fund-
ing method used for the plan that is not
the ongoing plan is a funding method that
directly calculates an accrued liability
within the meaning of Rev. Rul. 81–13,
an amortization base is developed to re-
flect the gain or loss with respect to assets
for the short plan year by comparing the
expected and actual value of the assets.
For this purpose, the expected value of
the assets is computed as the market value
of the assets determined for purposes of
paragraph (2), plus contributions made
for the short plan year described in para-
graph (2), minus disbursements (i.e., ben-
efit payments and expenses determined
on either an actual or expected basis),
with all items adjusted for expected inter-
est at the valuation rate for the period to
the date of the merger. The actual value
of the assets is set to the market value of
the assets of the plan that is not the ongo-
ing plan (that become part of the assets of
the ongoing plan) on the date of the
merger. The amortization charge or credit
(whichever is the case) is determined for
such base and is ratably adjusted to reflect
the length of the interim period.
(4) The funding standard account for
the ongoing plan for the plan year in
which the merger occurs is determined in
steps. In the first step the funding stan-
dard account for the ongoing plan is de-
termined without regard to the merger. In
the second step, the funding standard ac-
count for the plan that is not the ongoing
plan is determined for the interim period
by adding together the charges and credits
for the first and second partial periods de-
scribed in paragraph (3) above. In the
third step the charges and credits from the
first two steps are combined in a manner
similar to the treatment for separate plans
under § 413(c)(4)(A) except that the
credit balance or funding deficiency for
each plan at the end of the year are com-
bined to determine an overall credit bal-
ance or funding deficiency. Schedule B
of Form 5500 is filed for the ongoing plan
for the plan year in which the merger oc-
curred with the combined entries to the
funding standard account as described
above. The other entries on the Schedule
B (e.g., lines dealing with accrued liabil-
ity) should be those for the ongoing plan
without regard to the merger.
(5) For the plan year following the
plan year in which the merger occurs the
funding method for the ongoing plan is
determined in accordance with the rules
in paragraphs (11), (12), and (13) of sec-
tion 4.07.
(6) The deductible limit under § 404
for the plan that is not the ongoing plan
for the short plan year is determined,
without regard to the merger, following
the procedures set forth in section 5 of
Rev. Proc. 87–27. The deductible limit
under § 404 for the plan that is the ongo-
ing plan is determined for the plan year in
which the merger occurs as the sum of the
limit determined for the plan without re-
gard to the merger plus the limit deter-
mined with respect to the plan that is not
the ongoing plan for the interim period.
(7) The following example illustrates
the application of this subsection. The
facts are the same as in the example in
section 4.07(16) except that the plan year
of Plan B is the calendar year and the val-
uation date is January 1, 2001. Additional
facts are that the market value of the as-
sets of Plan A as of the valuation date of
October 1, 2000, is $800,000, the market
value of the assets of Plan A at the date of
the merger is $820,000, and there are no
disbursements expected from Plan A dur-
ing this period.
(a) For Plan A, for the period from October 1,
2000, through April 1, 2001, is treated as a short
plan year. The funding standard account for this pe-
riod is determined as shown in section 4.07(16)(f).
Thus, there is a credit balance of $4,150 as of the
end of the short period.
(b) For Plan B, the minimum funding standard
for the plan year beginning January 1, 2001, is deter-
mined in steps as described in paragraph (4) above.
First, the minimum funding standard is deter-
mined is determined for Plan B without regard to
the merger using the January 1, 2001, actuarial val-
uation. Thus, the normal cost would be $8,000, the
amortization charge would be $11,428, the interest
on these amounts (using the 8 percent interest rate)
would be $1,554, and the total charges would be
$20,982. The credits (without regard to employer
contributions) would be the credit balance of
$19,000 plus interest (at 8 percent) of $1,520 for
total credits of $20,520. Accordingly, Plan B would
have a funding deficiency of $462 ($20,982 minus
$20,520) if there were no employer contributions
and the merger was disregarded.
Second, charges and credits are determined for
Plan A for the interim period (from April 1, 2001
(the date of the merger) to December 31, 2001 (the
end of the plan year of the ongoing plan in which
the merger occurs)) by adding together the charges
and credits for the first and second partial periods.
For the first partial period, the charges consist of a
normal cost of $2,574 (6/12 of $5,000 adjusted for
one half years interest at 6 percent), an amortization
charges of $3,572 (6/12 of $6,938, with one half
years interest at 6 percent) plus interest of $275 (for
the period from April 1, 2001, to December 31,
2001). The credits consist of the credit balance of
$4,150 (from the Schedule B for the short plan year
from October 1, 2000, to April 1, 2001) plus interest
(at 6 percent for the period from April 1, 2001, to
December 31, 2001) of $185 for total credits of
$4,336. For the second partial period, the charges
consist of a normal cost of $1,250 (3/12 of $5,000),
amortization charges of $2,348 ( 3/12 of $6,938
plus 9/12 of $818) plus interest of $71 (which in-
cludes interest on 9/12 of $818 for the period from
April 1, 2001, to December 31, 2001). As part of
this calculation, an amortization base of $3,650 is
established to represent the asset loss from October
1, 2000, to April 1, 2001 (determined as expected
assets of $823,650 less actual assets of $820,000).
The amortization charge for this base is $818.
There are no amortization credits for the second
partial period.
Third, the charges and credits for the first two
steps are combined except that the credit balance or
funding deficiency for each plan at the end of the
year are combined to produce an overall credit bal-
ance or funding deficiency. Thus, the charges re-
ported on the 2001 Schedule B for Plan B would
consist of a normal cost of $11,824 ($8,000 plus
$2,574 plus $1,250), amortization charges of
$17,347 ($11,428 plus $3,572 plus $2,347), interest
of $1,900 ($1,554 plus $275 plus $71) for total
charges of $31,071. The credits reported on the
2001 Schedule B (without regard to employer con-
tributions) would be a prior year credit balance of
$23,150 ($19,000 plus $4,150), interest credits of
$1,705 ($1,520 plus $185), and total credits of
$24,856 . The funding deficiency reported on the
2001 Schedule B as of December 31, 2001, would
be $6,216 ($462 plus $5,753) if there were no em-
ployer contributions for the plan year.
SECTION 5. GENERAL RULES
RELATING TO FUNDING METHODS
Approval for a change to any method in
this revenue procedure does not apply un-

October 16, 20003702000–42 I.R.B.
less the provisions of sections .01 through
.03 are satisfied.
.01 Amortization Bases.
(1) Continued Maintenance of Waiver,
Shortfall, Five-Year Alternative Switch-
back, and Transition Bases. In the case of
a plan which, prior to a change in funding
method, has a funding waiver base de-
scribed in § 412(b)(2)(C), a base due to a
switchback to the regular funding stan-
dard account described in § 412(b)(2)(D),
a shortfall base described in § 1.412
(c)(1)–2(g), or a transition base described
in § 1.412(c)(3)–2(d), the current funding
method, regardless of any other character-
istics, must maintain such base(s) as if the
funding method had not changed and
must charge, or credit, the funding stan-
dard account with the amortization
charge(s), or credit(s), for such base(s)
after the change in funding method.
(2) Creation of a Funding Method
Change Base. Except in the case of a
change to a funding method described in
section 3.02, section 3.03, section 3.04, or
section 3.05, all existing bases shall be
maintained and an amortization base shall
be established equal to the difference be-
tween the unfunded accrued liability
under the new method and an amount
equal to (A) the net sum of the outstand-
ing balances of all amortization bases (in-
cluding, when the preceding method was
an immediate gain method, the gain or
loss base for the immediately preceding
period), treating credit bases as negative
bases, less (B) the credit balance (or plus
the funding deficiency), if any, in the
funding standard account, less (C) the
sum of (i) any existing accumulation of
additional funding charges for prior plan
years due to § 412(l), (ii) any existing ac-
cumulation of additional interest charges
due to late or unpaid quarterly install-
ments for prior plan years and (iii) any ex-
isting accumulation of additional interest
charges due to the amortization of prior
funding waivers (which sum can be found
on the Schedule B, for example, in 1997
on Line 9q(4)), all adjusted for interest at
the valuation rate to the valuation date in
the plan year for which the change is
made. If this difference is a positive or
negative number, the resulting base will
be a charge base or a credit base, respec-
tively. In the case of a change to a funding
method described in section 3.02, section
3.03, section 3.04, or section 3.05, (a) the
bases described in paragraph (1) must be
maintained, and (b) all amortization bases
other than those described in paragraph
(1) shall be considered fully amortized.
(3) Amortization Period. For any
charge or credit base established pursuant
to the requirements of paragraph (2), the
amortization period is 10 years.
(4) No base is established due solely to
a change in valuation date.
.02 Although compensation must be
limited in accordance with § 401(a)(17) in
determining benefits to be valued, it may
or may not be so limited in determining
the present value of future compensation
expected to be paid to the participant for
each year of the participant’s anticipated
future service. However, the alternative
used is part of the method and any change
in such practice is a change in funding
method.
.03 Whenever, under the funding
method, the normal cost is calculated as a
level percentage of compensation, then an
individual’s compensation is included in
the amount of current year’s compensa-
tion to which the normal cost percentage
is applied if and only if the compensation
for that individual is included in the pre-
sent value of future compensation over
which normal costs are spread. Similarly,
whenever the normal cost is calculated as
a level dollar amount, then an individual
is included in the determination of the
number of individuals by which the nor-
mal cost per participant is multiplied if
and only if that individual is included for
purposes of determining the present value
of an annuity of $1 for years of antici-
pated service over which normal costs are
spread.
SECTION 6. RESTRICTIONS UNDER
REVENUE PROCEDURE
.01 General Restrictions.
(1) This revenue procedure does not
apply to a change in funding method for a
plan year if either (a) a Schedule B of
Form 5500 has been filed for such plan
year using some other funding method or
(b) the due date (including extensions) for
such Schedule B has passed.
(2) This revenue procedure does not
apply unless the plan administrator
(within the meaning of § 414(g)) or an au-
thorized representative of the plan spon-
sor indicates as part of the series Form
5500 for the plan year for which the
change is effective that the plan adminis-
trator or plan sponsor agrees to the change
in funding method. In the case of a spe-
cial approval for a change in funding
method described in section 4, other than
the approval described in section 4.02
(Approval for Change in Funding Method
for Fully Funded Terminated Plans), the
requirement that the plan administrator or
authorized representative of the plan
sponsor agree to the change will be satis-
fied if the plan administrator or an autho-
rized representative of the plan sponsor is
made aware of the change before the
Schedule B is filed.
(3) This revenue procedure does not
apply if, for the plan year of the change, a
minimum funding waiver under § 412(d)
has been requested for the plan or is being
amortized, or if an extension of an amorti-
zation period under § 412(e) has been re-
quested or is currently applicable for
computing minimum funding require-
ments, for the plan.
(4) This revenue procedure does not
apply if the plan is under an Employee
Plans examination for any plan year, or if
the plan sponsor, or a representative, has
received verbal or written notification
from the Tax Exempt and Government
Entities Division of an impending Em-
ployee Plans examination, or of an im-
pending referral from another part of the
Service for an Employee Plans examina-
tion, or if the plan has been under such an
examination and is in Appeals or in litiga-
tion for issues raised in an Employee
Plans examination.
(5) Except as provided in section 4.02,
this revenue procedure does not apply to a
change which is made for a plan year in
which the plan is terminated.
(6) Non-Applicability if Shortfall
Method is Discontinued. If the current
method makes use of the shortfall
method, approval to change to another
funding method under this revenue proce-
dure will apply only if the new funding
method continues to make use of the
shortfall method. For example, approval
is not granted to change from the entry
age normal method (which uses the short-
fall method) to the unit credit method
under section 3.01 unless the unit credit
method makes use of the shortfall
method.
.02 Additional Restrictions For Ap-
provals in Section 3.

