Internal Revenue Bulletin 1996-25 (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.

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Bulletin No. 1996–25
June 17, 1996
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 96–31, page 4.
LIFO; price indexes; department stores. The April 1996
Bureau of Labor Statistics price indexes are accepted
for use by department stores employing the retail
inventory and last-in, first-out inventory methods for
valuing inventories for tax years ended on, or with
reference to, April 30, 1996.
Rev. Rul. 96–32, page 5.
Involuntary conversion of a residence; deduction for
qualified residence interest. If a principal residence is
destroyed, and the land portion is later sold, gain on
the scale may be deferred under section 1033(a) if the
requirements of that section are met. Taxpayers may
continue to deduct otherwise deductible mortgage
interest on a destroyed residence during a reasonable
period between the destruction of the residence and its
sale or reconstruction and reoccupation.
EXEMPT ORGANIZATIONS
Announcement 96–59, page 22.
A list is given of organizations now classified as private
foundations.
ADMINISTRATIVE
Notice 96–35, page 8.
As part of the President’s Regulatory Reinvention
Initiative, certain listed regulations have been identified
as obsolete. Public comments are requested.
PS–5–96, page 17.
Proposed regulations under section 708 of the Code
relate to the termination of a partnership upon the sale
or exchange of 50 percent or more of the total interest
in partnership capital and profits.
Rev. Proc. 96–35, page 8.
Magnetic/Electronic Media Filing Program; Form 1040NR.
Participants in the 1996 Magnetic/Electronic Media
Program for Form 1040NR, U.S. Nonresident Alien
Income Tax Return, are informed of their obligations to
the Service and other participants.
Announcement 96–57, page 20.
The schedule, agenda and registration information for
the 1996 Information Reporting Seminars for magnetic/
electronic filing is published. Members of the public
may register to attend one or more of these seminars.
Announcement 96–58, page 21.
T.D. 8658, 1996–14 I.R.B. 13, relating to the
determination of the interest expense deduction of
foreign corporations, is corrected.
Finding Lists begin on page 27.
Announcement of Disbarments and Suspensions begins on page 24.

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

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

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Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 163.—Interest
If a principal residence is destroyed and either
the remaining land portion is sold or the dwelling
is reconstructed and reoccupied within a reason-
able period of time after the destruction or
damage, is the property treated as a qualified
residence under §163(h) during the period be-
tween the destruction of the residence and its sale
or reconstruction and reoccupation as a qualified
residence? See Rev. Rul. 96–32, page 5.
Section 472.—Last-in, First-out
Inventories
26 CFR 1.472–1: Last-in, first-out inventories.
LIFO; price indexes; department
stores. The April 1996 Bureau of Labor
Statistics price indexes are accepted for
use by department stores employing the
retail inventory and last-in, first-out
inventory methods for valuing invento-
ries for tax years ended on, or with
reference to, April 30, 1996.
Rev. Rul. 96–31
The following Department Store In-
ventory Price Indexes for April 1996
were issued by the Bureau of Labor
Statistics on May 14, 1996. The in-
dexes are accepted by the Internal
Revenue Service, under §1.472–1(k)
of the Income Tax Regulations and
Rev. Proc. 86–46, 1986–2 C.B. 739, for
appropriate application to inventories of
department stores employing the retail
inventory and last-in, first-out inven-
tory methods for tax years ended on, or
with reference to, April 30, 1996.
The Department Store Inventory
Price Indexes are prepared on a na-
tional basis and include (a) 23 major
groups of departments, (b) three special
combinations of the major groups —
soft goods, durable goods, and mis-
cellaneous goods, and (c) a store total,
which covers all departments, including
some not listed separately, except for
the following: candy, foods, liquor,
tobacco, and contract departments.
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
GroupsApr 1995Apr 1996
Percent Change from
Apr 1995 to Apr 1996
1
1.Piece Goods...........................485.2528.68.9
2.Domestics and Draperies................642.6655.01.9
3.Women’s and Children’s Shoes..........639.1658.23.0
4.Men’s Shoes..........................919.0899.6–2.1
5.Infants’ Wear..........................613.8640.94.4
6.Women’s Underwear....................540.1538.5–0.3
7.Women’s Hosiery......................281.3285.71.6
8.Women’s and Girls’ Accessories.........545.3554.91.8
9.Women’s Outerwear and Girls’ Wear.....448.3430.9–3.9
10.Men’s Clothing........................613.4625.72.0
11.Men’s Furnishings......................573.0590.33.0
12.Boys’ Clothing and Furnishings..........494.1491.2–0.6
13.Jewelry...............................1024.31036.31.2
14.Notions...............................779.7785.10.7
15.Toilet Articles and Drugs...............850.8883.33.8
16.Furniture and Bedding..................649.4672.23.5
17.Floor Coverings........................570.2571.10.2
18.Housewares............................778.8802.93.1
19.Major Appliances......................245.7246.80.4
20.Radio and Television...................85.479.6–6.8
21.Recreation and Education
2
...............114.2113.7–0.4
22.Home Improvements
2
...................122.7125.72.4
23.Auto Accessories
2
......................106.9107.30.4
Groups 1–15: Soft Goods....................604.0608.20.7
Groups 16–20: Durable Goods...............465.7468.80.7
Groups 21–23: Misc. Goods
2
.................114.1114.10.0
Store Total
3
............................556.6560.10.6
1
Absence of a minus sign before percentage change in this column signifies price increase.
2
Indexes on a January 1986=100 base.
3
The store total index covers all departments, including some not listed separately, except for the following: candy, foods,
liquor, tobacco, and contract departments.

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DRAFTING INFORMATION
The principal author of this revenue
ruling is Stan Michaels of the Office of
Assistant Chief Counsel (Income Tax
and Accounting). For further informa-
tion regarding this revenue ruling,
contact Mr. Michaels on (202)
622-4970 (not a toll-free call).
Section 1033.—Involuntary
Conversions
26 CFR 1.1033(a)–3: Involuntary conversion
of a principal residence.
(Also §§163, 1034; 1.1034–1(c)(3).)
Involuntary conversion of a re-
sidence; deduction for qualified re-
sidence interest. If a principal re-
sidence is destroyed, and the land
portion is later sold, the sale is treated
as part of the involuntary conversion of
the residence, if the requirements of
section 1033(a) are met. Taxpayers
may continue to deduct otherwise
deductible mortgage interest on a de-
stroyed residence during a reasonable
period between the destruction of the
residence and its sale or reconstruction
and reoccupation.
Rev. Rul. 96–32
ISSUES
(1)If the dwelling portion of the
taxpayer’s principal residence is de-
stroyed and the remaining land portion
of the principal residence is subse-
quently sold within the period de-
scribed in §1033(a)(2)(B) of the Inter-
nal Revenue Code, is the sale treated as
part of the involuntary conversion of
the principal residence to which
§ 1033(a) may apply to defer recogni-
tion of gain realized on the sale?
(2)If the taxpayer subsequently sells
the remaining land portion of the
principal residence described above or
reconstructs the destroyed dwelling and
reoccupies it as the taxpayer’s principal
residence within a reasonable period of
time after the destruction, is the prop-
erty treated as a qualified residence
under §163(h) during the period be-
tween the destruction of the dwelling
and the sale or reoccupancy?
FACTS
Situation (1)—A’s principal re-
sidence (within the meaning of §§1034
and 163(h)(4)(A)(i)(I)) was destroyed
in September 1991 by a tornado that
was subsequently declared a disaster by
the President. In the same year, A
received insurance proceeds of $120x
for the destruction of the dwelling. A’s
adjusted basis in the property (land and
improvements) was $100x. A did not
rebuild the dwelling, but instead sold
the land for $10x in November 1993.
In March 1995, A purchased another
home for $130x and used it as A’s
principal residence.
Situation (2)—B’s principal re-
sidence (within the meaning of §§1034
and 163(h)(4)(A)(i)(I)) was destroyed
in December 1991 by an earthquake
that was subsequently declared a disas-
ter by the President. Because the
widespread destruction in the region
resulted in a severe shortage of avail-
able equipment, materials, and skilled
labor, B was not able to begin recon-
struction of the dwelling until June
1993. Upon its completion in October
1994, B reoccupied the reconstructed
dwelling and used it as B’s principal
residence. During the period from the
earthquake until B reoccupied the re-
constructed dwelling, B lived in rental
housing.
In Situations (1) and (2), the re-
sidences were encumbered by mort-
gages securing debts the interest on
which was qualified residence interest
under §163(h)(3)(A) prior to the disas-
ter. Had the residences not been de-
stroyed, they would have continued to
qualify as principal residences under
§ 163(h)(4)(A)(i)(I). After the destruc-
tion of their principal residences, A and
B continued to make payments of
principal and interest on their mortgage
debts.
LAW AND ANALYSIS—ISSUE (1)
Section 1033(a)(2)(A) provides, in
part, that if property (as a result of its
destruction in whole or in part, theft,
seizure, or requisition or condemnation
or threat or imminence thereof) is
compulsorily or involuntarily converted
into money, which in turn is used to
purchase (within the period specified in
§ 1033(a)(2)(B)) property similar or
related in service or use to the con-
verted property, gain will be recog-
nized only to the extent that the
amount realized upon the conversion
exceeds the cost of the replacement
property.
Section 1033(a)(2)(B) provides that
the period for replacing converted
property generally shall be the period
beginning on the date of the disposition
of the converted property and ending 2
years after the close of the taxable year
in which any part of the gain is
realized. However, § 1033(h)(1)(B),
added by §13431 of the Omnibus
Budget Reconciliation Act of 1993,
provides that if a principal residence is
compulsorily or involuntarily converted
as a result of a Presidentially declared
disaster, §1033(a)(2)(B) shall be ap-
plied by substituting ‘‘4 years’’ for ‘‘2
years.’’ For this purpose, §1033(h)(3)
generally provides that the term ‘‘prin-
cipal residence’’ has the same meaning
as when used in §1034. Section
1033(h) is effective for property con-
verted as a result of disasters deter-
mined after August 31, 1991, to be
Presidentially declared disasters, and
for taxable years ending after that date.
Section 1033(b) provides that the
basis of property acquired in a transac-
tion that resulted in nonrecognition of
gain under §1033(a)(2) shall be the
cost of the property acquired reduced
by the amount of the gain not so
recognized.
Section 1.1033(a)–3 of the Income
Tax Regulations provides, in part, that
§ 1033 shall apply in the case of
property that the taxpayer uses as the
taxpayer’s principal residence if its
destruction occurs after December 31,
1953. Thus, the nonrecognition of gain
provided by §1034 is not applicable if
a principal residence is destroyed and
replacement property is acquired.
Section 1.1034–1(c)(3) provides that
whether property is used by the tax-
payer as a principal residence under
§ 1034 depends upon all the facts and
circumstances in each case, including
the good faith of the taxpayer.
In Rev. Rul. 76–541, 1976–2 C.B.
246, a taxpayer owned and resided in a
house situated on an undivided parcel
of land containing 10 acres, all of
which the taxpayer used as the princi-
pal residence. During a particular year,
the taxpayer sold the dwelling and
three immediately surrounding acres at
a gain. Later in the same year, the
taxpayer sold two more acres at a gain.
The taxpayer constructed a new princi-
pal residence on the taxpayer’s remain-
ing five acres within the period pro-
vided under §1034. Rev. Rul. 76–541
holds that §1034 applies to defer
recognition of the total gain realized on
both sales, and that a single replace-
ment period under §1034(a) (deter-

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mined with reference to the date of the
first sale) applies. Rev. Rul. 76–541
treats the dwelling and the ten acres of
surrounding land as the taxpayer’s
principal residence. The sale of the first
three acres and the dwelling did not
alter the ‘‘principal residence’’ charac-
ter of the two-acre portion of land that
was later sold during the applicable
replacement period.
Consistent with the integral nature of
a taxpayer’s principal residence for
§ 1034 purposes, § 1.165–7(b)(2)(ii)
provides that, in determining the
amount of a casualty loss for residen-
tial real property and improvements
thereon (such as buildings and land-
scaping), the improvements are consid-
ered an integral part of the residential
property so that no separate basis need
be apportioned to such improvements.
Cf. §1.165–7(b)(2)(i) (a loss incurred
in a trade or business or in any trans-
action entered into for profit is deter-
mined by reference to the separate fair
market value and basis of each single,
identifiable property damaged or
destroyed).
In Situation (1), A realized $120x of
insurance proceeds upon the 1991 con-
version of the dwelling. A may offset
the entire $100x basis in the property
against the amount realized, consistent
with the nonapportionment of basis for
the computation of casualty loss deduc-
tions on residential real property under
§ 1.165–7(b)(2)(ii). Thus, A realized a
gain from the insurance proceeds of
$20x and A’s basis in the property is
reduced to $0x.
A thereafter realized an additional
$10x of gain on the 1993 sale of the
land, for a total gain of $30x on the
property. Because the principal re-
sidence of A before the disaster con-
sisted of both the dwelling and the land
that was later sold by A after the
destruction of the dwelling, A’s sale of
that land will be treated as part of a
single involuntary conversion of A’s
principal residence that occurred on the
date the dwelling was destroyed. Thus,
§ 1033, and not §1034, will apply to
defer recognition of A’s $30x gain.
For purposes of this §1033 deferral,
A’s period for purchasing replacement
property under §1033(a)(2)(B) and
(h)(1)(B) begins on the date that the
dwelling is destroyed and ends 4 years
after the close of the taxable year in
which gain is first realized. Because A
purchased a new principal residence
within this period at a cost ($130x) that
was not less than the sum of the in-
surance proceeds ($120x) and the sales
proceeds ($10x), A may defer recogni-
tion of the entire $30x gain. A’s basis
in the new principal residence is $100x
($130x cost less $30x unrecognized
gain).
LAW AND ANALYSIS—ISSUE (2)
Section 163(a) allows a deduction for
all interest paid or accrued within the
taxable year on indebtedness. Section
163(h)(1) generally provides that, in
the case of taxpayers other than a
corporation, no deduction is allowed
for personal interest. Section 163(h)-
(2)(D) specifically excludes from the
definition of the term ‘‘personal inter-
est’’ any qualified residence interest.
Section 163(h)(3)(A) provides that
the term ‘‘qualified residence interest’’
means any interest paid or accrued
during the taxable year on acquisition
or home equity indebtedness with
respect to any qualified residence of
the taxpayer. Section 163(h)(4)(A)(i)
defines the term ‘‘qualified residence’’
to mean (I) the taxpayer’s principal
residence, within the meaning of
§ 1034, and (II) one other residence of
the taxpayer selected by the taxpayer
for purposes of §163(h) for the taxable
year and used by the taxpayer as a
residence.
In Situation (1), A’s property will
continue to be treated as a qualified
residence under §163(h) for purposes
of A’s deduction of the interest that A
paid on the mortgage debt until the
date on which A sold the property.
In Situation (2), B began and com-
pleted reconstruction of the dwelling,
and reoccupied it as B’s principal
residence, all within a reasonable
period of time after it was destroyed.
Accordingly, B’s property will continue
to be treated as a qualified residence
under §163(h) for purposes of B’s
deduction for the interest that B paid
on the mortgage debt during that
period. See H.R. Rep. No. 99–426, 99th
Cong., 1st Sess. 299 (1985), 1986–3
C.B. (Vol. 2) 299 (accompanying the
Tax Reform Act of 1986, which
enacted §163(h)).
HOLDINGS
(1)If the dwelling portion of the
taxpayer’s principal residence is de-
stroyed and the remaining land portion
of the principal residence is subse-
quently sold within the period de-
scribed in §1033(a)(2)(B), the sale is
treated as part of the involuntary
conversion of the principal residence to
which §1033(a) applies to defer recog-
nition of gain realized on the sale if the
requirements of that section are met.
(2)If the taxpayer subsequently sells
the land portion of the principal re-
sidence described above within a rea-
sonable period of time after the de-
struction, the property will continue to
be treated as a qualified residence
under §163(h) during the period be-
tween the destruction of the dwelling
and the sale of land. Likewise, if the
taxpayer reconstructs the destroyed
dwelling and reoccupies it as the
taxpayer’s principal residence within a
reasonable period of time after the
destruction, the property will continue
to be treated as a qualified residence
under §163(h) during that period.
Holdings (1) and (2) apply whether
or not the destruction occurred in
connection with a Presidentially de-
clared disaster. These holdings also
apply if the property is a second
residence within the meaning of
§ 163(h)(4)(A)(i)(II).
EFFECT ON OTHER
DOCUMENTS
Rev. Rul. 74–206, 1974–1 C.B. 198,
is clarified to provide that, in the
context of a casualty involving a
taxpayer’s residence, a taxpayer need
not allocate the basis of the taxpayer’s
residence between the house and the
land to compute a §165 casualty loss
deduction or the gain eligible for
deferral under §1033, but instead may
use the aggregate basis of the house
and the land.
DRAFTING INFORMATION
The principal author of this revenue
ruling is George Wright of the Office
of Assistant Chief Counsel (Income
Tax and Accounting). For further infor-
mation regarding this revenue ruling,
contact Mr. Wright on (202) 622-4950
(not a toll-free call).
Section 1034.—Rollover of Gain on
Sale of Principal Residence
26 CFR 1.1034–1(c)(3): Property used by the
taxpayer as his principal residence.
If a principal residence is destroyed and either
the remaining portion is sold or the dwelling is

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reconstructed and reoccupied, within a reason-
able period of time after the destruction or
damage, is the property treated as a principal
residence within the meaning of §1034, and
therefore as a qualified residence under §163(h)
during a reasonable period between the destruc-
tion of the dwelling and its sale or reconstruction
and reoccupation as a qualified residence? See
Rev. Rul. 96–32, page 5.
Section 6012.—Persons required to
Make Returns of Income
26 CFR 1.6012–5: Composite return in lieu of
specified form.
What are the requirements for participation in
the 1996 Magnetic/Electronic Media Filing Pro-
gram for the Form 1040NR, U.S. Nonresident
Alien Income Tax Return? See Rev. Proc. 96–35,
page 8.
Section 6061.—Signing of Returns
and Other Documents
26 CFR 1.6061–1: Signing of returns and
other documents by individuals.
What are the requirements for participation in
the 1996 Magnetic/Electronic Media Filing Pro-
gram for the Form 1040NR, U.S. Nonresident
Alien Income Tax Return? See Rev. Proc. 96–35,
page 8.

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Part III.Administrative, Procedural, and Miscellaneous
Regulatory Reinvention Initiative—
Request For Comments
Notice 96–35
As part of the President’s Regulatory
Reinvention Initiative, the Treasury
Department and the Internal Revenue
Service have identified obsolete regula-
tions that relate to prior law, provide
elections for prior years, or are other-
wise outdated due to changes in the
underlying statutory provisions. The
Treasury Department and the Internal
Revenue Service believe that the reg-
ulations listed below should be with-
drawn or removed.
Public comments are requested prior
to August 1, 1996, regarding whether
any of these regulations should be
retained. Comments should be ad-
dressed to Office of Chief Counsel,
Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Attn:
CC:CORP:R (Regulatory Reinvention
Initiative), Room 5228, Washington,
D.C. 20044. For further information,
contact Philip Bennet, (202) 622-3926
(not a toll-free number).
SECTIONSUBJECT
1.921–1T(c)Export Trade Corporations
1.1502–81TAlaskan Native Corporations
5c.103–1, 5c.103–2 and 5c.103–3Leases and industrial development bonds; Leases and
arbitrage; Special rules for leases
FEDERAL REGISTER CITE AND
PROJECT NUMBERSECTIONSUBJECT
44 FR 31228 (5/31/79) (EE–16–78)
40 FR 18798 (4/30/75)
1.402(a)–1Taxability of beneficiary under a trust which meets the
requirements of section 401(a)
44 FR 31228 (5/31/79) (EE–16–78)1.402(e)–2Treatment of certain lump sum distributions made after 1973
44 FR 31228 (5/31/79) (EE–16–78)1.402(e)–14Election to treat pre-1974 participation as post-1973 participation
(the ‘‘402(e)(4)(L) election’’)
40 FR 18798 (4/30/75)1.403(a)–1Taxability of beneficiary under a qualified annuity plan
44 FR 31228 (5/31/79) (EE–16–78)
40 FR 18798 (4/30/75)
1.403(a)–2Capital gains treatment for certain distributions
40 FR 18798 (4/30/75)1.405–3Taxation of retirement bonds
26 CFR 601.602: Tax forms and instructions.
(Also Part I, Sections 6012, 6061; 1.6012–5, 1.6061–1.)
Rev. Proc. 96–35
CONTENTS
SECTION 1PURPOSE
SECTION 2BACKGROUND AND CHANGES
SECTION 3TRANSMITTED MEDIA FILING PARTICIPANTS—DEFINITIONS
SECTION 4ACCEPTANCE INTO THE 1040NR PROGRAM
SECTION 5RESPONSIBILITIES OF A 1040NR FILER
SECTION 6PENALTIES
SECTION 7FORM 8453–NR, U.S. NONRESIDENT ALIEN INCOME TAX DECLARATION FOR MAGNETIC
MEDIA FILING
SECTION 8OBLIGATIONS OF A 1040NR RETURN ORIGINATOR TO THE TAXPAYER
SECTION 9DIRECT DEPOSIT OF REFUNDS
SECTION 10BALANCE DUE RETURNS
SECTION 11ADVERTISING STANDARDS FOR A 1040NR FILER AND A FINANCIAL INSTITUTION
SECTION 12MONITORING AND SUSPENSION OF A 1040NR FILER
SECTION 13ADMINISTRATIVE REVIEW PROCESS FOR DENIAL OF PARTICIPATION IN THE 1040NR
PROGRAM
SECTION 14ADMINISTRATIVE REVIEW PROCESS FOR SUSPENSION FROM THE 1040NR PROGRAM
SECTION 15EFFECT ON OTHER DOCUMENTS

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SECTION 16EFFECTIVE DATE
SECTION 17PROJECT OFFICE INFORMATION
SECTION 1. PURPOSE
This revenue procedure informs
those who participate in the Magnetic
Media/Electronic Filing Program for
Form 1040NR, U.S. Nonresident Alien
Income Tax Return (‘‘1040NR Pro-
gram’’), of their obligations to the
Internal Revenue Service, taxpayers,
and other participants. This revenue
procedure updates Rev. Proc. 95–22,
1995–1 C.B. 686.
SECTION 2. BACKGROUND AND
CHANGES
.01Section 1.6012–5 of the Income
Tax Regulations provides that the Com-
missioner may authorize the use, at the
option of a person required to make a
return, of a composite return in lieu of
any form specified in 26 CFR Part 1
(Income Tax), subject to the conditions,
limitations, and special rules governing
the preparation, execution, filing, and
correction thereof as the Commissioner
may deem appropriate.
.02For purposes of this revenue
procedure, a magnetically or elec-
tronically filed Form 1040NR is a
composite return consisting of data
transmitted on magnetic tape, floppy
disk, or via modem (‘‘transmitted me-
dia’’), and certain paper documents.
The non-transmitted media paper por-
tion of the return consists of a Form
8453–NR, U.S. Nonresident Alien In-
come Tax Declaration for Magnetic
Media Filing, and other paper docu-
ments that cannot be filed on transmit-
ted media. Form 8453–NR must be
received by the Service before any
composite return is complete. A com-
posite return must contain the same
information that a return filed com-
pletely on paper contains. See section 7
of this revenue procedure for proce-
dures for completing Form 8453–NR.
.03The Magnetic Media Project Of-
fice (‘‘Project Office’’, see section 17
of this revenue procedure for address
and telephone numbers) will periodi-
cally issue a list of the forms and
schedules that can be magnetically or
electronically filed, as well as forms,
schedules, and other information that
cannot be magnetically or electronically
filed.
.04A tax return with a zero balance,
balance due, or refund due may be
filed on transmitted media.
.05A tax return cannot be filed on
transmitted media after December 2,
1996, notwithstanding the fact that the
taxpayer has been granted an extension
to file beyond that date. Form 2688,
Application for Additional Extension of
Time To File U.S. Individual Income
Tax Return, cannot be filed on trans-
mitted media.
.06An amended tax return cannot be
filed on transmitted media. A taxpayer
must file an amended tax return on
paper in accordance with the instruc-
tions for Form 1040X, Amended U.S.
Individual Income Tax Return.
.07Upon request, the Project Office
will provide technical information (i.e.,
file specifications, record layouts, and
testing procedures) for transmitted me-
dia filing.
.08This revenue procedure updates
Rev. Proc. 95–22, which applied to the
1040NR Program for the 1995 filing
season. The updates include changes in
the 1040NR Program for the 1996 fil-
ing season, clarifications of prior
1040NR Program statements, and addi-
tional guidance derived from other
Service documents that relate to the
1040NR Program. Some of these up-
dates are:
(1)Form 4868, Application for
Automatic Extension of Time To File
U.S. Individual Income Tax Return,
may now be filed on transmitted media;
(2)a 1040NR Filer must complete
the necessary testing at least 30 days
before the 1040NR Filer may submit a
tax return (section 4.03);
(3)a 1040NR Filer may not base
a fee for submission of transmitted
media returns on the amount of taxes
saved (section 5.05);
(4)a 1040NR Filer must submit a
revised Form MAR–8980, Application
for Magnetic Media Filing of Form
1040NR, if there is a change to the
1040NR Filer’s business address (sec-
tion 5.07);
(5)a 1040NR Filer must notify
the Service when it discontinues par-
ticipation in the 1040NR Program
(section 5.08);
(6)additions are provided to the
responsibilities of a 1040NR Return
Originator (sections 5.11(5) and 5.13);
(7)a Software Developer may not
incorporate into its software a Service-
assigned production password (section
5.18);
(8)procedures are provided for
submitting balance due returns (section
10);
(9)a 1040NR Filer must adhere to
all relevant federal, state, and local
consumer protection laws that relate to
advertising and soliciting (section
11.02);
(10)a 1040NR Filer may be sus-
pended for having more than one
MTFIN for the same business entity at
the same location unless the Service
has issued more than one MTFIN to a
business entity (section 12.05(9)); and
(11)the two-year period for denial
or suspension is clarified (section
12.08).
SECTION 3. TRANSMITTED
MEDIA FILING PARTICIPANTS—
DEFINITIONS
.01 After acceptance into the
1040NR Program, as described in
section 4 of this revenue procedure, a
participant is referred to as ‘‘1040NR
Filer.’’
.02A 1040NR Filer is categorized
as follows:
(1)1040NR RETURN ORIGINA-
TOR. A ‘‘1040NR Return Originator’’
is either (a) a ‘‘1040NR Return Pre-
parer’’ who prepares tax returns, in-
cluding Forms 8453–NR, for taxpayers
who intend to have their returns
magnetically or electronically filed; or
(b) a ‘‘1040NR Return Collector’’ who
accepts completed tax returns, includ-
ing Forms 8453–NR, from taxpayers
who intend to have their returns
magnetically or electronically filed.
(2)SERVICE BUREAU. A ‘‘Ser-
vice Bureau’’ receives tax return infor-
mation on any media from a 1040NR
Filer, formats the return information,
and either forwards the return informa-
tion to a Transmitter or sends back the
return information to the 1040NR Filer.
A Service Bureau may or may not pro-
cess Forms 8453–NR and send them to
the Project Office. A Service Bureau
does not transmit returns directly to the
Service.
(3)SOFTWARE DEVELOPER. A
‘‘Software Developer’’ develops soft-
ware for the purposes of (a) formatting
returns according to the Service’s trans-
mitted media return specifications; and/
or (b) filing transmitted media returns
directly with the Service. A Software
Developer may also sell its software.