2000–42 I.R.B.371October 16, 2000
(1) Non-Applicability for Reversion
Cases. This revenue procedure does not
apply to changes in funding method re-
quired by Treasury Release R-2697 dated
May 24, 1984, concerning the reversion
of assets from a terminated plan. Fur-
thermore, approval under section 3 does
not apply if, in the 15 years preceding the
date of change, such plan was involved
in a transaction described in such Trea-
sury Release subsequent to May 24,
1984.
(2) Non-Applicability for Plans Using
Universal Life Insurance Products. Ap-
proval to change to a method described
in section 3 does not apply in the case of
a plan for which some of the assets are
provided through universal life insurance
policies unless, under the funding
method adopted, (a) all plan benefits in-
cluding those provided by the universal
life insurance policies are considered lia-
bilities in calculating costs and are
funded using the same method as used
for retirement costs, and (b) the cash
value as of the valuation date of such
contracts is treated the same as all other
assets of the plan in calculating costs.
However, the requirements of (a) above
will not fail to be satisfied merely be-
cause ancillary benefits, within the
meaning of § 1.412(c)(3)–1(f)(2) of the
regulations, are funded on a reasonable
one-year term funding method.
(3) Four-Year Limitation on Changes.
Approval to change to a method de-
scribed in section 3 does not apply to any
of the following changes:
(a) the asset valuation method is being
changed and the asset valuation method
was changed in any of the four (4) pre-
ceding plan years,
(b) the valuation date is being changed
and the valuation date was changed in
any of the four (4) preceding plan years,
or
(c) The funding method is being
changed in a way not described in (a) or
(b), and a funding method change (other
than a change for which approval is pro-
vided by section 4 of this revenue proce-
dure, or a change described in (a) or (b))
was made in any of the four (4) preced-
ing plan years.
(4) Non-Applicability when Liabilities
are Adjusted for Assets. Approval to
change to a method described in section
3 does not apply to a change in funding
method under which the liabilities are
adjusted to reflect the performance or ex-
pected performance of the assets.
(5) Non-Applicability if Benefit Accru-
als are Frozen Under the Plan. Approval
to change to any method described in sec-
tions 3.02 through 3.09, does not apply if
a plan provides that no participant may
accrue a benefit as of a date that is no later
than the first day of the plan year. In such
a case, approval to change to the method
described in section 3.01 applies only as
described in section 4.01(5).
(6) Non-Applicability if Negative Nor-
mal Cost or Negative Unfunded Liability
Results From the Change. Approval to
change to a method described in section 3
does not apply if, after the change in
method, a negative normal cost exists.
Also, approval to change to a method de-
scribed in section 3 does not apply if,
after the change in method, a negative un-
funded liability exists, and the method (a)
is a spread gain method, and (b) uses an
unfunded liability in determining the nor-
mal cost. For purposes of the preceding
sentence, a spread gain method is any
method that does not directly calculate an
accrued liability. See Rev. Rul. 81–13 for
whether a funding method directly calcu-
lates an accrued liability.
(7) Non-Applicability if Change in
Method is Being Made Pursuant to a
Spin-off or Merger. Approval to change
to a method described in section 3 does
not apply if the funding method for a plan
year is being changed in connection with
a plan spin-off or merger unless the
change is made as provided in section
4.05, section 4.06, section 4.07, or section
4.08.
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective for
plan years commencing on or after Janu-
ary 1, 2000.
SECTION 8. EFFECT ON OTHER
REVENUE PROCEDURES
Rev. Proc. 95–51, as clarified and mod-
ified by Rev. Proc. 98–10 and Rev. Proc.
99–45, is superseded.
DRAFTING INFORMATION
The principal author of this revenue
procedure is James E. Holland, Jr. of the
Tax Exempt and Government Entities Di-
vision. For further information regarding
this revenue procedure, call (202) 622-
6076 between 2:30 and 3:30 Eastern time
(not a toll free number) Monday through
Friday. Mr. Holland’s number is (202)
622-6730 (also not a toll free number).
26 CFR 601.201: Rulings and determination letters.
(Also Part I, § 412.)
Rev. Proc. 2000–41
Section 1. Purpose
The purpose of this revenue procedure
is to set forth the procedure by which a
plan administrator or plan sponsor may
obtain approval of the Secretary of the
Treasury for a change in funding method
as provided by § 412(c)(5)(A) of the In-
ternal Revenue Code, as amended (the
“Code”), and § 302(c)(5)(A) of the Em-
ployee Retirement Income Security Act of
1974, as amended (“ERISA”).
Section 2. Background
.01 Section 3(31) of ERISA lists some
acceptable actuarial cost methods.
.02 Section 412(c)(5)(A) of the Code
and § 302(c)(5)(A) of ERISA state that if
the funding method of a plan is changed,
the new funding method shall become ef-
fective only if the change is approved by
the Secretary.
.03 Rev. Proc. 78–37, 1978–2 C.B.
540, provides the procedure by which a
plan administrator or plan sponsor may
obtain approval of the Secretary of the
Treasury for a change in funding method.
.04 Rev. Proc. 2000–40, 2000–42
I.R.B. 357, provides approval to change
the funding method used to determine the
minimum funding requirement for de-
fined benefit plans to any one of the meth-
ods described therein.
.05 Rev. Proc. 2000–4, 2000–1 I.R.B.
115, sets forth the current general proce-
dures of the Service relating to the is-
suance of rulings, determination letters,
and opinion letters on employee plans and
exempt organization matters. These gen-
eral procedures are updated annually.
Sections 9.02(11) and (12) of Rev. Proc.
2000–4 set forth the requirements for des-
ignating an authorized representative.
.06 Rev. Proc. 2000–8, 2000–1 I.R.B.
230, sets forth the current procedures re-

October 16, 20003722000–42 I.R.B.
lating to the payment of user fees for re-
quests to the Service for rulings, opinion
letters, determination letters, and similar
requests. The user fee procedures are up-
dated annually.
Section 3. Scope and Definition
.01 This revenue procedure applies to
any defined benefit plan that is subject to
§ 412 of the Code or § 302 of ERISA.
.02 Any change in a plan’s current
method of computing the minimum fund-
ing requirement under § 412 of the Code
or § 302 of ERISA is a change in funding
method (see § 1.412(c)(1)–1(b) of the In-
come Tax Regulations). The following
are examples of a change in funding
method:
Example 1 – The minimum funding requirement
is computed using the entry age normal method.
Changing the method to the unit credit method is a
change in funding method.
Example 2 – The minimum funding requirement
is computed using the aggregate method under
which the normal cost is level as a percentage of
compensation. Changing the method to the aggre-
gate method under which the normal cost is level as
a dollar amount is a change in funding method.
Example 3 – The method of valuing liabilities is
unchanged, but the method of valuing assets is
changed from one method to another method. This
is a change in funding method.
Example 4 – The valuation date for the plan is the
date that is the first day of the plan year. Changing
the valuation date to the date that is the last day of
the plan year is a change in funding method.
Example 5 – The valuation date for the plan is the
date that is the first day of the plan year. The plan
year is changed, and the valuation date is changed to
the date that is the first day of the new plan year.
This is a change in funding method.
Example 6 – The plan’s enrolled actuary uses
Vendor A’s software to determine the plan’s mini-
mum funding requirement. If the enrolled actuary
changes to Vendor B’s software and the results of
each specific computation are not the same after the
change in valuation software, this is a change in
funding method.
Example 7 – The method for determining the cost
of ancillary benefits is changed from one method to
another method. This is a change in funding
method.
.03 This revenue procedure applies to
any change in funding method for any
plan year after the first plan year in which
a plan is subject to § 412 of the Code or
§ 302 of ERISA. A funding method
adopted for a newly established plan is
not a change in funding method. A plan
established as a result of a spin-off within
the meaning of § 1.414(l)–1(b)(4), other
than a plan established as a result of a de
minimis spin-off, is not a newly estab-
lished plan for this purpose.
.04 Approval will be given to a change
in funding method only if the proposed
method is acceptable and the transition to
the proposed method is acceptable. In ad-
dition, a change in funding method that
has a significant effect on a plan’s mini-
mum funding requirement or full funding
limitation in the year of change may be
reviewed to assess the appropriateness of
the change in light of that effect.
Section 4. Application
.01 A plan administrator, plan sponsor,
or the authorized representative of either
who desires to obtain approval for a
change in funding method should make a
written request (no form is prescribed for
requesting approval) to:
Internal Revenue Service
Commissioner, TE/GE
Attention: T:EP:RA
P.O. Box 27063, McPherson Station
Washington, DC 20038
.02 (1) The request should be made no
later than the close of the plan year for
which the change is to be effective. How-
ever, requests made after the close of the
plan year, but no later than 2 1/2 months
after the close of the plan year, will gener-
ally be considered, at the discretion of the
Service, if a statement is attached to the re-
quest detailing an adequate reason for the
delay. Requests made after 2 1/2 months
after the close of the plan year generally
will not be considered. However, if a re-
quest for approval of a change in funding
method involves a plan merger, the request
should be made no later than 4 months be-
fore the filing deadline for Schedule B (Ac-
tuarial Information) of Form 5500 (of the
merged plan) for the plan year in which the
merger took place.
(2) If a change to an element of a fund-
ing method was recently approved and a
subsequent modification of the same ele-
ment is requested, the subsequent modifi-
cation generally will not be considered.
For example, if a plan was using a 5-year
smoothing asset valuation method prior to
1999 and the plan sponsor received ap-
proval to set the actuarial value of assets
at market value for 1999 (with a phase-in
of gains and/or losses in subsequent
years), a request in 2001 to set the actuar-
ial value of assets to market value for
2001 (with a phase-in of gains and/or
losses in subsequent years) will not be
considered.
.03 The request must satisfy all the re-
quirements of Rev. Proc. 2000–4. Atten-
tion is called to section 9 of Rev. Proc.
2000–4 concerning signatures, authorized
representatives, a power of attorney and
declaration of representative, and a penal-
ties of perjury statement. However, a
statement of proposed deletions pursuant
to § 6110(c) of the Code is not required to
be furnished. All signatures should be ac-
companied by the typed name and title (if
applicable) of the signer.
.04 The following information shall ac-
company the request:
(1) The employer identification
number, the plan name and num-
ber, and the name and address of
the plan administrator or plan
sponsor.
(2) A copy of the actuarial valuation
report for the plan year preced-
ing the year of change, and, if
available, a draft of the actuarial
valuation report for the year of
change. For requests involving
mergers, a copy of each of the
valuation reports for all the
merging plans for the plan year
preceding the change and, if
available, a draft of the actuarial
valuation report for the year of
change, should be included.
(3) A copy of the Schedule B (Actu-
arial Information) of Form 5500,
including attachments thereto,
that has been filed for the plan
year preceding the year of
change. For requests involving
mergers, a copy of the most re-
cent Schedule B that has been
filed for a plan year preceding
the year of change should be in-
cluded for each of the merging
plans.
(4) A statement of the plan year first
affected by the proposed change.
(5) Adescription of the current
funding method and the pro-
posed funding method. The
method can be described by ref-
erence to a method contained in
Rev. Proc. 2000–40. For exam-
ple, the level percent of compen-
sation individual entry age nor-
mal method may be described by
reference to section 3.08 of Rev.
Proc. 2000–40. The method can
also be described by indicating a

2000–42 I.R.B.373October 16, 2000
particular variation of a method
described in Rev. Proc. 2000–40.
The description of a method
should be such that it would
allow two independent actuaries
to arrive at the same valuation
results using the same method
and assumptions for a given
plan. If applicable, the descrip-
tion should indicate whether the
method involves the use of a cer-
tain rule in the first year of the
change and a different rule in
subsequent years. For example,
an asset valuation method
change may restart at market
value in the year of change, and
may phase-in gains and losses in
subsequent years. Additionally,
if the method is an asset valua-
tion method not described in
Rev. Proc. 2000–40, a numerical
illustration demonstrating the
calculation of the actuarial value
of assets under the current
method and the proposed
method should be included. If
the change in funding method
involves a plan merger, a de-
scription of the funding method
that was used by each of the
merging plans before the merger
and the proposed funding
method that is used by the
merged plan should be included.
(6) A brief statement of the reason
for the proposed change and a
statement why automatic ap-
proval under Rev. Proc. 2000–40
cannot be used to make the
change.
(7) A statement of whether a change
in funding method was previ-
ously requested.
(8) Astatement of other changes
being made for the year of
change, such as a change in plan
year or change in actuarial as-
sumptions.
(9) Technical Information
(A) A worksheet should be pre-
pared by the enrolled actuary
for the plan. The worksheet
should contain the informa-
tion described below deter-
mined as of the valuation date
in the year of the change in
funding method. The infor-
mation below should be
shown (1) prior to any change
in plan provisions, assump-
tions, or funding methods
that apply in the year of
change, and (2) after the
change in funding method
and other changes that occur
in the year of change:
(i) A list of the amortization
bases maintained (includ-
ing, for each base, the type
of base, outstanding bal-
ance, amortization period,
and amortization amount).
Note that the bases main-
tained prior to and after
implementing all current
year changes will differ by
the inclusion of the new
base(s). The calculation of
the new base(s) should also
be shown.
If bases are combined and
offset in the year of change,
in addition to the resulting
single base, show informa-
tion on each of the bases
involved.
(ii) The unfunded liability of
the plan. For immediate
gain methods, show the
actuarial value of assets
prior to any adjustments.
(iii) The basic funding formula
(or equation of balance).
If the equation of balance
is not satisfied, explain the
effect on the operation of
the funding method in the
year of change.
In the case of a plan change
involving a merger, the above
information should be provided
for all merging plans as of the
date of the merger. If the plan
change involves a spin-off, the
above information should be
provided for the original plan
immediately prior to the spin-
off date and for the plans imme-
diately after the spin-off date.
(B) The calculation of the § 412
full funding limitation for the
plan year prior to the plan
year of change, and for the
plan year of change. In the
case of a plan merger, the cal-
culation of the § 412 full
funding limitation should be
given for all merging plans
immediately prior to the
merger and for the merged
plan after the merger.
(10) Astatement of whether a
waiver of the minimum fund-
ing standard is currently in ef-
fect and whether a request for a
waiver is currently pending or
is expected to be submitted in
the near future.
A checklist has been provided in Ap-
pendix A for the convenience of the tax-
payer submitting the request. In certain
cases some of the material described
above may be inappropriate or burden-
some to furnish. In such cases, the re-
quest for approval should include a state-
ment indicating why such material is not
being furnished.
.05 The Service may request additional
information as needed.
.06 If a conference has been requested,
a conference will be granted only in ac-
cordance with section 12 of Rev. Proc.
2000–4. Furthermore, if the Service pro-
poses an adverse holding, the taxpayer
will be offered a conference in accor-
dance with section 12.02 of Rev. Proc.
2000–4.
.07 If the request for the change in
funding method is approved, the instruc-
tions under line 5 of Schedule B (Actuar-
ial Information) of Form 5500 should be
followed in reporting the change. Cur-
rently, this requires entering the date of
the ruling letter on line 5k of Schedule B.
Section 5. Class Rulings
.01 In a case where approval is desired
for a change in funding method that is
identical for a group of plans in excess of
40 receiving actuarial services from the
same insurance company or consulting
firm, a “class ruling” may be requested
approving the change for all consenting
taxpayers in the class. A class generally
consists of the group of plans (1) receiv-
ing actuarial services from the same in-
surance company or consulting firm, or
whose actuarial valuations are produced
using the software of the same vendor,
and (2) for which the element of the fund-
ing method that is proposed to be changed
was the same. An element of a funding
method is defined for purposes of this