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(4)TRANSMITTER. A ‘‘Trans-
mitter’’ accepts a transmitted media tax
return from a 1040NR Filer and sub-
mits the return directly to the Service.
.03The 1040NR Filer categories are
not mutually exclusive. For example, a
1040NR Return Originator can, at the
same time, be considered a Transmitter,
Software Developer, or Service Bureau
depending on the function(s) per-
formed.
SECTION 4. ACCEPTANCE INTO
THE 1040NR PROGRAM
.01To be accepted into the 1040NR
Program, an applicant must:
(1)file a properly completed ap-
plication using Form MAR–8980 with
the Project Office, unless previously
accepted into the 1040NR Program;
(2)successfully complete the nec-
essary testing with the Project Office if
the applicant intends to file transmitted
media returns or has developed soft-
ware for formatting or filing transmit-
ted media returns; and
(3)receive a letter of acceptance
into the 1040NR Program.
.02Once accepted into the 1040NR
Program, a 1040NR Filer must, for
each year that it intends to submit
returns on transmitted media:
(1)submit a revised Form MAR–
8980 if there is any change to the
information previously submitted on
that form.
(2)successfully complete the nec-
essary testing with the Project Office if
the 1040NR Filer intends to file
transmitted media returns or has devel-
oped software for formatting or filing
transmitted media returns; and
(3)receive a letter confirming that
the 1040NR Filer may submit tax
returns for the current filing season.
.03A 1040NR Filer may only sub-
mit actual tax returns beginning 30
days after successfully completing the
necessary testing.
.04The following reasons may re-
sult in a rejection of an application to
participate in the 1040NR Program
(this list is not all-inclusive):
(1)conviction of any criminal of-
fense under the revenue laws of the
United States, or of any offense involv-
ing dishonesty or breach of trust;
(2)failure to file timely and accu-
rate business or personal tax returns;
(3)failure to timely pay personal
or business tax liabilities;
(4)assessment of penalties;
(5) suspension/disbarment from
practice before the Service;
(6)other facts or conduct of a
disreputable nature that would reflect
adversely on the 1040NR Program;
( 7 ) m i s r e p r e s e n t a t i o n o n a n
application;
(8)suspension or rejection from
the 1040NR Program in a prior year;
(9)unethical practices in return
preparation;
(10)stockpiling returns (see sec-
tion 5.06 of this revenue procedure)
prior to official acceptance into the
1040NR Program;
(11)knowingly and directly or
indirectly employing or accepting as-
sistance from any person who has been
denied acceptance into the 1040NR
Program or is suspended from that
Program. This includes any individual
whose actions resulted in the rejection
or suspension of a corporation or a
partnership from that Program; or
(12)knowingly and directly or
indirectly accepting employment as an
associate, correspondent, or subagent
from, or sharing fees with, any person
who has been denied acceptance into
the 1040NR Program or is suspended
from that Program. This includes any
individual whose actions resulted in the
rejection or suspension of a corporation
or a partnership from that Program.
SECTION 5. RESPONSIBILITIES
OF A 1040NR FILER
.01To ensure that complete returns
are accurately and efficiently filed, a
1040NR Filer must comply with all
publications and notices of the Service.
Currently, these publications and
notices include:
(1)Procedures for Magnetic Me-
dia Filing of U.S. Nonresident Alien
Income Tax Returns, Form 1040NR
(available from the Project Office); and
(2)File Specifications and Record
Layouts for Magnetic Media Filing of
U.S. Nonresident Alien Income Tax
Returns, Form 1040NR (available from
the Project Office).
.02A 1040NR Filer must ensure that
no other entity uses its assigned Mag-
netic Tape 1040NR Filer Identification
Number (MTFIN). A MTFIN cannot be
transferred by sale, loan, gift, or
otherwise to another entity.
.03A 1040NR Filer must maintain a
high degree of integrity, compliance,
and accuracy.
.04A 1040NR Filer may only accept
a return for transmitted media filing
directly from a taxpayer or from a
1040NR Return Originator.
.05If a 1040NR Filer charges a fee
for the submission of a transmitted
media tax return, the fee may not be
based on a percentage of the refund
amount or on the amount of taxes
saved. A 1040NR Filer may not charge
a separate fee for Direct Deposit. See
section 9 of this revenue procedure for
a discussion of Direct Deposit.
.06A 1040NR Filer is responsible
for ensuring that stockpiling does not
occur. Prior to official acceptance of
the 1040NR Filer into the 1040NR
Program, stockpiling means collecting
returns from taxpayers. After official
acceptance, stockpiling means:
(1)in the case of a 1040NR
Return Originator, waiting for more
than three days after receiving the
necessary information to submit a
return to a Transmitter, or
(2)in the case of a Transmitter,
waiting for more than ten days after
receiving the necessary information to
submit a transmitted media tax return
to the Service.
.07A previously accepted 1040NR
Filer must submit a revised Form
MAR-8980 to update information when
there is any change to:
(1)the Firm name or Doing Busi-
ness As (DBA) name;
(2)the business mailing address;
(3) the contact representative’s
name or telephone number; or
(4)the transmitted media filing
category.
.08A 1040NR Filer must notify the
Project Office within 14 days of
discontinuing its participation in the
1040NR Program.
.09A 1040NR Filer must ensure that
a transmitted media return is filed on
or before the due date of the tax return.
A tax return is not considered filed
until the transmitted media portion of
the tax return is acknowledged by the
Service as accepted for processing and
a completed and signed Form 8453–NR
is received by the Service. However, if
the transmitted media portion of a
return is successfully transmitted on or
shortly before the due date and the
taxpayer complies with section 7.01 of
this revenue procedure, the return will
be deemed timely filed. If the transmit-
ted media portion of a return is initially
transmitted on or shortly before the due

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date and is ultimately rejected, but the
taxpayer complies with section 5.13 of
this revenue procedure, the return will
be deemed timely filed. In the case of a
balance due return, see section 10 of
this revenue procedure for instructions
on how to make a timely payment of
tax.
.10A 1040NR Filer must ensure that
the return for any individual is received
by the Service on or before:
(1)April 15 if the individual was
an employee and received wages sub-
ject to U.S. federal income tax with-
holding; or
(2)June 15 if the individual did
not receive such wages. However,
section 2.05 of this revenue procedure
provides that a transmitted media return
cannot be filed after December 2, 1996.
.11A 1040NR Return Originator
must:
(1)comply with the procedures
for completing Form 8453–NR de-
scribed in section 7 of this revenue
procedure;
(2)furnish the taxpayer with a
copy of the signed Form 8453–NR and,
in the case of a prepared or corrected
return, the non-transmitted media por-
tions of the return;
(3)retain the following material
until the end of the calendar year in
which the transmitted media return was
filed, unless otherwise notified by the
Service:
(a)a copy of the signed Form
8453–NR, Forms W–2, W–2G, Certain
Gambling Winnings, and 1099–R, Dis-
tributions From Pensions, Annuities,
Retirement or Profit-Sharing Plans,
IRAs, Insurance Contracts, etc., and the
non-transmitted media portion of the
taxpayer’s return;
(b)a complete copy of the
magnetically or electronically transmit-
ted portion of the taxpayer’s return
(may be retained on computer media)
that can be readily and accurately
converted into a transmitted media that
the Service can process; and
(c) the acknowledgement file
received from the Service or from a
Transmitter;
(4)upon request by the Service
for the materials described in section
5.11(3) of this revenue procedure,
make those materials available to the
Service at the business address from
which a return was accepted for trans-
mitted media filing; and
(5)identify the paid preparer (if
any) in the appropriate field of the
transmitted media return, in addition to
ensuring that the paid preparer signed
Form 8453–NR. If Form 8453–NR is
not signed by the paid preparer, the
1040NR Return Originator must attach
a copy of pages one and two of a
completed Form 1040NR that includes
the paid preparer’s signature. These
copies must be marked ‘‘COPY-DO
NOT PROCESS’’ to prevent duplicate
filings.
.12A 1040NR Return Originator
who is also the paid preparer of a
transmitted media return must comply
with §1.6107–1(b). This section of the
regulations describes the tax return
materials that must be retained and the
retention periods for these materials.
.13If the transmitted media portion
of a taxpayer’s return is acknowledged
as rejected by the Service, and the
reason for the rejection cannot be
rectified by making nonsubstantive
changes as described in section 6.02(3)
of this revenue procedure, the 1040NR
Return Originator must notify the tax-
payer within one work day by mail that
the taxpayer’s return has not been filed.
If the taxpayer chooses to have the
rejected return resubmitted on transmit-
ted media, and the 1040NR Return
Originator successfully works with the
Project Office to correct the problems
causing the return to be rejected, the
return will be accepted as timely filed.
A new Form 8453–NR may be required
(see section 7 of this revenue proce-
dure). However, even when no new
Form 8453–NR is required, the Trans-
mitter must submit a photocopy of the
original Form 8453–NR with the re-
jected file or return and mark the
photocopy ‘‘Retransmitted.’’ If the
Project Office determines that a trans-
mitted media return cannot be accepted
for processing or the taxpayer chooses
not to have the rejected return resub-
mitted on transmitted media, the tax-
payer must file a paper return. If the
due date (with regard to any extensions
of time to file) of the return has passed,
the taxpayer must file a paper return
within ten days of the rejection along
with an explanation of why the return
is being filed after the due date. A
paper return filed in good faith under
any of these circumstances will be
accepted as timely filed.
.14A 1040NR Return Originator
must use the taxpayer’s address in the
transmitted media portion of the return.
In addition, a 1040NR Return Origina-
tor must not put its address as the
taxpayer’s address in the transmitted
media portion of the return.
.15A Service Bureau must:
(1)deliver all transmitted media
returns to a Transmitter or to the
1040NR Return Originator who gave
the transmitted media returns to the
Service Bureau within three days of
receipt;
(2)retrieve the acknowledgement
file from the Transmitter within one
day of being informed of the receipt by
the Transmitter;
(3)initiate the communication of
the acknowledgement file to the
1040NR Return Originator (whether
related or not) within one work day of
retrieving the acknowledgement file;
(4)if the Service Bureau proc-
esses Form 8453–NR, send back to the
1040NR Return Originator any return
and Form 8453–NR that needs correc-
tion, unless the correction is described
in section 7.02(3) of this revenue
procedure;
(5)accept tax return information
only from a 1040NR Return Originator
who is in good standing in the 1040NR
Program;
(6)include its MTFIN and the
1040NR Return Originator’s MTFIN in
the transmission of all tax return
information;
(7)retain each acknowledgement
file received from a Transmitter until
the end of the calendar year in which
the transmitted media return was filed;
(8)if requested, serve as a contact
point between its client 1040NR Return
Originator and the Service; and
(9)if requested, provide the Serv-
ice with a list of each client 1040NR
Return Originator.
.16A Transmitter must:
(1)transmit all transmitted media
returns within ten days of receipt and
forward the acknowledgement files to
the 1040NR Return Originators or the
Service Bureau within five days after
receipt of the acknowledgments from
the Service;
(2)match the acknowledgement
file to the original transmission file and
resubmit any return that was not
acknowledged as accepted for process-
ing after necessary corrections are
made within seven days of receiving
the acknowledgement file;
(3)contact the Project Office for
assistance if a return has been rejected
after three attempts, or if an acknowl-
edgement is received for a return that
was not in the original submission;
(4)ensure the security of all trans-
mitted data;

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(5)promptly correct any transmis-
sion error that causes a transmitted
media return to be rejected; and
(6) retain an acknowledgement
file received from the Service until the
end of the calendar year in which the
transmitted media return was filed.
(7)immediately contact the Proj-
ect Office for further instructions if an
acknowledgement of a transmitted me-
dia return’s acceptance for processing
has not been received by the Transmit-
ter within 14 days of transmission or if
a Transmitter receives an acknowledge-
ment for a return that was not transmit-
ted on the designated transmission.
.17 A Transmitter who provides
transmission services to another
1040NR Filer must, in addition to the
items covered in section 5.16 of this
revenue procedure, also:
(1)only accept a transmitted me-
dia return for transmission to the
Service from an accepted 1040NR
Filer;
(2)provide each client with the
acknowledgement file for the transmit-
ted return within five days after receipt
of the acknowledgment from the Serv-
ice; and
(3)use its assigned MTFIN when
filing returns.
.18A Software Developer must:
(1)promptly correct any software
error that causes a transmitted media
return to be rejected; and
(2)promptly distribute any soft-
ware correction made to its software
packages to all 1040NR Filers utilizing
these packages.
(3)not incorporate into its soft-
ware a Service-assigned production
password.
.19In addition to the specific re-
sponsibilities described in this section,
a 1040NR Filer must meet all the
requirements of this revenue procedure
to keep the privilege of participating in
the 1040NR Program.
SECTION 6. PENALTIES
.01Penalties for Disclosure or Use
of Information.
(1)A 1040NR Filer, except a
Software Developer, is a tax return
preparer (‘‘Preparer’’) under the defini-
tion of §301.7216–1(b) of the Regula-
tions on Procedure and Administration.
A Preparer is subject to a criminal
penalty for disclosure or use of tax
return information, as described in
§ 301.7216–1(a). In general, that reg-
ulation provides that any preparer who
discloses or uses any tax return infor-
mation for a purpose other than prepar-
ing, assisting in preparing, or obtaining
or providing services in connection
with the preparation of a tax return is
guilty of a misdemeanor. In addition,
§ 6713 of the Internal Revenue Code
provides for civil penalties that may be
assessed against a preparer who makes
an unauthorized disclosure or use of
tax return information.
(2)Under §301.7216–2(h), dis-
closure of tax return information
among accepted 1040NR Filers for the
purpose of preparing a return is permis-
sible. For example, it is permissible for
a 1040NR Return Originator to pass on
tax return information to a Service
Bureau and/or a Transmitter for the
purpose of having a transmitted media
return formatted and filed with the
Service. However, if the tax return
information is disclosed or used in any
other way, a Service Bureau and or a
Transmitter may be guilty of a misde-
meanor as described in paragraph (1)
above.
.02 Other Preparer Penalties.
(1)Preparer penalties may be as-
serted against an individual or firm
who meets the definition of an income
t a x r e t u r n p r e p a r e r u n d e r
§§7701(a)(36) and 301.7701–15. Ex-
amples of preparer penalties that may
be asserted under appropriate circum-
stances include, but are not limited to,
those set forth in §§6694, 6695, and
6713.
( 2 ) U n d e r § 3 0 1 . 7 7 0 1 – 1 5 ( d ) ,
1040NR Return Collectors, Service
Bureaus, Software Developers, and
Transmitters are not income tax return
preparers for the purpose of assessing
most preparer penalties as long as their
services are limited to ‘‘typing, repro-
duction, or other mechanical assistance
in the preparation of a return or claim
for refund.’’
(3)If a 1040NR Return Collector,
Service Bureau, Software Developer, or
Transmitter alters the return informa-
tion in a nonsubstantive way, this
alteration will be considered to come
under the ‘‘mechanical assistance’’ ex-
ception described in §301.7701–15(d)-
(1). A nonsubstantive change is a
correction or change limited to a
transposition error, misplaced entry,
spelling error, or arithmetic correction
that falls within one of the following
tolerances:
(a)the Total Tax amount, Total
Payments amount, Refund amount, or
the Amount You Owe shown on Form
8453–NR differs from the correspond-
ing amount on the transmitted media
return by no more than $7;
(b)the Total Income amount
shown on Form 8453–NR differs from
the corresponding amount on the trans-
mitted media return by no more than
$25; or
(c)dropping cents and rounding
to whole dollars.
(4)If a 1040NR Return Collector,
Service Bureau, or Transmitter alters
the return information in a substantive
way, rather than having the taxpayer
alter the return, the 1040NR Return
Collector, Service Bureau, or Transmit-
ter will be considered to be an income
tax return preparer for purposes of
§ 7701(a)(36).
(5)If a 1040NR Return Collector,
Service Bureau, Transmitter, or the
product of a Software Developer, goes
beyond mechanical assistance, any of
these parties may be held liable for
income tax return preparer penalties.
Rev. Rul. 85–189, 1985–2 C.B. 341,
describes a situation where a Software
Developer was determined to be an
income tax return preparer and subject
to certain preparer penalties.
.03In addition to the above spec-
ified provisions, the Service reserves
the right to assert all appropriate civil
and criminal penalties, including pre-
parer, nonpreparer, and disclosure
penalties, against a 1040NR Filer as
warranted under the circumstances.
SECTION 7. FORM 8453–NR, U.S.
NONRESIDENT ALIEN INCOME
TAX DECLARATION FOR
MAGNETIC MEDIA FILING
.01Procedures for Completing Form
8453–NR.
(1)Form 8453–NR must be com-
pleted in accordance with the instruc-
tions for Form 8453–NR.
(2)The taxpayer’s name, address,
taxpayer identification number, tax re-
turn information, and direct deposit of
refund information in the transmitted
media submission must be identical to
the information on the Form 8453–NR
that the taxpayer signed and provided
for submission to the Service.
(3)After the transmitted media
return has been prepared and before the
return is submitted, the taxpayer must

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verify the information on the transmit-
ted media return and on Form 8453–
NR and sign Form 8453–NR. An easily
readable file copy of the prepared
return must be provided to the taxpayer
at the time of signature.
(4)A 1040NR Filer must submit a
Form 8453–NR to the Project Office
with each magnetically or electronically
filed return. A single Form 8453–NR
(inscribed with the language ‘‘See
attached Multiple Return Information
Listing’’) may be used for a multiple
return filing if the person who signs
Form 8453–NR has authorization,
either by a specific power of attorney
or as a responsible representative or
agent under §1.6012–3(b) of the In-
come Tax Regulations, to sign each of
the returns included in the multiple
return filing. A person who makes a
multiple return filing must attach to
Form 8453–NR an information page(s)
titled ‘‘Form 8453–NR for Multiple
Returns—Tax Return Information List-
ing’’ at the top of the pages(s). Below
the title, the multiple return 1040NR
Filer must provide his or her name and
address. The next item on the page(s)
must be a list that includes every
taxpayer’s name control, taxpayer iden-
tification number, and the information
shown on lines one through five on
Form 8453–NR, for each return in-
cluded in a multiple return filing.
(5)If a 1040NR Filer functions as
a 1040NR Return Originator, the
1040NR Filer must sign the 1040NR
Return Originator’s Declaration on
Form 8453–NR.
(6)If the 1040NR Filer is also the
paid preparer, the 1040NR Filer must
check the ‘‘Paid Preparer’’ box and
sign the 1040NR Return Originator
Declaration on Form 8453–NR.
.02Corrections to Form 8453–NR.
(1)If the 1040NR Return Origina-
tor makes changes to a transmitted
media return after Form 8453–NR has
been signed by the taxpayer, but before
it is transmitted, the 1040NR Return
Originator must have all the necessary
parties described above sign a new
Form 8453–NR with the corrections if
either of the following applies:
(a) the ‘‘Total Tax’’ (Form
8453–NR, line 2), the ‘‘Refund’’ (Form
8453–NR, line 4), or the ‘‘Amount
Owed’’ (Form 8453–NR, line 5) differs
from the amount on the transmitted
media return by more than $7; or
(b)the ‘‘Total Income’’ (Form
8453–NR, line 1) differs from the
amount on the transmitted media return
by more than $25.
(2)A new Form 8453–NR is not
required for a nonsubstantive change. A
nonsubstantive change is limited to a
correction within the above tolerances
for an arithmetic error, transposition
error, misplaced entry, or a spelling
error. The incorrect nonsubstantive in-
formation must be neatly lined through
on Form 8453–NR and the correct data
entered next to the lined-through entry.
Also, the initials or the name of the
person making the correction must be
entered.
(3)Dropping cents and rounding
to whole dollars does not constitute a
substantive change or alteration to the
return unless the amount differs by
more than the above tolerances. All
rounding should be accomplished in
accordance with the instructions in the
Form 104ONR tax package.
.03If the Service determines that a
Form 8453–NR is missing, the 1040NR
Return Originator must provide the
Service with a replacement. A 1040NR
Return Originator must also provide a
copy of any Form(s) W–2, Wage and
Tax Statement, W–2G, Certain Gam-
bling Winnings, 1099R, Distributions
from Pensions, Annuities, Retirement
or Profit-Sharing Plans, IRAs, Insur-
ance Contracts, etc., and all other
attachments to the Form 8453–NR.
.04If a substitute Form 8453–NR is
used, it must be approved by the
Service prior to use. See Rev. Proc.
95–16, 1995–1 C.B. 525.
SECTION 8. OBLIGATIONS OF A
1040NR RETURN ORIGINATOR TO
THE TAXPAYER
.01A 1040NR Return Originator
must:
(1)furnish the taxpayer with a
complete paper copy of the transmitted
media material that was transmitted to
the Service. This information can be
contained on a replica of an official
form or on an unofficial form. How-
ever, on an unofficial form, data entries
must be referenced to the line numbers
on an official form;
(2)provide the taxpayer with a
copy of Form 8453–NR and, in the
case of a prepared or corrected return,
the non-transmitted media portion of
the taxpayer’s return;
(3)advise the taxpayer to retain a
complete copy of the return and any
supporting material;
(4)advise the taxpayer that an
amended return, if needed, must be
filed as a paper return and mailed to
the Philadelphia Service Center;
(5)upon request, provide the tax-
payer with the date the transmitted
media portion of the taxpayer’s return
was acknowledged as accepted for
processing by the Service; and
(6)inform the taxpayer that the
address reported on the transmitted
media portion of the return, once
processed, will be used to update the
taxpayer’s address of record. The Inter-
nal Revenue Service uses the tax-
payer’s address of record for various
notices that are required to be sent to a
taxpayer’s ‘‘last known address’’ under
the Internal Revenue Code and for
refunds of overpayments of tax (unless
otherwise specifically directed by the
taxpayer, such as by Direct Deposit).
See Rev. Proc. 90–18, 1990–1 C.B.
491, for additional information about
‘‘last known address.’’
.02A 1040NR Return Originator
should advise the taxpayer to wait at
least three weeks from the acceptance
date of the transmitted media tax return
before contacting the Service for the
status of a refund. If such contact is
necessary, the taxpayer should be ad-
vised to use the IRS Tele-Tax system.
SECTION 9. DIRECT DEPOSIT OF
REFUNDS
.01The Service will ordinarily proc-
ess a request for Direct Deposit but
reserves the right to issue a paper
refund check.
.02The Service does not guarantee a
specific date by which a refund will be
directly deposited into the taxpayer’s
financial institution account. The tax-
payer’s account must be with a finan-
cial institution located in the United
States.
.03Neither the Service nor the
Financial Management Service (FMS)
is responsible for the misapplication of
a Direct Deposit that is caused by
error, negligence, or malfeasance on
the part of the taxpayer, 1040NR Filer,
financial institution, or any of their
agents.
.04A 1040NR Return Originator
must:
(1)ensure that the taxpayer is
aware of all the general information
regarding a Direct Deposit;
(2)not charge a separate fee for
Direct Deposit;

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(3) accept any Direct Deposit
election to any eligible financial insti-
tution designated by the taxpayer;
(4)ensure that the taxpayer is
eligible to choose Direct Deposit;
(5)verify that the Direct Deposit
information requested on Part II of
Form 8453–NR was entered correctly
and that the information entered is the
information transmitted on the transmit-
ted media portion of the return;
(6)caution the taxpayer that once
a transmitted media return has been
accepted for processing by the Service:
(a)the Direct Deposit election
cannot be rescinded;
(b)the Routing Transit Number
of the financial institution cannot be
changed; and
(c)the taxpayer’s account num-
ber cannot be changed; and
(7)advise the taxpayer to follow
the procedures in section 8.02 of this
revenue procedure if there is a need to
contact the Service about a Direct
Deposit request.
SECTION 10. BALANCE DUE
RETURNS
.01A magnetically or electronically
filed balance due return is submitted to
the Philadelphia Service Center in the
same manner that a refund or zero
balance return is submitted. A balance
due return is not complete unless and
until the Service receives a Form
8453–NR completed and signed by the
taxpayer.
.02A taxpayer who magnetically or
electronically files a balance due return
must make a full and timely payment
of any tax that is due. Failure to make
full payment of any tax that is due on
or before April 15, 1996 (for individ-
uals who were employees and received
wages subject to U.S. income tax with-
holding), or June 15, 1996 (for individ-
uals who did not receive wages as an
employee that were subject to U.S.
income tax withholding), will result in
the imposition of interest and may
result in the imposition of penalties.
SECTION 11. ADVERTISING
STANDARDS FOR A 1040NR
FILER AND A FINANCIAL
INSTITUTION
.01A 1040NR Filer must comply
with the advertising and solicitation
provisions of 31 C.F.R. Part 10 (Treas-
ury Department Circular No. 230). This
circular prohibits the use or participa-
tion in the use of any form of public
communication containing a false,
fraudulent, misleading, deceptive, un-
duly influencing, coercive, or unfair
statement or claim. In addition, adver-
tising must not imply a special relation-
ship with the Service, FMS, or the
Treasury Department. Any claims con-
cerning faster refunds by virtue of
transmitted media filing must be con-
sistent with the language in official
Service publications.
.02A 1040NR Filer must adhere to
all relevant federal, state, and local
consumer protection laws.
.03A 1040NR Filer must not use
the Service’s name, ‘‘Internal Revenue
Service,’’ or ‘‘IRS’’ within a firm’s
name.
.04A 1040NR Filer must not use
improper or misleading advertising in
relation to the 1040NR Program (in-
cluding the time frames for refunds).
.05Use of Direct Deposit name and
logo.
(1)The name ‘‘Direct Deposit’’
will be used with initial capital letters
or all capital letters.
(2)The logo/graphic for Direct
Deposit will be used whenever feasible
in advertising copy.
(3)The color or size of the Direct
Deposit logo/graphic may be changed
when used in advertising pieces.
.06Advertising materials must not
carry the FMS, IRS, or other Treasury
seals.
.07Advertising for a cooperative
transmitted media return project
(public/private sector) must clearly
state the names of all cooperating
parties.
.08If a 1040NR Filer uses radio or
television broadcasting to advertise, the
broadcast must be pre-recorded. The
1040NR Filer must keep a copy of the
pre-recorded advertisement for a period
of at least 36 months from the date of
the last transmission or use.
.09If a 1040NR Filer uses direct
mail or fax communications to adver-
tise, the 1040NR Filer must retain a
copy of the actual mailing or fax, along
with a list or other description of
persons to whom the communication
was mailed, faxed, or otherwise dis-
tributed for a period of at least 36
months from the date of the last
mailing, fax, or distribution.
.10Acceptance to participate in the
1040NR Program does not imply en-
dorsement by the Service or FMS of
the software or quality of services
provided.
SECTION 12. MONITORING AND
SUSPENSION OF A 1040NR FILER
.01 The Service will monitor a
1040NR Filer for conformity with this
revenue procedure. The Service can
immediately suspend, without notice, a
1040NR Filer from the 1040NR Pro-
gram. However, in most circumstances,
a suspension from participation in the
1040NR Program is effective as of the
date of the letter informing the 1040NR
Filer of the suspension. Before sus-
pending a 1040NR Filer, the Service
may issue a warning letter that de-
scribes specific corrective action for
deviations from this revenue procedure.
.02The Service will monitor the
timely receipt of Forms 8453–NR, as
well as their overall legibility.
.03The Service will monitor the
quality of the 1040NR Filer’s submis-
sions throughout the filing season. The
Service will also monitor transmitted
media returns and tabulate rejections,
errors, and other defects. If quality
deteriorates, the 1040NR Filer may
receive a warning from the Service.
.04The Service will monitor com-
plaints about a 1040NR Filer and issue
a warning or suspension letter as
appropriate.
.05The Service reserves the right to
suspend the transmitted media filing
privilege of any 1040NR Filer who
violates any provision of this revenue
procedure. Generally, the Service will
advise a suspended 1040NR Filer con-
cerning the requirements for reaccep-
tance into the 1040NR Program. The
following reasons may lead to a warn-
ing letter and/or suspension of a
1040NR Filer from the 1040NR Pro-
gram (this list is not all-inclusive):
(1)the reasons listed in section
4.04 of this revenue procedure;
(2)deterioration in the format of
individual submissions;
(3)unacceptable cumulative error
or rejection rate;
(4) untimely received, illegible,
missing, or unapproved substitute
Forms 8453–NR;
(5)stockpiling of returns while
participating in the 1040NR Program;
(6)failure on the part of a Trans-
mitter to provide clients with acknowl-
edgement files within five days after
receipt from the Service;