October 16, 20003742000–42 I.R.B.
revenue procedure as (1) an asset valua-
tion method, (2) a valuation date, or (3)
the funding method without regard to the
asset valuation method or the valuation
date.
.02 The class ruling may be requested
by an enrolled actuary on behalf of an in-
surance company or consulting firm that
provides actuarial services to the plans.
An enrolled actuary on behalf of a soft-
ware vendor may also request a class rul-
ing; such ruling would apply to all plans
whose actuarial valuations are produced
using that vendor’s software (both before
and after the change in funding method).
.03 The enrolled actuary making the re-
quest should state the period for which the
class ruling is proposed to be effective.
The ruling will apply to plan years begin-
ning within the stated period. The stated
period cannot begin prior to 12 months
before the month in which the request is
made. Generally, the period cannot be
longer than 36 months.
.04 In lieu of the plan-specific informa-
tion otherwise required under section 4,
the request for a class ruling shall contain
the following information:
(1) The name and enrollment num-
ber of the actuary making the re-
quest.
(2) The name and address of the in-
surance company, consulting
firm, or software vendor de-
scribed in subsection 5.02.
(3) Astatement indicating that the
applicant believes that the class
ruling will be applied to at least
40 plans and an estimate of the
number of plans that is expected
to change the funding method in
accordance with the class ruling.
(4) The information described in
subsections 4.04(5), 4.04(6), and
4.04(9), except that the numeri-
cal results requested in 4.04(9)
should be a numerical illustra-
tive example rather than actual
numerical results.
.05 If the change in funding method is
approved, a “class ruling letter” will be is-
sued to the insurance company, consult-
ing firm, or software vendor requesting
the ruling. However, it is not incumbent
upon the plan administrator or plan spon-
sor of any plan to agree to the change in
funding method. If the change in funding
method covered by the class ruling letter
is desired, the instructions under line 5 of
Schedule B (Actuarial Information) and
line 7 of Schedule R (Retirement Plan In-
formation) of Form 5500 should be fol-
lowed in reporting the change. Currently,
this requires entering the date of the class
ruling letter on line 5k of Schedule B and
reporting the plan sponsor’s agreement to
the change in funding method on line 7 of
Schedule R.
.06 If a request for a class ruling is ap-
proved, at least 30 of the plans covered by
the ruling must make the change in fund-
ing method in order for the ruling to be-
come effective.
.07 The Service may, in its discretion,
limit the period for which a class ruling
will be effective, impose conditions on
the use of the class ruling, or decline to
issue a class ruling.
Section 6. Effect on other Documents
.01 Rev. Proc. 2000–4 is modified to
the extent that this revenue procedure pro-
vides special procedures for issuing rul-
ings with respect to a change in funding
method.
.02 Rev. Proc. 78–37 is superseded.
Section 7. Effective Date
This revenue procedure is effective for
requests for changes in funding method
made on or after December 1, 2000.
Section 8. Paperwork Reduction Act
The collection of information con-
tained in this revenue procedure has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. § 3507) under control number
1545–1704.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
control number.
The collection of information in this
revenue procedure is in sections 4 and 5.
This information is required to evaluate
and process the request for a change in
funding method. The collection of infor-
mation is required to obtain approval for a
change in funding method. The likely re-
spondents are businesses or other for-
profit institutions, nonprofit institutions,
and small businesses and organizations.
The estimated total annual reporting
burden is 5,400 hours.
The estimated annual burden per re-
spondent varies from 12 to 24 hours, de-
pending on individual circumstances,
with an estimated average burden of 18
hours. The estimated number of respon-
dents and/or recordkeepers is 300.
The estimated annual frequency of re-
sponses is one.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. § 6103.
Drafting Information
The principal author of this revenue
procedure is John C. Heil of Employee
Plans Actuarial Group 2, TE/GE Rulings
and Agreements. For further information
regarding this revenue procedure, please
contact the Employee Plans Actuarial
Group taxpayer assistance telephone ser-
vice between the hour of 2:30 p.m. and
3:30 p.m., Eastern Time, Monday through
Thursday at (202) 622-6076 (not a toll-
free number). Mr. Heil’s telephone num-
ber is (202) 622-7383 (prior to October
28, 2000), or (202) 283-9694 (after Octo-
ber 28, 2000), also not toll-free numbers.

2000–42 I.R.B.375October 16, 2000
Appendix A
CHANGE IN FUNDING METHOD REQUEST CHECKLIST
IS YOUR SUBMISSION COMPLETE?
Instructions
The Service will be able to respond more quickly to your change in funding method request if it is carefully prepared and complete.
To ensure your request is in order, use this checklist. Answer each question in the checklist by inserting Y for yes, N for no, or N/A
for not applicable, as appropriate, in the blank next to the item. Sign and date the checklist (as taxpayer or authorized representa-
tive) and place it on top of your request.
You must submit a completed copy of this checklist with your request. If a completed checklist is not submitted with your request,
substantive consideration of your submission will be deferred until a completed checklist is received. However, this checklist need
not be submitted if the request involves a class ruling described in section 5 of this revenue procedure.
1. If you want to designate an authorized representative or a third party contact, have you included a
properly executed Form 2848 (Power of Attorney and Declaration of Representative) or Third Party
Contact Authorization Form?
2. Have you satisfied all the requirements of Rev. Proc. 2000–4 or its successors (especially concerning
signatures and penalties of perjury statement)? (See sections 2.05 & 4.03)
3. Have you included the user fee required under Rev. Proc. 2000–8 or its successors? (See section
2.06)
4. Have you included the employer identification number, the plan name and number, and the name and
address of the plan administrator or plan sponsor? (See section 4.04(1))
5. Have you included a copy of the actuarial valuation report for the plan year preceding the year of
change, and, if available, a draft of the actuarial valuation report for the year of change? (See section
4.04(2))
6. Have you included a copy of the last Schedule B (Actuarial Information) of Form 5500, including at-
tachments thereto (for requests involving mergers, a copy of the last Schedule B for each of the
merging plans)? (See section 4.04(3))
7. Have you included a statement of the plan year first affected by the proposed change? (See section
4.04(4))
8. Have you included a complete description of the current and proposed funding methods, including
asset valuation methods? (See section 4.04(5))
9. Have you included a brief statement of the reason for the proposed change and a statement why auto-
matic approval under Rev. Proc. 2000–40 cannot be used to make the change? (See section 4.04(6))
10. Have you included a statement whether a change in funding method was previously requested? (See
section 4.04(7))
11. Have you included a statement of other changes being made for the year of change, such as a change
in plan year or change in actuarial assumptions? (See section 4.04(8))
12. Have you included a worksheet prepared by the enrolled actuary for the plan, showing a “before and
after” list of the amortization bases, the unfunded liability of the plan, and the basic funding formula
(or equation of balance) using the proposed method? Have you included the calculation of the full
funding limitation for the plan year prior to the plan year of change and for the plan year of change?
(See section 4.04(9))
13. Have you included a statement of whether a waiver of the minimum funding standard is currently
in effect and whether a request for a waiver is currently pending or is expected to be submitted in
the near future? (See section 4.04(10))
SignatureDate
Title or Authority
Typed or printed name of person signing checklist

October 16, 20003762000–42 I.R.B.
Withdrawal of Previous
Proposed Regulations; Notice of
Proposed Rulemaking and
Notice of Public Hearing
Agent for Consolidated Group
REG–103805–99
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Withdrawal of previous pro-
posed regulations; notice of proposed
rulemaking; and notice of public hearing.
SUMMARY: This document contains
proposed regulations regarding the agent
for an affiliated group that files a consoli-
dated return (consolidated group). The
proposed regulations address certain is-
sues raised by the current regulations con-
cerning the agent for the group when the
common parent ceases to be the common
parent, as well as questions concerning
the scope of the common parent’s author-
ity. These proposed regulations affect all
consolidated groups. This document also
provides notice of a public hearing on
these proposed regulations. In addition,
this document withdraws a portion of the
proposed rulemaking (LR–97–79, 1984–2
C.B. 821) published in the Federal Reg-
ister, July 31, 1984.
DATES: Written and electronic com-
ments must be received by December 26,
2000. Outlines of topics to be discussed at
the public hearing scheduled for 10 a.m.
on January 22, 2001, must be received by
December 26, 2000.
ADDRESSES: Send submissions to:
CC:M&SP:RU (REG–103805–99), room
5226, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may also be hand
delivered Monday through Friday between
the hours of 8 a.m. and 5 p.m. to
CC:M&SP:RU (REG–103805–99),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW., Washing-
ton, DC. Alternatively, taxpayers may sub-
mit comments electronically via the inter-
net by selecting the “Tax Regs” option on
the IRS Home Page, or by submitting com-
ments directly to the IRS internet site at
http://www.irs.ustreas.gov/tax_regs/regslis
t.html. The public hearing will be held in
room 4718, Internal Revenue Building,
1111 Constitution Avenue, NW., Washing-
ton, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Ger-
ald B. Fleming or George R. Johnson,
(202) 622-7930; concerning submissions
of comments, the hearing and/or to be
placed on the building access list to attend
the hearing, Sonya Cruse, (202) 622-7180
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in this notice of proposed rulemak-
ing has been submitted to the Office of
Management and Budget for review in ac-
cordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)).
Comments on the collection of infor-
mation should be sent to the Office of
Management and Budget, Attn: Desk
Officer for the Department of the Trea-
sury, Office of Information and Regula-
tory Affairs, Washington, DC 20503, with
copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer,
OP:FS:FP, Washington, DC 20224. Com-
ments on the collection of information
should be received by November 27,
2000.
Comments are specifically requested
concerning:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the Internal
Revenue Service, including whether the
collection will have practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information;
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collection of information may
be minimized, including through the ap-
plication of automated collection tech-
niques or other forms of information tech-
nology; and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of services to provide informa-
tion.
The collection of information in the
proposed regulations is in §1.1502–77(d).
This information is required for the com-
mon parent to notify the IRS of the desig-
nation of a new agent for the consolidated
group when the common parent’s exis-
tence is about to terminate and for the
designated corporation to confirm that it
agrees to serve as the group’s new agent
and qualifies to be the group’s agent. The
collection of information is required to
obtain a benefit, i.e., to designate a new
agent for the consolidated group. The
likely respondents are business or other
for-profit institutions.
The regulations provide that a common
parent or a previously designated agent of
a consolidated group should notify the
Commissioner in writing, in accordance
with procedures prescribed by the Com-
missioner, that it anticipates going out of
existence and that it designates another
corporation to serve as the group’s agent
for specified prior consolidated return
years. In addition, the notification should
include a statement by the designated cor-
poration agreeing to serve as the group’s
agent and, if the designated corporation
was not itself a member of the group, a
statement that it is or will be liable for the
tax. An agent designated by the Commis-
sioner is required to give notice to each
corporation (or any successor) that was a
member of the group during any part of
the relevant consolidated return year. The
burden for the collection of information in
§1.1502–77(d) is as follows:
Estimated total annual reporting bur-
den: 200 hours.
Estimated average annual burden per
respondent: 2 hours.
Estimated number of respondents:
100.
Estimated annual frequency of re-
sponses: On occasion.
An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information un-
less it displays a valid control number
assigned by the Office of Management
and Budget.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
Part IV. Items of General Interest