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(7)significant complaints about a
1040NR Filer’s performance in the
1040NR Program;
(8) failure on the part of a
1040NR Filer to ensure that no other
entity uses its assigned MTFIN;
(9)having more than one MTFIN
for the same business entity at the
same location (the business entity is
generally the entity that reports on its
return the income derived from trans-
mitted media filing), unless the Service
has issued more than one MTFIN to a
business entity;
(10)failure on the part of a
1040NR Filer to cooperate with the
Service’s efforts to monitor 1040NR
Filers and investigate transmitted media
filing abuse;
(11)failure on the part of a
1040NR Filer to properly use the
standard/non-standard W–2 indicator;
(12)failure on the part of a
Transmitter to use its assigned MTFIN
when filing returns;
(13)failure on the part of the
Transmitter to include a Service Bu-
reau’s MTFIN in the transmission of a
return submitted by a Service Bureau;
(14)failure on the part of a
Service Bureau or a Transmitter to
include the 1040NR Return Origina-
tor’s MTFIN as part of a return that the
1040NR Return Originator submits to
the Service Bureau or the Transmitter;
(15)violation of the advertising
standards described in section 11 of
this revenue procedure;
(16)failure to maintain and make
available records as described in sec-
tion 5.11(3) and (4) of this revenue
procedure;
(17)accepting a tax return for
transmitted media filing either directly
or indirectly from a person (other than
the taxpayer who is submitting his or
her return) who is not in the 1040NR
Program;
(18) submitting the transmitted
media portion of the return with
information that is not identical to the
information on the Form 8453–NR;
(19)failure to timely pay any
applicable fees, as implemented by
subsequent guidance; or
(20)filing returns before February
15, 1996, with any form of substitute
F o r m W – 2 o r w a g e a n d t a x
documentation.
.06The Service will list in the
Internal Revenue Bulletin, district of-
fice listings, district office newsletters,
and on the EFS Bulletin Board, the
name of any entity that is suspended
from the 1040NR Program and the
effective date of that suspension.
.07A suspension from participation
in the 1040NR Program or a revocation
of the privilege to participate in the
1040NR Program is effective as of the
date of the letter informing the 1040NR
Filer of the suspension or revocation.
.08Most denials and suspensions of
participation in the 1040NR Program
will result in:
(1)a rejected applicant not being
reconsidered for participation in the
1040NR Program for at least two filing
seasons; and
(2)a suspended 1040NR Filer not
being reconsidered for participation in
the 1040NR Program for at least two
years. For purposes of this section
12.08, two years means the remaining
months in the calendar year of denial
of participation or suspension and the
following two calendar years.
SECTION 13. ADMINISTRATIVE
REVIEW PROCESS FOR DENIAL
OF PARTICIPATION IN THE
1040NR PROGRAM
.01An applicant who has been
denied participation in the 1040NR
Program has the right to an administra-
tive review. During the administrative
review process, the denial of participa-
tion remains in effect.
.02In response to the submission of
a Form MAR–8980, the Service will
either (1) accept an applicant into the
1040NR Program, or (2) issue a
proposed letter of denial that explains
to the applicant why the Service
proposes to reject the application to
participate in the 1040NR Program.
.03An applicant who receives a
proposed letter of denial may respond,
in writing, to the Project Office. The
applicant’s response must address the
Project Office’s explanation for propos-
ing the denial to participate. The
Project Office must receive the appli-
cant’s response within 30 days of the
date of the proposed letter of denial.
.04Upon receipt of an applicant’s
written response, the Project Office
will reconsider its proposed letter of
denial. The Project Office may (1)
withdraw its proposed letter of denial
and admit the applicant into the
1040NR Program, or (2) finalize its
proposed letter of denial and issue it to
the applicant.
.05If an applicant receives a final
letter from the Project Office that
denies the applicant participation in the
1040NR Program, the applicant is en-
titled to an appeal, in writing, to the
Director of Practice.
.06The appeal must be filed with
the Project Office within 30 days of the
date of the denial letter. An applicant’s
written appeal must contain a detailed
explanation, with supporting documen-
tation, of why the denial should be
reversed. In addition, the applicant
must include a copy of the applicant’s
Form MAR–8980 and a copy of the
denial letter.
.07The Project Office, upon receipt
of a written appeal to the Director of
Practice, will forward to the Director of
Practice its file on the applicant and the
materials described in section 13.06
that the applicant has submitted to the
Project Office. The Project Office will
forward to the Director of Practice
these materials within 15 days of
receipt of the applicant’s appeal to the
Director of Practice.
.08Failure to respond within the 30-
day periods described in sections 13.03
and 13.06 of this revenue procedure
irrevocably terminates an applicant’s
right to an administrative review or
appeal.
SECTION 14. ADMINISTRATIVE
REVIEW PROCESS FOR
SUSPENSION FROM THE 1040NR
PROGRAM
.01A 1040NR Filer who has been
suspended from participation in the
1040NR Program has the right to an
administrative review. During the ad-
ministrative review process, the suspen-
sion remains in effect.
.02If a 1040NR Filer receives a
suspension letter from the Project Of-
fice, the 1040NR Filer is entitled to an
appeal, in writing, to the Director of
Practice.
.03The 1040NR Filer must ensure
that the Project Office receives the
1040NR Filer’s written appeal for
review by the Director of Practice
within 30 days of the date of the
suspension letter. The 1040NR Filer’s
written appeal for review must contain
detailed reasons, with supporting docu-
mentation, for reversal of the suspen-
sion. In addition, the 1040NR Filer
must include a copy of its Form MAR–
8980 and a copy of the suspension
letter.

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.04The Project Office, upon receipt
of a written appeal to the Director of
Practice, will forward to the Director of
Practice its file on the 1040NR Filer
and the material described in section
14.03 of this revenue procedure that the
1040NR Filer has submitted to the
Project Office. The Project Office will
forward to the Director of Practice
these materials within 15 days of the
receipt of a 1040NR Filer’s written
request for appeal.
.05Failure to appeal within the 30-
day period described in section 14.03
of this revenue procedure irrevocably
terminates a 1040NR Filer’s right to
appeal the decision to suspend the
1040NR Filer from participation in the
1040NR Program.
SECTION 15. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 95–22, 1995–1 C.B. 686,
is superseded.
SECTION 16. EFFECTIVE DATE
This revenue procedure is effective
May 31, 1996.
SECTION 17. PROJECT OFFICE
INFORMATION
All questions regarding this revenue
procedure should be directed to:
Internal Revenue Service
Philadelphia Service Center
ATTN: DP-115-Magnetic Media
Project Office
11601 Roosevelt Blvd.
Philadelphia, PA 19154
U.S.A.
The telephone number of this office is
(215) 516-7533 (not a toll-free number)
or 800-829-6945 (a toll-free number).

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171996–28 I.R.B.
Part IV. Items of General Interest
Notice of Proposed Rulemaking and
Notice of Public Hearing
Termination of a Partnership under
Section 708(b)(1)(B)
PS–5–96
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations relating to the
termination of a partnership upon the
sale or exchange of 50 percent or more
of the total interest in partnership
capital and profits. The proposed reg-
ulations affect all partners and part-
nerships that terminate under section
708(b)(1)(B).
DATES: Written comments and re-
quests to speak (with outlines of oral
comments) at a public hearing sched-
uled for September 5, 1996, must be
received by August 15, 1996.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (PS–5–96), Room
5228, Internal Revenue Service, POB
7604, Ben Franklin Station, Wash-
ington, DC 20044. In the alternative,
submissions may be hand delivered
between the hours of 8 a.m. and 5 p.m.
to: CC:DOM:CORP:R (PS–5–96), Cou-
rier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW., Wash-
ington, DC. The public hearing will be
held in the IRS Auditorium, Seventh
Floor, 7400 Corridor, Internal Revenue
Building, 1111 Constitution Avenue,
NW., Washington, DC.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Steven R. Schneider, (202)
622-3060; concerning submissions and
the hearing, Christina Vasquez, (202)
622-7190; (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Introduction
This document proposes to revise
§1.708–1(b)(1)(iv) of the Income Tax
Regulations (26 CFR Part 1) under
section 708(b)(1)(B) of the Internal
Revenue Code (Code). This document
also proposes revisions to other sec-
tions of the Income Tax Regulations to
reflect the proposed revision to §1.708–
1(b)(1)(iv).
Background
Section 708(b)(1)(B) provides that,
for purposes of section 708(a), a
partnership shall be considered termi-
nated if within a 12-month period there
is a sale or exchange of 50 percent or
more of the total interest in partnership
capital and profits. The Code and the
legislative history to section 708(b)-
(1)(B) do not specify the tax con-
sequences of that termination or the
steps by which such a termination
occurs.
However, §1.708–1(b)(1)(iv) of the
Income Tax Regulations provides that,
if a partnership is terminated by a sale
or exchange of an interest, the follow-
ing is deemed to occur: the partnership
distributes its properties to the pur-
chaser and the other remaining partners
in proportion to their respective inter-
ests in the partnership properties; and,
immediately thereafter, the purchaser
and the other remaining partners con-
tribute the properties to a new part-
nership, either for the continuation of
the business or for its dissolution and
winding up.
The distribution of property that is
deemed to occur upon a termination
under section 708(b)(1)(B) is treated
like an actual distribution for federal
tax purposes. As a result, a continuing
partner may recognize gain under sec-
tion 731(a) if the amount of money
deemed distributed to the partner (in-
cluding any money deemed distributed
upon a shift in liabilities under section
752) exceeds the partner’s basis in the
partnership interest. In addition, the
distribution may affect the basis of the
partnership’s assets because the basis
of the distributed property in the hands
of the partners (and thus in the hands
of the reconstituted partnership) is
determined under section 732(b) by
reference to the partners’ bases in their
partnership interests. Another possible
consequence of the deemed distribution
is a change in the holding periods of
t h e p a r t n e r s ’ i n t e r e s t s i n t h e
partnership.
The deemed distribution of part-
nership property that occurs on a
termination raises particular concerns
with respect to the interaction of
sections 708(b)(1)(B), 704(c), and 737.
Section 704(c)(1)(A) requires that gain
or loss with respect to property contrib-
uted to a partnership by a partner be
shared among the partners so as to take
into account any built-in gain or loss in
the property at the time of the contribu-
tion. Section 704(c)(1)(B) provides
that, if property contributed by a
partner is distributed to another partner
within five years, the contributing
partner must recognize gain or loss in
an amount equal to the gain or loss the
partner would have been allocated
under section 704(c)(1)(A) on a sale of
the property by the partnership. Section
737 provides that, if property is dis-
tributed to a partner that had contrib-
uted other property to the partnership
within five years, the distributee part-
ner must recognize gain equal to the
lesser of (i) the net precontribution gain
on property contributed by the partner,
or (ii) the excess of the value of the
distributed property over the adjusted
basis of the partner’s interest in the
partnership. Net precontribution gain is
the net gain, if any, that would have
been recognized by the distributee
partner under section 704(c)(1)(B) if all
partnership property contributed by the
distributee partner within five years of
the distribution had been distributed to
another partner.
The legislative history of sections
704(c)(1)(B) and 737 indicates that
Congress intended these sections to be
coordinated with the rules governing
partnership terminations under section
708(b)(1)(B). The legislative history
states that such coordination will
provide that (1) no gain is recognized
under sections 704(c)(1)(B) and 737 as
a result of a deemed distribution on
termination; (2) the deemed distribution
will not change the application of the
sharing requirements of section 704(c)
to precontribution gain or loss with
respect to property contributed to the
partnership before the termination; and
(3) the constructive contribution of
partnership property to a new part-
nership is treated as beginning a new
five-year period for all contributed
property to the extent that the preter-
mination appreciation in the value of
property was not already required to be

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allocated to the original contributor (if
any) of the property. H.R. Rep. No.
247, 101st Cong., 1st Sess. 1355
(1989); H.R. Conf. Rep. No. 1018,
102d Cong., 2d Sess. 428 (1992).
These results are difficult to integrate
with the current regulations under
section 708(b)(1)(B). The difficulty
arises primarily because the section
708(b)(1)(B) regulations provide for a
pro rata distribution of property to the
partners, while the legislative history
seems to contemplate that partnership
property previously contributed to the
partnership by a partner will be dis-
tributed to that partner, at least to the
extent of the remaining built-in gain or
loss in the property.
The IRS and Treasury Department
recently issued final regulations under
sections 704(c)(1)(B) and 737. Com-
mentators, however, noted that the
approach taken in the legislative history
and the final regulations would not be
required if the section 708(b)(1)(B)
regulations did not create a deemed
distribution of partnership property to
the partners as part of a section
708(b)(1)(B) termination. The preamble
to the final regulations indicated that
the IRS and Treasury would consider
issuing separate guidance on the inter-
action of sections 704(c) and 708(b)-
(1)(B) and invited additional comments
and suggestions regarding the project.
Explanation of Provisions
The proposed regulations under sec-
tion 708(b)(1)(B) provide that, if a
partnership is terminated by a sale or
exchange of an interest, the following
is deemed to occur: the partnership
transfers all of its assets and liabilities
to a new partnership in exchange for an
interest in the new partnership; imme-
diately thereafter, the terminated part-
nership distributes interests in the new
partnership to the purchasing partner
and the other remaining partners in
liquidation of the terminated part-
nership, either for the continuation of
the business or for its dissolution and
winding up.
Under the proposed regulations, a
termination under section 708(b)(1)(B)
will no longer result in a deemed
distribution of the terminated part-
nership’s assets to the purchasing and
remaining partners. As a result, the
federal tax consequences of a termina-
tion that result from the deemed
distribution of assets will no longer
occur on a section 708(b)(1)(B) termi-
nation. Such consequences include the
possibility of gain under section 731(a),
a change in the partnership’s basis in
partnership property, and the com-
mencement of a new five-year period
for purposes of sections 704(c)(1)(B)
and 737. In addition, the interaction
between section 704(c) and section
708(b)(1)(B) is greatly simplified under
the proposed regulation. The section
704(c) property held by the terminated
partnership (and deemed contributed to
a new partnership) will continue to be
treated as section 704(c) property in the
hands of the new partnership under
§1.704–3(a)(9). A distribution of prop-
erty by the new partnership will have
the same effect for purposes of section
704(c)(1)(B) and section 737 as a
distribution from the terminated part-
nership. See §§1.704–4(c)(4) and
1.737–2(b)(1) as proposed to be
amended by this document.
The proposed regulations do not
change the federal tax consequences of
a termination under section 708(b)-
(1)(B) to the extent that the con-
sequences were not dependent on the
d e e m e d d i s t r i b u t i o n . S u c h c o n -
sequences will continue under the
proposed regulations. For example, the
tax year of the terminated partnership
will still close as a result of the
termination, the elections of the termi-
nated partnership will be invalidated,
and a termination will continue to be
treated as a liquidation under the
section 704(b) regulations.
In addition, the proposed regulations
will not change the effect of a termina-
tion on the depreciation of partnership
property by the new partnership. Prop-
erty deemed contributed to the new
partnership will continue to be subject
to the anti-churning provisions of sec-
tion 168(f)(5), which generally require
the new partnership to depreciate the
property as if it were newly-acquired
property under the same depreciation
system used by the terminated part-
nership. This result is required by
statute and is not affected by the
specific mechanics of a termination
under section 708(b)(1)(B). See Code
sections 168(f)(5); 168(i)(7); 168(e)(4)
and (f)(10) (repealed 1986).
This document also contains pro-
posed regulations under sections
704(b), 704(c)(1)(B), 743(b), 737, and
761(e). These proposed regulations re-
late to the elimination of a deemed
distribution of partnership assets as part
of a section 708(b)(1)(B) termination.
The proposed regulations under section
704(b) will eliminate the reference to a
deemed contribution of partnership
property by the partners of the continu-
ing partnership. The proposed regula-
tions under sections 704(c)(1)(B) and
737 provide that a termination under
section 708(b)(1)(B) does not com-
mence a new five-year period for
partnership property and that a distribu-
tion of property by the new partnership
will be treated in the same manner as a
distribution by the terminated part-
nership would have been treated. Al-
though the legislative history suggests
the beginning of a new five year period
for built in gain or loss in the property
deemed contributed to the new part-
nership, that legislative history was
commenting on a deemed contribution
of property by the partners to the new
partnership, as then required by the
section 708 regulations. Under the
approach proposed in this regulation, a
new five year period is no longer
appropriate.
The proposed regulations under sec-
tion 743(b) provide that any special
basis adjustment a partner has in assets
of the terminated partnership as a result
of a section 754 election will carry
over to the new partnership. The pro-
posed regulations under section 761(e)
provide that the distribution of interests
in the new partnership by the termi-
nated partnership is not treated as a
sale or exchange of the interests in the
new partnership. This provision is
necessary to prevent the distribution of
interests in the new partnership from
causing a termination of the new
partnership.
Proposed Effective Date
This section is proposed to apply to
terminations of partnerships under sec-
tion 708(b)(1)(B) occurring on or after
the date on which these regulations are
published as final regulations in the
Federal Register.
Special Analyses
It has been determined that this
notice of proposed rulemaking is not a
significant regulatory action as defined
in EO 12866. Therefore, a regulatory
assessment is not required. It has also
been determined that section 553(b) of
the Administrative Procedure Act (5
U.S.C. chapter 5) and the Regulatory