2000–42 I.R.B.377October 16, 2000
rial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential,
as required by 26 U.S.C. 6103.
Background
This document proposes amendments
to 26 CFR part 1 under section 1502 of
the Internal Revenue Code of 1986
(Code). The proposed amendments clar-
ify and supplement existing rules under
§1.1502–77 concerning the agent for a
consolidated group and the designation
of a new agent to act for the group. The
proposed amendments also clarify rules
concerning the common parent as agent
for a corporation whose income is im-
properly included in a consolidated re-
turn. In addition, the proposed amend-
ments modify and clarify the rules
concerning the proper party to apply for
and receive a refund payment due to a
tentative carryback adjustment under
§1.1502–78. The proposed regulations
also terminate §1.1502–77T for tax
years beginning on or after the effective
date of final regulations amending
§1.1502–77.
Section 1.1502–77(a) currently pro-
vides that the common parent is the
“sole agent” for the consolidated group
with respect to nearly all procedural tax
matters relating to the group’s tax liabil-
ity for a consolidated return year.
Notwithstanding this general rule,
§1.1502–77(a) provides that the IRS
may, upon notifying the common parent,
deal directly with any member of the
group in respect of its liability, in which
case that member shall have full author-
ity to act for itself.
Because the common parent’s author-
ity to act as agent for the group termi-
nates when the common parent corpora-
tion ceases to exist, §1.1502–77(d)
provides for the designation of a new
agent to act for the group. Section
1.1502–77(d) first grants the terminating
common parent, prior to going out of ex-
istence, the authority to designate a re-
maining member to act as agent for the
group (a designated agent) regarding the
group’s prior consolidated return years.
If the common parent goes out of exis-
tence without designating a new agent,
§1.1502–77(d) provides that the remain-
ing members of the group may designate
a new agent. A designation of a new
agent under this provision, by either the
common parent or the remaining mem-
bers, is subject to the approval of the
district director with which the group
files its return. Section 1.1502–77(d)
also grants the IRS the authority to deal
separately with each remaining member
of the group with respect to its liability
in the event that neither the common
parent nor the surviving members desig-
nate a new agent.
Decisions of the United States Tax
Court have highlighted difficulties in ap-
plying these rules to situations where a
group continues to exist following a
transaction described in §1.1502–75(d)
(a group structure change), in which a
new common parent has replaced the
former common parent (which may or
may not have remained in existence or
remained a member of the group). See
Interlake Corp. v. Commissioner, 112
T.C. 103 (1999); Union Oil Co. v. Com-
missioner, 101 T.C. 130 (1993); South-
ern Pacific Co. v. Commissioner, 84 T.C.
395, 404 (1985).
On September 8, 1988, various final
and temporary regulations under section
1502 were published in the Federal
Register(T.D. 8226, 1988–2 C.B. 325
[53 F.R. 34729]). At the same time, a
notice of proposed rulemaking (LR-66-
88, 1988–2 C.B. 848) cross-referenced
to the text of the temporary regulations
was also published (53 F.R. 34779). In-
cluded in the temporary regulations was
§1.1502–77T. In situations where the
corporation that was the common parent
of the group ceases to be the common
parent, §1.1502–77T provides alterna-
tive agents to act for a consolidated
group, but only for purposes of mailing
notices of deficiency and waiving peri-
ods of limitations. Specifically,
§1.1502–77T allows the following alter-
native agents to act on behalf of the
group: (1) the common parent of the
group for all or any part of the year to
which the notice or waiver applies, (2) a
successor to the former common parent
in a transaction to which section 381(a)
applies, (3) the agent designated by the
group under §1.1502–77(d), or (4) if the
group remains in existence under
§1.1502–75(d)(2) or (3), the common
parent of the group at the time the notice
is mailed or the waiver given.
The IRS received no comments on
§1.1502–77T and has not issued final
regulations concerning alternative
agents.
Reasons for Change
Given the common parent’s role as the
agent for the group, issues arise about
who has authority to act on behalf of the
group for consolidated return years
where the common parent has ceased to
exist (e.g., due to a merger or liquida-
tion) or where, while continuing to exist,
it has ceased to be the common parent of
the group (e.g., as a result of being ac-
quired by another corporation). Other
issues arise concerning the proper agent,
as well as the scope of that agency,
where a consolidated return improperly
includes the income of a corporation that
should have filed separately or when the
IRS issues a tentative refund in response
to a claim filed by a former member of
the group.
Although the current provisions of
§§1.1502–77 and 1.1502–77T provide
guidance in limited situations, numerous
issues have arisen in situations outside
the scope of these provisions. The alter-
native agent approach of §1.1502–77T
addressed agency issues regarding no-
tices of deficiency and waivers of peri-
ods of limitations. It was intended to
offer flexibility in allowing both taxpay-
ers and the IRS to choose from among
several potential agents to act for the
group and also to ensure that whichever
corporation is selected would be a per-
missible agent to act for the group.
However, an alternative agent provided
by §1.1502–77T is the agent for the
group only for purposes of mailing no-
tices of deficiency or for executing con-
sents to extend periods of limitations.
Under §1.1502–77T, an alternative agent
has no authority to act as the group’s
agent for other purposes (e.g., filing a re-
fund claim, receiving refund payments
or executing a closing agreement). As a
result, under the current rules, absent a
designation of one of the remaining
members to act as agent under
§1.1502–77(d), the IRS may have no op-
tion other than to deal separately with
each remaining member for any purpose
not covered by §1.1502–77T.
The IRS and Treasury initially consid-
ered the possibility of expanding the
scope of the authority of alternative

October 16, 20003782000–42 I.R.B.
agents under §1.1502–77T to include all
matters under the common parent’s scope
of authority as set forth in §1.1502–77(a).
However, it was ultimately concluded that
the shortcomings of the alternative agent
approach outweigh its benefits. In partic-
ular, that approach lacks certainty because
the IRS could deal with any one of several
alternative agents and more than one cor-
poration could initiate actions on behalf
of the group. Also, a corporation could
serve as an alternative agent without hav-
ing been related to members of the group
during the consolidated return year at
issue or without being liable for the con-
solidated tax for that year.
In lieu of expanding the alternative
agent approach of §1.1502–77T, the IRS
and Treasury propose to revise the rules
of §1.1502–77 and to terminate the ap-
plication of §1.1502–77T. Under the
proposed regulations, as discussed in
more detail below, the common parent
remains the agent for the group’s con-
solidated return year as long as it re-
mains in existence, regardless of
whether it continues to be a common
parent or a member of the group, or
whether the group continues under
§1.1502–75(d).
The proposed regulations set forth
procedures for a common parent to des-
ignate a new agent for the group when
the common parent ceases to exist, and
permit the IRS to designate a new agent
if the common parent fails to do so. The
proposed regulations do not contain a
provision allowing the remaining mem-
bers to designate a new agent if the com-
mon parent fails to make a designation
before it ceases to exist. The proposed
regulations provide that the common
parent acts as the agent with regard to
the liability of any corporation whose
income is improperly included in the
group’s return but whose liability is sub-
sequently computed on the basis of a
separate return or as a member of an-
other consolidated group.
Finally, the proposed regulations
modify the rule in §1.1502–78(a) con-
cerning an application under section
6411 for a tentative carryback adjust-
ment with respect to a loss or business
credit arising in a separate return limita-
tion year. Under the proposed amend-
ments, the application should be filed by
the common parent for the carryback
year instead of the corporation to which
the loss or credit is attributable. In addi-
tion, the proposed amendments clarify
that any refund under §1.1502–78(b) re-
lated to a tentative carryback adjustment
must be paid to the corporation that was
the common parent (or is the designated
agent) for the carryback year. The pro-
posed amendments also replace the
word “investment” with “business” in
the term unused investment creditin
§1.1502–78(a) to conform to changes in
section 6411.
Explanation of Provisions
In order to reduce uncertainty for both
taxpayers and the IRS, the proposed
amendments to §1.1502–77(a) provide
that the common parent for a consolidated
return year remains the agent for the
group for that year as long as it continues
to exist. This rule applies even if the
common parent, for whatever reason,
ceases to be the common parent. Thus,
for example, if the common parent be-
comes a subsidiary member of the consol-
idated group, which continues under
§1.1502–75(d), if the common parent be-
comes a stand-alone corporation, or even
if the common parent becomes a sub-
sidiary member of another group, it re-
mains the agent of the group for those
consolidated return years during which it
was the group’s common parent. Cf. In-
terlake Corp. v. Commissioner, 112 T.C.
103 (1999); Union Oil Co. v. Commis-
sioner, 101 T.C. 130 (1993).
The proposed regulations provide a
rule for situations where a corporation
files a consolidated return as the common
parent of an affiliated group but is subse-
quently determined not to be the actual
common parent of that group. In such sit-
uations, the corporation that filed as the
common parent is considered to be the
agent for each member of the claimed
group even though it was not actually the
common parent. This situation may arise,
for example, where the common parent
fails to own stock satisfying the 80-per-
cent voting and value requirement of sec-
tion 1504(a)(2).
The proposed regulations clarify that
the common parent’s authority as agent
for a taxable year extends to any succes-
sor of a member. For purposes of
§1.1502–77 only, the term successor
means a party that, pursuant to applicable
law, has become primarily liable for the
tax liabilities of the common parent or
any subsidiary member. Such determina-
tion is made without regard to
§1.1502–1(f)(4) (defining the term suc-
cessorfor purposes of the definition of a
separate return limitation year). The pro-
posed regulations also clarify that the
common parent remains the sole agent
with respect to the consolidated tax liabil-
ity under §1.1502–6 of a subsidiary (or its
successor) that is or becomes a disre-
garded entity for Federal tax purposes.
Where transferee liability exists under
applicable law, the proposed regulations
provide that, for purposes of assessing,
paying or collecting transferee liability,
actions of the common parent with re-
spect to the group’s tax liability will de-
rivatively affect the liability of a trans-
feree of a member, regardless of whether
the transferor member remains in exis-
tence. This provision is essentially an ap-
plication of general principles of trans-
feree liability in the context of a
consolidated group. Under case law, the
actions of a transferor derivatively affect
the liability of a transferee, even if the ac-
tions are taken after the transfer occurs.
See, e.g., United States v. Vassallo, Inc.,
274 F.2d 791, 793–794 (3d Cir. 1960). As
provided in the proposed regulations, the
common parent’s actions on behalf of the
group are always binding on each mem-
ber of the group. Therefore, any actions
of a common parent with respect to the
group’s liability for a consolidated return
year will derivatively affect the liability
of a transferee of a transferor member that
remains in existence, even if the action
occurs after the transfer giving rise to the
transferee liability.
The proposed regulations recognize the
derivative effect of the common parent’s
actions on transferee liability and further
provide that actions taken by or with re-
spect to the common parent, as agent for
the group, after a transferor member has
ceased to exist, also derivatively affect the
liability of a transferee of such member to
the same extent as if the transferor mem-
ber had remained in existence. For exam-
ple, under this provision, a waiver extend-
ing the limitations period for assessment,
executed by the common parent (as agent
for the group) after a member ceases to
exist, would have the derivative effect of
extending the limitations period with re-

2000–42 I.R.B.379October 16, 2000
spect to a transferee of such member.
The proposed regulations revise the
rules governing the designation of a new
agent for the group when the common
parent ceases to exist. They retain the
current provision under §1.1502–77(d)
for the common parent to notify the IRS
and designate, subject to the approval of
the IRS, another member to act as the
group’s agent for the consolidated return
year.
As under the current rule, the proposed
regulations provide that the common par-
ent may designate one of the remaining
members of the group as the new agent
for the group. The proposed regulations
provide that the member designated as the
agent for a consolidated return year must
have been a member of the group during
the consolidated return year and must not
subsequently have been disregarded as an
entity separate from its owner or treated
as a partnership for purposes of Federal
taxes. However, the common parent may
also designate a domestic corporation
(that is not disregarded as an entity sepa-
rate from its owner or classified as a part-
nership for Federal tax purposes) that is
primarily liable as a successor of any cor-
poration that was a member of the group
during the consolidated return year. In
addition, the common parent will be per-
mitted to designate any domestic corpora-
tion (that is not disregarded as an entity
separate from its owner or classified as a
partnership for Federal tax purposes) that
is to become primarily liable as the com-
mon parent’s successor in connection
with a transaction in which the common
parent’s existence terminates. If an agent
previously designated under this provi-
sion ceases to exist, the proposed regula-
tions provide for such terminating agent
to designate a new agent in the same man-
ner that is available to a common parent
that is going out of existence.
For purposes of the designation provi-
sion, a corporation’s existence is deemed to
cease not only if the corporation ceases to
exist under applicable law, but also if the
corporation becomes a disregarded entity
or reclassified as a partnership for Federal
tax purposes. However, if treating a corpo-
ration as ceasing to exist when it becomes a
disregarded entity or reclassified as a part-
nership would leave no other corporation
eligible to serve as a designated agent for
the group, its existence would not be
deemed to terminate. As used in the pro-
posed regulations, the term disregarded en-
tityincludes a qualified subchapter S sub-
sidiary for which an election is made
pursuant to section 1361(b)(3)(B), a quali-
fied REIT subsidiary within the meaning of
section 856(i)(2), or an entity that is disre-
garded as an entity separate from its owner
under the “check-the-box” rules of
§301.7701–3. If, as a result of becoming a
disregarded entity or reclassified as a part-
nership, the group’s agent ceases to exist
for Federal tax purposes without designat-
ing a new agent and subsequently purports
to act on behalf of the group, any actions
taken by the purported agent will, to the ex-
tent determined appropriate by the Com-
missioner, have the same effect as if the
agent’s existence had not terminated.
In the event the common parent (or a
previously designated agent) fails to des-
ignate a new agent before going out of ex-
istence, the proposed regulations autho-
rize the IRS to designate a new agent for
the group. The IRS may designate one of
the remaining members of the group for
the consolidated return year (that has not
been disregarded as an entity separate
from its owner or reclassified as a partner-
ship for Federal tax purposes), or any do-
mestic corporation (that is not disregarded
as an entity separate from its owner or
classified as a partnership for Federal tax
purposes) that is primarily liable as a suc-
cessor of such a member, to act as the
group’s agent. This provides the IRS with
a readily available option in cases where
it needs to address a consolidated group’s
tax liability and no new agent has other-
wise been designated. Any corporation
that the IRS designates as the agent for
the consolidated return year generally will
continue as the group’s agent as long as it
remains in existence. At the request of
one or more members, however, the IRS
may (but is not required to) replace a des-
ignated agent with another member (or
successor of a member) for the consoli-
dated return year.
The proposed regulations direct the
IRS and the designated agent to provide
notification of the designation to the other
remaining members/successors. Any fail-
ure by the IRS and/or the designated
agent to give notification to a
member/successor does not invalidate the
designation.
Under the current regulations, the re-
maining members for a consolidated re-
turn year may designate a new agent in
the event the common parent does not
designate a new agent that is approved by
the IRS. In practice, taxpayers have sel-
dom utilized this provision because it is
unwieldy and largely impracticable ex-
cept for groups comprising only a few
members. Accordingly, in light of the in-
frequency with which taxpayers use this
provision, and in the interest of providing
simple and administrable procedures, the
IRS and Treasury have concluded that
there is no longer a need to provide for
any designation by the remaining mem-
bers.
As under the current regulations, the
proposed regulations provide that a desig-
nation by the common parent or a desig-
nated agent cannot become effective until
it is approved by the IRS. The proposed
regulations clarify that the Commis-
sioner’s approval of a designation by a
common parent (or designated agent) will
not be effective before the corporation
making the designation ceases to exist. In
the absence of an effective approved des-
ignation, a notice of deficiency or any
other communication mailed to the for-
mer common parent or former designated
agent, even if no longer in existence, is
treated as having been properly mailed to
all members and successors.
The proposed regulations retain the
provision in the current regulations autho-
rizing the Commissioner, upon notifying
the common parent, to deal separately
with a member concerning that member’s
several liability for the consolidated tax.
In such a case, the member would have
full authority to act for itself.
The proposed regulations eliminate
§1.1502–77T for consolidated return
years beginning after the date that the
final regulations under §1.1502–77 are
published in the Federal Register.
The proposed regulations provide that
the common parent is the sole agent for any
corporation that is improperly included in
the group’s return and whose tax liability
should have been computed on the basis of
a separate return or as a member of another
consolidated group. This provision is con-
sistent with the current rule of
§1.1502–77(c)(2), relating to the effect of
waivers of periods of limitations on assess-
ment that are executed by the common par-
ent. The proposed regulations are also con-