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Flexibility Act (5 U.S.C. chapter 6) do
not apply to these regulations, and,
therefore, a Regulatory Flexibility
Analysis is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, this notice of proposed rulemak-
ing will be submitted to the Chief
Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small business.
Comments and Public Hearing
Before these proposed regulations
are adopted as final regulations, consid-
eration will be given to any written
comments (a signed original and eight
(8) copies) that are timely submitted to
the IRS. All comments will be avail-
able for public inspection and copying.
A public hearing has been scheduled
for September 5, 1996, at 10 a.m. in
the Auditorium of the Internal Revenue
Building, 1111 Constitution Avenue
NW., Washington, DC. Because of ac-
cess restrictions, visitors will not be
admitted beyond the Internal Revenue
Building lobby more than 15 minutes
before the hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral
comments at the hearing must submit
written comments by August 15, 1996,
and submit an outline of the topics to
be discussed and the time to be devoted
to each topic (signed original and eight
(8) copies) by August 15, 1996.
A period of 10 minutes will be
allotted to each person for making
comments.
An agenda showing the scheduling
of the speakers will be prepared after
the deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Steven R. Schneider of the
Office of Assistant Chief Counsel
(Passthroughs and Special Industries),
IRS. However, other personnel from
the IRS and Treasury Department
participated in their development.
******
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
proposed to be amended as follows:
PART I—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
Authority: 26 U.S.C. 7805. ** *
Section 1.704–4 also issued under 26
U.S.C. 704(c). ** *
Par. 2. Section 1.704–1 is amended
as follows:
1.Paragraph (b)(2)(iv)(l) is amended
by removing the fourth sentence.
2.Paragraph (b)(5) Example 13(v) is
amended by removing sentences five to
the end and adding five new sentences
in their place.
The revisions and addition read as
follows:
§1.704–1 Partner’s distributive share.
******
(b) * * *
(5) * * *
Example 13. ** *
(v) * ** In accordance with para-
graph (b)(2)(iv)(e) of this section, the
partnership agreement provides that the
partners’ capital accounts are adjusted
to reflect how unrealized taxable gain
would have been allocated if the
property distributed to the partners in
liquidation of the partnership (i.e., the
interest in the new partnership con-
structively received by the terminated
partnership under §1.708–1(b)(1)(iv))
had been sold for its fair market value
of $40,000. Accordingly, the $18,000
of unrealized gain ($40,000 less
$22,000 adjusted tax basis) is credited
to the partners’ capital accounts as
follows:
ZLK
Capital account following
sale.....................
$11,000$11,000
Deemed sale adjustment....9,0009,000
Capital account before con-
structive liquidation........
$20,000$20,000
Constructive liquidating distributions of the
interests in the new partnership are made with
reference to its $40,000 fair market value. Under
section 732(b), the adjusted tax basis of the 50
percent interest in the new partnership con-
structively distributed to Z is equal to the
$11,000 adjusted tax basis of Z’s partnership
interest before the constructive liquidation, and
the adjusted tax basis of the 50 percent interest
in the new partnership constructively distributed
to LK is equal to the $20,000 adjusted tax basis
of LK’s partnership interest before the con-
s t r u c t i v e l i q u i d a t i o n . U n d e r p a r a g r a p h
(b)(2)(iv)(d) of this section, the capital account
of the terminated partnership with respect to the
new partnership would be $40,000 (i.e., the fair
market value of the property constructively
contributed to the new partnership by the
terminated partnership). The capital accounts of
Z and LK with respect to the constructively
distributed interests in the new partnership are
stated at $20,000 (i.e., one-half of the $40,000
capital account of the terminated partnership).
This Example 13(v) applies to terminations of
partnerships under section 708(b)(1)(B) occurring
on or after the date on which these regulations
are published as final regulations in the Federal
Register.
******
Par. 3. Section 1.704–4 is amended
by revising paragraphs (a)(4)(ii) and
(c)(3) to read as follows:
§1.704–4 Distribution of contributed
property.
(a) * * *
(4) * * *
(ii)Section 708(b)(1)(B) termina-
tions. A termination of the partnership
under section 708(b)(1)(B) does not
begin a new five-year period for each
partner with respect to the built-in gain
and built-in loss property that the
terminated partnership is deemed to
contribute to a new partnership follow-
ing the termination. See §1.704–3(a)-
(3)(ii) for the definitions of built-in
gain and built-in loss on section 704(c)
property. This paragraph (a)(4)(ii) ap-
plies to terminations of partnerships
under section 708(b)(1)(B) occurring
on or after the date on which these
regulations are published as final reg-
ulations in the Federal Register.
******
(c) * * *
(3)Section 708(b)(1)(B) termina-
tions. Section 704(c)(1)(B) and this
section do not apply to a deemed
distribution of interests in a new
partnership caused by a termination of
a partnership under section 708(b)-
(1)(B). A subsequent distribution of
section 704(c) property by the new
partnership to a partner of the new
partnership is subject to section
704(c)(1)(B) to the same extent that a
distribution by the terminated part-
nership would have been subject to
section 704(c)(1)(B). See also §1.737–
2(a) for a similar rule in the context of
section 737. This paragraph (c)(3)
applies to terminations of partnerships
under section 708(b)(1)(B) occurring
on or after the date on which these

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regulations are published as final reg-
ulations in the Federal Register.
******
Par. 4. In §1.708–1, paragraph
(b)(1)(iv) is amended by removing the
first sentence and adding two new
sentences in its place to read as
follows:
§1.708–1 Continuation of Partnership.
******
(b) * * *
(1) * * *
(iv)If a partnership is terminated by
a sale or exchange of an interest, the
following is deemed to occur: The
partnership transfers all of its assets
and liabilities to a new partnership in
exchange for an interest in the new
partnership; and, immediately thereaf-
ter, the terminated partnership dis-
tributes an interest in the new part-
nership to the purchasing partner and
the other remaining partners in liquida-
tion of the terminated partnership,
either for the continuation of the
business of the new partnership or for
its dissolution and winding up. The
first sentence of this paragraph
(b)(1)(iv) applies to terminations of
partnerships under section 708(b)(1)(B)
occurring on or after the date on which
these regulations are published as final
regulations in the Federal Register.
* * *
******
Par. 5. Section 1.743–1 is amended
by adding paragraph (d) as follows:
§1.743–1 Optional adjustment to
basis of partnership property.
******
(d)Section 708(b)(1)(B) termina-
tions. A partner with a special basis
adjustment in property held by a
partnership that terminates under sec-
tion 708(b)(1)(B) will continue to have
the same special basis adjustment with
respect to property contributed by the
terminated partnership to the new part-
nership under §1.708–1(b)(1)(iv). This
paragraph (d) applies to terminations of
partnerships under section 708(b)(1)(B)
occurring on or after the date on which
these regulations are published as final
regulations in the Federal Register.
Par. 6. In §1.737–2, paragraph (a) is
revised to read as follows:
§1.737–2 Exceptions and special
rules.
(a)Section 708(b)(1)(B) termina-
tions. Section 737 and this section do
not apply to a deemed distribution of
interests in a new partnership caused
by a termination of a partnership under
section 708(b)(1)(B). A subsequent dis-
tribution of section 704(c) property by
the new partnership to a partner of the
new partnership is subject to section
737 to the same extent that a distribu-
tion by the terminated partnership
would have been subject to section
737. See also §1.704–4(c)(3) for a
similar rule in the context of section
704(c)(1)(B). This paragraph (a) ap-
plies to terminations of partnerships
under section 708(b)(1)(B) occurring
on or after the date on which these
regulations are published as final reg-
ulations in the Federal Register.
******
Par 7. In §1.761–1, paragraph (e) is
added to read as follows:
§1.761–1 Terms defined.
******
(e)Distribution of partnership inter-
est. For purposes of section 708(b)-
(1)(B) and §1.708–1(b)(1)(iv), the dis-
tribution of an interest in a new
partnership by a partnership that termi-
nates under section 708(b)(1)(B) is not
a sale or exchange of an interest in the
new partnership. This paragraph (e)
applies to terminations of partnerships
under section 708(b)(1)(B) occurring
on or after the date on which these
regulations are published as final reg-
ulations in the Federal Register.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
(Filed by the Office of the Federal Register on
May 9, 1996, 8:45 a.m., and published in the
issue of the Federal Register for May 13,
1996, 61 F.R. 21985)
Information Reporting Seminars
Announcement 96–57
Representatives from the Mar-
tinsburg Computing Center, Informa-
tion Returns Branch, will conduct
seminars in 13 cities during the months
of August and September. They will
cover the latest magnetic/electronic
filing of Forms 1099, 1098, 5498, and
W–2G information, backup withholding
and penalties relating to the filing of
information returns. A representative
from Internal Revenue Service/Inter-
national will discuss the filing of Form
1042–S.
Following is a schedule of seminar
sites and dates, as well as the telephone
numbers of the Internal Revenue Serv-
ice offices closest to the sites. Please
contact these Internal Revenue Service
offices after July 22 for the exact
location and times. The agenda for the
day has also been included for your
convenience.

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1996 Information Reporting Seminars
SitesDatesTelephone Numbers
Atlanta GA9/10-11(404)331-3808
Baltimore MD8/20(410)962-2402
Boston MA9/25(617)424-5310
Chicago IL9/24-25(312)886-1572
Cincinnati OH9/17-18(513)684-2828
Dallas TX8/27-28(214)767-3755
Denver CO8/29(303)446-1667
Los Angeles CA8/28-29(304)263-8700
Minneapolis MN9/26(612)290-3320
New York NY9/26(212)436-1023
Seattle WA8/27(206)220-5803
St. Louis MO9/19(314)539-2161
Tampa FL9/12(904)232-2514
AGENDA
MORNING SESSIONAFTERNOON SESSION
IRS/MARTINSBURG COMPUTING CENTERSOCIAL SECURITY ADMINISTRATION
9:00aWelcome1:00pW–2 Magnetic Media
Magnetic Media and Electronic Filing of
Forms 1099, 1098, 5498, & W–2G
Backup Withholding and Penalties
IRS/INTERNATIONAL
10:45aForm 1042–S
12:00pLUNCH
ATTENTION PAPER FILERS:
The 1099/W–2 sessions are geared toward the magnetic media/electronic filer, and attendees should expect presentations
to highlight that filing only. No tax law representative will be present to answer questions.
The Form 1042–S presentation will be structured to educate withholding agents on the special rules that apply to
individuals who are not U.S. citizens or resident aliens, and how to report that information to the recipient and IRS.
Determination of Interest Expense
Deduction of Foreign Corporations;
Correction
Announcement 96–58
AGENCY: Internal Revenue Service
(IRS), Treasury.
A C T I O N : C o r r e c t i o n t o f i n a l
regulations.
SUMMARY: This document contain
corrections to final regulations [TD
8658 [1996–14 I.R.B. 13]] which were
published in the Federal Register for
Friday, March 8, 1996 (61 FR 9326).
The final regulations relate to the
determination of the interest expense
deduction of foreign corporations and
apply to foreign corporations engaged
in a trade or business within the United
States.
EFFECTIVE DATE: June 6, 1996.
FOR FURTHER INFORMATION
C O N T A C T : A h m a d P i r a s t e h o r
Richard Hoge (202) 622-3870 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations that are subject
to these corrections are under sections
882, 864(e), 988(d), and 7701(l) of the
Internal Revenue Code.
Need for Correction
As published, the final regulations
[TD 8658] contain errors that are in
need of clarification.
Correction of Publication
Accordingly, the publication of final
regulations which are the subject of FR
Doc. 96–5262 is corrected as follows:
§ 1.882–0 [Corrected]
1. On page 9329, column 1,
§ 1.882–0, the section heading entry

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for §1.882–1, ‘‘§1.882–1 Taxation of
foreign corporations engaged in U.S.
business or of foreign corporations
treated as having effectively connected
i n c o m e . ’ ’ i s c o r r e c t e d t o r e a d
‘‘§ 1.882–1 Taxation of foreign corpo-
rations engaged in U.S. business or of
foreign corporations treated as having
effectively connected income.’’.
§ 1.882-5 [Corrected]
2. On page 9330, column 3,
§ 1.882–5, paragraph (a)(6), line 7
from the bottom of the paragraph, the
language ‘‘respect to U.S.-booked lia-
bilities that’’ is corrected to read
‘‘respect to U.S. booked liabilities
that’’.
3. On page 9331, column 1,
§ 1.882–5, paragraph (a)(8), paragraph
(ii) of Example 1, line 12, the language
‘‘(c)(2)(vi), and (d)(2)(vii) or (e)(1)(ii)
this’’ is corrected to read ‘‘(c)(2)(vi),
and (d)(2)(vii) or (e)(1)(ii) of this’’.
4. On page 9332, column 2,
§ 1.882–5, paragraph (b)(3), last four
lines of the paragraph, the language
‘‘less frequently than monthly by a
large bank (as defined in section
585(c)(2)) and semi-annually by any
other taxpayer’’ is corrected to read
‘‘less frequently than monthly (begin-
ning of taxable year and monthly there-
after) by a large bank (as defined in
section 585(c)(2)) and semi-annually
(beginning, middle and end of taxable
year) by any other taxpayer’’.
5. On page 9332, column 2,
§ 1.882–5, paragraph (c)(2)(i), lines 3
and 2 from the bottom of the para-
graph, the language ‘‘annually by a
large bank (as defined in section
585(c)(2)) and annually by any’’ is
corrected to read ‘‘annually (beginning,
middle and end of taxable year) by a
large bank (as defined in section
585(c)(2)) and annually (beginning and
end of taxable year) by any’’.
6. On page 9334, column 3,
§ 1.882–5, paragraph (d)(6), paragraph
(i) of Example 1, the table
Value
Asset 1.......$2,000
Asset 2.......2,500
Asset 3.......5,500
AmountInterest
Liability 1.....$80056
Liability 2.....3,200256
Capital........6,0000
is corrected to read
Value
Asset 1.......$2,000
Asset 2.......2,500
Asset 3.......5,500
AmountInterest
Expense
Liability 1.....$80056
Liability 2.....3,200256
Capital........6,0000
Michael L. Slaughter,
Acting Chief, Regulations Unit,
Assistant Chief Counsel (Corporate).
(Filed by the Office of the Federal Register on
April 9, 1996, 8:45 a.m., and published in the
issue of the Federal Register for April 10,
1996, 61 F.R. 15891)
Foundations Status of Certain
Organizations
Announcement 96–59
The following organizations have
failed to establish or have been unable
to maintain their status as public
charities or as operating foundations.
Accordingly, grantors and contributors
may not, after this date, rely on pre-
vious rulings or designations in the
Cumulative List of Organizations (Pub-
lication 78), or on the presumption
arising from the filing of notices under
section 508(b) of the Code. This listing
does not indicate that the organizations
have lost their status as organizations
described in section 501(c)(3), eligible
to receive deductible contributions.
Former Public Charities. The fol-
lowing organizations (which have been
treated as organizations that are not
private foundations described in section
509(a) of the Code) are now classified
as private foundations:
Alliance of Youth and Industry,
Chicago, IL
Ancient Egyptian Museum Inc.,
Chicago, IL
Animal Advocates Inc., Chicago, IL
Apples of Gold Outreach Center Inc.,
Hartland, WI
Aurora Life Education Center Corp.,
Aurora, IL
Bayou Brigade Washington Battalion,
Beach Park, IL
Bend Lake Search and Rescue Assoc.
Inc., Benton, IL
Big Game Theater, Chicago, IL
Brady County Water District, Brady,
MT
Bright Beginnings Childcare Inc.,
Aledo, IL
Broadway Childrens Center, Chicago,
IL
Capital Soccer Association, Lincoln,
NE
Carrollton Farmers Branch Insurance
Agents Assoc., Carrollton, TX
Center for the Study of Great Ideas,
Chicago, IL
Center High School Booster Club
Inc., Kansas City, MO
Chicago 1994 Bid Committee,
Chicago, IL
Clay County Adult Literacy Council,
Inc., Henrietta, TX
Clowns for Kids Charity, Palatine, IL
Club Impulse Inc., McCook, NE
Coalition for the Homeless of
Northwest Cook County, Chicago,
IL
Colorado Rural Job Training
Foundation Inc., Denver, CO
Common Bread Ministry,
Minneapolis, MN
Community Action Group, Chicago,
IL
Community Business Assoc. of
Nebraska Inc., Lincoln, NE
Concert Singers Chorale Inc.,
Chicago, IL
Dickinson Public Library Foundation,
Dickinson, ND
Dunbar Vocational High School
Alumni Assoc., Chicago, IL
Elmwood-Murdock Education,
Murdock, NE
Family Information & Referral
Center, Albert Lea, MN
Friends of H S Family Ed Prog Inc.,
Boyceville, WI
Geeta Ashram of Chicago Inc.,
Floosmoor, IL
Guttenberg Heritage Society,
Guttenberg, IA
Herman Town Senior Community
Center, Herman Town, MN
Hinkley Softball Assoc. Inc., Brook
Park, MN
Illinois Academic Decathlon Assoc.,
Chicago, IL
Illinois Association of Teacher
Educators, Mt. Vernon, IL

SEQ 0067 JOB IRS25-006-006 PAGE-0023 PT 4 PGS 20-
REVISED 29JUL96 AT 21:33 BY LR DEPTH: 66.01 PICAS WIDTH 46 PICAS
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231996–28 I.R.B.
Illinois Drill Team Assoc., Olympia
Fields, IL
Interpret Inc., Helena, MT
Jesus Never Fails Pentocostal Church,
Chicago, IL
Jodie Bailey and Friends Inc., St.
Louis, MO
Johnson County Area Council on
Child Abuse and Neglect, Iowa
City, IA
Kansas City Camerata Inc., Kansas
City, MO
Korean-American Cultural Foundation,
St. Louis, MO
Learning and Educational Alliance of
Rogers Park Neighborhood,
Chicago, IL
Littleville Preschool and Kindergarten
III, Dixmoor, IL
Metropolitan Employment &
Rehabilitation Service, Belleville,
IL
Minneapolis Area Among Mutual
Assistance Association,
Minneapolis, MN
Mississippi County Transit System
Inc., East Prairie, MO
Moline Babe Ruth Baseball League,
Moline, IL
Mt. Vernon Humane Center Inc., Mt.
Vernon, IL
National Organization for Fetal
Alcohol Syndrome, Rapid City, SD
National Youth Volleyball Assoc.,
Palatine, IL
North End Community Center, East
St. Louis, MO
Northern Choice Volleyball Club Inc.,
Roseau, WI
North Dakota Environmental Health
Assoc., Bismarck, ND
Oak Lawn-Home Town School
District, Oak-Lawn, IL
Opportunities for Access, Mt. Vernon,
IL
Osseo Area School District No. 279
Foundation, Maple Grove, MN
Pathways International, New Brighton,
MN
Peoria Area Literacy Coalition,
Peoria, IL
Public Interest Law Foundation,
Champaign, IL
Quad Cities in Schools, Rock Island,
IL
Rainbow Project, McLaughlin, SD
Rape Crisis Center of Mid Central
IL, Inc., Bloomington, IL
Ray and Rosetta Doerhoff Scholarship
Trust, St. Elizabeth, MO
Ben Brandt Chamber Players Inc.,
Evanston, IL
Rotary Club of Glenview Charitable
Foundation, Glenview, IL
Rosciuszko Community Center
Advisory Board, Milwaukee, WI
Richmond Beautification Club,
Richmond, MO
Samaritan Inn Foundation,
Milwaukee, WI
Sangamon Valley Youth Symphony,
Springfield, IL
Soag Corp., Chicago, IL
South Shore Philharmonic Orchestra,
Chicago, IL
Springfield Music Foundation Inc.,
Springfield, MO
St. Louis Youth Corps Experience,
University City, MO
Tallgrass Prairie Audubon Society,
Grinnell, IA
Team Elmhurst Soccer Club, Elm
Hurst, IL
Technology Learning Center Inc.,
Milwaukee, WI
Theater By Design, Chicago, IL
Tomorrows Future Inc., Kansas City,
MO
Valley & Lakes Education District
(VAL-ED), Fergus Falls, MN
Wabash Valley Arts Council Inc.,
Mt. Carmel, IL
Wawokiya Ospaya Inc., Rapid City,
SD
Western Cass Fire Fighters Assoc.,
Cleveland, MO
West of the Moon Theatre Company,
Minneapolis, MN
Westside Health Authority, Chicago,
IL
Weston Arts Coalition, Weston, MO
White Fish Baseball Inc., White Fish,
MT
Wisconsin Women in Government
Inc., Madison, WI
Womens Consortium, St. Louis, MO
Working Church, Chicago, IL
Young Footliters Childrens Theatre
Inc., Iowa City, IA
Youth Law Foundation, St. Louis,
MO
If an organization listed above sub-
mits information that warrants the
renewal of its classification as a public
charity or as a private operating foun-
dation, the Internal Revenue Service
will issue a ruling or determination
letter with the revised classification as
to foundation status. Grantors and
contributors may thereafter rely upon
such ruling or determination letter as
provided in section 1.509(a)–7 of the
Income Tax Regulations. It is not the
practice of the Service to announce
such revised classification of founda-
tion status in the Internal Revenue
Bulletin.

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Announcement of the Disbarment, Suspension, or Consent to Voluntary
Suspension of Attorneys, Certified Public Accountants, Enrolled Agents and
Enrolled Actuaries From Practice Before the Internal Revenue Service
Under 31 Code of Federal Regula-
tions, Part 10, an attorney, certified
public accountant, enrolled agent or en-
rolled actuary, in order to avoid the in-
stitution or conclusion of a proceeding
for his disbarment or suspension from
practice before the Internal Revenue
Service, may offer his consent to
suspension from such practice. The
Director of Practice, in his discretion,
may suspend an attorney, certified
public accountant, enrolled agent or
enrolled actuary in accordance with the
consent offered.
Attorneys, certified public account-
ants, enrolled agents and enrolled actu-
aries are prohibited in any Internal
Revenue Service matter from directly
or indirectly employing, accepting
assistance from, being employed by,
or sharing fees with, any practi-
tioner disbarred or suspended from
practice before the Internal Revenue
Service.
To enable attorneys, certified public
accountants, enrolled agents and en-
rolled actuaries to identify practitioners
under consent suspension from practice
before the Internal Revenue Service,
the Director of Practice will announce
in the Internal Revenue Bulletin the
names and addresses of practitioners
who have been suspended from such
practice, their designation as attor-
ney, certified public accountant, en-
rolled agent or enrolled actuary and
date or period of suspension. This an-
nouncement will appear in the weekly
Bulletin at the earliest practicable date
after such action and will continue to
appear in the weekly Bulletins for five
successive weeks or for as many weeks
as is practicable for each attorney,
certified public accountant, enrolled
agent or enrolled actuary so suspended
and will be consolidated and published
in the Cumulative Bulletin.
The following individuals have been
placed under consent suspension from
practice before the Internal Revenue
Service:
NameAddressDesignationDate of Suspension
Behrens, WilliamKenosha, WIEnrolled AgentMarch 6, 1996 to May 5, 1996
Warter, J. ChristopherSouth Bend, INAttorneyIndefinite from March 8, 1996
Leckie, Jerry B.Macon, GAEnrolled AgentMarch 9, 1996 to March 8, 1999
Retzlaff, GeneHortonville, WIEnrolled AgentMarch 18, 1996 to July 17, 1996
Cahill, DonalStratford, CTAttorneyApril 4, 1996 to April 3, 1997
Guidera, George C.Straford, CTAttorneyApril 11, 1996 to October 10, 1996
Kirk, Gregg T.Dallas, TXCPAIndefinite from May 1, 1996
Brock, Guy CharlesSpokane, WACPAIndefinite from May 1, 1996
Mathews, ThomasCincinnati, OHCPAMay 1, 1996 to August 31, 1996
Farnsworth Jr., HaroldStarke, FLCPAMay 1, 1996 to April 30, 1998
King, John C.Wichita, KSAttorneyMay 1, 1996 to August 31, 1996
Announcement of the Expedited Suspension of Attorneys, Certified Public
Accountants, Enrolled Agents, and Enrolled Actuaries From Practice Before the
Internal Revenue Service
Under title 31 of the Code of Federal
Regulations, section 10.76, the Director
of Practice is authorized to immediately
suspend from practice before the Inter-
nal Revenue Service any practitioner
who, within five years, from the date
the expedited proceeding is instituted,
(1) has had a license to practice as an
attorney, certified public accountant, or
actuary suspended or revoked for
cause; or (2) has been convicted of any
crime under title 26 of the United
States Code or, of a felony under title
18 of the United States Code involving
dishonesty or breach of trust.
Attorneys, certified public account-
ants, enrolled agents, and enrolled ac-
tuaries are prohibited in any Internal
Revenue Service matter from directly
or indirectly employing, accepting as-
sistance from, being employed by, or
sharing fees with, any practitioner
disbarred or suspended from practice
before the Internal Revenue Service.
To enable attorneys, certified public
accountants, enrolled agents, and en-
rolled actuaries to identify practitioners
under expedited suspension from prac-
tice before the Internal Revenue Serv-
ice, the Director of Practice will an-
nounce in the Internal Revenue Bulletin
the names and addresses of practition-
ers who have been suspended from such
practice, their designation as attorney,
certified public accountant, enrolled
agent, or enrolled actuary, and date or
period of suspension. This announce-
ment will appear in the weekly Bulletin
at the earliest practicable date after
such action and will continue to appear
in the weekly Bulletins for five succes-
sive weeks or for as many weeks as is
practicable for each attorney, certified
public accountant, enrolled agent, or
enrolled actuary so suspended and will
be consolidated and published in the
Cumulative Bulletin.
The following individuals have been
placed under suspension from practice
before the Internal Revenue Service by
virtue of the expedited proceeding
provisions of the applicable regulations:

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NameAddressDesignationDate of Suspension
Noske, Joan M.Richmond, MNCPAIndefinite from March 1, 1996
Wahl, Roger W.Martinez, GACPAIndefinite from March 1, 1996
Stojanov, DraganDetroit, MIAttorneyIndefinite from March 13, 1996
Gay, Randall D.Honolulu, HICPAIndefinite from March 13, 1996
Sheffey, RalphLaCrosse, WIAttorneyIndefinite from March 13, 1996
Doyle, RobertSacramento, CACPAIndefinite from March 19, 1996
Singer, Michael G.Minnetonka, MNAttorneyIndefinite from March 19, 1996
Mohme, Robert H.St. Louis, MOAttorneyIndefinite from March 20, 1996
Vogelei, George MacNovato, CAAttorneyIndefinite from March 20, 1996
Gaskins, Oscar N.Cherry Hill, NJAttorneyIndefinite from March 26, 1996
Gawel, Michael S.Niagara Falls, NYAttorneyIndefinite from March 29, 1996

SEQ 0071 JOB IRS25-051-002 PAGE-0026 TERMS
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Definition of Terms
Revenue rulings and revenue proce-
dures (hereinafter referred to as ‘‘rul-
ings’’) that have an effect on previous
rulings use the following defined terms
to describe the effect:
Amplified describes a situation where
no change is being made in a prior
published position, but the prior posi-
tion is being extended to apply to a
variation of the fact situation set forth
therein. Thus, if an earlier ruling held
that a principle applied to A, and the
new ruling holds that the same princi-
ple also applies to B, the earlier ruling
is amplified. (Compare with modified,
below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in
a prior ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously
published ruling and points out an
essential difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but
not to B, and the new ruling holds that
it applies to both A and B, the prior
ruling is modified because it corrects a
published position. (Compare with am-
plified and clarified, above).
Obsoleted describes a previously
published ruling that is not considered
determinative with respect to future
transactions. This term is most com-
monly used in a ruling that lists
previously published rulings that are
obsoleted because of changes in law or
regulations. A ruling may also be
obsoleted because the substance has
been included in regulations subse-
quently adopted.
Revoked describes situations where
the position in the previously published
ruling is not correct and the correct
position is being stated in the new
ruling.
Superseded describes a situation
where the new ruling does nothing
more than restate the substance and
situation of a previously published
ruling (or rulings). Thus, the term is
used to republish under the 1986 Code
and regulations the same position pub-
lished under the 1939 Code and regula-
tions. The term is also used when it is
desired to republish in a single ruling a
series of situations, names, etc., that
were previously published over a
period of time in separate rulings.
If the new ruling does more than
restate the substance of a prior ruling, a
combination of terms is used. For
example, modified and superseded de-
scribes a situation where the substance
of a previously published ruling is
being changed in part and is continued
without change in part and it is desired
to restate the valid portion of the
previously published ruling in a new
ruling that is self contained. In this
case the previously published ruling is
first modified and then, as modified, is
superseded.
Supplemented is used in situations in
which a list, such as a list of the names
of countries, is published in a ruling
and that list is expanded by adding
further names in subsequent rulings.
After the original ruling has been
supplemented several times, a new
ruling may be published that includes
the list in the original ruling and the
additions, and supersedes all prior
rulings in the series.
Suspended is used in rare situations
to show that the previous published
rulings will not be applied pending
some future action such as the issuance
of new or amended regulations, the
outcome of cases in litigation, or the
outcome of a Service study.
Abbreviations
The following abbreviations in current use and
formerly used will appear in material published
in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

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Numerical Finding List
1
Bulletins 1996–1 through 1996–24
Announcements:
96–1, 1996–2 I.R.B. 57
96–2, 1996–2 I.R.B. 57
96–3, 1996–2 I.R.B. 57
96–4, 1996–3 I.R.B. 50
96–5, 1996–4 I.R.B. 99
96–6, 1996–5 I.R.B. 43
96–7, 1996–5 I.R.B. 44
96–8, 1996–7 I.R.B. 56
96–9, 1996–8 I.R.B. 30
96–10, 1996–8 I.R.B. 30
96–11, 1996–9 I.R.B. 11
96–12, 1996–11 I.R.B. 30
96–13, 1996–12 I.R.B. 33
96–14, 1996–12 I.R.B. 35
96–15, 1996–11 I.R.B. 9
96–16, 1996–13 I.R.B. 22
96–17, 1996–13 I.R.B. 22
96–18, 1996–15 I.R.B. 15
96–19, 1996–15 I.R.B. 15
96–20, 1996–15 I.R.B. 15
96–21, 1996–15 I.R.B. 15
96–22, 1996–15 I.R.B. 16
96–23, 1996–18 I.R.B. 7
96–24, 1996–16 I.R.B. 35
96–25, 1996–17 I.R.B. 13
96–26, 1996–17 I.R.B. 13
96–27, 1996–17 I.R.B. 16
96–28, 1996–17 I.R.B. 16
96–29, 1996–17 I.R.B. 17
96–30, 1996–17 I.R.B. 17
96–31, 1996–17 I.R.B. 18
96–32, 1996–17 I.R.B. 18
96–33, 1996–18 I.R.B. 12
96–34, 1996–18 I.R.B. 13
96–35, 1996–18 I.R.B. 13
96–36, 1996–18 I.R.B. 13
96–37, 1996–18 I.R.B. 14
96–38, 1996–19 I.R.B. 84
96–39, 1996–19 I.R.B. 84
96–40, 1996–19 I.R.B. 85
96–41, 1996–20 I.R.B. 18
96–42, 1996–20 I.R.B. 18
96–43, 1996–20 I.R.B. 18
96–44, 1996–21 I.R.B. 10
96–45, 1996–21 I.R.B. 10
96–46, 1996–21 I.R.B. 10
96–47, 1996–22 I.R.B. 10
96–48, 1996–22 I.R.B. 10
96–49, 1996–22 I.R.B. 10
96–50, 1996–22 I.R.B. 11
96–51, 1996–22 I.R.B. 11
96–52, 1996–22 I.R.B. 12
96–53, 1996–23 I.R.B. 12
96–54, 1996–23 I.R.B. 12
96–55, 1996–23 I.R.B. 12
96–56, 1996–24 I.R.B. 29
See footnote at the end of list.
Delegations Orders:
232 (Rev. 2), 1996–7 I.R.B. 49
236 (Rev. 2), 1996–21 I.R.B. 7
239 (Rev. 1), 1996–7 I.R.B. 49
247, 1996–21 I.R.B. 7
Notices:
96–2, 1996–2 I.R.B. 15
96–1, 1996–3 I.R.B. 30
96–4, 1996–4 I.R.B. 69
96–5, 1996–6 I.R.B. 22
96–6, 1996–5 I.R.B. 27
96–7, 1996–6 I.R.B. 22
96–8, 1996–6 I.R.B. 23
96–9, 1996–6 I.R.B. 26
96–10, 1996–7 I.R.B. 47
96–11, 1996–8 I.R.B. 19
96–12, 1996–10 I.R.B. 29
96–13, 1996–10 I.R.B. 29
96–14, 1996–12 I.R.B. 11
96–15, 1996–13 I.R.B. 19
96–16, 1996–13 I.R.B. 20
96–17, 1996–13 I.R.B. 20
96–18, 1996–14 I.R.B. 27
96–19, 1996–14 I.R.B. 28
96–20, 1996–14 I.R.B. 30
96–21, 1996–14 I.R.B. 30
96–22, 1996–14 I.R.B. 30
96–23, 1996–16 I.R.B. 23
96–24, 1996–16 I.R.B. 23
96–25, 1996–17 I.R.B. 11
96–26, 1996–18 I.R.B. 4
96–27, 1996–18 I.R.B. 4
96–28, 1996–19 I.R.B. 7
96–29, 1996–19 I.R.B. 7
96–30, 1996–20 I.R.B. 11
96–31, 1996–22 I.R.B. 7
96–32, 1996–22 I.R.B. 7
96–33, 1996–22 I.R.B. 8
96–34, 1996–24 I.R.B. 15
Proposed Regulations:
DL–1–95, 1996–6 I.R.B. 28
EE–20–95, 1996–5 I.R.B. 15
EE–34–95, 1996–3 I.R.B. 49
EE–35–95, 1996–5 I.R.B. 19
EE–53–95, 1996–5 I.R.B. 23
EE–55–95, 1996–12 I.R.B. 12
EE–106–82, 1996–10 I.R.B. 31
EE–142–87, 1996–12 I.R.B. 13
EE–148–81, 1996–11 I.R.B. 29
GL–1–96, 1996–21 I.R.B. 7
IA–3–94, 1996–17 I.R.B. 12
IA–33–95, 1996–4 I.R.B. 99
IA–41–93, 1996–11 I.R.B. 29
INTL–52–86, 1996–19 I.R.B. 26
INTL–62–90, 1996–19 I.R.B. 26
INTL–32–93, 1996–19 I.R.B. 26
INTL–52–94, 1996–19 I.R.B. 26
INTL–3–95, 1996–6 I.R.B. 29
Proposed Regulations—Continued
INTL–9–95, 1996–5 I.R.B. 25
INTL–54–95, 1996–14 I.R.B. 39
PS–2–95, 1996–7 I.R.B. 50
PS–6–95, 1996–16 I.R.B. 27
PS–43–95, 1996–24 I.R.B. 20
PS–4–96, 1996–18 I.R.B. 5
Revenue Procedures:
96–1, 1996–1 I.R.B. 8
96–2, 1996–1 I.R.B. 60
96–3, 1996–1 I.R.B. 82
96–4, 1996–1 I.R.B. 94
96–5, 1996–1 I.R.B. 129
96–6, 1996–1 I.R.B. 151
96–7, 1996–1 I.R.B. 185
96–8, 1996–1 I.R.B. 187
96–8A, 1996–9 I.R.B. 10
96–9, 1996–2 I.R.B. 15
96–10, 1996–2 I.R.B. 17
96–11, 1996–2 I.R.B. 18
96–12, 1996–3 I.R.B. 30
96–13, 1996–3 I.R.B. 31
96–14, 1996–3 I.R.B. 41
96–15, 1996–3 I.R.B. 41
96–16, 1996–3 I.R.B. 45
96–17, 1996–4 I.R.B. 69
96–18, 1996–4 I.R.B. 73
96–19, 1996–4 I.R.B. 80
96–20, 1996–4 I.R.B. 88
96–21, 1996–4 I.R.B. 96
96–22, 1996–5 I.R.B. 27
96–23, 1996–5 I.R.B. 27
96–24, 1996–5 I.R.B. 28
96–24A, 1996–15 I.R.B. 12
96–25, 1996–8 I.R.B. 19
96–26, 1996–8 I.R.B. 22
96–27, 1996–11 I.R.B. 27
96–28, 1996–14 I.R.B. 31
96–29, 1996–16 I.R.B. 24
96–30, 1996–19 I.R.B. 8
96–31, 1996–20 I.R.B. 11
96–32, 1996–20 I.R.B. 14
96–33, 1996–22 I.R.B. 8
Revenue Rulings:
96–1, 1996–1 I.R.B. 7
96–2, 1996–2 I.R.B. 5
96–3, 1996–2 I.R.B. 14
96–6, 1996–2 I.R.B. 8
96–4, 1996–3 I.R.B. 16
96–5, 1996–3 I.R.B. 29
96–7, 1996–3 I.R.B. 12
96–8, 1996–4 I.R.B. 62
96–9, 1996–4 I.R.B. 5
96–10, 1996–4 I.R.B. 27
96–11, 1996–4 I.R.B. 28
96–12, 1996–9 I.R.B. 4
96–13, 1996–10 I.R.B. 19
96–14, 1996–6 I.R.B. 20

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Numerical Finding List
1
—Continued
Bulletins 1996–1 through 1996–24
Revenue Rulings—Continued
96–15, 1996–11 I.R.B. 9
96–16, 1996–11 I.R.B. 4
96–17, 1996–13 I.R.B. 5
96–18, 1996–13 I.R.B. 4
96–19, 1996–14 I.R.B. 24
96–20, 1996–15 I.R.B. 5
96–21, 1996–15 I.R.B. 7
96–22, 1996–15 I.R.B. 9
96–23, 1996–15 I.R.B. 11
96–24, 1996–19 I.R.B. 5
96–25, 1996–19 I.R.B. 4
96–26, 1996–21 I.R.B. 9
96–27, 1996–24 I.R.B. 9
96–28, 1996–24 I.R.B. 11
96–29, 1996–24 I.R.B. 5
96–30, 1996–24 I.R.B. 4
Treasury Decisions:
8630, 1996–3 I.R.B. 19
8631, 1996–3 I.R.B. 7
8632, 1996–4 I.R.B. 6
8633, 1996–4 I.R.B. 20
8634, 1996–3 I.R.B. 17
8635, 1996–3 I.R.B. 5
8636, 1996–4 I.R.B. 64
8637, 1996–4 I.R.B. 29
8638, 1996–5 I.R.B. 5
8639, 1996–5 I.R.B. 12
8640, 1996–2 I.R.B. 10
8641, 1996–6 I.R.B. 4
8642, 1996–7 I.R.B. 4
8643, 1996–11 I.R.B. 4
8644, 1996–7 I.R.B. 16
8645, 1996–8 I.R.B. 4
8646, 1996–8 I.R.B. 10
8647, 1996–9 I.R.B. 7
8648, 1996–10 I.R.B. 23
8649, 1996–9 I.R.B. 5
8650, 1996–10 I.R.B. 5
8651, 1996–11 I.R.B. 24
8652, 1996–11 I.R.B. 11
8653, 1996–12 I.R.B. 4
8654, 1996–11 I.R.B. 14
8655, 1996–12 I.R.B. 9
8656, 1996–13 I.R.B. 9
8657, 1996–14 I.R.B. 4
8658, 1996–14 I.R.B. 13
8659, 1996–16 I.R.B. 4
8660, 1996–17 I.R.B. 4
8661, 1996–17 I.R.B. 7
8662, 1996–23 I.R.B. 5
8663, 1996–23 I.R.B. 4
1
A cumulative list of all Revenue Rulings,
Revenue Procedures, Treasury Decisions, etc.,
published in Internal Revenue Bulletins 1995–
27 through 1995–52 will be found in Internal
Revenue Bulletin 1996–1, dated January 2,
1996.
Treasury Decisions—Continued
8664, 1996–20 I.R.B. 7
8665, 1996–21 I.R.B. 4
8667, 1996–20 I.R.B. 4
8668, 1996–22 I.R.B. 4
8669, 1996–23 I.R.B. 6
8670, 1996–24 I.R.B. 6