October 16, 20003802000–42 I.R.B.
sistent with rulings of the Tax Court in sev-
eral cases. See Intervest Enterprises, Inc. v.
Commissioner, 59 T.C. 91, 96–97 (1972);
Lone Star Life Insurance Company v. Com-
missioner, T.C. Memo. 1997–465; INI, Inc.
v. Commissioner, T.C. Memo. 1995–112,
aff ’d per curiam, 107 F.3d 27 (11th Cir.
1997). See also Alumax Inc. v. Commis-
sioner, 109 T.C. 133, 196 (1997) (holding
that the improper inclusion of a corporation
in a consolidated return does not alter the
agency relationship established under
§1.1502–77(c)), aff ’d on other grounds,
165 F.3d 822 (11th Cir. 1999).
The proposed regulations amend
§1.1502–78(a) to provide that the common
parent for the carryback year should file
any application under section 6411 for a
tentative carryback adjustment with respect
to a loss or credit arising in a separate re-
turn limitation year that may be carried
back to a consolidated return year. The cur-
rent rule, which provides that the corpora-
tion to which such loss or credit is attribut-
able should file such application, is
inconsistent with the general rule of
§1.1502–77 that the common parent is the
sole agent for the group and with the rule of
§1.1502–78(b) that payment of any result-
ing refund is made to the common parent.
In Interlake Corp. v. Commissioner, 112
T.C. 103, 112–113 (1999), the Tax Court
found that §1.1502–78(b) is unclear as to
whether the common parent in the carry-
back year or the common parent in the loss
year should be the group’s agent to receive
a refund resulting from a tentative carry-
back adjustment. 112 T.C. at 112–113. The
proposed regulations amend §1.1502–78(b)
to provide expressly that the refund should
be paid to the common parent or designated
agent for the group’s carryback year.
Finally, because the position of district
director will be eliminated in the restructur-
ing of the IRS, the proposed regulations
substitute “the Commissioner” for various
references to the district director in
§1.1502–77. If the proposed rules are
adopted, procedures for the designation of a
new agent under the new IRS structure, by
either a terminating common parent or the
Commissioner, will be announced when
final regulations are issued. It is anticipated
that such procedures will be embodied in a
revenue procedure that may also include
provisions for one or more members of a
group to request that the Commissioner
designate an agent in situations where the
common parent or previously designated
agent failed to designate a new agent before
it ceased to exist, whether or not the Com-
missioner has already designated an agent.
Comments are invited concerning these
procedures.
Proposed Effective Date
The amendments to §1.1502–77 are
proposed to apply to consolidated return
years beginning on or after the date final
regulations are published in the Federal
Register. The current rules of
§§1.1502–77 and 1.1502–77T continue
to apply with respect to consolidated re-
turn years beginning before the effective
date of final regulations under
§1.1502–77. Thus, the alternative agent
approach of the temporary regulation
would continue to apply for purposes of
mailing notices of deficiency and execut-
ing waivers of periods of limitations on
assessment with respect to consolidated
return years beginning before the date
final regulations are published in the
Federal Register.
The amendments to §1.1502–78 are
proposed to apply to taxable years to
which a loss or credit may be carried
back and for which the due date (without
extensions) of the original return is after
the date final regulations are published in
the Federal Register.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. It is
hereby certified that these regulations do
not have a significant economic impact
on a substantial number of small entities.
This certification is based on the fact that
these regulations will primarily affect af-
filiated groups of corporations that have
elected to file consolidated returns, which
tend to be larger businesses, and, more-
over, that any burden on taxpayers is
minimal. Therefore, a Regulatory Flexi-
bility Analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not
required. Pursuant to section 7805(f) of
the Code, these regulations will be sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on their impact on small busi-
ness.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written com-
ments (a signed original and eight (8)
copies) or electronic comments that are
timely submitted to the IRS.
The IRS and Treasury request com-
ments on the clarity of the proposed rules
and how they may be made easier to un-
derstand or to implement. In addition,
comments are requested on the treatment
in the proposed regulations of entities
that become disregarded as entities sepa-
rate from their owners or become part-
nerships for Federal tax purposes. All
comments will be available for public in-
spection and copying.
A public hearing has been scheduled
for January 22, 2001, beginning at 10
a.m. in room 4718, Internal Revenue Ser-
vice Building, 1111 Constitution Avenue,
NW., Washington, DC. Due to building
security procedures, visitors must enter at
the 10th Street entrance, located between
Constitution and Pennsylvania Avenues,
NW. In addition, all visitors must present
photo identification to enter the building.
Because of access restrictions, visitors
will not be admitted beyond the immedi-
ate entrance area more than 15 minutes
before the hearing starts. For informa-
tion about having your name placed on
the building access list to attend the hear-
ing, see the FOR FURTHER INFORMA-
TION CONTACT section of this pream-
ble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish
to present oral comments at the hearing
must request to speak, and submit written
comments and an outline of the topics to
be discussed and the time to be devoted
to each topic (a signed original and eight
(8) copies) by December 26, 2000.
A period of ten minutes will be allo-
cated to each person for making com-
ments. An agenda showing the schedul-
ing 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.

2000–42 I.R.B.381October 16, 2000
Drafting Information
The principal authors of these pro-
posed regulations are Gerald B. Fleming,
George R. Johnson and Steven J. Hankin,
Office of the Assistant Chief Counsel
(Field Service). However, other person-
nel from the IRS and Treasury Depart-
ment participated in their development.
* * * * *
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 is amended by removing entries for
sections 1.1502–77(e) and 1.1502–78(b)
and adding entries in numerical order to
read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1502–77 also issued under 26
U.S.C. 1502 and 6402(j).
Section 1.1502–78 also issued under 26
U.S.C. 1502, 6402(j), and 6411(c). * * *
Section 1.1502–77A also issued under 26
U.S.C. 1502 and 6402(j). * * *
Par. 2. Immediately following
§1.1502–41A, an undesignated center
heading is added to read as follows:
REGULATIONS APPLICABLE TO
TAXABLE YEARS BEGINNING
BEFORE THE DATE FINAL
REGULATIONS ARE PUBLISHED IN
THE FEDERAL REGISTER
Par. 3. Immediately before
§1.1502–79A, an undesignated center
heading is added to read as follows:
REGULATIONS APPLICABLE TO
TAXABLE YEARS BEFORE January 1,
1997
Par. 4. Section 1.1502–77 is redesig-
nated as §1.1502–77A and transferred im-
mediately after the undesignated center
heading “REGULATIONS APPLICA-
BLE TO TAXABLE YEARS BEGIN-
NING BEFORE THE DATE FINAL
REGULATIONS ARE PUBLISHED IN
THE FEDERAL REGISTER”; the sec-
tion heading of newly designated
§1.1502–77A is revised; paragraph (e) is
redesignated as paragraph (f); and para-
graph (g) is added to read as follows:
§1.1502–77A Common parent agent for
subsidiaries applicable for consolidated
return years beginning before the date
final regulations are published in the
Federal Register.
* * * * *
(g) Effective date. This section applies
to consolidated return years beginning be-
fore the date final regulations under
§1.1502–77 are published in the Federal
Register, except paragraph (e) of this sec-
tion applies to statutory notices and
waivers of the statute of limitations for
taxable years for which the due date
(without extensions) of the consolidated
return is after September 7, 1988, and
which begin before the date final regula-
tions under §1.1502–77 are published in
the Federal Register.
Par. 5. New §1.1502–77 is added to
read as follows:
§1.1502–77 Agent for the group.
(a) Scope of agency—(1) In general—
(i) Common parent. Except as provided
in paragraphs (a)(3) and (6) of this sec-
tion, the common parent for a consoli-
dated return year, for all matters relating
to the tax liability for the consolidated re-
turn year, shall be the sole agent for—
(A) Each subsidiary in the group; and
(B) Any successor of any member (in-
cluding the common parent).
(ii) Other agents. For purposes of this
section, any corporation described in
paragraphs (a)(1)(ii)(A) and (B) of this
section will act as the agent in place of the
common parent to the same extent and
subject to the same limitations as are ap-
plicable to the common parent, and any
reference in this section to the common
parent will include any such other
agent—
(A) Any corporation designated as the
agent pursuant to paragraph (d) of this
section to replace the common parent or a
previously designated agent; and
(B) Any corporation that files a consol-
idated return as the common parent for a
group, notwithstanding that such corpora-
tion is subsequently determined not to
have been the proper agent for the
claimed group.
(iii) Successor. For purposes of this
section only, the term successormeans a
party that is primarily liable, pursuant to
applicable law (including, for example,
by operation of a state or Federal merger
statute), for the tax liability of the com-
mon parent or any subsidiary of the
group. Such determination is made with-
out regard to §1.1502–1(f)(4).
(iv) Disregarded entity. If a subsidiary
of a group or its successor is or becomes a
disregarded entity for Federal tax pur-
poses, the common parent will continue
to serve as the sole agent with respect to
that subsidiary’s tax liability under
§1.1502–6 for consolidated return years
during which it was a member of the
group, even though the entity generally is
not treated as a person separate from its
owner for Federal tax purposes.
(v) Transferee liability. For purposes
of assessing, paying and collecting trans-
feree liability, any action taken by or di-
rected to the common parent with respect
to the group’s tax liability will deriva-
tively affect the liability of a transferee
(or subsequent transferees) of a member,
regardless of whether the member termi-
nates its existence prior to such action.
(2) Specific matters subject to agency.
As sole agent, the common parent is au-
thorized to act in its own name for all
matters relating to the tax liability for the
consolidated return year. Except as pro-
vided in paragraphs (a)(3) and (6) of this
section, no subsidiary or successor shall
have authority to act for or to represent it-
self in any such matter. For example—
(i) Any election available to a sub-
sidiary corporation in the computation of
its separate taxable income must be made
by the common parent, as must any
change in an election previously made by
or for a subsidiary corporation;
(ii) All correspondence will be carried
on directly with the common parent;
(iii) The common parent shall file for
all extensions of time, including exten-
sions of time for payment of tax under
section 6164;
(iv) The common parent in its own name
will give waivers, give bonds, and execute
closing agreements, offers in compromise,
and all other documents, and any waiver or
bond so given, or agreement, offer in com-
promise, or any other document so exe-
cuted, shall be considered as having also
been given or executed by each member or
any successor thereof;
(v) The common parent will file claims
for refund, and any refund will be made
directly to and in the name of the common

October 16, 20003822000–42 I.R.B.
parent and will discharge any liability of
the Government to any member or any
successor thereof with respect to such re-
fund;
(vi) Notices of claim disallowance will
be mailed only to the common parent,
and the mailing to the common parent
shall be considered as a mailing to each
member or any successor thereof;
(vii) Notices of deficiencies will be
mailed only to the common parent, and
the mailing to the common parent shall
be considered as a mailing to each mem-
ber or any successor thereof;
(viii) The common parent will file peti-
tions and conduct proceedings before the
United States Tax Court, and any such
petition shall be considered as also hav-
ing been filed by each member or any
successor thereof;
(ix) Any assessment of tax may be
made in the name of the common parent,
and an assessment naming the common
parent shall be considered as an assess-
ment with respect to each member and
any successor thereof; and
(x) Notice and demand for payment of
taxes will be given only to the common
parent and such notice and demand will
be considered as a notice and demand to
each member or any successor thereof.
(3) Matters reserved to subsidiaries.
Notwithstanding the role of the common
parent as exclusive agent under para-
graph (a)(1) of this section, the following
matters shall be reserved to each sub-
sidiary and, if applicable, to a successor
of a subsidiary—
(i) The making of the consent required
by §1.1502–75(a)(1);
(ii) The making of an election under
section 936(e);
(iii) The making of an election to be
treated as a DISC under §1.992–2; and
(iv) A change of the annual accounting
period pursuant to §1.991–1(b)(3)(ii).
(4) Term of agency—(i) In general.
Except as provided in paragraph
(a)(4)(iii) of this section, the common
parent for the consolidated return year
shall remain the sole agent with respect
to that year until its existence terminates,
regardless of whether one or more sub-
sidiaries become or cease to be members
of the group at any time, whether the
group files a consolidated return for any
subsequent year, whether the common
parent ceases to be the common parent or
a member of the group in any subsequent
year, or whether the group continues pur-
suant to §1.1502–75(d) with a new com-
mon parent in any subsequent year.
(ii) Replacement of agent designated
by Commissioner. If the Commissioner
replaces a previously designated agent
pursuant to paragraph (d)(2)(ii) of this
section, the term of the replaced agent
shall terminate when the Commissioner
designates another agent.
(iii) New common parent after a group
structure change. If the group continues
in existence with a new common parent
pursuant to §1.1502–75(d) during a con-
solidated return year, the common parent
at the beginning of the year is the group’s
sole agent through the date of the transac-
tion, and the new common parent be-
comes the continuing group’s sole agent
beginning the day after the transaction.
(5) Identifying members in notices.
Notwithstanding the provisions of this
paragraph (a)—
(i) Any notice of deficiency with re-
spect to the tax for a consolidated return
year will name each corporation that was
a member of the group during any part of
such period (but a failure to include the
name of any such member will not affect
the validity of the notice of deficiency as
to the other members or their successors),
and any notice of deficiency that is valid
as to a member so named will be valid as
to any successor of such member;
(ii) Any notice and demand for pay-
ment will name each corporation that was
a member of the group during any part of
the applicable consolidated return year
(but a failure to include the name of any
such member will not affect the validity
of the notice and demand as to the other
members or their successors), and any
notice and demand for payment that is
valid as to a member so named will be
valid as to any successor of such mem-
ber;
(iii) Any notice of a lien, any levy or
any other proceeding to collect the
amount of any assessment, after the as-
sessment has been made, will name the
taxpayer from which such collection is to
be made;
(iv) Any notice described in para-
graphs (a)(5)(i) through (iii) of this sec-
tion that fails to include the name of a
member during the consolidated return
year shall still be valid as to that mem-
ber’s successor, if such successor is
named in the notice; and
(v) If a notice of deficiency fails to
name a member or its successor, any as-
sessment of tax based on such notice
shall still be a valid assessment as to the
other members or their successors.
(6) Direct dealing with a member.
Notwithstanding the provisions of this
paragraph (a), the Commissioner may,
upon notifying the common parent, deal
directly with any member of the group or
any successor of a member with respect
to its several liability for the consolidated
tax of the group, in which event such
member or successor shall have full au-
thority to act for itself.
(b) Copy of notice of deficiency to cor-
poration which has ceased to be a mem-
ber of the group. If a corporation has
ceased to be a member of the group dur-
ing or after a consolidated return year and
if such corporation or its successor files
written notice of such cessation with the
Commissioner, then the Commissioner
upon request of such corporation or its
successor will furnish a copy of any no-
tice of deficiency with respect to the tax
for a consolidated return year for which
the corporation was a member or a copy
of any notice and demand for payment of
such deficiency. The filing of such writ-
ten notification and request by a corpora-
tion or its successor shall not have the ef-
fect of limiting the scope of the agency of
the common parent provided for in para-
graph (a) of this section. Any failure by
the Commissioner to comply with such
written request shall not have the effect
of limiting the tax liability under
§1.1502–6 of such corporation or its suc-
cessor.
(c) References to member or subsi-
diary. For purposes of this section, all
references to a member or subsidiary
shall include—
(1) Each corporation that was a mem-
ber of the group during any part of such
taxable year (except that any reference to
a subsidiary shall not include the com-
mon parent); and
(2) Each claimed member the income
of which was included in the consoli-
dated return for such taxable year,
notwithstanding that the tax liability of
any such claimed member should have
been computed on the basis of a separate
return, or as a member of another consol-

2000–42 I.R.B.383October 16, 2000
idated group, under the provisions of
§1.1502–75.
(d) Termination of common parent—
(1) Designation by common parent. (i) If
the common parent will terminate its exis-
tence, it shall—
(A) Designate, subject to the approval
of the Commissioner, for each consoli-
dated return year for which the period of
limitations for assessment, for collection
after assessment, or for claiming a credit
or refund has not expired, one of the fol-
lowing to act as agent in its place—
(1) Any corporation that was a member
of the group during any part of the consol-
idated return year and, except as provided
in paragraph (e)(3)(ii) of this section, has
not subsequently been disregarded as an
entity separate from its owner or reclassi-
fied as a partnership for Federal tax pur-
poses; or
(2) Any successor (as defined in para-
graph (a)(1) of this section) of such a cor-
poration or of the common parent that is a
domestic corporation (and, except as pro-
vided in paragraph (e)(3)(ii) of this sec-
tion, is not disregarded as an entity sepa-
rate from its owner or classified as a
partnership for Federal tax purposes), in-
cluding a corporation that will become a
successor at the time that the common
parent ceases to exist; and
(B) Notify the Commissioner (under
procedures prescribed by the Commis-
sioner) of the designation, including—
(1) A statement by the designated cor-
poration agreeing to serve as the group’s
new agent; and
(2) If the designated corporation was
not itself a member of the group during
the consolidated return year (because the
designated corporation is a successor of a
member of the group for the consolidated
return year), a statement by the desig-
nated corporation acknowledging that it is
or will be primarily liable for the consoli-
dated tax as a successor of a member.
(ii) A designation under paragraph
(d)(1)(i)(A) of this section will not be ef-
fective until it is approved by the Com-
missioner. The Commissioner’s approval
of such a designation will not be effective
before the existence of the common par-
ent terminates.
(2) Designation by the Commissioner.
(i) In the event the common parent termi-
nates its existence and no designation is
made and approved under paragraph
(d)(1) of this section, the Commissioner
may, with or without the request of any
member of the group or its successor, at
any time designate, effective immedi-
ately, a corporation described in para-
graph (d)(1)(i)(A) of this section to act as
the agent. The designation will be made
in accordance with procedures prescribed
by the Commissioner.
(ii) At the request of any member or
successor of a member, the Commissioner
may, but is not required to, replace an
agent previously designated under this
paragraph (d)(2) with another corporation
described in paragraph (d)(1)(i)(A) of this
section.
(iii) The Commissioner and the desig-
nated agent shall give notice of any desig-
nation to each corporation that was a
member of the group during any part of
the consolidated return year or its succes-
sor. A failure by the Commissioner
and/or designated agent to notify any such
member of the group or its successor does
not invalidate the designation.
(3) Absence of designation. Until ei-
ther a notice in writing designating a new
agent has become effective or the Com-
missioner has designated a new agent,
any notice of deficiency or other commu-
nication mailed to the common parent,
even if no longer in existence, shall be
considered as having been properly
mailed to the agent of the group; or if the
Commissioner has reason to believe that
the existence of the common parent has
terminated, he may, if he deems it advis-
able, deal directly with any member or its
successor with respect to the member’s
several liability under §1.1502–6 without
having to give notice pursuant to para-
graph (a)(6) of this section.
(e) Termination of a corporation’s exis-
tence—(1) In general. For purposes of
paragraphs (a)(1)(v), (a)(4)(i), and (d) of
this section, the existence of a corporation
is deemed to terminate if—
(i) It ceases to exist under applicable
law; or
(ii) Except as provided in paragraph
(e)(3) of this section, it becomes, for Fed-
eral tax purposes, either—
(A) An entity that is disregarded as an
entity separate from its owner; or
(B) An entity that is reclassified as a
partnership.
(2) Purported agency. If the group’s
agent ceases to exist under circumstances
described in paragraph (e)(1)(ii) of this
section without designating a new agent
for the group pursuant to paragraph (d)(1)
of this section, and the agent subsequently
purports to act as agent for the group, any
actions by that purported agent on behalf
of the group will, to the extent determined
appropriate by the Commissioner, have
the same effect as if the agent’s existence
had not terminated.
(3) Exceptions where no eligible corpo-
ration exists. (i) For purposes of para-
graphs (a)(4)(i) and (d) of this section, if a
corporation becomes either disregarded as
an entity separate from its owner or re-
classified as a partnership for Federal tax
purposes, its existence shall not be
deemed to terminate if the effect of such
termination would be that no corporation
remains eligible to serve as the designated
agent for the group’s consolidated return
year.
(ii) Similarly, an entity that is either dis-
regarded as an entity separate from its
owner or reclassified as a partnership for
Federal tax purposes shall not be precluded
from designation as an agent merely be-
cause of such classification if the effect of
the inability to make such designation
would be that no corporation remains eligi-
ble to serve as the designated agent for the
group’s consolidated return year.
(f) Examples. The following examples
illustrate the principles of this section. In
each example, as of January 1 of Year 1,
the P group consists of P and its two sub-
sidiaries, S and S-1. P, as the common par-
ent of the P group, files consolidated re-
turns for the P group in Years 1 and 2. On
January 1 of Year 1, domestic corporations
S-2, U, V, W, W-1, X, Y, Z and Z-1 are not
related to P or the members of the P group.
All corporations are calendar year taxpay-
ers. Any surviving corporation in a merger
is a successor as described in paragraph
(a)(1)(iii) of this section. Any notification
to the Commissioner of the designation of
the P group’s new agent also contains a
statement signed on behalf of the desig-
nated agent that it consents to act as the
group’s new agent and, in the case of a suc-
cessor, that it is primarily liable as a suc-
cessor of a member. The examples are as
follows:
Example 1. Disposition of all group members. On
December 31 of Year 1, P sells all the stock of S-1 to
X. On December 31 of Year 2, P distributes all the
stock of S to P’s shareholders. P files a separate re-
turn for Year 3. Although P is no longer a common

October 16, 20003842000–42 I.R.B.
parent after Year 2, P remains the sole agent of the P
group for Years 1 and 2. Except as provided in para-
graph (a)(6) of this section, for as long as P remains in
existence, only P may execute a waiver of the period
of limitations on assessment on behalf of the group
for Years 1 and 2.
Example 2. Acquisition of common parent by
another group. The facts are the same as in Exam-
ple 1, except on January 1 of Year 3, P is acquired
by Y. P thereafter joins in the Y group consolidated
return as a member of Y group. Although P is a
member of Y group in Year 3, P remains the agent
of the P group for Years 1 and 2. Except as pro-
vided in paragraph (a)(6) of this section, for as long
as P remains in existence, only P may execute a
waiver of the period of limitations on assessment
on behalf of the P group for Years 1 and 2.
Example 3. Merger of common parent—desig-
nation of remaining member as new agent. On De-
cember 31 of Year 1, P sells all the stock of S-1 to
X. On July 1 of Year 2, P acquires all the stock of
S-2. On November 30 of Year 2, P distributes all
the stock of S to P’s shareholders. On January 1 of
Year 3, P merges into Y corporation. Just before
the merger, P notifies the Commissioner in writing
of the planned merger and of its designation of S as
the new agent of the P group for Years 1 and 2. S is
the only member that P can designate as the new
agent for both Years 1 and 2 because it is the only
subsidiary that was a member of P group during
part of both years. Although S-2 is the only re-
maining subsidiary of the P group when P merges
into Y, S-2 was a member of the P group only in
Year 2. For that reason, S-2 cannot be the group’s
agent for Year 1. Alternatively, P could designate a
different agent for each year, selecting S or S-1 as
the new agent for Year 1; and S or S-2 as the new
agent for Year 2. P could also designate its succes-
sor Y as the new agent for both Years 1 and 2.
Example 4. Forward triangular merger of com-
mon parent. On January 1 of Year 3, P merges with
and into Z-1, a subsidiary of Z, in a forward trian-
gular merger described in section 368(a)(1)(A) and
(a)(2)(D). The transaction constitutes a reverse ac-
quisition under §1.1502–75(d)(3)(i) because P’s
shareholders receive more than 50% of Z’s stock in
exchange for all of P’s stock. Just before the
merger, P notifies the Commissioner in writing of
the planned merger and its designation of Z-1, the
corporation that will survive the planned merger, as
the new agent of the P group for Years 1 and 2. Be-
cause Z-1 will be P’s successor (within the meaning
of paragraph (a)(1) of this section) after the planned
merger, P may designate Z-1 as the new agent for
the P group for Years 1 and 2, pursuant to paragraph
(d)(1) of this section. Alternatively, P could have
designated S or S-1 as the new agent for the P
group for Years 1 and 2. Although Z is the new
common parent of the P group, which continues
pursuant to §1.1502–75(d)(3)(i), P may not desig-
nate Z as the new agent for Years 1 and 2 because Z
was not a member of the group during any part of
Years 1 or 2 and is not a successor of P or any other
member of the group.
Example 5. Reverse triangular merger of com-
mon parent. On March 1 of Year 3, W-1, a sub-
sidiary of W, merges into P, in a reverse triangular
merger described in section 368(a)(1)(A) and
(a)(2)(E). P survives the merger with W-1. The
transaction constitutes a reverse acquisition under
§1.1502–75(d)(3)(i) because P’s shareholders re-
ceive more than 50% of W’s stock in exchange for
all of P’s stock. Under paragraph (a) of this sec-
tion, P remains the agent of the P group for Years 1
and 2, even though the P group continues with W as
its new common parent. Because the transaction
constitutes a reverse acquisition, the P group is
treated as remaining in existence with W as its
common parent. Before March 2 of Year 3, P is the
sole agent for the P group for Year 3. Beginning on
March 2 of Year 3, W becomes the sole agent for
the P group with respect to all of Year 3 (including
the period through March 1) and subsequent con-
solidated return years.
Example 6. Reverse triangular merger of com-
mon parent—spinoff of common parent. The facts
are the same as in Example 5, except that on April 1
of Year 3, P distributes the stock of its subsidiaries
S and S-1 to W, and W then distributes the stock of
P to the W shareholders. Although P is no longer a
member of the P group and W is the continuing P
group’s new common parent, P remains the agent
for the P group under paragraph (a) of this section
for Years 1 and 2. Before March 2 of Year 3, P is
the sole agent for the P group for Year 3. Beginning
on March 2 of Year 3, W becomes the sole agent for
the P group with respect to Year 3 (including the
period through March 1) and subsequent consoli-
dated return years.
Example 7. Qualified stock purchase and sec-
tion 338 election. On March 31 of Year 2, V pur-
chases the stock of P in a qualified stock purchase
(within the meaning of section 338(d)(3)), and V
makes a timely election pursuant to section 338(g)
with respect to P. Section 338(a)(2) provides that P
is treated as a new corporation as of the beginning
of the day after the acquisition date for purposes of
subtitle A. For purposes of other subtitles, such as
subtitle F (Procedure and Administration), how-
ever, new P is treated as a continuation of old P.
Therefore, new P remains the agent of the P group
for Year 1 and the period ending March 31 of Year
2 (short Year 2). Except as provided in paragraph
(a)(6) of this section, for as long as new P remains
in existence, only new P may execute a waiver of
the period of limitations on assessment on behalf of
the P group for Year 1 and short Year 2.
Example 8. Fraudulent conveyance of assets.
On March 15 of Year 2, P files a consolidated return
that includes the income of S and S-1 for Year 1.
On December 1 of Year 2, S-1 transfers assets hav-
ing a fair market value of $100x to U in exchange
for $10x. This transfer of assets for less than fair
market value constitutes a fraudulent conveyance
under applicable state law. On March 1 of Year 5, P
executes a waiver extending to December 31 of
Year 6 the period of limitations on assessment with
respect to the group’s Year 1 consolidated return.
On February 1 of Year 6, the Commissioner issues a
notice of deficiency to P asserting a deficiency of
$30x for the P group’s Year 1 consolidated tax lia-
bility. P does not file a petition for redetermination
in the Tax Court, and the Commissioner makes a
timely assessment against the P group. P, S and S-1
are all insolvent and are unable to pay the defi-
ciency. On February 1 of Year 8, the Commissioner
sends a notice of transferee liability to U, which
does not file a petition in the Tax Court. On August
1 of Year 8, the Commissioner assesses the amount
of the P group’s deficiency against U. Under sec-
tion 6901(c), the Commissioner may assess U’s
transferee liability within one year after the expira-
tion of the period of limitations against the trans-
feror S-1. By operation of section 6213(a) and
6503(a), the issuance of the notice of deficiency to
P and the expiration of the 90-day period for filing
a petition in the Tax Court have the effect of further
extending by 150 days the P group’s limitations pe-
riod on assessment from the previously extended
date of December 31 of Year 6 to May 30 of Year 7.
Pursuant to paragraph (a)(1)(v) of this section, the
waiver executed by P on March 1 of Year 5 to ex-
tend the period of limitations on assessment to De-
cember 31 of Year 6 and the further extension of the
P group’s limitations period to May 30 of Year 7
(by operation of sections 6213(a) and 6503(a)) have
the derivative effect of extending the period of lim-
itations on assessment of U’s transferee liability to
May 30 of Year 8. By operation of section 6901(f),
the issuance of the notice of transferee liability to U
and the expiration of the 90-day period for filing a
petition in the Tax Court have the effect of further
extending the limitations period on assessment of
U’s liability as a transferee by 150 days, from May
30 of Year 8 to October 27 of Year 8. Accordingly,
the Commissioner may send a notice of transferee
liability to U at any time on or before May 30 of
Year 8 and assess the unpaid liability against U at
any time on or before October 27 of Year 8. The re-
sult would be the same even if S-1 ceased to exist
before March 1 of Year 5, the date P executed the
waiver.
(g) Cross-reference. For further rules
applicable to groups that include insol-
vent financial institutions, see
§301.6402–7 of this chapter.
(h) Effective date—(1) Application.
This section applies with respect to tax-
able years beginning on or after the date
final regulations are published in the
Federal Register.
(2) Prior law. For taxable years be-
ginning before the date final regulations
are published in the Federal Register,
see §1.1502–77A.
Par. 6. Section 1.1502–77T(a) is re-
designated as §1.1502–77A(e) and
§1.1502–77T is removed.
Par. 7. The amendments to
§1.1502–78(a), as contained in the notice
of proposed rulemaking (LR–97–79)
published in the Federal Registeron
July 31, 1984 (49 F.R. 30528), are with-
drawn.
Par. 8. Section 1.1502–78 is amended
as follows:
1. Paragraph (a) is revised.
2. Paragraph (b)(1) is amended by
adding the language “for the carryback
year (or agent designated under
§1.1502–77(d) for the carryback year)”
at the end of the first sentence.
3. In paragraph (c), the last sentence
of Example (1)is amended by adding the

2000–42 I.R.B.385October 16, 2000
language “for the carryback year” after
“parent.”
4. In paragraph (c), the last sentence
of Example (2)is amended by removing
the language “S-1” and adding “P” in its
place.
5. In paragraph (c), Example (3), the
seventh sentence is amended by remov-
ing “Z must” and adding “X must” in its
place.
6. Paragraphs (e) and (f) are added.
The revision and additions read as fol-
lows:
§1.1502–78 Tentative carryback
adjustments.
(a) General rule. If a group has a con-
solidated net operating loss, a consoli-
dated net capital loss, or a consolidated
unused business credit for any taxable
year, then any application under section
6411 for a tentative carryback adjustment
of the taxes for a consolidated return year
or years preceding such year shall be
made by the common parent corporation
for the carryback year (or agent desig-
nated under §1.1502–77(d) for the carry-
back year) to the extent such loss or un-
used business credit is not apportioned to
a corporation for a separate return year
pursuant to §1.1502–21(b),
1.1502–22(b), or 1.1502–79(c). In the
case of the portion of a consolidated net
operating loss or consolidated net capital
loss or consolidated unused business
credit to which the preceding sentence
does not apply and which is to be carried
back to a corporation that was not a
member of a consolidated group in the
carryback year, the corporation to which
such loss or credit is attributable shall
make any application under section 6411.
In the case of a net capital loss or net op-
erating loss or unused business credit
arising in a separate return year which
may be carried back to a consolidated re-
turn year, after taking into account the
application of §1.1502–21(b)(3)(ii)(B)
with respect to any net operating loss
arising in another consolidated group, the
common parent for the carryback year
(or agent designated under
§1.1502–77(d) for the carryback year)
shall make any application under section
6411.
* * * * *
(e) Cross-reference. For further rules
applicable to groups that include insol-
vent financial institutions, see
§301.6402–7 of this chapter.
(f) Effective date—(1) In general.
This section applies to taxable years to
which a loss or credit may be carried
back and for which the due date (without
extensions) of the original return is after
the date final regulations are published in
the Federal Register.
(2) Prior law. For taxable years to
which a loss or credit may be carried
back and for which the due date (without
extensions) is on or before the date final
regulations are published in the Federal
Register, see §1.1502–78 in effect prior
to the date final regulations are published
in the Federal Register, as contained in
26 CFR part 1 revised as of April 1,
2000.
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
(Filed by the Office of the Federal Register on Sep-
tember 25, 2000, 8:45 a.m., and published in the
issue of the Federal Register for September 26,
2000, 65 F.R. 57755)
Form 8870, Information Return
for Transfers Associated With
Certain Personal Benefit
Contracts
Announcement 2000–82
Notice 2000–24, 2000–17 I.R.B. 952,
advises organizations that pay premiums
on “personal benefit contracts,” as that
term is used in section 170(f)(10) of the
Internal Revenue Code, of the need to
file Form 8870, Information Return for
Transfers Associated With Certain Per-
sonal Benefit Contracts. For taxable
years beginning prior to January 1, 2000,
such organizations must file Form 8870
by the later of 90 days after the date of
the Service’s announcement in the Inter-
nal Revenue Bulletin of the availability
of Form 8870, or the date the organiza-
tion is required to file its annual informa-
tion return.
This announcement advises organiza-
tions of the availability of Form 8870.
The 90-day period referred to in the No-
tice begins on the date of publication of
this announcement.
Request for Comments
Regarding Need for Guidance
Clarifying Application of the
Internal Revenue Code to Use of
the Internet by Exempt
Organizations
Announcement 2000–84
The Internal Revenue Service is con-
sidering the necessity of issuing guid-
ance that would clarify the application
of the Internal Revenue Code to use of
the Internet by exempt organizations.
Accordingly, the Service is soliciting
public comment concerning the applica-
tion of Code provisions governing ex-
empt organizations to activities they
conduct on the Internet. The Service has
made no final decision concerning the
need for additional guidance of general
applicability and may conclude no fur-
ther action is necessary.
BACKGROUND
Exempt organizations, like other orga-
nizations, are increasingly turning to the
Internet to carry on their activities. By
publishing a webpage on the Internet, an
exempt organization can provide the
general public with information about
the organization, its activities, and issues
of concern to the organization, as well as
immediate access to websites of other or-
ganizations. An exempt organization can
provide information to subscribers about
issues of concern to the organization as
well as enable people with common in-
terests to share information via the Inter-
net through a variety of methods (such as
mailing lists, news groups, listserves,
chat rooms, and forums).
General Issues
Exempt organizations use the Internet
to carry on activities that otherwise can
be conducted through other media, such
as radio or television broadcasts, print
publications, or direct mailings. The
growing use of the Internet by exempt
organizations raises questions regarding
whether clarification is needed concern-
ing the application of the Code to Inter-
net activities. The questions include the
following:
• Does a website constitute a single pub-
lication or communication? If not, how
should it be separated into distinct pub-

October 16, 20003862000–42 I.R.B.
lications or communications?
• When allocating expenses for a web-
site, what methodology is appropriate?
For example, should allocations be
based on webpages (which, unlike print
publications, may not be of equal size)?
• Unlike other publications of an ex-
empt organization, a website may be
modified on a daily basis. To what
extent and by what means should an
exempt organization maintain the in-
formation from prior versions of the
organization’s website?
• To what extent are statements made
by subscribers to a forum, such as a
listserv or newsgroup, attributable to
an exempt organization that maintains
the forum? Does attribution vary de-
pending on the level of participation
of the exempt organization in main-
taining the forum (e.g., if the organi-
zation moderates discussion, acts as
editor, etc.)?
Political and Lobbying Activities
Charitable organizations described in
section 501(c)(3) may not intervene in po-
litical campaigns and may only attempt to
influence legislation as an insubstantial
part of their activities. If the charitable
organization makes an election under sec-
tion 501(h), an expenditure test is applied
in determining whether the organization
has engaged in substantial lobbying activ-
ities, with different limits applicable for
direct and grassroots lobbying.
When a charitable organization en-
gages in advocacy on the Internet, ques-
tions arise as to whether it is conducting
political or lobbying activity, and if so, to
what extent. This situation is further
complicated by the affiliation of charita-
ble organizations with other organizations
engaging in political or lobbying activi-
ties on the Internet. The ease with which
different websites may be linked electron-
ically (through a “hyperlink”) raises a
concern about whether the message of a
linked website is attributable to the chari-
table organization. The Service is consid-
ering whether clarification is needed on
how to apply the prohibition on political
campaign intervention and substantial
lobbying activity for charitable organiza-
tions engaging in activities on the Inter-
net. Questions include the following:
• What facts and circumstances are rele-
vant in determining whether informa-
tion on a charitable organization’s web-
site about candidates for public office
constitutes intervention in a political
campaign by the charitable organization
or is permissible charitable activity con-
sistent with the principles set forth in
Rev. Rul. 78–248, 1978–1 C.B. 154,
and Rev. Rul. 86–95, 1986–2 C.B. 73
(dealing with voter guides and candi-
date debates)?
• Does providing a hyperlink on a chari-
table organization’s website to another
organization that engages in political
campaign intervention result in per se
prohibited political intervention? What
facts and circumstances are relevant in
determining whether the hyperlink con-
stitutes a political campaign interven-
tion by the charitable organization?
• For charitable organizations that have
not made the election under section
501(h), what facts and circumstances
are relevant in determining whether
lobbying communications made on the
Internet are a substantial part of the or-
ganization’s activities? For example,
are location of the communication on
the website (main page or subsidiary
page) or number of hits relevant?
• Does providing a hyperlink to the web-
site of another organization that en-
gages in lobbying activity constitute
lobbying by a charitable organization?
What facts and circumstances are rele-
vant in determining whether the charita-
ble organization has engaged in lobby-
ing activity (for example, does it make
a difference if lobbying activity is on
the specific webpage to which the char-
itable organization provides the hyper-
link rather than elsewhere on the other
organization’s website)?
• To determine whether a charitable orga-
nization that has made the election
under section 501(h) has engaged in
grass roots lobbying on the Internet,
what facts and circumstances are rele-
vant regarding whether the organization
made a “call to action”?
• Does publication of a webpage on the
Internet by a charitable organization
that has made an election under section
501(h) constitute an appearance in the
mass media? Does an email or listserv
communication by the organization
constitute an appearance in mass media
if it is sent to more than 100,000 people
and fewer than half of those people are
members of the organization?
• What facts and circumstances are rele-
vant in determining whether an Internet
communication (either a limited access
website or a listserv or email communi-
cation) is a communication directly to
or primarily with members of the orga-
nization for a charitable organization
that has made an election under section
501(h)?
Advertising and Other Business Activities
Many exempt organizations receive
payment from companies to display ad-
vertising messages on the organization’s
website. Some exempt organizations
have banners on their websites containing
information about and a link to other or-
ganizations in exchange for a similar ban-
ner on the other organizations’ website.
Exempt organizations may also provide
hyperlinks on their websites to companies
that sponsor their activities. Some organi-
zations receive payments based upon a
percentage of sales for referring cus-
tomers to another website, while others
receive payments based upon the number
of persons who use the hyperlink to go to
the other webpage. In addition, a number
of exempt organizations use the Internet
as another outlet for their own sales activ-
ity.
Some organizations operate “virtual
trade shows,” an attempt to replicate trade
shows on the Internet. Some of these vir-
tual trade shows simply consist of hyper-
links to industry suppliers’ websites,
while others also include displays with
educational information.
The Service is considering whether
clarification is needed regarding whether
the income received from these activities
is subject to the unrelated business in-
come tax, and if so, how the income and
expenses related to the activity are calcu-
lated. Questions include the following:
• To what extent are business activities
conducted on the Internet regularly car-
ried on under section 512? What facts
and circumstances are relevant in deter-
mining whether these activities on the
Internet are regularly carried on?
• Are there any circumstances under
which the payment of a percentage of
sales from customers referred by the ex-
empt organization to another website
would be substantially related under
section 513?

2000–42 I.R.B.387October 16, 2000
• Are there any circumstances under
which an online “virtual trade show”
qualifies as an activity of a kind “tradi-
tionally conducted” at trade shows
under section 513(d)?
Comments concerning the application
of section 513(i), which governs the treat-
ment of qualified sponsorship payments,
to Internet activities were requested in
connection with the Notice of Proposed
Rulemaking (REG–209601–92) published
in the Federal Register on March 1, 2000.
Solicitation of Contributions
There are numerous Code provisions
regulating the solicitation and receipt of
charitable contributions. For example, ex-
empt organizations not eligible to receive
tax-deductible charitable contributions are
required under section 6113 to disclose in
certain solicitations for contributions that
such contributions are not deductible for
federal income tax purposes as charitable
contributions. Charitable organizations
that receive certain “quid pro quo” contri-
butions in excess of $75 are required
under section 6115 to provide a written
statement to the donor that indicates that
the charitable deduction is limited to the
amount paid by the donor in excess of the
value of the goods or services provided by
the organization and that provides a good
faith estimate of that value. Under section
170(f)(8), donors making contributions of
$250 or more to a charitable organization
must substantiate the contribution with a
contemporaneous written acknowledge-
ment from the charitable organization in
order for the deduction to be allowed.
An increasing number of exempt orga-
nizations solicit contributions on the Inter-
net. In some instances, the organization’s
website merely indicates where to send
contributions to the organization. In other
cases, the organization is able to accept
contributions on the Internet, either di-
rectly or through a third party that pro-
vides a secure connection for credit card
transactions. The Service is considering
the need for clarification regarding such
activities, including the following:
• Are solicitations for contributions made
on the Internet (either on an organiza-
tion’s website or by email) in “written or
printed form” for purposes of section
6113? If so, what facts and circum-
stances are relevant in determining
whether a disclosure is in a “conspicu-
ous and easily recognizable format”?
• Does an organization meet the require-
ments of section 6115 for “quid pro
quo” contributions with a webpage con-
firmation that may be printed out by the
contributor or by sending a confirmation
email to the donor?
• Does a donor satisfy the requirement
under section 170(f)(8) for a written ac-
knowledgment of a contribution of $250
or more with a printed webpage confir-
mation or copy of a confirmation email
from the donee organization?
REQUEST FOR PUBLIC COMMENT
The Service is soliciting public com-
ment regarding the need for additional
guidance clarifying the application of the
Code to exempt organizations’ Internet ac-
tivities. The Service requests comments
not only on the situations described above,
but also on any other issues concerning
application of provisions of the Code in a
fair and neutral manner to exempt organi-
zations’ Internet activities.
Public comments should be submitted
in writing on or before February 13, 2001.
Comments should be sent to the following
address:
Internal Revenue Service
1111 Constitution Ave, NW
Washington, DC 20224
Attn: Judith E. Kindell
T:EO
Comments may also be sent electroni-
cally via the Internet to *TE/GE-Exempt-
2@irs.gov.
DRAFTING INFORMATION
The principal author of this announce-
ment is Judith E. Kindell of Exempt Orga-
nizations. For further information regard-
ing this announcement contact Judith E.
Kindell at (202) 622-6494 (not a toll-free
call).

October 16, 2000i2000–42 I.R.B.
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions 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.
Definition of Terms

2000–42 I.R.B.iiOctober 16, 2000
Numerical Finding List
1
Bulletins 2000–27 through 2000–41
Announcements:
2000–57, 2000–28 I.R.B. 115
2000–58, 2000–30 I.R.B. 135
2000–59, 2000–29 I.R.B. 120
2000–60, 2000–31 I.R.B. 149
2000–61, 2000–30 I.R.B. 136
2000–62, 2000–30 I.R.B. 137
2000–63, 2000–31 I.R.B. 149
2000–64, 2000–31 I.R.B. 149
2000–65, 2000–31 I.R.B. 150
2000–66, 2000–32 I.R.B. 160
2000–67, 2000–32 I.R.B. 160
2000–68, 2000–32 I.R.B. 161
2000–69, 2000–33 I.R.B. 183
2000–70, 2000–34 I.R.B. 204
2000–72, 2000–35 I.R.B. 226
2000–73, 2000–35 I.R.B. 230
2000–74, 2000–35 I.R.B. 230
2000–75, 2000–37 I.R.B. 268
2000–76, 2000–36 I.R.B. 260
2000–77, 2000–36 I.R.B. 260
2000–79, 2000–39 I.R.B. 303
2000–80, 2000–40 I.R.B. 320
2000–81, 2000–41 I.R.B. 348
2000–83, 2000–41 I.R.B. 348
Court Decisions:
2068, 2000–28 I.R.B. 109
Notices:
2000–33, 2000–27 I.R.B. 97
2000–34, 2000–33 I.R.B. 172
2000–35, 2000–29 I.R.B. 118
2000–36, 2000–33 I.R.B. 173
2000–37, 2000–29 I.R.B. 118
2000–38, 2000–33 I.R.B. 174
2000–39, 2000–30 I.R.B. 132
2000–40, 2000–30 I.R.B. 134
2000–41, 2000–33 I.R.B. 177
2000–42, 2000–39 I.R.B. 302
2000–43, 2000–35 I.R.B. 209
2000–44, 2000–36 I.R.B. 255
2000–45, 2000–36 I.R.B. 256
2000–46, 2000–37 I.R.B. 265
2000–48, 2000–37 I.R.B. 265
2000–49, 2000–37 I.R.B. 266
2000–50, 2000–38 I.R.B. 291
2000–51, 2000–38 I.R.B. 291
2000–52, 2000–38 I.R.B. 292
2000–53, 2000–38 I.R.B. 293
Proposed Regulations:
REG–209038–89, 2000–34 I.R.B. 191
REG–105316–98, 2000–27 I.R.B. 98
REG–110311–98, 2000–36 I.R.B. 258
REG–116495–99, 2000–33 I.R.B. 179
REG–103735–00, 2000–36 I.R.B. 258
REG–103736–00, 2000–36 I.R.B. 258
REG–108522–00, 2000–34 I.R.B. 187
REG–112502–00, 2000–40 I.R.B. 316
Railroad Retirement Quarterly Rate:
2000–28 I.R.B. 112
2000–29 I.R.B. 117
Revenue Procedures:
2000–28, 2000–27 I.R.B. 60
2000–29, 2000–28 I.R.B. 113
2000–30, 2000–28 I.R.B. 113
2000–31, 2000–31 I.R.B. 146
2000–32, 2000–33 I.R.B. 172
2000–33, 2000–36 I.R.B. 257
2000–34, 2000–34 I.R.B. 186
2000–35, 2000–35 I.R.B. 211
2000–36, 2000–37 I.R.B. 267
2000–37, 2000–40 I.R.B. 308
2000–38, 2000–40 I.R.B. 310
2000–39, 2000–41 I.R.B. 340
Revenue Rulings:
2000–32, 2000–27 I.R.B. 1
2000–33, 2000–31 I.R.B. 142
2000–34, 2000–29 I.R.B. 116
2000–35, 2000–31 I.R.B. 138
2000–36, 2000–31 I.R.B. 140
2000–37, 2000–32 I.R.B. 156
2000–38, 2000–32 I.R.B. 157
2000–39, 2000–34 I.R.B. 184
2000–40, 2000–35 I.R.B. 208
2000–41, 2000–36 I.R.B. 248
2000–42, 2000–39 I.R.B. 297
2000–43, 2000–41 I.R.B. 333
2000–44, 2000–41 I.R.B. 336
2000–45, 2000–41 I.R.B. 337
2000–46, 2000–41 I.R.B. 334
2000–47, 2000–37 I.R.B. 264
Treasury Decisions:
8886, 2000–27 I.R.B. 3
8888, 2000–27 I.R.B. 3
8889, 2000–30 I.R.B. 124
8890, 2000–30 I.R.B. 122
8891, 2000–32 I.R.B. 152
8892, 2000–32 I.R.B. 158
8893, 2000–31 I.R.B. 143
8894, 2000–33 I.R.B. 162
8895, 2000–40 I.R.B. 304
8896, 2000–36 I.R.B. 249
8897, 2000–36 I.R.B. 234
8898, 2000–38 I.R.B. 276
8899, 2000–38 I.R.B. 288
8900, 2000–38 I.R.B. 279
8901, 2000–38 I.R.B. 272
8902, 2000–41 I.R.B. 323
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2000–1 through 2000–26
is in Internal Revenue Bulletin 2000–27, dated July
3, 2000.

October 16, 2000iii2000–42 I.R.B.
Finding List of Current Actions on
Previously Published Items
1
Bulletins 2000–27 through 2000–41
Notices:
87–76
Obsoleted by
T.D. 8897, 2000–36 I.R.B. 234
88–24
Obsoleted by
T.D. 8897, 2000–36 I.R.B. 234
88–86
(section V)
Obsoleted by
T.D. 8897, 2000–36 I.R.B. 234
2000–48
Superseded by
Rev. Proc. 2000–39, 2000–41 I.R.B. 340
Proposed Regulations:
FI–42–90
Withdrawn by
Announcement 2000–63, 2000–31 I.R.B. 149
IA–38–93
Withdrawn by
Announcement 2000–68, 2000–32 I.R.B. 161
REG–107644–98
Corrected by
Announcement 2000–66, 2000–32 I.R.B. 160
Revenue Procedures:
88–23
Superseded by
Rev. Proc. 2000–35, 2000–35 I.R.B. 211
98–50
Modified and superseded by
Rev. Proc. 2000–31, 2000–31 I.R.B. 146
98–51
Modified and superseded by
Rev. Proc. 2000–31, 2000–31 I.R.B. 146
99–18
Modified by
Rev. Proc. 2000–29, 2000–28 I.R.B. 113
99–34
Superseded by
Rev. Proc. 2000–28, 2000–27 I.R.B. 60
99–49
Modified and amplified by
Rev. Proc. 2000–38, 2000–40 I.R.B. 310
2000–9
Superseded by
Rev. Proc. 2000–39, 2000–41 I.R.B. 340
Treasury Decisions:
8873
Corrected by
Announcement 2000–74, 2000–35 I.R.B. 230
8883
Corrected by
Announcement 2000–57, 2000–28 I.R.B. 115
8884
Corrected by
Announcement 2000–73, 2000–35 I.R.B. 230
Treasury Decisions—Continued
8892
Corrected by
Announcement 2000–81, 2000–41 I.R.B. 348
1
A cumulative list of current actions on previously
published items in Internal Revenue Bulletins
2000–1 through 2000–26 is in Internal Revenue
Bulletin 2000–27, dated July 3, 2000.

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